<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 29, 1996
-----------------------------------------------------
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 Not Applicable to Not Applicable
----------------------- ----------------------
Commission file number 0-19912
--------------------------------------------------------
HEALTH O METER PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-3635286
- ---------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24700 Miles Road, Bedford Heights, Ohio 44146
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216)464-4000
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of December 6, 1996 was approximately $23,785,769, computed on the
basis of the last reported sale price per share ($6.25) of such stock on the
NASDAQ National Market. For purposes of this information, shares of Common Stock
which were owned beneficially by executive officers, Directors and persons who
may be deemed to own 10% or more of the outstanding Common Stock were deemed to
be held by affiliates. This determination of affiliate status is not necessarily
a conclusive determination for other purposes.
The number of shares of the Registrant's Common Stock outstanding as of December
6, 1996 was 9,080,534.
Documents Incorporated by Reference:
Form 10-K Reference Documents
- ------------------- ---------
Part III (Items 10, 11, 12 and 13) Portions of the Registrant's
Definitive Proxy Statement to be
used in connection with its
Annual Meeting of Stockholders
to be held on March 6, 1997.
Except as otherwise stated, the information contained in this Form 10-K
is as of September 29, 1996
<PAGE> 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 29, 1996
-----------------------------------------------------
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 Not Applicable to Not Applicable
--------------------- -----------------------
Commission file number 33-80000
---------------------------------------------------------
HEALTH O METER, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 36-3330781
- --------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24700 Miles Road, Bedford Heights, Ohio 44146
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216)464-4000
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The Registrant is a wholly-owned subsidiary of Health o meter Products, Inc.
Accordingly, none of its equity securities are owned by non-affiliates.
The Registrant meets the conditions set forth in General Instruction J (1) (a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format permitted thereunder.
Except as otherwise stated, the information contained in this Form 10-K is as of
September 29, 1996.
<PAGE> 3
PART I
------
ITEM 1. BUSINESS
GENERAL
- -------
Health o meter Products, Inc. (the "Company"), through its
wholly-owned subsidiary, Health o meter, Inc. ("Health o meter"), designs,
manufactures, markets and distributes a comprehensive line of consumer and
professional products. The Company's consumer products, marketed under the Mr.
Coffee(R) and Health o meter(R) brand names include automatic drip coffeemakers,
teamakers, filters, water filtration products, accessories and other kitchen
countertop appliances, as well as analog (mechanical) and digital (electronic)
bath, kitchen and diet scales and therapeutic devices. Professional products
include the Pelouze(R) and Health o meter(R) brands of office, food service and
medical scales and timers. The Company attributes its leading market position to
its strong brand name recognition, distribution in major domestic high volume
retail outlets, marketing and sales promotion efforts, electronic data
interchange (EDI) capabilities, merchandise flow systems and established
relationships with its retail customers. The Company, founded in 1919, is one of
the oldest and largest domestic manufacturers of scales for home and medical
use, based upon both dollar volume and unit sales.
The Company's operations are organized into two divisions: the
Consumer Products Division and the Professional Products Division.
The Consumer Products Division offers its products through
direct sales and independent manufacturers' representatives to distributors and
major retail outlets, including mass merchants, national hardware chains,
drugstore chains, catalogue showrooms, warehouse clubs, retail grocery chains,
specialty stores, department stores and various mail order companies. The
division promotes its products primarily through national television
advertising, magazine advertising, cooperative advertising with retailers and
consumer promotions.
The development and introduction of new products are key to
the continued success of the Company. The Company continually introduces new
products in its core coffeemaker and scale businesses. In 1995, an entirely new
product category, hot teamakers, was introduced. In 1996, the Company introduced
the Health o meter(R) Water by Culligan(R) line of water filter pitchers, along
with replacement cartridges manufactured by Culligan Water Technologies, Inc.
The Professional Products Division offers a variety of scales
for hospitals, physicians, nursing homes, clinics and home healthcare as well as
a line of business and home office scales consisting of postal, UPS/parcel post
and general utility models. Professional products are promoted through a
combination of new product brochures, trade advertising, catalogues, trade shows
and customized displays. The Professional Products Division markets
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its products through direct sales and independent manufacturers' representatives
to distributors, dealers, office mega-stores, mail order companies and major
buying groups.
In November 1992, the Company purchased certain operating
assets of Pelouze Scale Co. ("Pelouze") for cash plus the assumption of certain
operating liabilities. Pelouze develops, manufactures and sells digital and
mechanical postal scales, food service scales and other related products. From
1980 to 1989, the Company manufactured office scales for Pelouze on a
private-label basis. In May 1994, the Company purchased certain operating assets
of McShirley Products, Inc., a manufacturer and distributor of therapeutic
devices, for $400,000 in cash.
In August 1994, the Company acquired all of the outstanding
shares of common stock of Mr. Coffee, inc. (the "Acquisition"). Mr. Coffee, inc.
("Mr. Coffee") has been the leading producer of automatic drip coffeemakers in
the United States since 1975. In addition, Mr. Coffee offers an extensive line
of teamakers, filters, replacement decanters, accessories and other kitchen
countertop appliances. The aggregate purchase price in connection with the
Acquisition was approximately $133.5 million. The Acquisition was financed
through a combination of senior and subordinated indebtedness and a common stock
rights offering to existing shareholders. See Notes 8 and 9 to Consolidated
Financial Statements contained herein.
On September 21, 1994, the Board of Directors of the Company
determined to change its fiscal year from one ending on December 31 in each year
to a 52-53 week fiscal year ending on the Sunday closest to the last day of the
month of September in each year. The Company's results of operations for fiscal
1994 reflect the inclusion of Mr. Coffee's operating results for the period
subsequent to August 17, 1994. Consequently, product line information for 1994
is not comparable to 1996 and 1995 and is, therefore, not presented.
CONSUMER PRODUCTS DIVISION
- --------------------------
COFFEEMAKERS
------------
The Company produces and markets an extensive line of Mr.
Coffee(R) brand automatic drip coffeemakers and espresso/cappuccino makers which
are sold at retail prices ranging from approximately $14 to $129. Sales of
automatic drip coffeemakers accounted for approximately 40% of the Company's net
sales in 1996, compared with approximately 43% in 1995. The Company offers
several lines of coffeemakers including the Accel(R) line, the SR/JR line, the
AD line, the BL line and the TR line. Each line offers a combination of features
on several models of either 4-cup, 10-cup or 12-cup capacity designed to help
retailers differentiate their product offerings from other retailers. Some of
the most popular features are "Pause 'n Serve", which permits the decanter to be
removed to pour a cup of coffee during the brewing cycle, digital timer,
swing-out brew basket and automatic shut-off.
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The Company also produces and markets specialty coffeemakers
at the higher end of the retail price range, including an under-the-cabinet
coffeemaker and a variety of steam Espresso/Cappuccino makers.
The Company has an upscale line of coffeemakers and
accessories marketed under the brand name Details(TM) by Mr. Coffee(R). This
line of premium priced products is designed to increase distribution and market
share by offering further product differentiation. During 1996, the Company
introduced an Elite version of the Accel coffeemaker with several unique
features: audio indicators for brewing and cleaning cycles, variable warming
plate temperature and 10 karat gold accents on both the decanter and
coffeemaker.
ICED TEAMAKERS
--------------
The Iced Tea Pot(TM), introduced in 1989, brews two quarts of
iced tea or iced coffee in less than 10 minutes. Since 1989, the Company has
expanded this category by introducing several iced teamaker models. During 1996,
the Company introduced its newest iced teamaker model, the TM5, which makes
2 1/2 quarts of iced tea using a unique pour through design which saves counter
space. Sales of The Iced Tea Pot(TM) accounted for approximately 9% of the
Company's net sales in 1996, compared with approximately 10% in 1995.
HOT TEAMAKERS
-------------
In September 1995, the Company introduced Mrs. Tea(TM) by Mr.
Coffee(R) automatic hot teamaker, which makes 30 ounces of fresh brewed hot tea
in about eight minutes and features a ceramic tea pot and a steeping lever to
regulate steeping time. During 1996, Mrs. Tea(TM) for Two by Mr. Coffee(R)
automatic hot teamaker was introduced, featuring a 15 ounce ceramic tea pot. In
addition, a hot teamaker model with a digital timer was introduced in 1996.
FILTERS
-------
Mr. Coffee(R) is the leading brand of basket-type coffee
filters in the United States. The Company produces and sells a wide variety of
paper coffee filters, including basket, fluted, cone, disc and wrap-around
filters for the household market.
REPLACEMENT DECANTERS AND ACCESSORIES
-------------------------------------
The Company assembles and markets a variety of replacement
decanters which are designed to fit competing brands of coffeemakers as well as
Mr. Coffee(R) products. The Company also markets replacement pitchers for all
versions of The Iced Tea Pot(TM), as well as replacement ceramic teapots for the
Mrs. Tea(TM) automatic hot teamaker. Accessory products marketed by the Company
include: mug and decanter warmers which are activated by the placement of the
mug or decanter on the unit's warming surface; the Mr. Coffee(R) Coffee Mill;
and permanent gold-toned filters which fit most 4 cup and 10-12 cup basket and
cone filter coffeemakers.
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<PAGE> 6
OTHER KITCHEN APPLIANCES AND WATER FILTRATION
---------------------------------------------
The Company offers several other kitchen appliances including
the Food Dehydrator by Mr. Coffee(R), which appeals to consumers who are
interested in "healthy foods" and in preparing nutritional snacks. In addition,
the Company offers The Breadmaker by Mr. Coffee(R), which is a fully automated
breadmaking machine with an extra large two pound capacity. In May 1996, the
Company entered into a strategic agreement with Culligan Water Technologies,
Inc. As a result of this relationship, the Company introduced in 1996 the Health
o meter(R) Water By Culligan(R) line of water filter pitcher models, along with
replacement cartridges, which reduce the level of chlorine, lead, copper and
other substances in drinking water.
CONSUMER SCALES
---------------
The Company manufactures a comprehensive line of Health o
meter(R) brand analog (mechanical) and digital (electronic) floor scales,
waist-high and eye-level scales. Analog scales are available with either
rotating dial or speedometer readouts while digital scales utilize LED and LCD
displays between 0.6 inches and 1.5 inches in size.
In general, scale accuracy is a function of the weighing
mechanisms employed. Health o meter offers mechanical analog, electronic digital
strain gauge and various types of professional quality mechanisms, which are
marketed as "good", "better", "best" or "ultimate" quality alternatives at the
point of sale. Other product features which differentiate Health o meter's
scales include color, texture, size and dial features. The Company's consumer
scales are sold at retail prices ranging from $10 to $200.
In 1989, the Company introduced its Big Foot(R) professional
quality floor scale product line for home use. The Big Foot(R) product line,
currently consisting of various analog or digital models, has become the most
successful new scale line introduced in the Company's history and continues to
be a major source of revenue. The Company is currently producing the second
generation Big Foot(R) scale which retains the same high quality mechanism and
offers design improvements over the original models. The Big Foot(R) scales are
sold at retail prices ranging from $35 to $100.
Sales of Consumer scales accounted for approximately 17% of
the Company's net sales in 1996, compared with approximately 16% in 1995.
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NEW CONSUMER PRODUCTS
---------------------
The Company believes that the strong Mr. Coffee(R) and Health
o meter(R) brand name recognition, coupled with the Company's distribution,
marketing and sales promotion efforts, and established relationships with its
retail customers, assist the Company in introducing new products. During fiscal
1997, the Company plans to introduce at least three new Mr. Coffee(R) products
as well as an array of products which represent modifications and/or
enhancements of existing Mr. Coffee(R) products. Planned new products for 1997
include the Mr. Coffee(R) Thermal Gourmet(TM) coffeemaker, which brews coffee
directly into a thermal carafe; the Mr. Coffee(R) Speedbrew(TM) coffeemaker,
featuring a restaurant-style displacement brewing system; and the Mr. Coffee(R)
Commuter(TM) coffeemaker, which brews coffee directly into an insulated travel
mug. During 1996, the Company introduced three new lithium powered electronic
scale models featuring either 3 or 4 digit displays. One of these models
features a large 1.5 inch LCD display along with a larger platform. Also
introduced in 1996 was the Health o meter(R) Precious Metals(TM) specialty scale
line, which features a polished brass or chrome platform with fashion accent
mats.
All consumer products and production tools are designed by or
under the direction of the Company's engineers, product managers, draftsmen and
laboratory technicians. The Company also tests its prototypes, designs its own
packaging and conducts market research. The Company employs independent
engineers and designers on an as needed basis.
The Company devotes considerable attention to the design and
appearance of its consumer products, as well as their packaging, in order to
enhance their appeal to consumers and to promote differentiation of its products
from other brands on retailers' shelves. The Company conducts research and
development on an ongoing basis in recognition of the importance of new product
development and the need to provide innovative products and features to its
customers. A combination of market research and feedback from key retailers is
used to identify market trends and changing consumer preferences. This
information provides the basis for new product development. In virtually all
cases the Company engages outside design firms to assist in creating new
products and modifying existing products to incorporate features and styling
that the Company anticipates consumers will purchase. Substantially all products
produced by the Company involve, to some degree, the service of such firms.
The Company believes that the strength of the Health o
meter(R) brand name combined with its market research allows it to introduce a
whole range of new products associated with health and wellness. During 1996,
the Company introduced products in four therapeutic categories: Hot and Cold
Packs, Electric Heating Pads, Hands Free(TM) Therapy massage heating pads, and
Focus Zone(TM) cushion massage pads. Retail prices range from $10 for the Hot
and Cold Mini Wrap to $130 for the Focus Zone(TM) Full Body Massager with heat.
The Company anticipates growth in this category and plans on introducing
additional therapeutic devices in fiscal 1997.
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<PAGE> 8
PROFESSIONAL PRODUCTS DIVISION
- ------------------------------
MEDICAL SCALES
--------------
The Company's reputation for quality and its brand name
recognition have been based on its participation in the medical scale market for
over 75 years.
Products sold as professional products include analog
(mechanical) and digital (electronic) scales for a full range of medical uses,
including traditional balance beam scales, pediatric scales, wheelchair ramp
scales, chair and sling scales for non-ambulatory patients, and home healthcare
scales. The suggested end user prices for the Company's traditional medical
products range from $80 to $1,100. The Company has developed several variations
of its traditional balance beam scale to complement the original product design.
Additionally, the Pro Series(TM) and Pro Plus Series(TM)
product lines were developed by the Company to address specialized markets and
applications, and generally command higher sales prices than Health o meter's
other medical products. The Company's Pro Series(TM) of scales consists of
physician, pediatric and chair scales which, in some models, feature advanced
electronics (for example, laser trimmed load cells) for greater accuracy. The
Pro Series(TM) scales' end-user prices range from $350 to $1,100. The Company's
Pro Plus Series(TM) line of scales consists of hydraulic sling scales, neonatal
pediatric scales and ramp scales for weighing wheelchair patients. The Pro Plus
Series(TM) scales range in price from $1,100 to $3,100 and are used primarily by
hospitals and nursing homes.
The Company recently introduced a portable wheelchair ramp
scale, a new balance beam scale which features an innovative measuring rod and
extended warranty, as well as an entirely new line of weighing instruments for
veterinary care.
OFFICE SCALES
-------------
Since 1990, the Company has manufactured and marketed a full
line of letter and parcel scales under the Health o meter(R) brand name. The
Pelouze acquisition in November 1992 added another respected brand name in
addition to significantly broadening the Company's office products and food
service business. As a result, shortly after the Pelouze acquisition, the
Company began marketing its office and food service products exclusively under
the Pelouze(R) brand name.
The Company's office products include mechanical and digital
scales designed for small, commercial establishments, home offices and
departments within larger companies that process a small to medium volume of
letters and packages daily. The suggested retail prices
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range from $6 to $995. Under the Pelouze brand name, the Company has a
commanding share of the office scale market. During fiscal 1997, the the Company
plans to launch a new 6 lb. capacity rate calculating scale which will have the
ability to compare the cost of sending mail through the major carriers.
FOOD SCALES
-----------
The Company's Pelouze food service group offers mechanical and
digital portion control scales, thermometers and timers for commercial and
non-commercial applications. End-user prices range from $6 for thermometers to
$895 for digital legal-for-trade scales. Pelouze Food service products are
specified for use by some of the leading national chain restaurants in America.
Pelouze food service introduced a new 2 pound capacity digital scale at the
American Dietetic Association trade show in 1996. This innovative scale
addresses the growing need for precision food service tools to control quality
and food cost.
COMMERCIAL COFFEE BREWERS
-------------------------
The Company has also leveraged its brand name with an entrance
into the commercial coffee brewer market. This product line is presently being
marketed through membership clubs and office mega-stores. Core products in the
commercial line include a Two-Station Stainless Steel Brewer, a 24-cup Automatic
Drip Coffeemaker, several models of 4-cup and 12-cup coffeemakers as well as a
line of complimentary accessories. All commercial models contain unique features
designed to serve this industry, including grounded power cords and automatic
shut off.
PRODUCT WARRANTIES
- ------------------
Mr. Coffee(R) products are generally sold with a limited
one-year warranty. The Health o meter(R) Water By Culligan(R) line features a 30
day money-back guarantee. Pursuant to the terms of its warranty arrangements
with independent service centers, in cases of defects in material or
workmanship, the Company agrees to repair or replace the defective product
without charge. Approximately 190 independent appliance service centers
throughout the United States and Canada are authorized to repair Mr. Coffee(R)
products under such warranties.
Health o meter(R) consumer scale warranties range from
limited one-year warranties to lifetime warranties. Pelouze(R) digital scales,
thermometers and timers are warranted for one year from the date of purchase
against defects in materials or workmanship. Therapeutic devices are sold with a
limited two-year warranty. Health o meter(R) physician and certain professional
scales as well as Pelouze(R) mechanical scales are sold with a lifetime limited
warranty.
Costs for product returns under warranties estimated to be
incurred are charged against revenues at the time of sale based on experience
factors. The reserve for product returns under warranties on the Company's
balance sheet at September 29, 1996 was $6.2 million, which the Company believes
is adequate.
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CUSTOMERS AND MARKETING
- -----------------------
CONSUMER PRODUCTS
-----------------
The Company emphasizes the Mr. Coffee(R) and Health o meter(R)
brand names, principally through a variety of advertising and promotional
channels, including national television advertising, cooperative advertising,
national magazine advertising, consumer rebates, trade publication advertising
and tie-in promotions. To complement its emphasis on the Mr. Coffee(R) and
Health o meter(R) brand names, the Company concentrates on maintaining a strong
distribution system for its products by engaging a network of experienced
independent manufacturers' representatives, food brokers and premium and
military representatives. The Company's sales management personnel are
responsible for direct sales to key accounts, supervising the activities of its
independent manufacturers' representatives, as well as consulting and assisting
customers in planning sales strategy, including customized point-of-sale
merchandising, cooperative advertising programs and product mix designed to
reach a specific retailer's customer base. Customized sales programs have been
instrumental in the Company's penetration of the consumer scale market.
The Company distributes and sells its consumer products
through direct sales and independent manufacturers' representatives and various
mail order catalogue companies, primarily to distributors and major retail
outlets, including mass merchants, national chains, national hardware chains,
drugstore chains, catalogue showrooms, warehouse clubs, retail grocery chains,
specialty stores, department stores and various mail order catalogue companies.
While the Company does not have long-term contracts with any of its customers,
it has been doing business with its five largest customers continously for over
10 years. Wal-Mart Stores, Inc. and Kmart Corporation accounted for
approximately 23% and 13% respectively, of the Company's net sales in 1996.
The variety of models the Company produces and distributes
permits competing retailers to stock different models of Mr. Coffee(R) and
Health o meter(R) products. The Company offers tie-in promotions in which Mr.
Coffee(R) products are sold in packages with free Mr. Coffee(R) accessories or
with related products, such as tea bags, coffee and coffee beans from other
manufacturers. The Company typically enters into specific marketing programs of
three to six months in duration with its major customers covering such matters
as product mix, pricing and advertising assistance.
In recent years, certain retailers have required stock
adjustments in which the Company accepts the return of unsold merchandise in
exchange for placing a new product with the retailer. Stock adjustments were not
significant in 1996.
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PROFESSIONAL PRODUCTS
---------------------
The Company supports its retail office products customers with
coordinated packaging and promotional materials, including displays customized
to fit the respective customer's marketing plans. The Company markets its office
products through independent manufacturers' representatives, distributors such
as United Stationers and S.P. Richards, superstores such as Staples/Office Depot
and OfficeMax and mail order catalogue companies such as Quill, Viking and
Reliable. Pelouze food service products are sold by independent manufacturers'
representatives to dealers, distributors such as SYSCO, Edward Don, U.S. Food
service, and major buying groups, who in turn sell to restaurants, healthcare
providers, hotels, cafeterias, colleges and schools.
The Company promotes its medical scale products through new
product brochures, trade advertising, catalogues and trade shows. The Company
markets its medical products through independent manufacturers' representatives,
primarily to medical dealers such as General Medical, ABCO Dealers, Baxter and
Owens and Minor. Medical dealers sell the Company's medical products to
physicians, nursing homes, free standing clinics, home healthcare customers, and
hospitals. In addition to the domestic market, the Company currently distributes
medical products internationally.
The Company also sells its coffeemaker products to hotels for
use in providing in-room coffee service and to other commercial customers. In
order to more fully develop its commercial business, the Company has a joint
venture with S & D Coffee, Inc., a leading regional coffee company whereby each
joint venture partner owns 50 % of Mr. Coffee Concepts, Inc. ("MCCI"). MCCI is
engaged in the business of selling commercial coffeemakers and accessories
principally to office mega-stores, hotels and small businesses in the United
States and Canada.
SEASONALITY
- -----------
Historically, Mr. Coffee(R) brand products have achieved their
highest sales during the months preceding the December gift-giving season. A
significant percentage of Mr. Coffee(R) products are given as gifts and,
therefore, sell at larger volumes during the holiday season. Additionally, the
time surrounding Mother's Day has typically been a period of somewhat higher
sales. During fiscal 1996 and 1995, net sales for the fourth calendar quarters
ended December 31, 1995 and January 1, 1995, were approximately 34% of the
Company's annual net sales. Although seasonality is not as material in the
consumer scale market, sales during the fourth calendar quarter have
historically been slightly higher than the other three quarters. Customers'
order patterns vary from year to year, largely because of differences in
consumer acceptance of product lines, product availability, marketing
strategies, retailers' inventory levels and differences in overall economic
conditions.
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PRODUCTION
- ----------
MR. COFFEE(R) APPLIANCES
------------------------
Mr. Coffee(R) appliance production is comprised of three
categories: assembled, procured domestically and procured internationally. The
Company believes it has a balanced combination of domestic and offshore
production capability which is flexible enough to handle the large, seasonal
swings in production. In 1994, due to the introduction of several coffeemaker
models initially produced overseas plus the addition of the full line of foreign
sourced espresso/cappuccino makers, domestic appliance production decreased to
approximately 40% of Mr. Coffee(R) brand appliance units. This percentage
increased to approximately 50% in 1995 for two reasons. First, several new
domestically produced products were introduced in 1995 to supplant existing
foreign sourced products. Second, to meet demand for several existing products,
domestic production began in 1995 for items that had previously only been
sourced offshore. In 1996, increased domestic production of the recently
introduced TR line of coffeemakers along with reduced volumes of certain
imported coffeemaker models resulted in approximately 52% of its Mr. Coffee(R)
brand appliance units being produced and assembled domestically. Domestic
procurement and production enables the Company to react quickly to meet the
just-in-time requirements of its retailers. Products manufactured at the
Company's facilities in Bedford Heights, Ohio are assembled from parts produced
by both domestic and foreign component contract manufacturers. Additionally, the
Company outsources a portion of its domestic assembly and sub-assembly
operations to several subcontractors in northeast Ohio.
Offshore production includes products that are produced,
assembled and packed in ready-to-sell condition in the People's Republic of
China, Hong Kong and Taiwan using design engineering and tooling which are the
property of the Company. Additionally, the Company has purchased limited
quantities of several different products from offshore sources that were
produced using design engineering and tooling which are the property of the
supplier. Offshore production is governed by written contracts with
manufacturers pursuant to which the Company submits purchase orders. The Company
does not have any other agreements with manufacturers obligating it to purchase
any specified quantities of products over a period of time. The Company believes
that alternative sources of supply could be developed if any foreign supplier of
kitchen countertop appliances should cease to be an available source. However,
the loss of a supplier could, in the short-term, adversely affect the Company's
business until alternative supply arrangements were secured.
Mr. Coffee(R) basket-type paper coffee filters are currently
produced at the Company's facilities in Bedford Heights, Ohio. Paper used in
filter production and paperboard used in connection with packaging are purchased
annually from various domestic and Canadian suppliers pursuant to competitive
bidding. Cone-type coffee filters, which account for approximately 18% of filter
sales volume, are purchased from a vendor in Canada.
Mr. Coffee(R) replacement decanters are assembled at the
Company's facilities in Bedford Heights, Ohio as well as at a subcontractor in
northeast Ohio. The glass vessel portions
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<PAGE> 13
of the decanters are supplied by various companies located in the United States.
The Company believes that the multiple sources existing for its glass decanters
reduce the risk of shortages.
A majority of the raw materials used in appliance production
are commodities, such as plastic, paper, paperboard and electrical components,
which are available from numerous suppliers. The Company purchases the
components used in the domestic assembly of Mr. Coffee(R) appliances from
contract manufacturers. The Company has a primary source for timers which are
used in approximately 34% of its coffeemaker units. The Company is continuing
the process of setting up a second source for these items, but does not believe
that it is dependent on any single source for any other significant portion of
its raw material or component purchases. The Company believes that it has good
relationships with its suppliers and has not experienced any raw material or
component shortages.
In order to improve its ability to provide products on a
timely basis, the Company will continue to increase its use of outside sources
for detail engineering and production of its appliance products. The Company
believes that increased utilization of outside vendors to manufacture products
to its specifications will enable it to reduce the level of its investment in
capital equipment and inventory as well as provide needed flexibility in
manufacturing and surge capacity.
HEALTH O METER(R) CONSUMER AND PROFESSIONAL SCALES
--------------------------------------------------
Most of the Company's consumer and professional scale products
are manufactured at The Company's facility in Bridgeview, Illinois. The
Company's Bridgeview plant, built in 1972, was designed specifically to
manufacture scales. Most domestic manufacturing activity, from the initial
shearing and stamping of steel to painting and assembling the finished product,
is performed at the Bridgeview plant. During 1996, the Company closed its
Waukegan, Illinois facility to reduce manufacturing overhead and transferred its
scale assembly operations to its Bridgeview facility. The Company's
manufacturing process is designed to provide flexibility in the production of
scales. The Bridgeview plant has multiple production lines which enable the
Company to produce large or small quantities of products or change production
runs depending on customer demand. In addition, workers are cross-trained to
perform various jobs on the production line in order to enhance production
response time. Certain medical scales are produced by domestic subcontractors.
The Company maintains an extensive tooling inventory that
enables it to react quickly to shifts in production requirements. Continuous
upgrading and modernization of the Company's tooling over the past five years
has resulted in significantly improved production efficiency and cost
reductions. The Company's production capacity has increased steadily and
management believes that production capacity is adequate to meet production
requirements in the foreseeable future.
In addition to its domestic operations, the Company has
contracts with suppliers headquartered in Taiwan, Hong Kong, Germany and Hungary
for the purchase of some finished scales and therapeutic devices as well as
certain component parts used in the assembly of certain
-12-
<PAGE> 14
of the Company's products. During 1996, approximately 38% of the Company's
consumer and professional scale net sales were comprised of finished products
manufactured by foreign suppliers to the Company's specifications, usually using
tooling owned by or committed exclusively to the Company. The majority of these
finished products and component parts are manufactured at facilities located in
the People's Republic of China. The Company believes that alternative sources of
supply could be developed if any foreign supplier of finished scales, electronic
boards or other raw materials or finished goods should cease to be an available
source. However, the loss of a supplier could, in the short-term, adversely
affect the Company's business until alternative supply arrangements were
secured.
The Company does not have long term purchase contracts with
manufacturers and component parts suppliers and operates principally on a
purchase order basis. The Company purchases raw materials from a number of
suppliers, including several steel distributors. The Company's plant in
Bridgeview is located within one of the largest steel markets in the country
and, therefore, the Company has ready access to many steel suppliers. Packaging
materials, including cartons, are purchased from vendors in the Chicago area.
Although most electronic components are purchased from vendors
based in Taiwan and Hong Kong, the Company is presently developing domestic
sources of electronic parts. The existing vendors produce component parts based
on the Company specifications with respect to function and design. Pricing and
delivery are negotiated based upon the Company's estimated requirements for a
twelve-month period.
Management believes that alternate sources of supply are
available for substantially all raw materials, component parts and finished
goods. The Company believes that it currently has an adequate supply of raw
materials and component parts to meet its manufacturing requirements and that
the loss of any one of its suppliers would not have a long-term material adverse
effect on the Company. However as noted above, the loss of a supplier could, in
the short-term, adversely affect the Company's business until alternative supply
arrangements were secured.
Because of the overseas location of certain manufacturers and
component part suppliers, the Company may be subject to potential production
delays due to the lack of availability of components resulting from factors such
as political unrest or import restrictions. The Company believes that it has
good relationships with its suppliers and has not experienced any significant
raw material or component shortages to date.
BACKLOG
-------
The Company ships products to customers only after receipt of
a bona-fide purchase order. Backlog as of any particular date is not significant
to the Company as orders are typically received within 30 days of the customer's
requested shipment date. The Company has not experienced any significant order
cancellations or delivery rescheduling.
-13-
<PAGE> 15
TRADEMARKS AND PATENTS
----------------------
The Company holds trademarks and patents registered in the
United States and in other countries for various products, processes and
designs. The Company has a number of foreign and domestic trademarks, including
the Mr. Coffee(R) name and logo as well as Health o meter(R), Pelouze(R) and
other names and logos used in connection with the sale of its products. The
Company considers the Mr. Coffee(R) and Health o meter(R) trademarks to be
critical to its business. No challenges to its rights to these trademarks have
arisen and the Company has no reason to believe that any such challenges will
arise in the future. United States trademarks issued prior to November 1989
generally expire 20 years after the date of registration, unless renewed. United
States trademarks issued subsequent to that date generally expire 10 years after
the date of registration, unless renewed. Trademarks may be renewed for an
unlimited number of 10 year periods subsequent to the original expiration date,
upon the showing of use. Although the duration of foreign trademarks vary, such
trademarks are also generally renewable.
The Company has design and utility patents on several of its
scales, coffeemakers and The Iced Tea Pot(TM), while several patents are pending
on the Mrs. Tea(TM) by Mr. Coffee(R) automatic hot teamaker and other products.
The Company believes that none of its product lines is dependent upon any single
patent or group of patents and that patents are not material to its business as
a whole. The Company's American utility patents issued prior to June 8, 1995
generally have a duration of 17 years from the date of issue, while patents
based on applications filed after that date have a duration of 20 years from the
date of filing. The expiration dates for its existing patents range through
November 2014.
COMPETITION
-----------
All product categories in which the Company participates are
extremely competitive. Competition is based upon price, quality, brand name
recognition and design innovation, as well as marketing and distribution
strategies. The Company competes with established companies, several of which
are more diversified and have substantially greater resources.
The Company's most significant competitors in the automatic
drip coffeemaker industry are Hamilton Beach<>Proctor-Silex, Black & Decker,
and Braun. Other competitors include Krups, Bunn, Regal, West Bend, Melitta and
control labels from White-Westingtonhouse, Magic Chef, Swift, Betty Crocker,
Faberware and Chef Mate. Melitta is the Company's principal competitor in the
branded coffee filter business. A few other manufacturers offer products that
compete with The Iced Tea Pot(TM). Competition in the iced teamaker business is
based primarily on price. During September 1995, The Company introduced Mrs.
Tea(TM) by Mr. Coffee(R) automatic hot teamaker. Cuisinart and Gemco have
introduced hot teamakers in 1996 to compete with the Mrs. Tea(TM) automatic hot
teamaker.
-14-
<PAGE> 16
The Company participates in the broader kitchen appliance
market with the Food Dehydrator by Mr. Coffee(R), introduced in 1993, and the
Breadmaker by Mr. Coffee(R), introduced in 1994. Competitors in the kitchen
countertop appliance market include a number of large manufacturers such as
Hamilton Beach<>Proctor-Silex, West Bend, Black & Decker and Sunbeam-Oster, as
well as numerous smaller manufacturers. In 1996, the Company introduced the
Health o meter(R) Water By Culligan(R) line of water filter pitchers.
Competitors in the water filter pitcher market include Brita and PUR.
The principal negative factors affecting Mr. Coffee(R)
appliances competitive position are the maturity of the coffeemaker and kitchen
countertop appliance industries, which makes significant sales gains more
difficult and requires significant expenditures for new products in order to
increase revenues, and intense price competition from other manufacturers.
Competition for purchases of consumer scales comes primarily
from Sunbeam-Oster (which includes the Counselor and Borg brands) and Metro
Corporation. The Company believes that the Health o meter(R) brand name
recognition and established reputation in the medical scale market have enabled
the Company to successfully establish itself in the mid- to high-end consumer
scale market.
The Company believes that the most important positive factors
in its competitive position are its brand name recognition among consumers and
its presence in major retail outlets. Over the past several years, the Company
has made significant investments in retail-link technology and merchandise flow
systems to enhance both its ability to serve and, in turn, its presence at,
major retail outlets.
The Company's medical products compete domestically primarily
with Detecto, a subsidiary of Cardinal Scale Mfg. Co., and Scaletronix, Inc. The
Company's major competitor in the international medical scale market is SECA
Corporation, a German manufacturer.
The Company's office products compete with those of
Sunbeam-Oster and Micro General. Pelouze had been the Company's major competitor
in the office products market prior to its acquisition by the Company in
November 1992. The Company now markets office products as well as food service
products exclusively under the Pelouze(R) brand name. Health o meter food
service products compete with those of Edlund, Detecto, Accuweigh, Cooper and
Taylor.
EMPLOYEES
- ---------
The Company operates two major production facilities, one in
Bedford Heights, Ohio, which produces Mr. Coffee(R) appliances, and the other in
Bridgeview, Illinois, which produces consumer and professional scales.
Historically, the number of employees at the Bedford Heights,
Ohio facility has fluctuated during the year to meet the demands of the peak
selling seasons. Hourly employees at the Bedford Heights, Ohio production
facility are represented by the International Allied
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<PAGE> 17
Employees Union, Local 473 of the International Brotherhood of Teamsters,
Chauffeurs, Warehousemen and Helpers of America under a collective bargaining
agreement which expires on April 17, 1999.
The Company's hourly employees at its Bridgeview, Illinois
production facility are represented by the Industrial Workers Union, Local No. 8
of the Laborers International Union of North America, AFL-CIO under a collective
bargaining agreement which expires on November 13, 1997.
As of September 29, 1996, the total number of employees of the
Company was 920. The Company considers relations with its employees to be
satisfactory.
GOVERNMENTAL REGULATION
- -----------------------
The Company's facilities are subject to numerous federal,
state and local laws and regulations designed to protect the environment from
waste emissions and from hazardous substances. The Company is also subject to
the Federal Occupational Safety and Health Act and other laws and regulations
affecting the safety and health of employees in the production areas of its
facilities. The Company is not a party to any investigation or litigation by the
Environmental Protection Agency under the Comprehensive Environmental Response
Compensation and Liability Act of 1980 for clean-up costs associated with any
waste sites. The Company believes that it is in compliance in all material
respects with applicable environmental and occupational safety regulations.
INSURANCE
- ---------
The Company purchases occurrence based product liability
insurance in excess of self-insured retention on all Mr. Coffee(R) appliance
products. The Company is responsible for the first $1.5 million of any
individual claim and up to $5 million in the aggregate for all claims in any one
year plus legal fees, and accrues the actuarially estimated cost of such
self-insurance on an annual basis. Product liability costs for Health o meter(R)
and Pelouze(R) products are not significant. The Company believes that, based
upon its historical liability experience, the amount of insurance it carries is
adequate. The Company maintains a reserve on its balance sheet for its
self-insured retention. The amount of such reserve was $4.5 million as of
September 29, 1996.
ITEM 2. PROPERTIES
The Company's corporate headquarters and the Mr. Coffee(R)
appliance production facility and warehouse are located in an approximately
295,000 square foot facility in Bedford Heights, Ohio pursuant to a lease with
the founders of Mr. Coffee, inc. which expires in July 1997. The Company also
leases 106,000 square feet of warehousing and distribution space in Bedford
Heights, Ohio pursuant to a lease which expires in July 1997. In October 1996,
the Company entered into a fifteen year lease commencing August 1, 1997 for a
new 458,000 square foot corporate headquarters and appliance assembly,
manufacturing and distribution facility to be
-16-
<PAGE> 18
built in Glenwillow, Ohio. This facility will replace the Company's current
facilities in Bedford Heights, Ohio.
The Company's scale manufacturing facility is located in
Bridgeview, Illinois. The facility, which the Company owns, contains
approximately 160,000 square feet of space. The Company leases several warehouse
facilities in the Chicago area from time to time as business conditions warrant.
During 1996, the Company transferred scale assembly operations at its leased
68,000 square foot facility in Waukegan, Illinois to its Bridgeview facility.
The Company considers its facilities suitable and adequate for
the purposes for which they are used. The Company believes that its facilities
have sufficient capacity to support its current and anticipated production and
storage needs. Further, greater utilization of outside vendors to manufacture
and assemble products lessens the potential need for additional capacity.
ITEM 3. LEGAL PROCEEDINGS
On July 22, 1992, Mr. Coffee, inc. filed a complaint in the
United States District Court for the Northern District of Ohio against the
Corporate Automation Group ("CAG"). This action arose out of an agreement
entered into in 1991 between Mr. Coffee, inc. and CAG under which CAG was to
provide goods and services in connection with the installation of a management
information system at Mr. Coffee, inc. CAG had filed a claim against Mr. Coffee,
inc. alleging breaches by Mr. Coffee, inc. of various alleged express and
implied contracts and seeking damages in excess of $5.5 million. The parties
have settled this dispute and both the complaint and the counterclaim have been
dismissed. The amount of the settlement will not have a material impact on the
Company's financial condition.
On May 27, 1994, Mr. Coffee, inc. was served with a complaint
in the case captioned Miriam Brown v. Mr. Coffee, inc., et. al. (Civil Action
No. 13531), in the Delaware Court of Chancery, New Castle County. The complaint
names Mr. Coffee, inc., a former major shareholder of Mr. Coffee, inc. and each
member of the Board of Directors of Mr. Coffee, inc. prior to the Acquisition as
defendants in a purported class action lawsuit. The complaint alleged that the
Director defendants breached their fiduciary duties as Directors of Mr. Coffee,
inc. by, among other things, alleged efforts to entrench themselves in office
and prevent Mr. Coffee, inc.'s public stockholders from maximizing the value of
their holdings, engaging in plans and schemes unlawfully to thwart offers and
proposals from third parties, and approving and or causing the major shareholder
to agree to vote in favor of the merger with the Company. The plaintiff
originally sought to enjoin the merger and to obtain an order requiring the
Director defendants to fulfill their fiduciary duties by exploring third party
interest and obtaining the highest offer obtainable for the public stockholders.
The plaintiff also seeks unspecified compensatory damages and costs and
disbursements in connection with the action, including attorneys' and experts'
fees, and such other and further relief as the court deems just and proper. In
October 1996, the plaintiffs filed a Second Amended Complaint containing the
above claims, but focusing on allegations that the Director defendants failed to
engage in a process designed to maximize the value of Mr. Coffee, inc. for its
shareholders. The Company has filed a Motion to Dismiss the Second Amended
Complaint. No briefing schedule has been established as yet for
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<PAGE> 19
this Motion. Discovery commenced with the filing of this lawsuit. However, no
discovery activity by any party has taken place during the 1995 and 1996 fiscal
years or through the time of filing this document. Other than the filing of the
Second Amended Complaint, plaintiffs have not taken further action in
prosecution of this lawsuit. The Company believes that the plaintiff's
allegations are without merit and intends to contest vigorously the allegations
in the Second Amended Complaint. Management believes that the ultimate outcome
of such matters will not have a material adverse effect upon the operations or
financial position of the Company.
The Company is a party to various other claims and items of
litigation incident to its normal business. Liability in the event of a final
adverse termination of any of these matters, in the opinion of the Company, will
not, individually or in the aggregate, have a material adverse effect on the
financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*
The executive officers are elected each year and serve at the
pleasure of the Board of Directors. The following is a list of the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Peter C. McC. Howell 47 Chairman and Chief Executive Officer
S. Donald McCullough 53 President and Chief Operating Officer
Steven M. Billick 40 Senior Vice President, Treasurer and
Chief Financial Officer
John D. Lange 50 Senior Vice President, Marketing - Consumer
Products
Timothy J. McGinnity 45 Senior Vice President, Sales - Consumer
Products
<FN>
*The information under this Item 4A is furnished pursuant
to Instruction 3 to Item 401(b) of Regulation S-K.
</TABLE>
PETER C. McC. HOWELL. Mr. Howell has served as Chairman of the
Board, Chief Executive Officer and a Director of the Company and Health o meter
since August 1994. He served as President and Chief Executive Officer of Mr.
Coffee, a manufacturer of consumer appliances acquired by the Company in August,
1994, from 1989 to the date of the acquisition. Mr. Howell served as Mr.
Coffee's Chief Operating Officer from April 1989 to September 1989 and as Vice
President, Treasurer and Chief Financial Officer from October 1988 to April
1989. Mr. Howell is also a Director of Libbey, Inc. which designs, manufactures
and markets brand name, machine made glass, beverageware and tableware.
-18-
<PAGE> 20
S. DONALD McCULLOUGH has served as President and Chief
Operating Officer of the Company and Health o meter since April 1994. Prior to
his employment with the Company, Mr. McCullough served in various positions with
GTE Corporation. From January 1991 to January 1993, Mr. McCullough was Vice
President-General Manager of GTE (Sylvania), European Lighting Division; from
1986 to 1990, he served as Vice President-General Manager of the
Automotive/Miniature Lighting Division; from 1982 to 1986, he served as Vice
President-Controller of Lighting Products Group; and from 1980 to 1982, he
served as Vice President-Controller of Lighting Products International.
STEVEN M. BILLICK has served as Senior Vice President,
Treasurer and Chief Financial Officer of the Company and Health o meter since
June 1996. From July 1991 to June 1996, he was Vice President and Controller of
NACCO Industries, Inc., a publicly traded holding company. Prior to July 1991,
Mr. Billick was a Partner with the international public accounting firm of
Deloitte & Touche, LLP.
JOHN D. LANGE has served as Senior Vice President, Marketing -
Consumer Products of Health o meter since March 1995. From 1994 to March 1995,
Mr. Lange was Vice President, Sales & Marketing for Enpac, Inc., a manufacturer
and distributor of hazardous waste containment products and a subsidiary of the
Essef Corporation. From 1982 through 1994, Mr. Lange served in a variety of
positions, most recently as Vice President, Marketing of the Specialty Products
Division for Rubbermaid, Inc., a producer of plastic products for the consumer,
institutional, office products, agricultural and industrial markets.
TIMOTHY J. McGINNITY has served as Senior Vice President,
Sales - Consumer Products of Health o meter since September 1994. From August
1991 to August 1994, Mr. McGinnity served as Vice President - Sales of Mr.
Coffee. From October 1985 to June 1991, Mr. McGinnity served as Vice
President-Sales, Grocery Division of Mr. Coffee.
-19-
<PAGE> 21
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASDAQ National
Market under the symbol "SCAL". The following table sets forth the range of high
and low bid prices for each quarter of the two most recent fiscal years as
reported by NASDAQ.
<TABLE>
<CAPTION>
High Low
---- ---
Year Ended October 1, 1995
- --------------------------
<S> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . . $ 5-3/8 $ 3
Second Quarter. . . . . . . . . . . . . . . . . . . . 4-1/2 3-3/8
Third Quarter . . . . . . . . . . . . . . . . . . . . 4-1/4 3-3/8
Fourth Quarter. . . . . . . . . . . . . . . . . . . . 4-3/4 3-5/8
High Low
---- ---
Year Ended September 29, 1996
- -----------------------------
First Quarter . . . . . . . . . . . . . . . . . . . . $ 5-1/8 $ 3-3/8
Second Quarter. . . . . . . . . . . . . . . . . . . . 5-3/8 3-5/8
Third Quarter . . . . . . . . . . . . . . . . . . . . 6-7/8 4-3/4
Fourth Quarter. . . . . . . . . . . . . . . . . . . . 6-3/8 5
</TABLE>
As of December 6, 1996 there were approximately 138 holders of
record of the Common Stock of the Company. The Company has paid no dividends on
the Common Stock and it is the Company's present intention to reinvest earnings
internally to finance the expansion of its business. Health o meter does not
have any class of publicly traded equity securities outstanding.
-20-
<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Nine-Months
---------------------------- Ended
September 29 October 1 October 2 Year Ended December 31
------------ ----------- ----------- ---------------------------
1996 1995 1994 1993 1992
------------ ----------- ----------- ----------- ----------
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C>
Net sales $ 282,977 267,887 69,451 67,605 52,879
Cost of goods sold 192,706 184,911 53,159 46,099 36,738
Selling, general, and
administrative expenses 59,635 56,642 18,394 16,209 13,713
Amortization of intangible assets 4,000 3,961 815 619 424
Work force reductions and
asset write-downs -- -- 5,367 -- --
Other charges -- -- -- -- 157
Operating income (loss) 26,636 22,373 (8,284) 4,678 1,847
Interest expense 19,134 19,354 3,889 956 1,559
Other income (357) (195) (18) -- --
Income (loss) before income taxes 7,859 3,214 (12,155) 3,722 288
Income tax provision (benefit) 4,900 2,502 (4,110) 1,534 (519)
Net income (loss) 2,959 712 (8,045) 2,188 807
Net income (loss) per share $ 0.33 .08 (1.31) .40 .16
Weighted average shares outstanding 9,073 9,071 6,134 5,528 5,012
BALANCE SHEET DATA
Working capital $ 60,614 53,285 38,970 20,130 19,649
Total assets 273,490 275,135 277,968 62,194 56,373
Long-term debt 170,531 172,858 167,635 13,000 15,100
Stockholders' equity $ 49,007 46,017 45,305 34,360 32,172
</TABLE>
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<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On August 17, 1994, the Company acquired all of the issued and
outstanding shares of common stock of Mr. Coffee, inc. ("Mr. Coffee"), by means
of a merger of a wholly-owned subsidiary of the Company with and into Mr. Coffee
(the "Acquisition"). Subsequently, Mr. Coffee was merged into the Company's
Health o meter, Inc. subsidiary. The aggregate purchase price in connection with
the Acquisition was approximately $133.5 million. The Company's operations are
conducted through two divisions. These divisions are the Consumer Products
Division and the Professional Products Division.
Mr. Coffee historically realized significantly greater annual
sales and had a much larger asset base than the Company. During fiscal 1993 (the
last full fiscal year prior to the Acquisition), Mr. Coffee had net sales of
approximately $175 million and, at December 26, 1993, it had total assets of
approximately $118 million. The Acquisition was accounted for as a purchase, and
the Company's results of operations for fiscal 1994 reflect the inclusion of Mr.
Coffee's results of operations for the period subsequent to August 17, 1994. On
a pro forma basis, giving effect to the Acquisition as if it had occurred at the
beginning of fiscal 1994, the Company's net sales would have been $160.7 million
and its net loss would have been $9.6 million in the nine-month fiscal period.
On September 21, 1994, the Board of Directors of the Company
determined to change the Company's fiscal year from one ending on December 31 in
each year to a 52-53 week fiscal year ending on the Sunday closest to the last
day of the month of September in each year. As a result of the change in the
Company's fiscal year, the results of operations for fiscal 1994 are not
directly comparable with those of prior years or of fiscal 1995. In particular,
fiscal 1994 results do not reflect results of operations for the last calendar
quarter of the fiscal year, during which the Company and Mr. Coffee have
historically achieved their highest net sales. During the four fiscal years
prior to the acquisition, the Company's fourth quarter net sales have
represented an average of approximately 29% of annual net sales. During the same
period, Mr. Coffee's fourth quarter net sales have represented an average of
approximately 34% of its annual net sales.
Set forth below is a discussion of the principal factors which
affected the Company's results of operations during each of the three most
recent fiscal periods, and an analysis of the Company's liquidity and capital
resources. This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto included elsewhere in
this report.
-22-
<PAGE> 24
RESULTS OF OPERATIONS
Fiscal Year ended September 29, 1996 Compared with Fiscal Year ended October 1,
1995
Net Sales. Net sales for fiscal 1996 increased approximately
5.6% to $283.0 million, compared with $267.9 million for fiscal 1995.
Net sales of the Consumer Products Division increased
approximately 7.5% to $247.3 million in fiscal 1996, compared with $230.0
million in fiscal 1995. The increase in net sales of the Consumer products
Division was due primarily to sales of the recently introduced automatic hot
teamaker, Mrs. Tea(TM). Consumer Products Division sales were also favorably
impacted by higher sales of consumer scales attributable to increased
distribution of electronic strain gauge scales at certain mass merchandisers.
New distribution of filters also favorably impacted fiscal 1996 sales. These
sales increases were partially offset by a decline in coffeemaker and iced
teamaker sales reflecting an overall small appliance industry sales decline and
lower retail activity resulting from severe winter weather conditions
experienced in the second quarter of fiscal 1996. Therapeutic device sales
declined in fiscal 1996 as the Company introduced four new therapeutic product
categories in late fiscal 1996 to replace the less profitable Shiatsu double
hand massager.
Net sales of the Professional Products Division declined
approximately 5.7% to $35.7 million, primarily because fiscal 1995 sales had
been favorable impacted by the U.S. Postal rate increase in January 1995, which
generated incremental sales of postal scale dials, electronic rate chips and
postal scales to accommodate the new rates. The Professional Products sales
decline was partially offset in fiscal 1996 by improved sales of analog medical
and consumer bath scales to foreign customers.
Overall sales to the Company's top five customers during
fiscal 1996 accounted for approximately 52% of net sales, compared with
approximately 50% of net sales in fiscal 1995. Due to the continuing
consolidation of major retailers, the Company believes that its dependence on
sales to its largest customers, all major retailers, will continue.
Gross Profit. The Company's gross profit in fiscal 1996 was
$90.3 million, or approximately 31.9% of net sales, compared with $83.0
million, or approximately 31.0% of net sales in fiscal 1995. The addition of
new higher margin products to the sales mix, as well as improvements in
operating efficiency during 1996 contributed to the overall gross profit
improvement. The Consumer Products Division's gross profit increased from
approximately 30.0% of net sales for fiscal 1995 to approximately 31.4% of net
sales for fiscal 1996. The Consumer Products Division's gross profit percentage
reflects the favorable impact from sales of the recently introduced automatic
hot teamaker, Mrs. Tea(TM), as well as lower costs for key raw material such as
paper, certain imported appliances and packaging material. Historically, gross
margins on individual product lines have been greatest near the point of
introduction and gradually decreasing as the product matures and becomes subject
to pricing pressure. For this
-23-
<PAGE> 25
reason, the Company continues its efforts to introduce new products and to
reduce the cost of existing products as a means of protecting margins.
The Professional Products Division's gross profit declined
from approximately 36.7% of net sales for fiscal 1995 to approximately 35.1%
of net sales for fiscal 1996. The gross profit of the Professional Products
Division was favorably impacted during fiscal 1995 by the U.S. Postal rate
increase in January 1995 which was not repeated in 1996.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses ("SG&A") for fiscal 1996 totaled $59.6 million,
compared with $56.6 million for fiscal 1995. For both fiscal 1996 and 1995, SG&A
approximated 21.1% of net sales. The overall increase in SG&A is attributable
to higher national advertising expenditures to support the marketing of new
products, such as Mrs. Tea(TM), and proportionately higher variable selling
costs related to increased sales. Higher bad debt expense, as a result of
bankruptcy and liquidation filings by certain customers, also contributed to the
increase in SG&A.
Amortization of Intangible Assets. The amortization of
intangible assets of $4.0 million, or $0.44 per share, relates primarily to
intangible assets associated with the Acquisition in August 1994.
Interest Expense. Interest expense for fiscal 1996 was
approximately $19.1 million, compared with $19.4 million for fiscal 1995. The
decrease in interest expense is attributable to slightly lower overall interest
rates during fiscal 1996, compared with fiscal 1995.
Income Taxes. Income tax expense of $4.9 million is based upon
the income before income taxes adjusted principally for non-deductible
amortization expense. The Company's effective tax rate for 1996 was
approximately 62.3%, compared with approximately 77.8% for 1995. Expenses not
deductible for tax purposes, primarily the amortization of intangible assets
associated with the Acquisition, resulted in an effective tax rate significantly
higher than the statutory tax rate in both years. The higher level of pretax
income in 1996 relative to 1995 reduced the effect of these non-deductible
expenses resulting in a lower effective tax rate in 1996.
Net Income. Based on the foregoing, the Company achieved net
income of $3.0 million in fiscal 1996, compared with net income of $0.7 million
in fiscal 1995.
Fiscal Year ended October 1, 1995 Compared with Nine-Month Period ended October
2, 1994
Net Sales. Net sales for fiscal 1995 increased approximately
285.7% to $267.9 million, compared with $69.5 million for the nine months
included in fiscal 1994. Net sales of Mr. Coffee(R) brand products contributed
in excess of 80% of the sales increase, as only six weeks of these sales were
consolidated with those of the Company in 1994. The balance of the increase is
largely a result of comparing a full year in 1995 with only nine months of
operations in 1994.
-24-
<PAGE> 26
Overall sales to the Company's top five customers during
fiscal 1995 accounted for approximately 50% of net sales, versus approximately
38% in fiscal 1994. The increased share of the Company's net sales made to its
top five customers is attributable to the impact of a full year of sales of Mr.
Coffee(R) brand products as well as increased volume to these customers as a
whole.
Gross Profit. The Company's gross profit in fiscal 1995 was
$83.0 million, or approximately 31.0% of net sales, compared with $16.3
million, or approximately 23.5% of net sales in fiscal 1994. The gross profit
percentage in fiscal 1994 was depressed primarily as a result of the impact of
an increase in the Company's provision for product returns, and certain changes
in accounting estimates and additional accruals. Without giving effect to these
charges, the Company's overall gross profit margin would have been approximately
26% in fiscal 1994. Gross profit dollars increased over the prior fiscal year
primarily due to the impact of the gross profit earned on Mr. Coffee(R) brand
products sales for a full year in fiscal 1995 compared with six weeks in fiscal
1994 as well as the gross profit earned on a full year of sales for the Company
in fiscal 1995 versus nine months in fiscal 1994. During fiscal 1995, gross
profit percentages returned to historical levels. The improvement in the
Company's gross profit percentage was accomplished despite cost increases in key
raw materials such as steel, paperboard and resin, all of which are used in a
majority of the Company's products. The increase in raw material costs was
somewhat mitigated not only by the achievement of certain operating
efficiencies, but also by price increases on many of the Company's products.
There continues to be intense pressure on retail prices and there is no
guarantee that the Company will be able to achieve price increases from its
customers in the future. The Consumer Products Divison's gross margin also was
favorably impacted by an improved product mix which included a larger percentage
of higher margin products and cost savings achieved by sourcing a greater
percentage of scales from foreign manufacturers. The Professional Products
Division's gross margin improved because of an increase in office product sales
as a result of the January 1995 postal rate increase. Gross margins on
replacement rate dials and electronic rate chips related to the postal rate
increase are higher than the Professional Products Division's historical rates.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses ("SG&A") for fiscal 1995 totaled $56.6 million,
compared with $18.4 million for fiscal 1994. The increase in magnitude of SG&A
is principally due to having incurred a full twelve months' expense versus only
nine months of SG&A for Health o meter(R) and Pelouze(R) brand product sales and
six weeks of SG&A for Mr. Coffee(R) brand product sales during fiscal 1994. As a
percentage of net sales, SG&A declined from approximately 26.5% in 1994 to
approximately 21.1% in the current year. This decline is primarily attributable
to fixed selling, general and administrative costs being spread over a much
larger net sales amount as well as efficiencies gained during the year from the
elimination of duplicate functions through integration of the accounting and
information systems and the legal and administrative functions.
Amortization of Intangible Assets. The increase in
amortization to $4.0 million from $0.8 million results from a full year's
amortization of the excess of cost over fair value of net assets acquired
associated with the Acquisition in August 1994.
-25-
<PAGE> 27
Interest Expense. Interest expense for fiscal 1995 was
approximately $19.4 million, compared with $3.9 million for fiscal 1994. The
large increase in interest expense is attributable to a full year's impact of
the increase in the Company's indebtedness resulting from the additional long
term debt incurred to finance the Acquisition and other related costs as well as
increases in both the prime interest rate and LIBOR rate used as a basis for the
rate charged on the Company's floating rate debt.
Income Taxes. Income tax expense of $2.5 million is based upon
the income before income taxes adjusted principally for non-deductible
amortization expense.
Net Income. Based on the foregoing, the Company achieved net
income of $0.7 million in fiscal 1995 versus a net loss of $8.0 million in the
previous fiscal period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity are cash generated
by operating activities and borrowings under a Credit Agreement among Health o
meter and a group of Banks represented by Banque Nationale de Paris, New York
Branch ("BNP") as agent and as issuer of letters of credit (the "Bank Credit
Agreement") entered into in connection with the Acquisition.
Cash flow activity for fiscal 1996 and 1995 is presented in
the consolidated statement of cash flows. During fiscal 1996, the Company
generated approximately $5.9 million in cash flow from its operating activities.
Net income plus non-cash charges generated approximately $14.7 million, while
changes in working capital components required approximately $8.8 million. The
increase in accounts receivable, which required approximately $3.8 million, is
primarily attributable to seasonally higher sales and sales of the recently
introduced automatic hot teamaker, Mrs. Tea(TM). An increase in inventory
primarily attributable to the need to respond to retailers' seasonal demands for
products, required approximately $2.1 million.
The Company's business is somewhat seasonal, with a large
portion of its sales and earnings generated in the fourth calendar of the year.
During fiscal 1996 and 1995, the Company generated approximately 34% of its
annual net sales during the fiscal quarters ended December 31, 1995 and January
1, 1995.
The Company's aggregate capital expenditures during fiscal
1996 were approximately $4.4 million, and primarily reflect expenditures for new
product tooling, production equipment and a computerized design system to
streamline the Company's new product development cycle. During fiscal 1997, the
Company anticipates making capital expenditures of approximately $9.6 million
primarily for new product tooling, information systems and production equipment.
Management plans to fund these capital expenditures with available cash, cash
flow from operations and, if necessary, borrowings under the revolving credit
facility provided under the Bank Credit Agreement.
-26-
<PAGE> 28
Indebtedness incurred in connection with the Acquisition has
significantly increased the Company's cash requirements and imposes various
restrictions on its operations. The Acquisition and related transactions were
financed with approximately $98 million in borrowings under the Bank Credit
Agreement, approximately $70 million in proceeds from a unit offering of 13%
senior subordinated notes due in 2002 (the "Notes") and warrants to purchase
shares of Common Stock at a price of $6.25 per share, and approximately $17.2
million in net proceeds received from the exercise of certain transferable
rights to purchase 3,543,433 shares of Common Stock issued to the stockholders
of the Company.
Financing provided under the Bank Credit Agreement consisted
of a $75.0 million term loan facility, which was fully drawn at the closing of
the Acquisition, and a $50.0 million revolving credit facility (which also
provides for a $18.0 million letter of credit sub-facility), under which
approximately $22.5 million was drawn in connection with the Acquisition.
Effective June 30, 1995, the Bank Credit Agreement was amended, increasing the
revolving credit facility to $60.0 million. Borrowings under the Term Loan and
the Revolving Credit Facility bear interest at a rate equal to BNP's Base Rate
(as defined) plus 1.0% per annum or BNP's Eurodollar Rate (as defined and
adjusted for reserves) plus 2.5% per annum, in either case as selected by
Health o meter. Health o meter's obligations under the Bank Credit Agreement
are secured by substantially all of Health o meter's assets and a pledge of all
of its issued and outstanding common stock. Health o meter's obligations under
the Bank Credit Agreement are also guaranteed by the Company.
The Term Loan is subject to amortization on a quarterly basis
in aggregate annual amounts of $6.0 million, $8.75 million, $17.5 million, $15.0
million, and $19.0 million during fiscal 1997 through fiscal 2001, respectively.
Health o meter is required to make prepayments on the Term Loan and Revolving
Credit Facility with a percentage of Excess Cash Flow (as defined) and 100% of
the proceeds from certain asset sales, issuances of debt and equity securities
and extraordinary items outside the ordinary course of business. The required
term loan repayment for fiscal 1997 is $1.0 million, which is included in the
current portion of long-term debt. Health o meter may also make optional
prepayments, in full or in part, on the Term Loan.
Health o meter is subject to certain customary affirmative and
negative covenants contained in the Bank Credit Agreement. These include,
without limitation, covenants that restrict, subject to certain exceptions,
incurrence of additional indebtedness, mergers, consolidations or asset sales,
changes in the nature of the business, granting of liens to secure any other
indebtedness and transactions with affiliates. In addition, the Bank Credit
Agreement requires that the Company maintain certain specified financial ratios,
including minimum interest and fixed charge coverage ratios, maximum leverage
ratio, minimum net worth levels and ceilings on leverage and capital
expenditures. In order to reflect the impact of the seasonality of the Company's
business on its financial condition, relevant covenants in the Bank Credit
Agreement are set on a rolling twelve month basis. At September 29, 1996, the
Company was in compliance with such covenants. Borrowing availability under the
Bank Credit Agreement at September 29, 1996 was $14.0 million after considering
outstanding letters of credit of $2.7 million, actual borrowings of $41.6
million, and sufficiency of collateral.
-27-
<PAGE> 29
The Notes are general obligations of Health o meter and bear
interest at the rate of 13% per annum. The interest on the Notes is payable
semi-annually, in arrears, commencing on February 15, 1995. Principal of the
Notes is payable on the maturity date, August 15, 2002. Health o meter's payment
obligations under the Notes are unconditionally guaranteed by the Company. The
Notes and the Company's guaranty are subordinated to the prior payment of all of
the Company's senior debt (which includes amounts outstanding under the Bank
Credit Agreement). The Indenture governing the Notes contains customary
provisions restricting mergers, consolidations or sales of assets, issuances of
preferred stock or the incurrence of additional indebtedness, payment of
dividends, creation of liens and transactions with affiliates. Provided that
certain financial tests are met, the Indenture does not limit the amount of
additional indebtedness that Health o meter and its subsidiaries may incur.
The Notes are generally not redeemable at the option of the
Company until August 15, 1999. Subject to certain conditions, at any time
through August 17, 1997, up to 35% of the initial principal amount of the Notes
originally issued may be redeemed with the net proceeds of one or more public
offerings of equity securities of the Company or Health o meter at a redemption
price of 110% of the principal amount thereof, together with accrued and unpaid
interest. Under certain limited circumstances, Health o meter may be required to
use a portion of the proceeds from asset sales to make an offer to purchase a
portion of the Notes, at a price of 101% of the principal amount thereof,
together with accrued and unpaid interest. In addition, in the event of a change
in control of Health o meter (generally defined to mean any transaction or
series of transactions which results in persons other than the Thomas H. Lee
Company, its affiliates and certain related entities acquiring beneficial
ownership of more than 50% of the total voting power of the Company on a fully
diluted basis), each holder will have the right to require Health o meter to
repurchase its Notes at a price of 101% of the principal amount thereof,
together with accrued and unpaid interest thereon. Except for the foregoing
circumstances, Health o meter is not required to make mandatory redemption or
sinking fund payments with respect to the Notes.
The Bank Credit Agreement currently prohibits Health o meter
from purchasing any Notes prior to the expiration thereof and also provides that
certain change in control events with respect to Health o meter would constitute
a default thereunder.
The Company is a holding company with no independent
operations and has no material assets other than its ownership of all of the
outstanding stock of Health o meter. Therefore, the Company is dependent on the
receipt of dividends and other distributions from Health o meter and the
proceeds from the sale of its capital stock (to the extent that such proceeds
are not required to be used to prepay outstanding indebtedness) to fund any
obligations that the Company incurs. The Bank Credit Agreement prohibits, and
the Indenture restricts, the payment of dividends to the Company by Health o
meter.
Based upon current levels of operations, anticipated sales
growth and plans for expansion, Management believes that the Company's cash flow
from operations (including favorable cost savings estimated to be achieved in
the future), combined with borrowings available under the Bank Credit Agreement,
will be sufficient to enable the Company to meet all
-28-
<PAGE> 30
of its cash operating requirements over both the short term and the longer term,
including scheduled interest and principal payments, capital expenditures and
working capital needs. This expectation is predicated upon continued growth in
revenues in the Company's core businesses consistent with historical experience,
achievement of operating cash flow margins consistent with historical
experience, and the absence of significant increases in interest rates.
INFLATION
Increases in interest rates, the costs of materials and labor,
and Federal, state and local tax rates can significantly affect the Company's
operations. Management believes that the current practices of maintaining
adequate operating margins through a combination of new product introductions,
product differentiation, cost reduction, outsourcing, manufacturing and overhead
expense control and careful management of working capital are its most effective
tools for coping with inflation.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board issued
two pronouncements, neither of which the Company has adopted, which are
effective for financial statements for years beginning after December 15, 1995.
The Company has considered the requirements of Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
and has determined that it will not require recognition of any impairment
losses. The Company has also determined to remain within the accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and
accordingly the implementation of Statement No. 123, Accounting for Stock-Based
Compensation will result in additional disclosures without any impact on the
statements of operations or financial condition.
-29-
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following pages contain the Financial Statements
and Supplementary Data as specified for by Item 8 of
Part II of Form 10-K.
-30-
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Health o meter Products, Inc.:
We have audited the consolidated financial statements of Health o meter
Products, Inc. and subsidiary as of September 29, 1996 and October 1, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended September 29, 1996 and October 1, 1995, and for
the nine-month period ended October 2, 1994. In connection with our audit of the
consolidated financial statements, we also audited the schedules as listed in
the accompanying index for the years ended September 29, 1996 and October 1,
1995. These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Health
o meter Products, Inc. and subsidiary as of September 29, 1996 and October 1,
1995, and the results of their operations and their cash flows for the years
ended September 29, 1996 and October 1, 1995, and for the nine-month period
ended October 2, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
KPMG PEAT MARWICK LLP
Cleveland, Ohio
December 3, 1996
F-1
<PAGE> 33
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
September 29, 1996 and October 1, 1995
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Current assets
Cash $ 736 835
Trade accounts receivable, less allowance for doubtful accounts
and discounts of $2,592 in 1996 and $1,813 in 1995 57,960 54,151
Inventories 43,626 41,787
Deferred income taxes 5,206 5,108
Other current assets 1,479 2,035
--------- ---------
Total current assets 109,007 103,916
Property, plant and equipment, net 18,522 20,157
Other assets
Excess of cost over fair value of net assets acquired, net 139,830 144,084
Deferred financing costs, net 4,579 5,437
Other 1,552 1,541
--------- ---------
Total other assets 145,961 151,062
--------- ---------
Total assets $ 273,490 275,135
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Current portion of long-term debt $ 6,000 5,000
Accounts payable 22,851 25,803
Accrued liabilities 19,542 19,828
--------- ---------
Total current liabilities 48,393 50,631
Long-term debt 170,531 172,858
Product liability 3,516 3,621
Other 2,043 2,008
--------- ---------
Total liabilities 224,483 229,118
Stockholders' equity
Common stock, par value $.01 per share; authorized 20,000 shares;
issued and outstanding 9,080 shares at September 29,
1996 and 9,071 shares at October 1, 1995 91 91
Paid-in capital 51,772 51,741
Warrants 1,773 1,773
Accumulated deficit (4,629) (7,588)
--------- ---------
Total stockholders' equity 49,007 46,017
--------- ---------
Total liabilities and stockholders' equity $ 273,490 275,135
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 34
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended September 29, 1996 and October 1, 1995,
and the nine-month period ended October 2, 1994
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 282,977 267,887 69,451
Operating costs and expenses
Cost of goods sold 192,706 184,911 53,159
Selling, general, and administrative expenses 59,635 56,642 18,394
Amortization of intangible assets 4,000 3,961 815
Work force reductions and asset writedowns -- -- 5,367
--------- --------- ---------
Total operating costs and expenses 256,341 245,514 77,735
--------- --------- ---------
Operating income (loss) 26,636 22,373 (8,284)
Interest expense 19,134 19,354 3,889
Other income (357) (195) (18)
--------- --------- ---------
Income (loss) before income taxes 7,859 3,214 (12,155)
Income tax expense (benefit) 4,900 2,502 (4,110)
--------- --------- ---------
Net income (loss) $ 2,959 712 (8,045)
========= ========= =========
Net income (loss) per share $ .33 .08 (1.31)
========= ========= =========
Weighted average shares outstanding 9,073 9,071 6,134
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 35
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended September 29, 1996 and October 1, 1995,
and the nine-month period ended October 2, 1994
(amounts in thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------
Shares Paid-In Accumulated
Issued Dollars Capital Warrants Deficit
------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 5,528 $ 55 34,560 -- (255)
Net loss -- -- -- -- (8,045)
Issuance of common stock
pursuant to exercise of
stock rights 3,543 36 17,181 -- --
Issuance of warrants in
conjunction with the
issuance of debt -- -- -- 1,773 --
------ ------ ------ ------ ------
Balance at October 2, 1994 9,071 91 51,741 1,773 (8,300)
Net income -- -- -- -- 712
------ ------ ------ ------ ------
Balance at October 1, 1995 9,071 91 51,741 1,773 (7,588)
Net income -- -- -- -- 2,959
Issuance of common stock
pursuant to exercise of
stock options 9 -- 31 -- --
------ ------ ------ ------ ------
Balance at September 29, 1996 9,080 $ 91 51,772 1,773 (4,629)
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 36
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended September 29, 1996 and October 1, 1995,
and the nine-month period ended October 2, 1994
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 2,959 712 (8,045)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
Depreciation and amortization of plant and equipment 6,011 5,108 2,311
Loss on asset write-offs and disposals 63 119 4,046
Amortization of intangible assets 4,000 3,961 815
Amortization of deferred financing costs 858 823 117
Deferred tax expense (benefit) 522 2,362 (3,991)
Accretion of debt discount 223 223 18
Changes in
Trade accounts receivable (3,809) (12,479) (3,363)
Inventories (2,085) 2,813 (12,115)
Other assets 482 3,198 (1,863)
Accounts payable (2,952) (7,306) 8,091
Accrued liabilities (286) 60 264
Noncurrent liabilities (127) (492) 362
-------- -------- --------
Net cash provided by (used in) operating activities 5,859 (898) (13,353)
-------- -------- --------
Cash flows from investing activities
Capital expenditures (4,439) (4,636) (3,962)
Payments for patents -- -- (106)
Purchase of Mr. Coffee, inc., net of cash acquired -- -- (127,434)
-------- -------- --------
Net cash used in investing activities (4,439) (4,636) (131,502)
-------- -------- --------
Cash flows from financing activities
Proceeds from revolving credit facilities 76,700 80,600 47,400
Repayments of revolving credit facilities (74,500) (70,600) (31,000)
Repayment of long-term debt (3,750) (5,000) --
Proceeds from issuance of warrants -- -- 1,773
Proceeds from term note -- -- 75,000
Proceeds from issuance of Senior Subordinated Notes -- -- 68,217
Repayment of long-term debt acquired -- -- (26,746)
Proceeds from issuance of common stock 31 -- 17,217
Payment of financing fees -- (315) (6,114)
-------- -------- --------
Net cash provided by (used in) financing activities (1,519) 4,685 145,747
-------- -------- --------
Increase (decrease) in cash (99) (849) 892
Cash at beginning of the period 835 1,684 792
-------- -------- --------
Cash at end of the period $ 736 835 1,684
======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 18,092 18,820 774
Income taxes 3,490 280 153
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 37
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 29, 1996 and October 1, 1995
(amounts in thousands, except per share data)
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Description of Business
-----------------------
Health o meter Products, Inc. (the Company) is a holding company
which, through its wholly owned subsidiary, Health o meter, Inc.
(Health o meter), designs, manufactures, markets, and distributes
a comprehensive line of consumer and professional products. The
Company's consumer products, marketed under the Mr. Coffee(R) and
Health o meter(R) brand names include automatic drip coffeemakers,
iced teamakers, hot teamakers, filters, water filtration products,
accessories, and other kitchen countertop appliances as well as
bath, kitchen, and diet scales and therapeutic devices.
Professional products include the Pelouze(R) and Health o meter(R)
brands of office, food service, and medical scales and timers.
(b) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant
intercompany accounts and transactions are eliminated in
consolidation.
(c) Fiscal Year
-----------
During 1994, the Company changed its fiscal year from one ending
on December 31 in each year to a 52-53 week fiscal year ending on
the Sunday closest to the last day of September in each year.
Accordingly, the 1994 fiscal period consisted of the nine-month
period ended October 2, 1994, whereas the 1996 and 1995 fiscal
periods consist of a full year's operations.
(d) Revenue Recognition
-------------------
The Company recognizes revenue from product sales upon shipment to
the customer. Costs or losses estimated to be incurred in
connection with product returns and warranties are charged against
revenues at the time of sale, based upon consideration of
historical experience and information available from customers.
(e) Inventories
-----------
Inventories are stated at the lower of cost or market. Inventories
of the Mr. Coffee Division, accounted for under the last-in,
first-out (LIFO) method, represent 62 percent and 64 percent of
the inventories in 1996 and 1995, respectively. For the remaining
inventories, cost is determined using the first-in, first-out
(FIFO) method.
(Continued)
F-6
<PAGE> 38
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
(f) Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. The Company
calculates depreciation using the straight-line method over the
estimated useful lives of the respective assets.
(g) Excess of Cost over Fair Value of Net Assets Acquired
-----------------------------------------------------
The Company's excess of cost over the fair value of net assets
acquired primarily represents the value of its brand names,
created by advertising and product performance over many years,
and is being amortized on the straight-line basis over a 40-year
period. The Company assesses the recoverability of this intangible
asset by determining whether the brand name dominance in terms of
market share and the national distribution secured can generate
sufficient revenues, growth, and cash flow to recover the
intangible asset balance over its remaining life. Accumulated
amortization amounted to $11,258 and $7,258 at September 29, 1996
and October 1, 1995, respectively.
(h) Deferred Financing and Stock Issuance Costs
-------------------------------------------
Financing costs related to the issuance of debt are capitalized
and amortized over the term of the debt. Accumulated amortization
of financing costs amounted to $1,750 and $892 at September 29,
1996 and October 1, 1995, respectively. Issuance costs related to
the sale of common stock reduce paid-in capital.
(i) Income Taxes
------------
The Company accounts for income taxes under the asset and
liability method whereby deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using the tax
rates in effect at the end of the period. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that the new tax rate is enacted.
(j) Cooperative Advertising Costs
-----------------------------
The Company adopted AICPA Statement of Position 93-7, Reporting on
Advertising Costs, in the last quarter of fiscal 1994, which
requires that the Company expense reimbursements of customers'
advertising costs at the time the related revenues are recognized.
Under the Company's previous accounting method, such costs were
recognized at the time the advertising was placed by the customer.
(k) Product Liability Costs
-----------------------
Costs estimated to be incurred with respect to product liability
claims are accrued based upon actuarially determined estimates
derived from experience factors. The current portion represents
product liability costs estimated to be paid within one year.
(Continued)
F-7
<PAGE> 39
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
(l) Earnings (Loss) per Common Share
--------------------------------
Earnings per common share are calculated by dividing net income by
the weighted average of outstanding common stock and common stock
equivalents using the treasury stock method, except when the
effect of common stock equivalents would be antidilutive or when
dilution is less than 3 percent. Net loss per common share is
based on the weighted average of outstanding common shares.
(m) Use of Estimates
----------------
Generally accepted accounting principles require management to
make a number of estimates and assumptions relating to the
reported amounts of assets and liabilities and the disclosure of
contingent liabilities, at the date of the financial statements,
and the reported amounts of revenues and expenses during the
period in preparing these financial statements. Actual results
could differ from those estimates.
(n) Reclassifications
-----------------
Certain reclassifications were made to the Company's prior period
financial statements to conform to the 1996 presentation.
(2) Acquisition of Mr. Coffee, inc.
------------------------------
On August 17, 1994, Health o meter acquired all of the issued and
outstanding common stock of Mr. Coffee, inc. (Mr. Coffee) in a business
combination treated for financial reporting purposes as a purchase. Mr.
Coffee's results of operations have been included in the Company's
consolidated financial statements from the acquisition date.
(3) Change in Method of Accounting for Advertising Costs
----------------------------------------------------
During the last quarter of fiscal 1994 the Company elected to apply the
provisions of AICPA Statement of Position 93-7, Reporting on Advertising
Costs. The effect of the change was $430, which reduced net income for
the nine months ended October 2, 1994 by $258 or approximately $.04 per
share. Also, during the last quarter of fiscal 1994 new management
determined that the benefit period for certain types of advertising and
marketing materials was short lived and that customer and marketing
display materials carried little residual value. Accordingly, such costs
amounting to $775 ($465 on an after-tax basis, or approximately $.06 per
share) were written off as net realizable value adjustments and are
included with asset writedowns in the consolidated statement of
operations. The Company has elected to follow the policy of expensing
such costs as they are incurred. Advertising expense was $20,087 and
$18,458 for the years ended September 29, 1996 and October 2, 1995,
respectively, and was $4,201 for the nine-month period ended October 2,
1994, including $1,205 for the items noted above.
(Continued)
F-8
<PAGE> 40
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
(4) Changes in Accounting Estimates
-------------------------------
During the final quarter of 1994, new management revised the Company's
calculation for estimating product returns under warranties as a result
of reviewing the Company's warranty and return experience in recent
periods. The revised calculation reduced net income by $942 or
approximately $.13 per share. During this quarter the Company also
revised its assessment of current product lives and shortened the
amortization period for certain costs related to packaging and product
modifications from five to three years, reducing net income by $226 or
approximately $.03 per share. Other changes in estimates for slow moving
and refurbished inventories, accounts receivable, and workers'
compensation liabilities reduced net income by $549 in the aggregate or
approximately $.08 per share.
(5) Inventories
-----------
The components of inventories are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Inventories at FIFO cost
Raw materials and purchased parts $ 13,446 13,389
Finished goods 29,591 28,220
-------- ------
43,037 41,609
Excess of LIFO cost over FIFO 589 178
-------- ------
Inventories $ 43,626 41,787
======== ======
</TABLE>
Work-in-process inventories are not significant and are included with raw
materials.
(6) Property, Plant and Equipment
-----------------------------
<TABLE>
<CAPTION>
Property, plant and equipment are as follows:
1996 1995
---- ----
<S> <C> <C>
Land, buildings, and building improvements $ 6,108 5,954
Machinery and equipment 7,862 7,167
Tools, dies, and patterns 21,657 18,919
Furniture and fixtures 4,192 2,857
Leasehold improvements 413 430
Construction in progress 1,018 1,579
----------- -------
41,250 36,906
Accumulated depreciation (22,728) (16,749)
----------- ------
Property, plant and equipment, net $ 18,522 20,157
=========== ======
</TABLE>
(Continued)
F-9
<PAGE> 41
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
(7) Accrued Liabilities
-------------------
<TABLE>
<CAPTION>
The components of accrued liabilities are as follows:
1996 1995
---- ----
<S> <C> <C>
Product returns under warranties $ 6,200 5,665
Advertising and promotional costs 4,866 5,555
Accrued compensation 1,945 2,030
Interest 1,364 1,471
Product liability 965 965
Other 4,202 4,142
------ ------
Accrued liabilities $ 19,542 19,828
====== ======
</TABLE>
(8) Long-Term Debt
--------------
<TABLE>
<CAPTION>
Debt is summarized as follows:
1996 1995
---- ----
<S> <C> <C>
Revolving Credit Facility dated August 17, 1994, bearing interest at
prime plus 1% or the London Interbank Offered Rate (LIBOR) plus 2.5%
(weighted average interest rate was 8.33% at September 29, 1996); due
August 15, 2001; secured by substantially all of Health o meter's
assets and a pledge of all its issued and outstanding common stock;
Health o meter's obligations under the Bank Credit Agreement
are also guaranteed by the Company. $ 41,600 39,400
Term Note dated August 17, 1994, bearing interest at prime plus 1% or
LIBOR plus 2.5% (weighted average interest rate was 8.27% at
September 29, 1996); due August 15, 2001; principal payable on a
quarterly basis in aggregate 12-month amounts of $6,000, $8,750,
$17,500, $15,000, and $19,000 during fiscal 1997 through fiscal
2001; secured by substantially all of Health o meter's assets and
a pledge of all its issued and outstanding common stock; Health o
meter's obligations under the Bank Credit Agreement are also
guaranteed by the Company. 66,250 70,000
Senior Subordinated Notes, net of unamortized discount of $1,319 and
$1,542 at September 29, 1996 and October 1, 1995, respectively,
bearing interest at 13%, payable semiannually; due August 15, 2002. 68,681 68,458
------- -------
176,531 177,858
Current portion of long-term debt (6,000) (5,000)
------- -------
Long-term debt $ 170,531 172,858
======= =======
</TABLE>
(Continued)
F-10
<PAGE> 42
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
Bank Credit Agreement
---------------------
On August 17, 1994, in conjunction with the acquisition of Mr. Coffee,
Health o meter entered into a Bank Credit Agreement (the Agreement) with
a bank group. This Agreement replaced Health o meter's existing credit
agreement and provided a new $50,000 Revolving Credit Facility (including
an $18,000 letter of credit subfacility) and a $75,000 Term Note.
Effective June 30, 1995, the Agreement was amended, increasing the
Revolving Credit Facility to $60,000 subject to collateral availability.
The Revolving Credit Facility includes a charge of 0.5 percent on the
unused line and 2.5 percent for letter of credit guarantees.
Health o meter is required to make prepayments on the Term Note and
Revolving Credit Facility with a percentage of Excess Cash Flow, as
defined, and 100 percent of the proceeds from certain asset sales,
issuances of debt and equity securities, and extraordinary items outside
the ordinary course of business. The required prepayment for fiscal 1997
is $1,000 and is included in the current portion of long-term debt.
Health o meter may also make optional prepayments, in full or in part, on
the Term Note, subject to certain limitations.
Borrowing availability based on sufficiency of collateral at September
29, 1996 was $13,962 after giving effect to outstanding letters of credit
of $2,747 and actual borrowings of $41,600.
Health o meter is subject to certain customary affirmative and negative
covenants contained in the Agreement. These include, without limitation,
covenants that restrict, subject to certain exceptions, incurrence of
additional indebtedness; mergers, consolidations, or asset sales; changes
in the nature of the business; granting of liens to secure any other
indebtedness; and transactions with affiliates. In addition, the
Agreement requires that the Company maintain certain specified financial
ratios, including minimum interest and fixed charge coverage ratios,
maximum leverage ratios, minimum net worth levels, and ceilings on
leverage and capital expenditures. At September 29, 1996, the Company was
in compliance with such covenants.
Senior Subordinated Notes
-------------------------
The Senior Subordinated Notes (the Notes) are general obligations of
Health o meter arising in connection with the acquisition of Mr. Coffee.
Health o meter's payment obligations under the Notes are unconditionally
guaranteed by the Company. The Notes and the Company's guaranty are
subordinated to the prior payment of the Company's amounts outstanding
under the Agreement. The Indenture governing the Notes contains customary
provisions restricting mergers, consolidations, or sales of assets;
issuances of preferred stock or the incurrence of additional
indebtedness; payment of dividends; creation of liens; and transactions
with affiliates. Provided that certain financial tests are met, the
Indenture does not limit the amount of additional indebtedness that
Health o meter and its subsidiaries may incur.
(Continued)
F-11
<PAGE> 43
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
The Notes are generally not redeemable at the option of the Company until
August 15, 1999. Subject to certain conditions, at any time through
August 17, 1997, up to 35 percent of the initial principal amount of the
Notes originally issued may be redeemed with the net proceeds of one or
more public offerings of equity securities of the Company or Health o
meter at a redemption price of 110 percent of the principal amount
thereof, together with accrued and unpaid interest. Under certain limited
circumstances, Health o meter may be required to use a portion of the
proceeds from asset sales to make an offer to purchase a portion of the
Notes, at a price of 101 percent of the principal amount thereof,
together with accrued and unpaid interest. In addition, in the event of a
change in control of Health o meter, each holder will have the right to
require Health o meter to repurchase its Notes at a price of 101 percent
of the principal amount thereof, together with accrued and unpaid
interest thereon. Except for the foregoing circumstances, Health o meter
is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
The Agreement currently prohibits Health o meter from purchasing any
Notes prior to the expiration thereof and also provides that certain
change in control events with respect to Health o meter would constitute
a default thereunder.
(9) Warrants
--------
The Company, in conjunction with the issuance of the Notes, issued 70,000
warrants. Each warrant entitles the holder thereof to purchase 10.96
shares of common stock at $6.25 per share, subject to adjustment under
certain circumstances. The warrants expire on August 15, 2002.
(10) Income Taxes
------------
Income tax expense (benefit) for the years ended September 29, 1996 and
October 1, 1995, respectively, and the nine-month period ended October 2,
1994 consisted of:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current
Federal $ 4,052 100 (119)
State 326 40 -
Deferred 522 2,362 (3,991)
----- ----- -----
$ 4,900 2,502 (4,110)
===== ===== =====
</TABLE>
(Continued)
F-12
<PAGE> 44
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
The principal items accounting for the difference in taxes on income
computed at the U.S. statutory rate and as recorded for the years ended
September 29, 1996 and October 1, 1995, respectively, and the nine-month
period ended October 2, 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate of 35% $ 2,751 1,125 (4,255)
State taxes, net of federal benefit 558 176 (300)
Goodwill amortization 1,302 1,255 193
Other 289 (54) 252
----- ----- -----
$ 4,900 2,502 (4,110)
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at September 29, 1996
and October 1, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets
Compensation and vacation $ 340 595
Loss and credit carryforwards - 539
Warranties and sales reserves 2,897 3,141
Advertising 683 -
Product liability 1,746 1,861
Market lease 219 530
Bad debts 456 409
Other 741 1,206
----- -----
Total gross deferred tax assets 7,082 8,281
Deferred tax liabilities
Prepaid insurance and other (505) (341)
Depreciation and amortization (1,928) (2,769)
----- -----
Total gross deferred tax liabilities (2,433) (3,110)
----- -----
Net deferred tax asset $ 4,649 5,171
===== =====
</TABLE>
The realization of the Company's net deferred tax asset is dependent on
the generation of future taxable income. Management believes that it is
more likely than not that the Company will generate sufficient future
taxable income to fully utilize the established net asset. Accordingly,
no valuation allowance for the net deferred tax asset has been provided.
(Continued)
F-13
<PAGE> 45
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
The significant components of deferred income tax expense (benefit) for
the years ended September 29, 1996 and October 1, 1995, respectively, and
the nine-month period ended October 2, 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred tax expense (benefit) (exclusive of the
effects of other components listed below) $ 522 2,362 (9,106)
Charge in lieu of taxes resulting from initial recognition of
acquired tax benefits that are allocated to reduce excess of cost
over fair value of net assets acquired related to the
acquired entity -- -- 5,115
------ ------ ------
$ 522 2,362 (3,991)
====== ====== ======
</TABLE>
(11) Lease Commitments
-----------------
The Company leases various buildings and equipment under leases expiring
at various dates. At September 29, 1996, minimum rental commitments under
noncancelable leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending
------------------
<S> <C>
1997 $ 1,178
1998 1,612
1999 1,554
2000 1,540
2001 1,534
Thereafter 19,427
------
$ 26,845
======
</TABLE>
Rental expense amounted to approximately $1,438, $1,447, and $310 for the
years ended September 29, 1996 and October 1, 1995, and the nine-month
period ended October 2, 1994, respectively.
(12) Contingencies
-------------
The Company is involved in various claims and items of litigation.
Management believes that the ultimate outcome of such matters will not
have a material adverse effect upon the operations or financial position
of the Company.
(Continued)
F-14
<PAGE> 46
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
(13) Stock Incentive Plans
---------------------
1992 Incentive Stock Option Plan
--------------------------------
In February 1992, the Company adopted a new incentive stock plan (1992
Plan). The 1992 Plan provides that incentive stock options and
nonqualified stock options may be granted to such officers and key
employees as the administrators of the 1992 Plan may select. The 1992
Plan is administered by a committee of the board of directors which
selects the participants and determines (i) the type of options; (ii) the
vesting schedule of options; (iii) the exercise price (which may not be
less than fair market value on the date of grant); and (iv) the duration
of the options (which cannot exceed 10 years). A total of 220,000 shares
of common stock have been reserved for issuance under the 1992 Plan. No
options may be granted under the 1992 Plan after December 31, 2001.
1994 Nonqualified Stock Option Grant
------------------------------------
In August 1994, the Company granted an executive officer of the Company
362,353 nonqualified stock options at an exercise price of $2.61 per
share in exchange for canceled options of Mr. Coffee. The difference
between the aggregate exercise price of such new options and the fair
value of the Company's stock was equal to the option spread for the
canceled Mr. Coffee options. The options are exercisable immediately, but
may not be exercised more than one year after termination or death while
in the employ of the Company or more than 10 years from date of grant.
1995 Stock Option and Incentive Plan
------------------------------------
In April 1995, the Company adopted a new stock option and incentive plan
(1995 Plan). The 1995 Plan provides authority for the grant of stock
options and stock appreciation rights to directors, employees, and
consultants by the Compensation Committee (Committee) of the board of
directors. The total number of shares of common stock that may be subject
to awards granted under the 1995 Plan is equal to 750,000 shares of
common stock, subject to certain adjustments. The Committee selects the
participants and determines (i) the type of option; (ii) the vesting
schedule of options; (iii) the exercise price; and (iv) the duration of
the options. No options may be granted under the 1995 Plan after April
27, 2005.
(Continued)
F-15
<PAGE> 47
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Under Option
----------------------------------
Number Exercise
of Shares Price Range
--------- ---------------
<S> <C> <C>
1994 - Outstanding at January 1, 1994 75,000 $6.00 - $14.50
Granted 427,353 $2.61 - $ 5.25
Canceled -
Exercised -
-------
Outstanding at October 2, 1994 502,353 $2.61 - $14.50
=======
Exercisable 381,103 $2.61 - $14.50
=======
1995 - Outstanding at October 3, 1994 502,353 $2.61 - $14.50
Granted 377,000 $3.44 - $ 5.38
Canceled (65,500) $5.50 - $13.63
Exercised -
-------
Outstanding at October 1, 1995 813,853 $2.61 - $14.50
=======
Exercisable 376,353 $2.61 - $14.50
=======
1996 - Outstanding at October 2, 1995 813,853 $2.61 - $14.50
Granted 211,000 $5.38 - $ 6.31
Canceled (95,875) $3.44 - $14.50
Exercised (9,125) $3.44 - $ 3.69
-------
Outstanding at September 29, 1996 919,853 $2.61 - $14.50
=======
Exercisable 415,978 $2.61 - $14.50
=======
</TABLE>
(Continued)
F-16
<PAGE> 48
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
(14) Unaudited Quarterly Financial Data
----------------------------------
<TABLE>
<CAPTION>
Quarter
-----------------------------------------------
First Second Third Fourth
---------- ------ ------ -------
<S> <C> <C>
Year ended September 29, 1996
Net sales $ 97,407 56,275 59,339 69,956
Gross profit 30,544 17,737 19,011 22,979
Interest expense 5,097 4,717 4,637 4,683
Net income (loss) 1,977 10 (218) 1,190
Primary and fully diluted earnings (loss) per
share .22 - (.02) .13
Weighted average shares outstanding 9,071 9,071 9,071 9,078
Year ended October 1, 1995
Net sales $ 90,628 56,656 54,939 65,664
Gross profit 26,807 17,610 16,287 22,272
Interest expense 4,847 4,820 4,772 4,915
Net income (loss) 912 (153) (724) 677
Primary and fully diluted earnings (loss) per
share .10 (.02) (.08) .07
Weighted average shares outstanding 9,071 9,071 9,071 9,071
</TABLE>
During the fourth quarter of fiscal 1995, the Company recorded certain
favorable adjustments to inventories in the amount of approximately
$1,200 for overabsorbed overhead previously charged against cost of
sales, and $837 for reductions to product liability as a result of new
actuarial information. The effect of these adjustments was to increase
gross profit by $2,037 and to increase fourth quarter net income by
approximately $1,201 or $.13 per share.
(15) Business and Credit Concentrations
----------------------------------
The Company distributes and sells its products through major retail
outlets, including discounters/mass merchants, catalog showrooms,
department stores, warehouse clubs, specialty stores, mail order catalog
companies, and national hardware, drugstore, and retail grocery chains.
Approximately 36 percent of the Company's revenues in the year ended
September 29, 1996 were from two customers, accounting for 23 percent and
13 percent of total revenues. Approximately 33 percent of the Company's
revenues in the year ended October 1, 1995 were from two customers,
accounting for 23 percent and 10 percent of total revenues. During the
nine-month period ended October 2, 1994, approximately 13 percent of the
Company's revenues were from one customer.
(Continued)
F-17
<PAGE> 49
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
(16) Related Party Transactions
--------------------------
Health o meter pays a management fee to a related party for certain
administrative and professional services performed by the related party.
Amounts paid to this related party for management fees, including
reimbursed expenses, were $263, $305, and $16 for the years ended
September 29, 1996 and October 1, 1995, and the nine-month period ended
October 2, 1994, respectively. During 1994, the Company paid this related
party $1,093 in conjunction with the acquisition of Mr. Coffee.
(17) Financial Instruments
---------------------
Management has determined that at September 29, 1996 and October 1, 1995,
the fair value of financial instruments included in the balance sheets
approximated their carrying values. With respect to cash, receivables,
payables, and accrued liabilities, this determination was based on the
short maturity of the instruments. With respect to debt, the assessment
was based on management's judgment as to currently available rates on
debt with similar maturities.
(18) Condensed Consolidated Financial Information
--------------------------------------------
Condensed consolidated financial information for Health o meter, Inc. at
September 29, 1996 and October 1, 1995, and for the years ended September
29, 1996 and October 1, 1995, and the nine-month period ended October 2,
1994 is as follows:
<TABLE>
<CAPTION>
September 29, October 1,
1996 1995
------------- -----------
<S> <C> <C>
Current assets $ 109,007 103,916
Noncurrent assets 164,483 171,219
------- -------
Total assets $ 273,490 275,135
======= =======
Current liabilities $ 48,393 50,631
Noncurrent liabilities 176,090 178,487
Intercompany payables 47,658 47,627
------- -------
Total liabilities 272,141 276,745
Stockholder's equity
Common stock - $.01 par value;
1,000,000 shares authorized and outstanding 10 10
Paid-in capital 2,811 2,811
Accumulated deficit (1,472) (4,431)
------- -------
Total stockholder's equity 1,349 (1,610)
------- -------
Total liabilities and stockholder's equity $ 273,490 275,135
======= =======
</TABLE>
(Continued)
F-18
<PAGE> 50
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Nine-Month
------------------------------ Period Ended
September 29, October 1, October 2,
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Net sales $ 282,977 267,887 69,451
Gross profit 90,271 82,976 16,292
Net income (loss) 2,959 712 (8,045)
</TABLE>
F-19
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 as to the Directors
of the Company is incorporated herein by reference to the information set forth
under the caption "Election of Directors" in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on March 6, 1997,
since such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the Company's fiscal year
pursuant to Regulation 14A. Information required by this Item 10 as to the
executive officers of the Company is included as Item 4A of Part I of this
Annual Report on Form 10-K as permitted by Instruction 3 to Item 401(b) of
Regulation S-K. Information required by Item 405 of Regulation S-K is
incorporated by reference to the information set forth under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
March 6, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by
reference to the information set forth under the caption "Compensation of
Directors and Executive Officers" in the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on March 6, 1997, since such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by
reference to the information set forth under the caption "Stock Ownership of
Principal Holders and Management" in the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on March 6, 1997, since such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A.
-31-
<PAGE> 52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by
reference to the information set forth under the caption "Certain Transactions"
in the Company's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on March 6, 1997, since such Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year pursuant to Regulation 14A.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON REPORT 8-K
(a)(1) Financial Statements
--------------------
The following Financial Statements of the Registrant are included in Part II,
Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report - KPMG Peat Marwick LLP ...................... F-1
Consolidated Balance Sheets September 29, 1996 and
October 1, 1995 ........................................................ F-2
Consolidated Statements of Operations
Years Ended September 29, 1996 and
October 1, 1995 and
Nine-Month Period Ended October 2, 1994 ................................ F-3
Consolidated Statements of Stockholders' Equity
Years Ended September 29, 1996 and
October 1, 1995 and
Nine-Month Period Ended October 2, 1994................................. F-4
Consolidated Statements of Cash Flows
Years Ended September 29, 1996 and
October 1, 1995 and
Nine-Month Period Ended October 2, 1994 ................................ F-5
Notes to Consolidated Financial Statements................................. F-6
</TABLE>
-32-
<PAGE> 53
(a)(2) Financial Statement Schedules
-----------------------------
The following Financial Statement Schedules of the Registrant are included in
Item 14 hereof.
Page
----
Schedule I - Condensed Financial Information
of Registrant 37
Schedule II - Valuation and Qualifying
Accounts 39
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore, have been
omitted.
(a)(3) Exhibits
--------
Reference is made to the Exhibit Index set forth herein beginning at page 39.
(b) Report on Form 8-K
------------------
No reports on Form 8-K were filed by the Company during the fiscal quarter ended
September 29, 1996.
-33-
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized at
Cleveland, Ohio this 26th day of December, 1996.
HEALTH O METER PRODUCTS, INC.
HEALTH O METER, INC.
By: /s/ Peter C. McC. Howell
---------------------------------------
Peter C. McC. Howell
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on December 26, 1996.
/s/ Peter C. McC. Howell /s/ Thomas H. Lee
- ------------------------- --------------------------------
Peter C. McC. Howell Thomas H. Lee, Director
Chairman, Chief Executive Officer
and Director (Principal Executive Officer) /s/ William P. Carmichael
--------------------------------
William P. Carmichael, Director
/s/ David A. Jones
--------------------------------
David A. Jones, Director
/s/ Steven M. Billick /s/ Robert W. Miller
- ---------------------- --------------------------------
Steven M. Billick Robert W. Miller, Director
Senior Vice President, Treasurer and
Chief Financial Officer (Principal /s/ Scott A. Schoen
Accounting and Financial Officer) --------------------------------
Scott A. Schoen, Director
/s/ Thomas R. Shepherd
--------------------------------
Thomas R. Shepherd, Director
/s/ Lawrence Zalusky
--------------------------------
Lawrence Zalusky, Director
/s/ Frank E. Vaughn
--------------------------------
Frank E. Vaughn, Director
-34-
<PAGE> 55
The following pages contain the Financial Statement Schedules as
specified by Item 14(a)(2) of Part IV of Form 10-K. The report of KPMG Peat
Marwick LLP thereon as of September 29, 1996 and October 1, 1995 and for the
years ended September 29, 1996 and October 1, 1995 and the nine-month period
ended October 2, 1994, appears at page F-1 of this Form 10-K.
-35-
<PAGE> 56
Schedule I
Health o meter Products, Inc. and Subsidiary
Condensed Financial Information of the Registrant
Condensed Statements of Operations and Cash Flows
Years ended September 29, 1996 and October 1, 1995,
and the nine-month period ended October 2, 1994
(dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
Equity in net income (loss) of subsidiary $ 2,959 712 (8,045)
------- ------- -------
Net income (loss) $ 2,959 712 (8,045)
======= ======= =======
STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Net income (loss) $ 2,959 712 (8,045)
Adjustments to reconcile net income (loss)
to net cash used in operating activities
Intercompany receivables (31) -- (18,990)
Equity in net (income) loss of subsidiary (2,959) (712) 8,045
Change in working capital -- -- --
------- ------- -------
Net cash used in operating activities (31) -- (18,990)
------- ------- -------
Cash flow from financing activities
Proceeds from issuance of warrants -- -- 1,773
Proceeds from issuance of common stock 31 -- 17,217
------- ------- -------
Net cash provided by financing activities 31 -- 18,990
------- ------- -------
Increase (decrease) in cash -- -- --
Cash at the beginning of the period -- -- --
------- ------- -------
Cash at the end of the period $ -- -- --
======= ======= =======
</TABLE>
-36-
<PAGE> 57
Schedule I
Health o meter Products, Inc. and Subsidiary
Condensed Financial Information of the Registrant
Condensed Balance Sheets
September 29, 1996 and October 1, 1995
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
ASSETS
Investment in subsidiary $ 1,349 (1,610)
Intercompany receivable 47,658 47,627
-------- --------
Total assets $ 49,007 46,017
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
Common stock - par value $.01 per share; authorized
20,000,000 shares; issued and outstanding
9,080,534 shares at September 29, 1996 and
9,071,409 shares at October 1, 1995 $ 91 91
Paid-in capital 51,772 51,741
Warrants 1,773 1,773
Retained deficit (4,629) (7,588)
-------- --------
Total stockholders' equity 49,007 46,017
-------- --------
Total liabilities and stockholders' equity $ 49,007 46,017
======== ========
</TABLE>
-37-
<PAGE> 58
Schedule II
HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance Balance
at at End
Beginning of
of Period Additions Deductions Period
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for
Doubtful Accounts
and Discounts
Nine-month period ended
October 2, 1994 $ 61 1,938 * 66 1,933
Year ended
October 1, 1995 1,933 268 388 1,813
Year ended
September 29, 1996 1,813 923 144 2,592
<FN>
* Includes $1,478 in reserves for doubtful accounts and discounts from the
acquisition of Mr. Coffee, inc.
</TABLE>
-38-
<PAGE> 59
Exhibit Index
-------------
<TABLE>
<CAPTION>
Sequential
Exhibit Number Description of Document Page
- -------------- ----------------------- ----
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of the Company (A)
3.2 Certificate of Incorporation of Health o meter, as amended (B)
3.3 Amended and Restated By-laws of the Company, as amended (A)
3.4 By-laws of Health o meter (B)
3.5 Certificate of Amendment to Amended and Restated Certificate of (J)
Incorporation of the Company
4.1 Indenture dated August 17, 1994 pursuant to which Health o meter's (C)
13% Senior Subordinated Notes due 2002 have been issued
4.2 13% Senior Subordinated Note due 2002 (C)
4.3 Warrant Agreement dated August 17, 1994 (C)
10.1 Second Amended 1992 Stock Incentive Plan of the Company* (B)
10.2 Employment Agreement among the Company, Health o meter and Peter C. (A)
McC. Howell*
10.3 Form of Non-Qualified Stock Option Agreement between the Company (A)
and Peter C. McC. Howell*
10.4 Amended and Restated Employment and Non-Competition Agreement among (B)
the Company, Health o meter and Lawrence Zalusky, dated as of June
28, 1994*
10.5 Amended and Restated Employment Agreement between the Company and
S. Donald McCullough dated July 1, 1996* (Portions of this exhibit
have been omitted pursuant to a request for confidential treatment)
10.6 Employment Agreement between the Company and Richard C. Adamany (K)
dated March 31, 1995*
10.7 Employment Agreement between the Company and Timothy J. McGinnity (K)
dated March 31, 1995*
10.8 Employment Agreement between the Company and John D. Lange dated (L)
March 20, 1995*
10.9 Employment Agreement between the Company and Steven M. Billick
dated June 10, 1996*
10.10 Second Amended and Restated Stockholders Agreement among the (A)
Company and certain of its stockholders
10.11 Credit Agreement dated August 17, 1994 among Health o (C)
meter, Banque (C) National de Paris, New York Branch
and the lenders named therein
</TABLE>
-39-
<PAGE> 60
<TABLE>
<S> <C> <C>
10.12 Amended and Restated Management Agreement among the THL Co., Health (A)
o meter and the Company
10.13 Letter Agreement between Health o meter and JLP Media, Inc. dated (D)
January 31, 1992
10.14 Agreement for Purchase and Sale of Assets dated November 11, 1992 (G)
among Pelouze, Health o meter and PSC Acquisition Co.
10.15 Agreement and Plan of Merger dated as of May 24, 1994 among the (B)
Company, Health o meter, Java Acquisition Corporation and Mr.
Coffee, inc.
10.16 1994-1999 Labor Agreement between Mr. Coffee and Industrial and (H)
Allied Employees Local Union No. 73.
10.17 1995 Stock Option and Incentive Plan of the Company* (I)
10.18 Lease Agreement dated October 15, 1996, between Duke Realty Limited
Partnership and the Company
10.19 Agreement between Health o meter, Inc. and Manufacturing,
Production and Service Workers Union, Local No. 24, AFL-CIO,
November 14, 1994 through November 13, 1997
21.1 Subsidiaries of the Company (H)
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
- --------------------------
<FN>
(A) Incorporated herein by reference to the appropriate exhibit to the
Company's registration statement on Form S-1 (Reg. No. 33-80124).
(B) Incorporated herein by reference to the appropriate exhibit to the
Company's and Health o meter's registration statement on Form S-1 (Reg.
No. 33-80000).
(C) Incorporated herein by reference to the appropriate exhibit to the
Company's current report on Form 8-K dated August 17, 1994.
(D) Incorporated herein by reference to the appropriate exhibit to the
Company's registration statement on Form S-1 (Reg. No. 33-45202).
(E) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-K for the year ended December 31,
1992.
(F) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-K for the year ended December 31,
1993.
(G) Incorporated herein by reference to the appropriate exhibit to the
Company's current report on Form 8-K dated December 12, 1992.
(H) Incorporated herein by reference to the appropriate exhibit to the
Company's annual report on Form 10-K for the period ended October 2,
1994.
(I) Incorporated herein by reference to the appropriate exhibit to the
Company's Proxy Statement in connection with the Annual Meeting of
Stockholders held on April 27, 1995.
</TABLE>
-40-
<PAGE> 61
(J) Incorporated herein by reference to the appropriate exhibit to the
Company's current report on Form 10-Q for the period ended April 2,
1995.
(K) Incorporated herein by reference to the appropriate exhibit to the
Company's current report on Form 10-Q for the period ended July 2,
1995.
(L) Incorporated herein by reference to the appropriate exhibit to the
Company's current report on Form 10-Q for the period ended June 30,
1996.
* Management contract or compensatory plan or arrangement.
-41-
<PAGE> 1
Exhibit 10.5
------------
<PAGE> 2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AGREEMENT (the "Agreement") made as of the 1st day of July, 1996
by and between Health o meter Products, Inc., a Delaware corporation ("Health o
meter" or the "Company") and S. DONALD McCULLOUGH, an individual currently
residing at 2699 Wadsworth Road, Shaker Heights, Ohio 44122 ("McCullough" or the
"Employee").
WHEREAS, Health o meter and McCullough are parties to an Employment
Agreement dated as of April 4, 1994 (the "Employment Agreement") setting forth
the terms and conditions under which McCullough is employed by the Company and
upon which the Company compensates McCullough; and
WHEREAS, in connection with the Employment Agreement, the Company and
the Employee also entered into an Incentive Stock Option Agreement dated as of
May 5, 1994 (the "Incentive Stock Option Agreement") and a Non-Qualified Stock
Option Agreement dated as of April 27, 1995 (the "Non-Qualified Stock Option
Agreement"); and
WHEREAS, the parties desire to amend and restate the Employment
Agreement by entering into this Amended and Restated Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
ARTICLE I
---------
EFFECTIVE TIME
--------------
1.1 EFFECTIVE TIME. This Agreement shall become effective as
of July 1, 1996 (the "Effective Time") and the Employment Agreement dated April
4, 1994 shall thereupon terminate and be of no further force or effect.
ARTICLE II
----------
EMPLOYMENT
----------
2.1 EMPLOYMENT. The Company hereby employs McCullough and
McCullough hereby agrees to serve the Company on the terms and conditions set
forth herein. McCullough shall hold the offices of President and Chief Operating
Officer of the Company.
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 3
ARTICLE III
-----------
TERM
----
3.1 TERM. The term of employment of McCullough by the Company
pursuant to this Agreement shall commence at the Effective Time and end on
January 2, 1999 and shall be renewed automatically for successive two (2) year
periods thereafter unless terminated as hereinafter provided, and unless either
party gives the other notice of its intent not to renew this Agreement, which
notice must be given at least ninety (90) days prior to the expiration of the
initial term or any extension thereof. Notwithstanding the foregoing, the
provisions of Section 5.5 hereof shall not be deemed to be included in or
otherwise form a part of the terms of any renewal of this Agreement, and the
Company shall be under no obligation to enter into any arrangements similar to
those set forth in Section 5.5 in connection with any such renewal.
ARTICLE IV
----------
DUTIES OF EMPLOYMENT
--------------------
4.1 DUTIES. Subject to the authority of the Board, McCullough
shall have the status and powers as are customarily associated with, and shall
perform such duties and functions as the Board shall from time to time determine
and as are customarily assigned to, the President and Chief Operating Officer of
a corporation. McCullough shall devote his full time and effort to the business
and affairs of the Company; provided, however, that McCullough shall be entitled
to serve on the Board of Directors of not more than two other companies which do
not manufacture, market, sell or otherwise deal in products or services which
are competitive with those manufactured, marketed or sold by the Company, and
provided, further, that McCullough shall be entitled to serve on the governing
body of any not-for-profit, charitable, trade or community organization.
McCullough further agrees to serve, if elected or appointed thereto, as a
director of the Company's subsidiaries and affiliated entities (if any) and in
one or more executive offices of any of the Company's subsidiaries and
affiliated entities (if any), provided that McCullough is indemnified for
serving in any and all such capacities on the basis no less favorable than is
currently provided by the Company's Certificate of Incorporation or By-laws.
ARTICLE V
---------
COMPENSATION AND RELATED MATTERS
--------------------------------
5.1 SALARY. As compensation for the employment services to be
rendered by McCullough hereunder, the Company shall pay to McCullough a salary
at a rate of Two Hundred Seventeen Thousand One Hundred Dollars ($217,100) per
annum, payable at such
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
2
<PAGE> 4
intervals as may be consistent with the Company's payroll policies, subject to
increase by the Compensation Committee of the Board in its sole discretion. The
Company and McCullough agree that McCullough's salary shall be reviewed by the
Compensation Committee of the Board of Directors from time to time. Compensation
of McCullough by salary payments shall not be deemed exclusive and shall not
prevent McCullough from participating in any other compensation or benefit plan
of the Company. The salary payments (including any increased salary payments)
hereunder shall not in any way limit or reduce any other obligation of the
Company hereunder, and no other compensation, benefit or payment hereunder shall
in any way limit or reduce the obligation of the Company to pay McCullough's
salary hereunder.
5.2 EXPENSES. During the term of McCullough's employment
hereunder, McCullough shall be entitled to reimbursement of expenses in
accordance with the Company's standard practices and policies, including without
limitation, a leased automobile of his choice and reasonable country club
expenses incurred for business purposes and shall be reimbursed for reasonable
expenses incurred in relocating his principal residence (including any brokerage
fee and loss of home equity): (a) to the Cleveland metropolitan area and; (b)
when and if the Company's principal executive offices are relocated. Any
expenses reimbursed by the Company under this Section 5.2 in respect of (i)
reasonable country club expenses and (ii) relocations of McCullough's principal
residence shall be reimbursed on a tax-grossed up basis.
5.3 OTHER BENEFITS.
(a) CONTINUED PARTICIPATION. McCullough shall be
entitled to participate in all of the Company's employee benefit plans in effect
at the Effective Time and any other plans made available by the Company in the
future to its executives and key management employees.
(b) PRO-RATION. Nothing paid to McCullough under any
plan presently in effect or made available in the future shall be deemed to be
in lieu of the salary payable to McCullough pursuant to Section 5.1 of this
Article. Any payments or benefits payable to McCullough hereunder in respect of
any calendar year during which McCullough is employed by the Company for less
than the entire such year shall, unless otherwise provided in the applicable
plan or arrangement, be pro-rated in accordance with the number of days in such
calendar year during which he is so employed.
5.4 ANNUAL PERFORMANCE BONUS. In addition to the annual salary
set forth in Section 5.1 of this Article, the Company agrees to establish a
bonus plan for executive officers under which McCullough, during the term of
this Agreement, will be
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
3
<PAGE> 5
entitled to participate, commensurate with his position and salary. The amount
of any annual bonus payable to McCullough shall be determined under such plan.
5.5 STOCK OPTIONS. In addition to the annual salary and
bonuses set forth in this Article V, the Employee shall be entitled
to:
(a) The Company will grant the Employee a non-
qualified stock option, within the meaning of Section 422 of the Internal
Revenue Code (the "1996 Option"), to purchase 90,500 shares of Common Stock of
the Company at $5.375 per share. The 1996 Option will be subject to the terms
and conditions set forth below and to the other terms and conditions set forth
in a Non-Qualified Stock Option Agreement relating thereto attached as Exhibit
A to this Agreement. The 1996 Option shall be exercisable as of the date hereof
with respect to 22,625 Common Shares, as a result of the Company's achievement
of EBITDA of * (as against an EBITDA target of * ) for its
fiscal year ended in 1995. The remaining shares under the 1996 Option will vest
and become exercisable on the dates and in the amounts set forth below only if
the EBITDA targets set forth below are achieved; PROVIDED, HOWEVER, that if the
Company's EBITDA for any of the fiscal years set forth above equals at least
90%, but less than 100%, of the EBITDA target applicable to such fiscal year,
one-half of the shares scheduled to vest and become exercisable under the terms
of the 1996 Option on December 31st of such year shall vest and become
exercisable on such date. For purposes hereof, the term "EBITDA" for any year
will mean consolidated earnings before interest, taxes, depreciation and
amortization, determined in accordance with generally accepted accounting
principles, consistently applied.
<TABLE>
<CAPTION>
Number of Shares Fiscal Year Shares Vest on EBITDA
Exercisable Ending In December 31, (in thousands) Entity
----------- --------- ------------ -------------- ------
<S> <C> <C> <C> <C>
22,625 1996 1996 * Health o meter
Products, Inc.
(consolidated)
22,625 1997 1997 * Health o meter
Products, Inc.
(consolidated)
22,625 1998 1998 * Health o meter
Products, Inc.
(consolidated)
</TABLE>
(b) Subject to the provisions of Section 5.5(c), if the value
of the shares exercisable under the 1996 Option, the 55,000 shares subject to
the Incentive Stock Option Agreement and the 45,000 shares subject to the
Non-Qualified Stock Option Agreement dated April 27, 1995, as amended as of the
date hereof
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
4
<PAGE> 6
(collectively, the "Options") on December 31, 1998, including those shares
disposed of (if any) is less than One Million Dollars ($1,000,000) (the "Formula
Amount") on that date, the Company will pay the Employee, in cash, the amount by
which the Formula Amount exceeds the value of the Options, including those
shares disposed of prior to December 31, 1998. For purposes of this Article V,
value shall mean, (a) for the shares exercisable under the Options, or for
shares issued under the Options but not sold, the Fair Market Value of the
Company's Common Stock on December 31, 1998, less the option exercise price, and
(b) for any shares issued under the Options and sold before December 31, 1998,
the actual sales price, less the option exercise price. For purposes of this
Article V, the term Fair Market Value shall mean, if the Common Stock is listed
on a national securities exchange, the NASDAQ Stock Market or another automated
interdealer quotation system providing last sale reporting, the mean between the
highest and the lowest sale price of the Common Stock on such date, or, if no
sales have occurred on such date, on the most recent preceding day on which
there are sale prices for the Common Stock. If the Common Stock is not listed on
such an exchange, the NASDAQ Stock Market or such other system, then the term
Fair Market Value shall mean the mean between the bid and ask prices for the
Common Stock on the principal quotation system in which it is then included on
such date. If the Common Stock is not publicly traded or such quotations are not
otherwise available, then Fair Market Value shall be determined through a
procedure reasonably acceptable to the Company and the Employee.
(c) To the extent that the Company's cumulative EBITDA for the
fiscal years ending in 1995, 1996, 1997 and 1998 (the "Cumulative EBITDA") does
not equal or exceed * (the "Targeted Cumulative EBITDA"), then the
Formula Amount payable to Employee shall be determined in accordance with the
procedures set forth in the following sentence; provided, however, that the
Company shall have no obligation to make any payments to the employee under the
terms of this Section 5.5 if Cumulative EBITDA is less than * (the
"Minimum Cumulative EBITDA"). In the event that the Cumulative EBITDA is greater
than the Minimum Cumulative EBITDA but less than Targeted Cumulative EBITDA, the
Formula Amount shall be determined by multiplying (i) the difference between the
Cumulative EBITDA and the Minimum Cumulative EBITDA by (ii) a fraction, the
numerator of which is 1,000,000 and the denominator of which is the difference
between the Targeted Cumulative EBITDA and the Minimum Cumulative EBITDA.
(d) If the Employee's employment is terminated without cause
(as defined in Section 6.1 hereof) prior to the end of the fiscal year ending in
1998, then, for purposes of determining the amount, if any, payable to Employee
under this Section 5.5, the Formula Amount shall be determined by: (i)
multiplying $1,000,000 by a fraction, the numerator of which is the Company's
cumulative EBITDA from the beginning of the fiscal year ending in 1995
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
5
<PAGE> 7
through the end of the most recent fiscal year completed prior to the date of
termination of Employee's employment, and the denominator of which is the sum of
the annual EBITDA targets set forth in Section 5.5(a) for each of the fiscal
years completed prior to the date of the termination of Employee's employment
(the "Interim Targeted Cumulative EBITDA"); (ii) multiplying the result of the
calculation set forth in clause (i) by a fraction, the numerator of which is the
number of full fiscal years (beginning with the fiscal year ending in 1995)
completed prior to the date of the termination of the Employee's employment and
the denominator of which is four; and (iii) subtracting the result of the
calculation set forth in clause (ii) from the value of the Options on the date
of termination (such value to be determined in accordance with the procedures
set forth in Section 5.5(a)). Notwithstanding the foregoing, the Company shall
have no obligation to make any payment to the Employee under this Section 5.5 in
connection with the termination of the Employee's employment if the Company's
actual cumulative EBITDA for fiscal years completed prior to the date of such
termination does not equal or exceed 80% of the Interim Targeted Cumulative
EBITDA for such years.
(e) If the Employee's employment is terminated without cause
(as defined in Section 6.1 hereof) subsequent to the end of the fiscal year
ending in 1998, the Company's obligation, if any, to pay to the Employee the
Formula Amount shall be determined in accordance with the provisions of Section
5.5(a) through 5.5(c) hereof, and the termination of the Employee's employment
without cause subsequent to the end of the fiscal year ending in 1998 shall not
have any effect on the Employee's rights or the Company's obligations with
respect thereto.
ARTICLE VI
----------
TERMINATION
-----------
6.1 DEFINITIONS.
(a) For purposes of this Article, "termination for cause"
shall mean any termination of the Employee's employment resulting from: (i)
Employee's engaging in fraud, misappropriation of funds, embezzlement or like
conduct committed against the Company; (ii) Employee's conviction of a felony;
or (iii) Employee's material violation of any provision of this Agreement which
has not been cured within thirty (30) days after written notice setting forth
such material violation and also setting forth the actions that Employee shall
be required to take to cure such material violation has been given by the
Company to Employee.
(b) The Company may terminate Employee's employment
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
6
<PAGE> 8
hereunder at any time without cause. Notwithstanding any other provisions of
this Agreement to the contrary and for purposes of this Article, any termination
of Employee's employment resulting from: (i) Employee's death; (ii) Employee's
inability to perform the essential functions of his job with or without
reasonable accommodation; (iii) Employee's resignation following a Change in
Control; (iv) Employee's resignation following the failure by the Company to
obtain the agreement referred to in the first sentence of Section 7.1 below; or
(v) Employee's resignation following a material diminution in the nature or
scope of Employee's responsibilities, duties, powers or authority as set forth
under this Agreement, shall be deemed to be a termination by the Company without
cause. A "Change in Control" shall be deemed to have occurred if any person, or
any two or more persons acting as a group, and all affiliates of such person or
persons, who prior to such time owned less than five percent (5%) of the then
outstanding common stock of the company, acquires such additional shares of the
Company's common stock in one or more transactions, or series of transactions,
such that following such transaction or transactions, such person or group and
affiliates beneficially own fifty percent (50%) or more of the Company's
outstanding common stock.
6.2 RESIGNATION; TERMINATION FOR CAUSE. If Employee resigns
from his positions with the Company (other than as set forth in Section
6.1(b)(iii), (iv) or (v)) or his employment shall be terminated by the Company
for cause, the Company shall pay Employee his full salary through the date of
resignation or termination at the rate then in effect and the Company shall have
no further obligations to Employee under this Agreement.
6.3 TERMINATION WITHOUT CAUSE. If the Company terminates
Employee's employment hereunder without cause, or if the Company fails to renew
the term of this Agreement, then:
(a) the Company shall pay Employee (i) his full salary through
the date of termination, at the annual rate then in effect and (ii) an amount in
lieu of the annual performance bonus for the year in which such date of
termination occurs equal to 50% of the amount of such bonus paid to the Employee
with respect to the last fiscal year completed prior to the date of termination;
(b) in lieu of any further salary payments to Employee for
periods subsequent to the date of termination, the Company shall continue to pay
to Employee: (i) his salary at the annual rate in effect immediately prior to
such termination for the eighteen (18) month period following such termination
(the "Salary Continuation Period"); and (ii) an amount in lieu of an annual
performance bonus, which amount shall be determined by multiplying the full
amount of any performance bonus earned by Employee in the fiscal year
immediately preceding the fiscal year in which the termination of employment
occurred by the number 1.5,
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
7
<PAGE> 9
with payment to be made over an eighteen (18) month period, in equal periodic
installments consistent with the Company's payroll policies;
(c) in addition, all stock options, stock appreciation rights,
restricted stock, other rights to acquire stock and other similar rights or
benefits previously granted to Employee but not yet vested, shall vest
immediately prior to such termination;
(d) the Company shall pay Employee the amount, if any,
determined in accordance with Section 5.5(d) within sixty (60) days after the
Company terminates Employee's Employment without cause; and
(e) payment of the foregoing by the Company shall constitute
complete satisfaction and remedy with respect to termination of Employee's
employment by the Company without cause.
6.4 CONTINUED BENEFITS. Unless Employee is terminated by the
Company for cause, or Employee shall resign from his positions with the Company
(other than as set forth in Section 6.1(b)(iii), (iv) or (v)), the Company shall
maintain in full force and effect, at the Company's costs and expense and for
the continued benefit of Employee during the Salary Continuation Period, all
employee benefit plans and programs (other than (a) the Company's stock option
plans, as to which the rights and obligations of the parties shall be governed
exclusively by the terms of any option agreements entered into by the Company
and Employee; and (b) those benefit plans and programs exclusively available to
Employee pursuant to the provisions of this Agreement, all of which shall be
governed by the other terms hereof), in which Employee was entitled to
participate immediately prior to the date of termination; PROVIDED, that
Employee's continued participation is possible under the general terms and
provisions of such plans and programs. In the event Employee's participation in
any such plan or program is barred, the Company shall arrange to provide
Employee with benefits substantially similar to those which Employee would
otherwise have been entitled to receive under such plans and programs from which
his continued participation is barred. It is specifically agreed that under the
terms of this Section 6.4, during the Salary Continuation Period, Employee shall
be entitled (subject to the terms of the relevant plans) to: (x) participate in
the Company's Flexible Spending Account Plan, (y) contribute to and receive
matching contributions from the Company in accordance with the terms of the
Company's Section 401(k) Plan and Trust in an amount equal to that provided to
Employee immediately prior to the date of termination, and (z) the leased
automobile of his choice as set forth in Section 5.2.
6.5 NO DUTY TO MITIGATE. Employee shall not be required to
mitigate the amount of any payment provided for in
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
8
<PAGE> 10
this Article by seeking other employment or otherwise and the Company will not
be entitled to set off against amounts payable to Employee pursuant to this
Agreement any amounts earned by Employee from other employment during the
remaining term of Salary Continuation Period.
ARTICLE VII
-----------
SUCCESSORS, BINDING AGREEMENT
-----------------------------
7.1 SUCCESSORS. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance reasonably satisfactory to McCullough, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of a
material provision of this Agreement and shall entitle McCullough to exercise in
his discretion any and all rights arising from such a breach as provided in this
Agreement. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
7.1 or which otherwise becomes bound by all terms and provisions of this
Agreement by operation of law.
7.2 BINDING AGREEMENT. This Agreement and all rights of
McCullough hereunder shall inure to the benefit of and be enforceable by
McCullough's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If McCullough should die
while any amounts would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to McCullough's devisee, legatee,
designee or, if there is no such designee, to McCullough's estate. This
Agreement and all rights of the Company hereunder shall enure to the benefit of
and be enforceable by the Company's successors and assigns.
ARTICLE VIII
------------
REPRESENTATIONS AND AGREEMENTS OF MCCULLOUGH
--------------------------------------------
8.1 ABILITY TO PERFORM. McCullough represents and warrants
that he is free to enter into this Agreement and to
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
9
<PAGE> 11
perform the duties required hereunder, and that there are no employment
contracts or understandings, restrictive covenants or other restrictions,
whether written or oral, preventing the performance of his duties hereunder.
8.2 COOPERATION. McCullough agrees to submit to a medical
examination and to cooperate and supply such other information and documents as
may be required by any insurance company in connection with the Company's
obtaining life insurance on the life of McCullough, and any other type of
insurance or fringe benefit as the Company shall determine from time to time to
obtain.
ARTICLE IX
----------
RESTRICTIVE COVENANTS
---------------------
9.1 NON-COMPETITION. McCullough agrees that during the
Non-Competitive Period (as defined below), McCullough shall not, directly or
indirectly, as owner, partner, joint venturer, stockholder, employee, broker,
agent, principal, trustee, corporate officer, director, licensor or in any
capacity whatsoever, engage in, become financially interested in, be employed
by, render any consultation or business advice with respect to, or have any
connection with, any business engaged in manufacturing, assembly, marketing or
sales of coffeemakers, teamakers, filters, scales, massagers or any other
product then being manufactured, assembled, marketed or sold by the Company, or
then being developed by the Company with the expectation of sale by the Company
within 90 days, in any geographic area where, at the time of the termination of
his employment hereunder, the business of the Company was being conducted in any
material respect; provided, however, that McCullough may own any securities of
any corporation which is engaged in such business and is (i) publicly owned and
traded but in an amount not to exceed at any one time five percent (5%) of any
class of stock or securities of such corporation or (ii) a non-public start-up
company engaged in a business which is unrelated to the businesses then engaged
in by the Company. The term "NonCompetitive Period" shall mean the period
commencing on the Date of Termination and ending on the date which is (i) twelve
(12) months later, in the event of termination by the Company without cause, or
(ii) eighteen (18) months later, in the event of termination by McCullough of
his employment hereunder (other than as set forth in Section 6.1(b)(iii), (iv)
or (v)) or termination by the Company for cause before the end of this
Agreement.
9.2 NO HIRING. During the Non-Competitive Period, McCullough
will not knowingly (i) hire or attempt to hire any employee of the Company or of
any of the Company's subsidiaries or affiliated entities (if any); (ii) assist
in such hiring by any
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
10
<PAGE> 12
other person; or (iii) encourage any such employee to terminate his employment
with the Company or any of such subsidiaries or affiliated entities.
9.3 SEVERABILITY. If any portion of the restrictions set forth
in this Article IX should, for any reason whatsoever, be declared invalid by a
court of competent jurisdiction, the validity or enforceability of the remainder
of such restrictions shall not thereby be adversely affected.
9.4 REASONABLENESS. McCullough agrees that the territorial and
time limitations set forth in this Article IX are reasonable and properly
required for the adequate protection of the business of the Company. In the
event any such territorial or time limitation is deemed to be unreasonable by a
court of competent jurisdiction, McCullough agrees to the reduction of the
territorial or time limitation to the area or period which such court shall have
deemed reasonable.
ARTICLE X
---------
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
------------------------------------------
10.1 NON-DISCLOSURE. McCullough shall not, during the term of
this Agreement and at any time thereafter, directly or indirectly, disclose or
permit to be known outside of the scope of his duties to the Company, to any
person, firm or corporation, any confidential information acquired by him during
the course of, or as an incident to, his employment relating to the Company. It
shall not be outside the scope of McCullough's duties to the Company to disclose
confidential information to the Company's directors, officers, employees,
advisors, attorneys, accountants, lenders, financial institutions or investors.
Such confidential information shall be limited to proprietary technology, market
data, formulae, customer and supplier lists, non-public financial and operating
information and data, and any other documents embodying such confidential
information to the extent that such data and information relate specifically to
the Company. Such restrictions apply only to the reproduction or use of the
specific written documents of the Company relating to the above-described
categories and not to any knowledge (including but not limited to knowledge
gained from such confidential information) based on McCullough's experience
during his employment with the Company or otherwise.
10.2 RETURN OF DOCUMENTS. Upon termination of McCullough's
employment with the Company, all documents, records, reports, writings and other
similar documents containing confidential information, including copies thereof,
then in McCullough's possession or control shall be returned and left with the
Company.
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
11
<PAGE> 13
ARTICLE XI
----------
EQUITABLE RELIEF
----------------
11.1 RIGHT TO INJUNCTION. McCullough recognizes that the
services to be rendered by him hereunder are of a special, unique, unusual,
extraordinary and intellectual character, involving skill of the highest order
and giving them peculiar value, the loss of which cannot be adequately
compensated for in damages. In the event of a breach of this Agreement by
McCullough, the Company shall be entitled to injunctive relief or any other
legal or equitable remedies. McCullough agrees that the Company may recover by
appropriate action the amount of the actual damages caused the company by any
failure, refusal or neglect of McCullough to perform his agreements,
representations and warranties herein contained. The remedies provided in this
Agreement shall be deemed cumulative and the exercise of one shall not preclude
the exercise of any other remedy, at law or in equity, for the same event or any
other event.
ARTICLE XII
-----------
MISCELLANEOUS
-------------
12.1 INDEMNIFICATION; INSURANCE. The Company will indemnify
McCullough to the maximum extent permitted by law (including advancing expenses
where appropriate) with respect to actions taken by him as an officer or
director of the Company, any of its subsidiaries, or any affiliated entity of
the company or any of its subsidiaries. The Company will also maintain in effect
during McCullough's employment hereunder directors and officer liability
insurance, to the extent the same can be obtained on commercially reasonable
terms. If permitted by the terms of the policy providing such insurance,
McCullough will remain insured under such policy until the first to occur of (i)
termination of such policy (other than termination by the Company), or (ii) the
fifth anniversary of the termination of McCullough's employment with the
Company.
12.2 ARBITRATION. Should any dispute arise between the parties
concerning the performance of this Agreement, the parties agree to mediation
and, if not resolved through such mediation within thirty (30) days, final and
binding arbitration in the city in which the principal executive offices of the
Company are located at the time such dispute arises in accordance with the rules
of the American Arbitration Association, subject to Article XI in the case of
alleged breach of Articles IX or X.
The decision rendered in any arbitration proceedings shall be
in writing and shall set forth the basis therefor. The
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
12
<PAGE> 14
parties shall abide by the award rendered in the arbitration proceedings, and
such award may be entered as a final, non-appealable judgment, and may be
enforced and executed upon, in any court having jurisdiction over the
party against whom enforcement of such award is sought. Each of the parties
agrees (in connection with any action brought to enforce the arbitration
provisions of this paragraph) not to assert in any such action, any claim that
it is not subject to the personal jurisdiction of such court, that the action
is brought in an inconvenient forum, that the venue of the action is improper
or that such mediation or arbitration may not be enforced by such courts. Each
party agrees that service of process may be made upon it by any method
authorized by the laws of the state in which arbitration is to be conducted in
accordance with this Section 12.2.
12.3 NOTICE. for the purposes of this Agreement, notices,
demands and all other communications provided for in the Agreement shall be in
writing, shall be deemed to have been duly given when delivered or unless
otherwise specified mailed by U.S. registered mail, return receipt requested,
postage prepaid, addressed as follows:
If the McCullough: S. Donald McCullough
2699 Wadsworth Road
Shaker Heights, OH 44122
If to the Company: Health o meter Products, Inc.
24700 Miles Road
Bedford Heights, Ohio 44146
With a copy to: Calfee, Halter & Griswold
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
Attn: Thomas F. McKee, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12.4 AMENDMENT OR ALTERATION. No amendment or alteration
of the terms of this Agreement shall be valid unless made in
writing and signed by both of the parties hereto.
12.5 GOVERNING LAW. This Agreement shall be governed by
the laws of the State of Ohio.
12.6 SEVERABILITY. The holding of any provision of this
Agreement to be invalid or unenforceable by a court of competent jurisdiction
shall not affect any other provision of
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
13
<PAGE> 15
this Agreement, which shall remain in full force and effect.
12.7 WAIVER OF BREACH. No waiver of or failure to
enforce any provisions of this Agreement shall be deemed, or shall constitute, a
waiver of any other provision of this Agreement, nor shall such waiver or
failure to enforce constitute a continuing waiver.
12.8 ASSIGNMENT. This Agreement may not be transferred
or assigned by either party without the prior written consent of
the other party.
12.9 FURTHER ASSURANCES. The parties agree to execute and
deliver all such further documents, agreements and instruments and take such
other and further action as may be necessary or appropriate to carry out the
purposes and intent of this Agreement.
12.10 HEADINGS. The section headings appearing in this
Agreement are for purposes of each reference and shall not be considered a part
of this Agreement or in any way modify, amend or affect its provisions.
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
14
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
HEALTH O METER PRODUCTS, INC.
By: /s/ Peter C. McC. Howell
--------------------------------
Peter C. McC. Howell,
Chairman and Chief Executive
Officer
/s/ S. Donald McCullough
-----------------------------
S. Donald McCullough
*Confidential information has been omitted and filed separately with the
Securities and Exchange Commission.
15
<PAGE> 1
Exhibit 10.9
------------
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of the
10th day of June, 1996 by and between STEVEN M. BILLICK ("Employee") and HEALTH
O METER PRODUCTS, INC., a Delaware corporation (the "Company").
W I T N E S S E T H
-------------------
WHEREAS, the Company desires to retain the services of the
Employee as its Senior Vice President, Treasurer and Chief Financial Officer;
and
WHEREAS, the Company and the Employee deem it necessary and
appropriate to enter into an agreement setting forth the terms and conditions of
the Employee's employment with the Company.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, the Employee and the Company agree as follows:
ARTICLE I
EFFECTIVE TIME
Section 1.00. EFFECTIVE TIME. This Agreement shall become
effective as of June 10, 1996 (the "Effective Time").
ARTICLE II
EMPLOYMENT
Section 2.01. EMPLOYMENT. The Company hereby employs the
Employee and the Employee hereby agrees to serve the Company on the terms and
conditions set forth herein. Employee shall initially hold the offices of Senior
Vice President, Treasurer and Chief Financial Officer of the Company.
Section 2.02. AT WILL STATUS. Employee specifically
acknowledges and agrees that his employment with the Company is "at will," and
may be terminated by him or the Company at any time with or without cause.
1
<PAGE> 3
ARTICLE III
DUTIES OF EMPLOYMENT
Section 3.00. DUTIES. Subject to the authority of the Board,
Employee shall have the status and powers as are customarily associated with,
and shall perform such duties and functions as the Board shall from time to time
determine and as are customarily assigned to, the Senior Vice President,
Treasurer and Chief Financial Officer of a corporation. Employee shall devote
his full time and effort to the business and affairs of the Company. Employee
further agrees to serve, if elected or appointed thereto, as a director of the
Company's subsidiaries and affiliated entities (if any) and in one or more
executive offices of any of the Company's subsidiaries and affiliated entities
(if any); provided that the indemnity provisions of Section 11.01 of this
agreement shall apply to Employee's service in any such capacity.
ARTICLE IV
COMPENSATION AND RELATED MATTERS
Section 4.01. SALARY. As compensation for the employment
services to be rendered by Employee hereunder, the Company shall pay to Employee
a salary at an initial rate of One Hundred Seventy-five thousand ($175,000)
Dollars per annum, payable at such intervals as may be consistent with the
Company's payroll policies, subject to increase or decrease by the Compensation
Committee of the Board in its sole discretion. Compensation of Employee by
salary payments shall not be deemed exclusive and shall not prevent Employee
from participating in any other compensation or benefit plan of the Company. The
salary payments (including any increased salary payments) hereunder shall not in
any way limit or reduce any other obligation of the Company hereunder, and no
other compensation, benefit or payment hereunder shall in any way limit or
reduce the obligation of the Company to pay Employee's salary hereunder.
Section 4.02. EXPENSES. During the term of Employee's
employment hereunder, Employee shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by Employee in performing the services
hereunder, including, but not limited to, all expenses for travel and living
expenses while away from home on business or at the request of and in the
service of the Company, its subsidiaries or affiliated entities; provided that
such expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company. Employee shall also be provided an
automobile allowance from the Company, in such amount as is determined
appropriate by the Board of Directors of the Company from time to time.
2
<PAGE> 4
Section 4.03 CONTINUED PARTICIPATION. Employee shall be
entitled to participate in all of the Company's employee benefit plans in effect
from time to time and made available by the Company to its executives and key
management employees, including the Company's life and long-term disability
insurance plans, medical and dental plans and 401 (k) Plan.
Section 4.04. ANNUAL PERFORMANCE BONUS. In addition to the
Employee's salary, the Employee will be entitled to participate during the
period of his employment in any bonus plan established by the Board of Directors
from time to time that contemplates participation by the executive officers of
the Company. The amount of any annual bonus payable to Employee shall be
determined under such plan; notwithstanding the foregoing, unless the Employee
is terminated for cause or resigns prior to the end of the 1996 fiscal year, the
Employee shall be entitled to receive a cash bonus with respect to such year in
an amount equal to not less than $14,583, whether or not the Employee would be
entitled to receive a Bonus under the terms of such plan.
Section 4.05 SPECIAL BONUS. The Employee will receive a cash
bonus in the amount of $7,500 at the Effective Time; PROVIDED, that if the
Employee resigns from his position with the Company prior to the first
anniversary of the Effective Time, such bonus shall be promptly repaid to the
Company.
Section 4.06 STOCK OPTIONS. On June 10, 1996, Employee
will receive the following:
(a) Non-qualified stock options to purchase 25,000 shares of
the Company's Common Stock under the Company's 1995 Stock
Option and Incentive Plan. Such options shall be exercisable
at market price on June 10, 1996, or at $5.375, whichever is
higher, and will vest in 25% increments on an annual basis,
commencing on the first anniversary of the date of grant; and
(b) Non-qualified performance-based stock options to purchase
15,000 share of the Company's Common Stock stock options under
the Company's 1995 Stock Option and Incentive Plan. Such
options shalls be exercisable at market price on June 10,
1996, or $5.375, whichever is higher, and will vest in 20%
increments a year beginning in fiscal 1996, conditioned upon
the Company's achievement of stated EBITDA objectives.
The options set forth in this Paragraph will expire 10 years from the date of
grant, or earlier in the event of termination of the Employee's employment, with
the Company and will be subject to the other terms and conditions set forth in
the forms of Option Agreement relating thereto attached as Exhibit A to this
Agreement.
3
<PAGE> 5
ARTICLE V
SEVERANCE ARRANGEMENTS
Section 5.01 DEFINITIONS.
(a) For purposes of this Article, "termination for cause"
shall mean any termination of the Employee's employment resulting from: (i)
Employee's engaging in fraud, misappropriation of funds, embezzlement or like
conduct committed against the Company; (ii) Employee's conviction of a felony;
or (iii) Employee's material violation of any provision of this Agreement which
has not been cured within thirty (30) days after written notice setting forth
such material violation and also setting forth the actions that Employee shall
be required to take to cure such material violation has been given by the
Company to Employee.
(b) The Company may terminate Employee's employment hereunder
at any time without cause. Notwithstanding any other provisions of this
Agreement to the contrary and for purposes of this Article, any termination of
Employee's employment resulting from: (i) Employee's death or (ii) Employee's
inability to perform the essential functions of his job with or without
reasonable accommodation, shall be deemed to be a termination by the Company
without cause.
Section 5.02 RESIGNATION; TERMINATION FOR CAUSE. If Employee
resigns from his positions with the Company or his employment shall be
terminated by the Company for cause, the Company shall pay Employee his full
salary through the date of resignation or termination at the rate then in effect
and the Company shall have no further obligations to Employee under this
Agreement.
Section 5.03 TERMINATION WITHOUT CAUSE. If the Company
terminates Employee's employment hereunder without cause, then:
(a) the Company shall pay Employee his full salary
through the date of termination, at the annual rate
then in effect;
(b) in lieu of any further salary payments to Employee
for periods subsequent to the date of termination, the
Company shall continue to pay to Employee his salary
at the annual rate in effect immediately prior to such
termination until the earlier to occur of (i) the date
that Employee obtains a position with another employer
providing for the payment of an annual base salary at
a rate substantially equivalent to that provided
herein or (ii) the expiration of the twelve (12) month
period following such termination (the "Salary
Continuation Period"), in equal periodic installments
consistent with the Company's payroll policies; and
4
<PAGE> 6
(c) payment of the foregoing by the Company shall
constitute complete satisfaction and remedy with
respect to termination of Employee's employment by the
Company without cause.
Section 5.04 CONTINUED BENEFITS. Unless Employee is terminated
by the Company for cause, or Employee shall resign from his positions with the
Company, the Company shall maintain in full force and effect, for the continued
benefit of Employee during the Salary Continuation Period, coverage under all
medical and dental insurance plans and programs in which Employee participated
prior to termination at the same cost to Employee as that applicable to other
employees participating in such plans during such period; PROVIDED, that
Employee's continued participation is possible under the general terms and
provisions of such plans and programs. In the event Employee's participation in
any such plan or program is barred, the Company shall arrange to provide
Employee with benefits substantially similar to those which Employee would
otherwise have been entitled to receive under such plans and programs from which
his continued participation is barred.
ARTICLE VI
BINDING AGREEMENT
Section 6.00 BINDING AGREEMENT. This Agreement and all rights
of Employee hereunder shall inure to the benefit of and be enforceable by
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Employee should die
while any amounts would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Employee's devisee, legatee,
designee or, if there is no such designee, to Employee's estate. This Agreement
and all rights of the Company hereunder shall inure to the benefit of and be
enforceable by the Company's successors and assigns.
ARTICLE VII
REPRESENTATIONS AND AGREEMENTS OF EMPLOYEE
Section 7.01 ABILITY TO PERFORM. Employee represents and
warrants that he is free to enter into this Agreement and to perform the duties
required hereunder, and that there are no employment contracts or
understandings, restrictive covenants or other restrictions, whether written or
oral, preventing the performance of his duties hereunder.
Section 7.02 COOPERATION. Employee agrees to submit to a
medical examination and to cooperate and supply such other information and
documents as may be required by any insurance company in connection with the
Company's obtaining life insurance on the life of Employee, and any other type
of insurance or fringe benefit as the Company shall determine from time to time
to obtain.
5
<PAGE> 7
ARTICLE VIII
RESTRICTIVE COVENANTS
Section 8.01 NON-COMPETITION. Employee agrees that during the
Non-Competitive Period (as defined below), Employee shall not, directly or
indirectly, as owner, partner, joint venturer, stockholder, employee, broker,
agent, principal, trustee, corporate officer, director, licensor or in any
capacity whatsoever, engage in, become financially interested in, be employed
by, render any consultation or business advice with respect to, or have any
connection with, any business engaged in manufacturing, assembly, marketing or
sales of coffeemakers, teamakers, filters, scales, massagers or any other
product then being manufactured, assembled, marketed or sold by the Company, or
then being developed by the Company with the expectation of sale by the Company
within 90 days, in any geographic area where, at the time of termination of his
employment hereunder, the business of the Company was being conducted in any
material respect; provided, however, that Employee may own any securities of any
corporation which is engaged in such business and is publicly owned and traded
but in an amount not to exceed at any one time five percent (5%) of any class of
stock or securities of such corporation. The term "Non-Competitive Period" shall
mean the period commencing on the date of his termination or resignation and
ending on the date which is (i) twelve (12) months later, in the event of
termination by the Company without cause, or (ii) eighteen (18) months later, in
the event of termination by Employee of his employment hereunder, or termination
by the Company for cause.
Section 8.02 NO HIRING. During the Non-Competitive Period,
Employee will not knowingly (i) hire or attempt to hire any employee of the
Company or of any of the Company's subsidiaries or affiliated entities (if any);
(ii) assist in such hiring by any other person; or (iii) encourage any such
employee to terminate his employment with the Company or any of such
subsidiaries or affiliated entities.
Section 8.03 SEVERABILITY. If any portion of the restrictions
set forth in this Article VIII should, for any reason whatsoever, be declared
invalid by a court of competent jurisdiction, the validity or enforceability of
the remainder of such restrictions shall not thereby be adversely affected.
Section 8.04 REASONABLENESS. Employee agrees that the
territorial and time limitations set forth in this Article VIII are reasonable
and properly required for the adequate protection of the business of the
Company. In the event any such territorial or time limitation is deemed to be
unreasonable by a court of competent jurisdiction, Employee agrees to the
reduction of the territorial or time limitation to the area or period which such
court shall have deemed reasonable.
6
<PAGE> 8
ARTICLE IX
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
Section 9.01 NON-DISCLOSURE. Employee shall not, during the
term of this Agreement and at any time thereafter, directly or indirectly,
disclose or permit to be known outside of the scope of his duties to the
Company, to any person, firm or corporation, any confidential information
acquired by him during the course of, or as an incident to, his employment
relating to the Company. It shall not be outside the scope of Employee's duties
to the Company to disclose confidential information to the Company's directors,
officers, employees, advisors, attorneys, accountants, lenders, financial
institutions or investors. Such confidential information shall be limited to
proprietary technology, market data, formulae, customer and supplier lists,
non-public financial and operating information and data, and any other documents
embodying such confidential information to the extent that such data and
information relate specifically to the Company. Such restrictions apply only to
the reproduction or use of the specific written documents of the Company
relating to the above-described categories and not to any knowledge (including
but not limited to knowledge gained from such confidential information) based on
Employee's experience during his employment with the Company or otherwise.
Section 9.02 RETURN OF DOCUMENTS. Upon termination of
Employee's employment with the Company, all documents, records, reports,
writings and other similar documents containing confidential information,
including copies thereof, then in Employee's possession or control shall be
returned and left with the Company.
ARTICLE X
EQUITABLE RELIEF
Section 10.00 RIGHT TO INJUNCTION. Employee recognizes that
the services to be rendered by him hereunder are of a special, unique, unusual,
extraordinary and intellectual character, involving skill of the highest order
and giving them peculiar value, the loss of which cannot be adequately
compensated for in damages. In the event of a breach of this Agreement by
Employee, the Company shall be entitled to injunctive relief or any other legal
or equitable remedies. Employee agrees that the Company may recover by
appropriate action the amount of the actual damages caused the Company by any
failure, refusal or neglect of Employee to perform his agreements,
representations and warranties herein contained. The remedies provided in this
Agreement shall be deemed cumulative and the exercise of one shall not preclude
the exercise of any other remedy, at law or in equity, for the same event or any
other event.
7
<PAGE> 9
ARTICLE XI
MISCELLANEOUS
Section 11.01 INDEMNIFICATION; INSURANCE. The Company will
indemnify Employee to the maximum extent permitted by law (including advancing
expenses where appropriate) with respect to actions taken by him as an officer
or director of the Company, any of its subsidiaries, or any affiliated entity of
the Company or any of its subsidiaries. The Company's obligation to provide
indemnification shall survive termination of employment. The Company will also
maintain in effect during Employee's employment hereunder directors and officer
liability insurance, to the extent the same can be obtained on commercially
reasonable terms. If permitted by the terms of the policy providing such
insurance, Employee will remain insured under such policy until the first to
occur of (i) termination of such policy (other than termination by the Company),
or (ii) the fifth anniversary of termination of Employee's employment with the
Company.
Section 11.02 ARBITRATION. Should any dispute arise between
the parties concerning the performance of this Agreement, the parties agree to
mediation and, if not resolved through such mediation within thirty (30) days,
final and binding arbitration in Cleveland, Ohio in accordance with the rules of
the American Arbitration Association, subject to Article X in the case of
alleged breach of Articles VIII or IX.
The decision rendered in any arbitration proceedings shall be
in writing and shall set forth the basis therefor. The parties shall abide by
the award rendered in the arbitration proceedings, and such award may be entered
as a final, non-appealable judgment, and may be enforced and executed upon, in
any court having jurisdiction over the party against whom enforcement of such
award is sought. Each of the parties agrees (in connection with any action
brought to enforce the arbitration provisions of this paragraph) not to assert
in any such action, any claim that it is not subject to the personal
jurisdiction of such court, that the action is brought in an inconvenient forum,
that the venue of the action is improper or that such mediation or arbitration
may not be enforced by such courts. Each party agrees that service of process
may be made upon it by any method authorized by the laws of the state in which
arbitration is to be conducted in accordance with this Section 11.02.
Section 11.03 NOTICE. For the purposes of this Agreement,
notices, demands and all other communications provided for in the Agreement
shall be in writing, shall be deemed to have been duly given when delivered or
unless otherwise specified mailed by U.S. registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to Employee: Steven M. Billick
17281 Buckthorn Drive
Chagrin Falls, OH 44023
If to the Company: Health o meter Products, Inc.
24700 Miles Road
Bedford Heights, Ohio 44146
8
<PAGE> 10
With a copy to: Calfee, Halter & Griswold
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114
Attn: Thomas F. McKee, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
Section 11.04 AMENDMENT OR ALTERATION. No amendment or
alteration of the terms of this Agreement shall be valid unless made in writing
and signed by both of the parties hereto.
Section 11.05 GOVERNING LAW. This Agreement shall be governed
by the laws of the State of Ohio, without giving effect to the conflicts of laws
provisions thereof.
Section 11.06 SEVERABILITY. The holding of any provision of
this Agreement to be invalid or unenforceable by a court of competent
jurisdiction shall not affect any other provision of this Agreement, which shall
remain in full force and effect.
Section 11.07 WAIVER OR BREACH. No waiver of or failure to
enforce any provisions of this Agreement shall be deemed, or shall constitute, a
waiver of any other provision of this Agreement, nor shall such waiver or
failure to enforce constitute a continuing waiver.
Section 11.08 ASSIGNMENT. This Agreement may not be
transferred or assigned by either party without the prior written consent of the
other party.
Section 11.09 FURTHER ASSURANCES. The parties agree to execute
and deliver all such further documents, agreements and instruments and take such
other and further action as may be necessary or appropriate to carry out the
purposes and intent of this Agreement.
Section 11.10 HEADINGS. The section headings appearing in this
Agreement are for purposes of each reference and shall not be considered a part
of this Agreement or in any way modify, amend or affect its provisions.
9
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
HEALTH O METER PRODUCTS, INC.
BY: /s/ S. Donald McCullough
---------------------------------
Name: S. Donald McCullough
Title: President
/s/ Steven M. Billick
------------------------------------
Steven M. Billick
10
<PAGE> 1
Exhibit 10.18
-------------
<PAGE> 2
LEASE AGREEMENT
DATED: OCTOBER 15, 1996
DUKE REALTY LIMITED PARTNERSHIP, AN INDIANA LIMITED PARTNERSHIP,
LANDLORD
HEALTH O METER PRODUCTS, INC., TENANT
<PAGE> 3
LEASE AGREEMENT
TENANT: HEALTH O METER PRODUCTS, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 TERM OF LEASE...........................................................................................2
SECTION 1.1 INITIAL TERM........................................................................2
SECTION 1.2 OPTIONS TO RENEW....................................................................2
SECTION 1.3 EXERCISE OF OPTIONS TO RENEW........................................................2
ARTICLE 2 CONSTRUCTION OF IMPROVEMENTS............................................................................2
INTENTIONALLY OMITTED...........................................................................2
SECTION 2.2 APPROVAL OF PLANS..................................................................3
SECTION 2.3 SCOPE OF WORK.......................................................................4
SECTION 2.4 CHANGES IN WORK....................................................................4
SECTION 2.5 COMPLETION.........................................................................5
(A) INITIAL IMPROVEMENT COMPLETION DATES...............................................5
(B) PERMITTED DELAYS-TENANT EXTENSION..................................................5
(C) AFFECT OF PERMITTED DELAYS OR TENANT EXTENSION.....................................6
(D) PROGRESS OF CONSTRUCTION...........................................................6
SECTION 2.6 SUBSTANTIAL COMPLETION..............................................................7
SECTION 2.7 TENANT'S REMEDIES FOR LANDLORD DELAY................................................7
SECTION 2.8 WARRANTY............................................................................8
SECTION 2.9 PUNCH LIST..........................................................................9
SECTION 2.10 INDEMNITY.........................................................................10
SECTION 2.10 EARLY OCCUPANCY...................................................................10
ARTICLE 2A EXPANSION OF DEMISED PREMISES.........................................................................11
SECTION 2A.1 OPTION TO EXPAND..................................................................11
(A) EXPANSION NOTICE..................................................................11
SECTION 2A.2 LANDLORD'S PROPOSED EXPANSION SPACE PARAMETERS....................................12
SECTION 2A.3 TENANT'S NOTICE TO PROCEED AND EXPANSION SPACE TERM...............................12
SECTION 2A.4 PREPARATION OF EXPANSION PLANS....................................................13
SECTION 2A.5 EXPANSION COMMENCEMENT DATE.......................................................14
SECTION 2A.6 SCOPE OF WORK - EXPANSION SPACE...................................................14
SECTION 2A.7 EXPANSION CHANGE ORDERS...........................................................14
SECTION 2A.8 WARRANTY AS TO EXPANSION SPACE....................................................15
SECTION 2A.9 EXPANSION PUNCH LIST..............................................................15
SECTION 2A.10 EXPANSION COSTS..................................................................15
ARTICLE 3 RENT...................................................................................................16
SECTION 3.1 BASE RENT.........................................................................16
(A) BASE RENT FOR INITIAL IMPROVEMENTS................................................16
(1) INITIAL TERM.............................................................16
(2) RENEWAL TERM.............................................................16
</TABLE>
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<TABLE>
<S> <C>
(B) EXPANSION SPACE RENT..............................................................16
(1) EXPANSION SPACE TERM.....................................................17
(2) RENEWAL TERMS............................................................18
(C) FAIR MARKET BASE RENT DETERMINATION...............................................18
SECTION 3.2 RENT PAYABLE WITHOUT PRIOR DEMAND; MAXIMUM RATE OF INTEREST........................19
SECTION 3.3. GOVERNMENTAL ASSISTANCE...........................................................20
ARTICLE 4 PAYMENT OF TAXES, ASSESSMENTS, ETC.....................................................................21
SECTION 4.1 ADDITIONAL RENT....................................................................21
SECTION 4.2 RIGHT TO CONTEST IMPOSITIONS.......................................................23
SECTION 4.3 TAXES ON RENT......................................................................23
SECTION 4.4 RECEIPTS FOR IMPOSITIONS...........................................................24
SECTION 4.5 LANDLORD'S RIGHT TO CONTEST IMPOSITIONS............................................24
ARTICLE 5 INSURANCE..............................................................................................25
SECTION 5.1 PROPERTY INSURANCE.................................................................25
SECTION 5.2 MUTUAL WAIVER OF CLAIMS AND SUBROGATION RIGHTS....................................26
SECTION 5.3 COMMERCIAL GENERAL LIABILITY INSURANCE.............................................26
SECTION 5.4 TENANT'S PROPERTY INSURANCE........................................................27
SECTION 5.5 TENANT'S BUSINESS INTERRUPTION INSURANCE...........................................27
SECTION 5.6 PROCEEDS, PAYMENT AND POLICY PROVISIONS............................................27
SECTION 5.7 INSURANCE APPROVAL.................................................................27
ARTICLE 6 USE AND MAINTENANCE OF THE DEMISED PREMISES............................................................28
SECTION 6.1 PREMISES USE......................................................................28
SECTION 6.2 TENANT'S REPAIRS...................................................................28
SECTION 6.3 LANDLORD'S REPAIRS.................................................................30
SECTION 6.4 PROHIBITION AGAINST WASTE..........................................................30
SECTION 6.5 MISUSE OR NEGLECT..................................................................30
SECTION 6.6 LIMITATION ON TENANT'S REPAIRS.....................................................30
ARTICLE 7 COMPLIANCE WITH LAWS AND ORDINANCES....................................................................31
SECTION 7.1 COMPLIANCE.........................................................................31
SECTION 7.2 OTHER COMPLIANCE...................................................................32
SECTION 7.3 ENVIRONMENTAL MATTERS..............................................................33
(A) DEFINITIONS.......................................................................33
(B) LANDLORD INDEMNITY................................................................34
(C) TENANT INDEMNITY..................................................................34
(D) NOTICE............................................................................35
(E) EXCLUSIVE REMEDY AND SURVIVAL.....................................................35
(F) COMPLIANCE WITH OTHER LAWS........................................................35
(G) STORAGE OF HAZARDOUS MATERIALS....................................................35
(H) ENVIRONMENTAL AUDITS..............................................................35
(I) TERMINATION OF LEASE..............................................................36
ARTICLE 8 MECHANIC'S LIENS AND OTHER LIENS.......................................................................37
SECTION 8.1 LIENS AND RIGHT OF CONTEST.........................................................37
</TABLE>
ii
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<TABLE>
<S> <C>
SECTION 8.2 LIENS ON LANDLORD'S WORK...........................................................38
SECTION 8.3 OTHER LIENS........................................................................39
ARTICLE 9 INTENT OF PARTIES......................................................................................39
SECTION 9.1 NET RENT...........................................................................39
SECTION 9.2 LANDLORD'S PERFORMANCE FOR TENANT..................................................39
SECTION 9.3 PAYMENT FOR LANDLORD'S PERFORMANCE FOR TENANT......................................40
ARTICLE 10 DEFAULTS AND LANDLORD'S REMEDIES......................................................................40
SECTION 10.1 DEFAULT...........................................................................40
SECTION 10.2 RE-LETTING AFTER DEFAULT..........................................................41
SECTION 10.3 ACCEPTANCE AFTER DEFAULT..........................................................42
SECTION 10.4 REMEDIES CUMULATIVE...............................................................42
ARTICLE 11 DESTRUCTION AND RESTORATION...........................................................................43
SECTION 11.1 RESTORATION.......................................................................43
SECTION 11.2 INSURANCE PROCEEDS................................................................43
SECTION 11.3 TENANT'S OBLIGATIONS FOLLOWING A CASUALTY.........................................43
SECTION 11.4 DESTRUCTION PRIOR TO COMMENCEMENT DATE............................................44
SECTION 11.5 RESTORATION AT END OF TERM........................................................44
ARTICLE 12 CONDEMNATION..........................................................................................44
SECTION 12.1 TOTAL CONDEMNATION................................................................44
SECTION 12.2 PARTIAL CONDEMNATION..............................................................45
SECTION 12.3 RESTORATION AFTER CONDEMNATION....................................................45
SECTION 12.4 BASE RENT REDUCTION...............................................................45
ARTICLE 13 ASSIGNMENT AND SUBLETTING.............................................................................46
ARTICLE 14 SUBORDINATION, NON-DISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT....................................46
SECTION 14.1 SUBORDINATION.....................................................................46
SECTION 14.2 MORTGAGEE PROTECTION CLAUSE.......................................................46
SECTION 14.3 ATTORNMENT........................................................................47
SECTION 14.4 COSTS.............................................................................47
ARTICLE 15 SIGNS.................................................................................................47
ARTICLE 16 TRADE FIXTURES........................................................................................48
ARTICLE 17 CHANGES AND ALTERATIONS...............................................................................48
ARTICLE 18 SURRENDER OF PREMISES.................................................................................50
</TABLE>
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<TABLE>
<S> <C>
SECTION 18.1 SURRENDER OF POSSESSION...........................................................50
SECTION 18.2 REMOVAL OF TENANT'S PROPERTY; HOLDOVER RENT.......................................50
ARTICLE 19 MISCELLANEOUS PROVISIONS..............................................................................51
SECTION 19.1 RIGHT OF INSPECTION..............................................................51
SECTION 19.2 DISPLAY OF DEMISED PREMISES.......................................................52
SECTION 19.3 INDEMNITIES.......................................................................52
(A) TENANT............................................................................52
(B) LANDLORD..........................................................................53
SECTION 19.4 NOTICES...........................................................................53
SECTION 19.5 QUIET ENJOYMENT...................................................................54
SECTION 19.6 LANDLORD AND SUCCESSORS...........................................................54
SECTION 19.7 ESTOPPELS.........................................................................54
SECTION 19.8 SEVERABILITY; GOVERNING LAWS......................................................55
SECTION 19.9 BINDING EFFECT....................................................................55
SECTION 19.10 CAPTIONS.........................................................................55
SECTION 19.11 LANDLORD TENANT RELATIONSHIP.....................................................55
SECTION 19.12 MERGER OF AGREEMENTS.............................................................55
SECTION 19.13 LANDLORD'S PROPERTY..............................................................55
SECTION 19.14 SURVIVAL.........................................................................55
SECTION 19.15 REASONABLENESS...................................................................56
SECTION 19.16 REAL ESTATE BROKER...............................................................56
SECTION 19.17 EXHIBITS; RIDER PROVISIONS.......................................................56
SECTION 19.18 RECORDING........................................................................56
SECTION 19.19 FINANCIAL STATEMENTS............................................................56
SECTION 19.20. LIMITATION OF LANDLORD'S LIABILITY.............................................56
ARTICLE 20 CONTINGENCIES.........................................................................................57
SECTION 20.1 LANDLORD'S CONTINGENCIES..........................................................57
SECTION 20.2 TENANT'S CONTINGENCIES............................................................57
SECTION 20.3 WAIVER............................................................................57
</TABLE>
iv
<PAGE> 7
LEASE AGREEMENT
TENANT: HEALTH O METER PRODUCTS, INC.
This LEASE AGREEMENT (the "Lease") is made this 15th day of October,
1996, by and between Duke Realty Limited Partnership, a limited partnership
existing under the laws of the State of Indiana (the "Landlord") and HEALTH O
METER PRODUCTS, INC., a corporation existing under the laws of the State of
Delaware, (the "Tenant").
WITNESSETH:
A. Landlord, for and in consideration of the rents, covenants and
agreements hereinafter contained, hereby leases, rents, lets and demises, unto
Tenant, and Tenant does hereby take and hire, upon and subject to the conditions
and limitations hereinafter expressed, all that parcel of land containing
approximately 35.059 acres, more or less, situated in the Village of Glenwillow
(the "Village"), County of Cuyahoga and State of Ohio, described in Exhibit A
attached hereto and made a part hereof (the "Land"), together with all
improvements located on and to be constructed thereon pursuant to the terms and
conditions hereof. The initial improvements to be constructed on the Land by
Landlord as provided in Article 2 hereto, are referred to as the "Initial
Improvements." The improvements, if any, to be constructed by Landlord pursuant
to Tenant's right to expand as provided in Article 2A hereof are referred to as
the "Expansion Space." The Initial Improvements and the Expansion Space, if any,
are collectively referred to as "Landlord's Improvements".
B. Landlord's Improvements and all other improvements, fixtures and
other property, real, personal or mixed, except those items of Tenant's attached
or unattached personalty, which are deemed to be Trade Fixtures (as discussed in
Article 16, the "Trade Fixtures") installed or located thereon, together with
all additions, alterations and replacements thereof are collectively referred to
as the "Improvements." The Land, Landlord's Improvements and any alterations,
modifications or additions thereto are hereafter collectively referred to as the
"Demised Premises." The structures located upon and forming a part of the
Demised Premises which are constructed for human occupancy or for manufacturing,
assembly or storage of goods, merchandise, equipment, or other personal property
are collectively called the "Building."
NOW THEREFORE, for and in consideration of the mutual covenants and
conditions herein contained and for other good and valuable consideration, the
parties hereto agree as follows:
1
<PAGE> 8
ARTICLE 1
TERM OF LEASE
SECTION 1.1 INITIAL TERM. The initial term of this Lease (the "Initial
Term") shall be for fifteen (15) years commencing on August 1, 1997 (the
"Commencement Date") and ending on July 31, 2012 (the "Termination Date").
Notwithstanding the foregoing, the Commencement Date and Termination Date are
subject to adjustment as set forth in Section 2.5 hereof, but in no instance
shall the Initial Term be less than fifteen (15) years, unless sooner terminated
as provided herein.
SECTION 1.2 OPTIONS TO RENEW. Tenant shall have the option (or the
requirement as provided in Section 2A.3 in respect to Expansion Space) to extend
the Initial Term for up to two (2) additional periods of five (5) years each
(individually a "Renewal Term," and collectively, the "Renewal Terms") upon the
terms and conditions contained in this Lease, except that the Base Rent for the
Renewal Terms shall be as set forth in Sections 3.1 hereof. The Initial Term and
Renewal Terms, if any, are sometimes collectively referred to as the "Term."
SECTION 1.3 EXERCISE OF OPTIONS TO RENEW. The options to renew granted
in Section 1.2 hereof may be exercised by Tenant giving written notice to
Landlord (herein the "Renewal Notice") not later than twelve (12) months prior
to the expiration of the then applicable portion of the Term. Should Tenant
neglect to provide Landlord with a Renewal Notice as provided herein, Tenant's
right to exercise Tenant's option to extend (and any succeeding option) shall
expire. It shall be a condition of exercise of each option to renew that Tenant
shall not be in Default (as defined in Section 10.1) of any of the terms and
conditions of this Lease, either at the time of delivery of the Renewal Notice
in question, or at the commencement of the Renewal Term in question.
Notwithstanding the foregoing, regardless of a Renewal Notice, Tenant shall be
deemed to have exercised its option for the applicable number of Renewal Terms
in the instance of Expansion Space as provided in Section 2A.3 hereof.
ARTICLE 2
CONSTRUCTION OF IMPROVEMENTS
SECTION 2.1 INTENTIONALLY OMITTED.
2
<PAGE> 9
SECTION 2.2 APPROVAL OF DESIGN PACKAGE PLANS.
Landlord will cause to be prepared and delivered to Tenant for
Tenant's approval by the following dates all of the design components of the
Building in four specific design plan packages (the "Design Plan Packages"):
<TABLE>
<CAPTION>
DATE TO BE DATE TO BE
---------- ----------
DESIGN PLAN DELIVERED TO AGREED UPON BY
----------- ------------ --------------
PACKAGE NO. DESCRIPTION TENANT LANDLORD
----------- ----------- ------ --------
AND TENANT
<S> <C> <C> <C>
1 Earthwork and Site Utilities Received prior to Date of October 14, 1996
this Lease
2 Building Shell October 7, 1996 October 21, 1996
3 Warehouse Finishes November 4, 1996 November 18, 1996
4 Office Finishes (including January 20, 1997 February 3, 1997
Landscaping Plans)
</TABLE>
The Design Plan Package No. 1 shall be prepared by M-E Civil Engineering, Inc.
(the "Civil Engineer"), an Ohio licensed engineer, all of which shall be in
substantial compliance with Tenant's Performance Criteria Specifications and
Outline Plans (the "Performance Criteria") attached hereto as Exhibit B. The
Design Plan Packages Nos. 2, 3 and 4 shall be prepared by Ford, Berry
Architects, Inc. (the "Initial Architect") an Ohio licensed architect, all of
which shall be in substantial compliance with the Performance Criteria. Upon
receipt, Tenant shall either approve or disapprove the same. If a Design Plan
Package (or a portion thereof) is disapproved, Tenant shall notify Landlord in
writing, detailing, with appropriate specificity, that portion or element of the
Design Plan Package disapproved and the reasons for such disapproval. The Tenant
shall use the submitted documents to record the written commentary, and return a
copy to the Landlord. Upon Tenant's disapproval, Landlord shall undertake to
have such disapproved element of the Design Plan Package modified and shall
promptly resubmit same to Tenant. Such submission and resubmission process shall
continue until such time as all of the components comprising the Design Plan
Packages have been approved by Tenant and Landlord but in no event later than
the dates set forth in the table above.
In the event Landlord and Tenant fail to agree on the final content of
the Design Plan Packages, Tenant and the Civil Engineer, in the event the
failure to agree is with respect to Design Plan Package No. 1 shall appoint an
independent engineer to make such determination, and in the event the
disagreement is as to Design Plan Packages Nos. 2, 3 or 4, Tenant and the
Initial
3
<PAGE> 10
Architect shall appoint an Independent Architect to make such determination. The
decision of the Civil Engineer or Independent Architect, as the case may be,
shall be binding on the parties.
When each of the components of the Design Plan Packages have ultimately
been approved by Tenant, Tenant and Landlord shall each affix their respective
signatures or initials to each page comprising the Design Plan Packages, and
when all components comprising the Design Plan Packages have been so signed or
initialed they shall become a part of this Lease as Exhibit C and together shall
constitute the Final Plans.
SECTION 2.3 SCOPE OF WORK. Landlord agrees to furnish at Landlord's
sole cost and expense (except in the instance of Change Orders), all of the
material, labor and equipment necessary for the commencement and completion of
construction on the Land of the Initial Improvements specified on the Final
Plans. The Initial Improvements shall be constructed using new materials in a
good and workmanlike manner in accordance with the Final Plans. Landlord agrees
to complete the construction thereof in full compliance with all Laws as then in
effect (except as such compliance may be affected as a result of work performed
or to be performed in or about the Demised Premises by Tenant or Tenant's
separate contractors). In the event any materials specified in the Final Plans
are unavailable, Landlord reserves the right to substitute materials of higher
or equal quality, provided that Tenant consents, in writing, to such
substitutions, which consents shall not unreasonably be withheld or delayed.
Landlord shall cause the Initial Improvements to be constructed, and,
as of the Commencement Date, to be in full compliance with the requirements of
the Americans With Disabilities Act of 1990, and any and all rules and
regulations theretofore issued pursuant thereto ("ADA").
SECTION 2.4 CHANGES IN WORK. Although it may constitute a Tenant
Extension (as hereafter defined), Tenant, without invalidating this Lease, may
order changes in the work (or may be deemed to have ordered changes in the work)
consisting of additions or deletions to, or other revisions in, the Final Plans
(or the Expansion Plans, if applicable and as hereafter defined), with an
appropriate adjustment, if any, for a credit to or payment by Tenant as
hereafter provided and with an appropriate adjustment, if any, to the following
hereafter defined dates: The Initial Completion Date; Commencement Date;
Expansion Commencement Date; and any applicable dates on which Landlord is
required to deliver components of the Final Plans (or Expansion Plans). Any such
changes in work which have been authorized by a written change order (which
shall be executed as hereafter provided), or have otherwise been deemed
hereunder to have been so authorized and executed, is herein sometimes referred
to as "Change Order."
4
<PAGE> 11
Except as hereafter provided, a Change Order is a written order signed
by Tenant and accepted, in writing, by Landlord stating in detail the change in
the work, any adjustment in the foregoing dates or the time for the preparation
of components of the Final Plans (or Expansion Plans, if applicable), and any
credit to be afforded to Tenant or any additional payment obligation to be made
by Tenant as a result thereof. If, in the instance of the Initial Improvements a
Change Order results in a credit to Tenant, meaning that the Change Order Cost
(as hereafter defined) is less than the original charge for the work being
changed, such credit shall be effected by a credit to the Base Rent first owing
under this Lease. If in the instance of either the Initial Improvements or the
Expansion Space, a Change Order results in an additional charge to Tenant,
meaning that the Change Order Cost is greater than the original charge for the
work being changed, Tenant shall pay to Landlord the Change Order Cost with
Tenant's first payment of Base Rent. The "Change Order Cost" shall be equal to
the sum of all actual costs incurred in connection with the subject change. The
actual costs of the subject change shall be the aggregate of all payment
obligations under those contracts or modifications to contracts entered into by
Landlord, including standard construction management fees, plus applicable
general conditions, which are necessary to effectuate the specific Change Order.
SECTION 2.5 COMPLETION.
(a) INITIAL IMPROVEMENT COMPLETION DATES. Subject to Permitted
Delays and Tenant Extensions, the Initial Improvements shall be Substantially
Complete (as defined in Section 2.6) or if not Substantially Complete, at least
completed to the extent that Tenant may begin to perform certain of its facility
preparation work (as described in Section 2.11), on or before June 30, 1997
(herein the "Initial Completion Date"). Subject to Tenant Extensions, all of the
Initial Improvements shall be Substantially Complete on or before the
Commencement Date.
(b) PERMITTED DELAYS-TENANT EXTENSION. The Initial Completion
Date and Commencement Date (and Expansion Commencement Date, if applicable)
shall be extended if Landlord is delayed as a result of: (1) strikes, labor
disputes, unusual delays or shortages encountered in weather, transportation,
fuel, material or labor shortages; (2) casualties, acts of God or the public
enemy; or (3) governmental embargo restrictions or action or inaction of local,
state or federal governments affecting the work (clauses (1) through (3) above
are hereinafter individually referred to as a "Permitted Delay" and collectively
as "Permitted Delays").
A "Tenant Extension" shall mean any delay encountered by Landlord as a
result of any act or omission or neglect of Tenant, including the requesting and
negotiating of Change Orders, or any act or neglect of any employee of Tenant or
by any separate
5
<PAGE> 12
contractor employed by Tenant, including, but not limited to the failure of
Tenant or any of Tenant's contractors to complete interior construction or
racking causing the Village to withhold its certificate of occupancy for the
Initial Improvements (or Expansion Space) as a result thereof or causing the
Initial Improvements (or Expansion Space) not to be in compliance with all
applicable laws as a result thereof.
(c) EFFECT OF PERMITTED DELAYS OR TENANT EXTENSION. Landlord
shall use best efforts to overcome or mitigate the effect of a Permitted Delay.
"Best efforts" (as used throughout this Lease) shall mean those efforts that are
commercially reasonable under the circumstances. Promptly following the
occurrence of a Permitted Delay or a Tenant Extension, Landlord, in writing,
shall notify Tenant of such occurrence. Thereafter, promptly following
Landlord's determination of the effect such occurrence will have, if any, on the
time within which the Initial Improvements (or the Expansion Space, as the case
may be) shall be Substantially Completed and ready for occupancy by Tenant and,
in the instance of a Tenant Extension, only, the additional cost, if any, to
Tenant, Landlord shall notify Tenant of same. Landlord shall endeavor to make
such determination within ten (10) days following the occurrence, but in any
event it shall be made with due diligence. In the case of continuing Permitted
Delays or Tenant Extensions, only one such notice from Landlord is necessary. In
the instance of a Permitted Delay, the Initial Completion Date, Commencement
Date, Expansion Commencement Date (as hereafter defined) shall be moved back to
the date necessary as a result of a Permitted Delay. In the instance of a Tenant
Extension, the Commencement Date or the Expansion Commencement Date, if
applicable, shall be the date on which the Initial Improvements or Expansion
Space, respectively, would have been Substantially Complete, but for the Tenant
Extension. Also, in the instance of a Tenant Extension, the Initial Completion
Date and the dates when the applicable components of the Design Plan Packages
(or Expansion Plans) must be prepared shall be moved back to the date necessary
as a result of a Tenant Extension.
(d) PROGRESS OF CONSTRUCTION. Landlord agrees to provide to
Tenant construction schedules monthly which will depict the various stages of
construction of the Initial Improvements, the progress to date, and Landlord's
estimates for completion of future stages of construction. Such schedules shall
also be updated by the Landlord from time to time in order to reflect any major
changes in construction conditions and/or in the estimated time for delivery of
the various stages of completion. Tenant may consult with the Initial Architect
in the presence of Landlord in regard to the construction schedule and suggest
methods in which such schedule may be modified in order to facilitate
Substantial Completion in accordance with the dates provided herein. If, in
Tenant's reasonable judgment, and after consultation with Landlord and the
Initial Architect, Tenant believes that the dates contained herein for the
delivery of the various stages of the
6
<PAGE> 13
Initial Improvements cannot be met, then Tenant shall notify Landlord in writing
of same. Landlord, upon receipt of such a notice agrees to consult with the,
Initial Architect, and the major subcontractors to insure that all reasonable
steps necessary to meet the time requirements set forth herein are being taken.
In no event, however, shall the failure of Landlord to comply with or implement
any suggestions or requests by Tenant be deemed to be a default by Landlord
hereunder. Nothing contained in the previous sentence shall be construed as a
limitation on the obligation of Landlord to use their best efforts to mitigate
the effect of any Permitted Delay hereunder.
SECTION 2.6 SUBSTANTIAL COMPLETION. Except for Tenant Extensions, the
Initial Improvements and the Expansion Space, as the case may be, shall be
deemed to be "Substantially Complete" or be deemed to have achieved "Substantial
Completion" on the date on which: (i) the improvements in question are completed
in compliance with all applicable laws (except as provided in Section 2.3
hereof) and in conformity in all material respects with the Final Plans (or the
Expansion Plans, as the case may be); and (ii) when the Village (or other
governmental authority having jurisdiction) has issued a certificate of
occupancy (or other consent to or approval of Tenant's use and occupancy as may
be necessary) of the Initial Improvements (or Expansion Space). In the event of
any disagreement between Landlord and Tenant on the issue of whether Substantial
Completion has been achieved under clause (i) above, Tenant and the Initial
Architect shall appoint an independent third party architect (the "Independent
Architect") to make such determination and the decision of the Independent
Architect shall be binding on the parties. The issuance of a certificate of
occupancy (or other consent or approval, as aforesaid, if necessary) by the
Village (or other governmental authority having jurisdiction) which is temporary
or conditional on the subsequent completion of weather-sensitive work, if any,
or completion of minor Punch List Items (as defined in Section 2.9) which do not
interfere with Tenant's use and occupancy of the Demised Premises, shall
nevertheless fulfill the requirement of clause (ii) above. In the instance of
the occurrence of Tenant Extensions, Substantial Completion of the Initial
Improvements (or the Expansion Space, if applicable) shall be the date on which
the improvements in question would have been completed in compliance with all
applicable Laws (except as provided in Section 2.3 hereof) and in conformity in
all material respects with the Final Plans (or the Expansion Plans, if
applicable) and the Village (or other governmental authority having
jurisdiction) would have issued a certificate of occupancy (or other consent or
approval, as aforesaid, as may be necessary), but for the occurrence of a Tenant
Extension.
SECTION 2.7 TENANT'S REMEDIES FOR LANDLORD DELAY. Landlord acknowledges
that Tenant's current lease expires on June 30, 1997 and Tenant will incur
significant expense in the event
7
<PAGE> 14
the time periods for Substantial Completion as set forth in this Lease are not
met. Accordingly, Landlord agrees as follows:
(a) Subject to Permitted Delays and Tenant Extensions, in the event
that Substantial Completion of all of the Initial Improvements is not achieved
on or before July 31, 1997, then for each day that Substantial Completion is
delayed beyond said date, the Commencement Date shall be extended by one day.
(b) In addition, subject to Permitted Delays and Tenant Extension, in
the event that Substantial Completion of all of the Initial Improvements is not
achieved on or before August 22, 1997, then for each day that Substantial
Completion is delayed beyond said date, Tenant shall be entitled to full
abatement of one (1) day of Base Rent following the Commencement Date.
SECTION 2.8 WARRANTY. Subject to Section 2.3 hereof with respect to
compliance with ADA and Landlord's, and Tenant's respective obligations in
regard thereto, Landlord represents and warrants that all Initial Improvements
to be constructed hereunder shall be constructed in full compliance with all
applicable Laws and Landlord represents and warrants that the Initial
Improvements shall be constructed in full compliance with all Laws (except as
provided in Section 2.3 hereof) and in accordance with the Final Plans in all
material respects. Landlord warrants all portions of the Initial Improvements
constructed pursuant to the Final Plans for a period of one (1) year after
Substantial Completion thereof, plus, for any Warranty Work, one (1) year after
the date of completion of such Warranty Work (herein the "Warranty Period").
After the conclusion of the Warranty Period, Landlord shall assign and transfer
to Tenant all warranties then in effect which were given to Landlord (except any
such warranties with respect to portions of the Initial Improvements for which
Landlord retains Landlord's Repair obligations). If, during the Warranty Period,
Tenant notifies Landlord in writing of defective work in the design or
construction of the Initial Improvements, Landlord shall promptly cause such
defective work to be corrected.
In the event Landlord performs any work during the Warranty Period for
purposes of correcting any specific defect in the work (hereinafter referred to
as "Warranty Work"), such Warranty Work, as provided above, shall be warranted
by Landlord for a period of one (1) year from the date performed. The warranty
which is provided hereunder is limited in certain respects, and is conditioned
on certain user performance criteria, as follows:
(a) Tenant agrees to use Landlord's Improvements in accordance with the
design capacities and criteria established for same. Tenant acknowledges that
any material misuse of same may void the warranty hereunder, and may void any
manufacturers' warranties which may be assigned to Tenant hereunder.
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(b) In addition to the foregoing, the warranty hereunder shall not
extend to the electrical, plumbing and mechanical systems servicing the Building
unless said systems are maintained and operated in substantial compliance with
the manufacturers' specifications for same by one or more professionals
experienced in the maintenance and servicing of such systems at least through
the Warranty Period (provided that Landlord provides Tenant with copies of
manufacturers' specifications or maintenance manuals or other similar
information to enable Tenant to properly meet its obligations hereunder).
Landlord shall be responsible for initially providing training to Tenant's
operating and maintenance personnel (up to three people) with respect to the
above referenced Building Systems
(c) Warranty Work hereunder shall not in any way include, or require
Landlord to perform, any routine and appropriate regular maintenance of the
Landlord's Improvements required to be performed by Tenant during the Warranty
Period as part of Tenant's Repairs (see Section 6.2 below).
(d) The warranty hereunder specifically excludes (and Tenant waives any
claims with respect to) damages to Tenant's products, equipment, or other
personal property which may be located within the Demised Premises, Tenant
hereby acknowledging and agreeing that it has acquired (or will acquire), and
will maintain, appropriate amounts of insurance in order to manage said risks.
(e) The obligations under this warranty shall be to correct those
portions of the Landlord's Improvements which are not constructed in conformance
with Final Plans (or Expansion Plans, as the case may be), are defective, or
which fail due to faulty design or workmanship.
SECTION 2.9 PUNCH LIST. Landlord shall notify Tenant of the date which
is approximately seven (7) days prior to the estimated date on which Substantial
Completion for the Initial Improvements is expected to be achieved (herein
referred to as "Inspection Date"). Landlord, and Tenant shall, on the Inspection
Date, make a joint physical inspection of the Building to list the items of work
to be completed (herein referred to as "Punch List Items"). Landlord shall
deliver, in writing, Landlord's promise to complete the Punch List Items within
such reasonable period of time in respect to each item as is necessary to
complete same, taking into account diligence and good workmanlike practices. In
the event of a disagreement between the parties as to the inclusion or the
exclusion of an item on the "Punch List," Tenant and the Initial Architect shall
appoint an Independent Architect to make such determination and the decision of
the Independent Architect (which decision shall be based solely on the
determination of whether the item in question was constructed in conformity with
Final Plans) shall control.
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SECTION 2.10 INDEMNITY.
(a) Landlord agrees to indemnify and save Tenant harmless from
and against any and all loss, cost or damage that Tenant may sustain, including,
without limitation, reasonable attorney's fees incurred by Tenant in connection
with any claim, lien, charge, encumbrance or action brought, maintained or filed
by any party for any labor performed or materials furnished for or in connection
with the Initial Improvements.
(b) Further, Landlord shall indemnify and hold harmless
Tenant, its agents and employees from and against all claims, damages, losses
and expenses, including reasonable attorney's fees (except to the extent caused
by the negligence or willful misconduct of Tenant, its agents, employees or
contractors) to the extent arising out of or resulting from the performance of
any work in connection with the construction of the Initial Improvements,
provided that any such claim, damage, loss or expense is (i) attributable to
bodily injury, sickness, disease or death, or due to injury to or destruction of
tangible property (other than the Improvements); and (ii) caused by any
negligent or willful misconduct of Landlord or any of Landlord's employees,
contractors, subcontractors or anyone directly or indirectly employed by any of
them or anyone for whose acts any of them may be liable.
(c) Tenant shall indemnify and hold harmless Landlord, its
agents and employees from and against all claims, damages, losses and expenses,
including reasonable attorney's fees (except to the extent caused by the willful
misconduct of Landlord, Landlord's agents, employees or contractors) to the
extent arising out of or resulting from the performance of any work in
connection with Tenant's use and occupancy of the Demised Premises to complete
its facility preparation provided that such claim, damages, loss or expense is
(i) attributable to bodily injury, sickness, disease or death, or due to injury
to or destruction of tangible property; and (ii) caused by any negligent or
willful misconduct of Tenant or any of Tenant's employees, contractors,
subcontractors or anyone directly or indirectly employed by any of them or
anyone of whose acts any for them may be liable.
(d) Tenant and Landlord shall promptly notify the other party
of any claim under the indemnities contained in this Section 2.10 of which
Landlord or Tenant has knowledge.
SECTION 2.11 EARLY OCCUPANCY . Landlord will use good faith efforts to
allow Tenant to take possession of the warehouse portion of the Leased Premises
on or before June 30, 1997 for fixturing purposes. Tenant agrees to coordinate
its fixturing work with the work of the Landlord such that Tenant's work does
not interfere with or delay Landlord's work; provided, however, that neither
Landlord nor any of Landlord's affiliates shall have
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any responsibility or liability whatsoever for any injury (including death) to
any persons or loss or damage to any of Tenant's leasehold improvements,
fixtures, equipment or any other materials installed or left in the Leased
Premises prior to the Commencement Date unless and to the extent such injury or
damage is caused by the negligence or willful misconduct of Landlord or any of
Landlord's employees, contractors, subcontractors or anyone directly or
indirectly employed by any one of them or anyone for whose acts any of them may
be liable. All of the terms and conditions of this Lease will become effective
upon Tenant taking possession of the Leased Premises except for the payment of
rent, which will commence on the Commencement Date.
ARTICLE 2A
EXPANSION OF DEMISED PREMISES
SECTION 2A.1 OPTION TO EXPAND.
(a) EXPANSION NOTICE. Provided (i) Tenant is not then in
material default hereunder, and (ii) Tenant's "Stockholder's Equity" as shown on
Tenant's most recently prepared quarterly consolidated balance sheet, as of the
date of Tenant's delivery of the Expansion Notice, is greater than or equal to
Tenant's "Stockholder's Equity," as of the date hereof, by written notice
provided to Landlord (herein an "Expansion Notice"), Tenant shall have the
right, at any time (or times, up to a maximum of twice) during the Initial Term,
to direct Landlord to prepare Expansion Plans (defined below) and to construct
the Expansion Space. Tenant's Expansion Notice shall request Expansion Space of
at least 80,000 square feet but not more than 160,000 square feet of additional
manufacturing, assembly, warehouse or office space as Tenant may determine is
necessary or desirable, provided such size is in compliance with the parameters
hereafter provided and would then be in compliance with all Village codes, and
other applicable governmental laws, statutes, ordinances, rules and regulations
and further provided that the percentage of office space to be included within
the Expansion shall not exceed twenty percent (20%) of the Total Expansion
Space. Tenant shall have the right to direct Landlord to construct the Expansion
Space in increments of 80,000 square feet over the Initial Term of this Lease.
The Expansion Space shall be constructed on that portion of the Land delineated
as "Expansion" on the Final Plans.
Tenant's Expansion Notice shall contain the following information:
(1) The desired size of the Expansion Space (at least 80,000
square feet but not greater than 160,000 square feet;
(2) The proposed configuration and other relevant data
concerning the desired Expansion Space (provided the
Expansion Space shall be in conformity with the clear height
of the Initial Improvements, and in conformity with the
architecture, engineering
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and general aesthetics of the Initial Improvements), all in
sufficient detail to enable Landlord to reasonably determine
the Expansion Cost (as hereafter defined) thereof; and
(3) The estimated date on which Tenant requests that the
Expansion Space be completed and ready for occupancy for
Tenant's use (which date shall in no case be earlier than
nine (9) months after Tenant's approval of the Expansion
Plans).
SECTION 2A.2 LANDLORD'S PROPOSED EXPANSION SPACE PARAMETERS. Within
thirty (30) days following Landlord's receipt of the Expansion Notice, Landlord
shall consult with Tenant concerning Tenant's specific requirements in regard to
its need for expansion, and within said time period shall notify Tenant, in
writing, of Landlord's proposal (which shall not be binding on Landlord or
Tenant, but shall nonetheless be given, in good faith, by Landlord) of: (a) the
size of the Expansion Space that Landlord is willing and able to construct in
accordance with the then applicable ordinances of all governmental authority
having jurisdiction over the Demised Premises and in accordance with the
parameters set forth in Section 2A.1 above; (b) Landlord's estimate of the total
Expansion Costs (defined in Section 2A.10 hereof) which will be incurred in
planning and constructing the Expansion Space and other Land improvements or
modifications necessary to accommodate the Expansion Space; and (c) Landlord's
estimate, based on the Expansion Costs, of the Expansion Space Rent as provided
in Section 3.1 (b) hereof.
SECTION 2A.3 TENANT'S NOTICE TO PROCEED AND EXPANSION SPACE TERM.
Within thirty (30) days following receipt of Landlord's proposal set forth in
Section 2A.2 above, Tenant shall notify Landlord, in writing ("Notice to
Proceed"), that (i) Tenant authorizes Landlord to proceed with the preparation
of Expansion Plans, and the commencement of construction of the Expansion Space
(as hereafter provided); or (ii) Tenant elects not to expand. If Tenant fails to
serve said Notice to Proceed on Landlord within said thirty (30) day period,
then Tenant shall be deemed to have elected not to expand. However, if a Notice
to Proceed is given by Tenant authorizing the planning and construction of the
Expansion Space, then concurrently therewith Tenant shall be deemed to have
exercised that number of Renewal Terms that is necessary to extend the Term for
a period of not less than fifteen (15) years following the Expansion
Commencement Date (as hereafter defined). That portion of the Term equal to
fifteen (15) years on and after the Expansion Commencement Date plus that
portion of the applicable Renewal Term remaining after the expiration of said
fifteen (15) years is hereafter referred to as the "Expansion Space Term." By
way of example, if the Expansion Commencement Date occurs on the seventh (7th)
anniversary of the Commencement Date, by delivery of the Notice to Proceed,
Tenant shall be deemed to have elected to extend the Term for two (2) Renewal
Terms, the
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Term will be for not less than eighteen (18) years and the Expansion Space Term
shall be for fifteen (15) years.
SECTION 2A.4 PREPARATION OF EXPANSION PLANS. Following the date
Landlord receives the Tenant's Notice to Proceed, Landlord shall cause to be
prepared and delivered to Tenant all of the components of plans and
specifications for the Expansion Space (herein, the "Expansion Plans") prepared
by an Ohio licensed architect ("Expansion Architect") reasonably acceptable to
Tenant, and in substantial conformity with the Expansion Notice.
Said components of the Expansion Plans will be prepared for delivery as
follows: (i) on or prior to the date sixty (60) days following Landlord's
receipt of the Notice to Proceed, Landlord shall cause to be delivered to Tenant
the base building plans component of the Expansion Plans in substantial
compliance with the Landlord's proposal set forth in Section 2A.2, and which
shall be in a form sufficiently complete to enable the issuance of a building
permit by the Village for the construction of the base building portion of the
Expansion Space. Within thirty (30) days after Tenant's approval of said base
building plans component of the Expansion Plans as hereafter provided, Landlord
shall cause to be delivered to Tenant the final plan component of the Expansion
Plans (which shall contain substantially similar components as the Final Plans
for the Initial Improvements).
If: (i) each component submitted by Landlord is in substantial
compliance with the Expansion Notice; and (ii) the character and quality of the
systems and improvements described in the final plan component of the Expansion
Plans are consistent with the character and quality of the improvements
described in the base building component of the Expansion Plans, Tenant agrees
that it will not unreasonably withhold its approval of any such submitted
component, except for just and reasonable cause, and Tenant further agrees not
to act in an arbitrary and capricious manner with respect to approval of such
components. Any disapproval of the components by Tenant which, in order to
obtain Tenant's approval upon resubmission, requires a revision thereto, which
revision in Landlord's reasonable opinion is a substantial deviation from the
Expansion Notice shall be deemed a Change Order as set forth in Section 2.7
hereof. Landlord, within seven (7) days following Landlord's receipt of such
deviating disapproved component shall notify Tenant, in writing, of Landlord's
good faith estimate of the amount, if any, of delay in the completion of
construction of the Expansion Space and, if applicable, the extra cost to or
savings to Tenant resulting from the requested revision. In no instance shall
Tenant be permitted to order such deviation if such deviation would cause the
Expansion Plans not to be in compliance with all applicable laws.
When each of the components of the Expansion Plans have been ultimately
approved by Tenant, Tenant and Landlord shall each affix their respective
signatures or initials to each page
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comprising such component. Thereafter, such approved components shall constitute
the Expansion Plans and shall be deemed a part of this Lease as Exhibit C.
SECTION 2A.5 EXPANSION COMMENCEMENT DATE. Except for Permitted Delays
and Tenant Extensions, the Expansion Space shall be Substantially Completed on
the date (herein the "Expansion Completion Date") which is nine (9) months
following the final approval of all of the Expansion Plans. In the event that
the Landlord Substantially Completes the Expansion Space on a date which is
later than the date nine (9) months after the approval of the Expansion Plans
(or earlier if Tenant commences use or occupancy of the Expansion Space) such
later or earlier date, as the case may be, shall be the "Expansion Commencement
Date." On the Expansion Commencement Date, the Expansion Space shall be deemed
to be part of the Demised Premises. Notwithstanding the foregoing, in the event
of Tenant Extensions, the Expansion Commencement Date shall be the date on which
the Expansion Space would have been Substantially Complete, but for Tenant
Extensions.
SECTION 2A.6 SCOPE OF WORK - EXPANSION SPACE Subject to Permitted
Delays, promptly following the approval of the Expansion Plans, Landlord agrees
to furnish, at Landlord's sole cost and expense (except in the instance of
Change Orders), all the material, labor and equipment necessary for the
commencement and completion of construction of the Expansion Space. The
Expansion Space shall be constructed in a good and workmanlike manner using new
materials in accordance with the Expansion Plans, and Landlord agrees to
complete the construction thereof in full compliance with all Laws as then in
effect, except as such compliance may be affected as a result of any work to be
performed by or on behalf of Tenant (other than by Landlord) in the Expansion
Space on or prior to the Expansion Commencement Date. In the event Tenant
requires any such work to be performed, Tenant shall timely advise Landlord, in
writing, of the plans and specifications for such work. In the event Landlord
approves such plans and specifications, Landlord shall cause the Expansion
Space, on the Expansion Commencement Date to be in full compliance with all
Laws, including ADA. In the event Tenant subsequently modifies such approved
plans and specifications or Tenant's separate contractors fail to perform such
work in compliance with such approved plans and specifications, then the
procedures in respect to such subsequent modification or the affect of Tenant's
separate contractors to comply with the approved plans and specifications shall
be considered a Tenant Extension with respect to the Expansion Space.
SECTION 2A.7 EXPANSION CHANGE ORDERS. Tenant shall be allowed to
request Change Orders with respect to the Expansion Space in the same manner and
with the same effect as Change Orders to the Initial Improvements. Any Change
Orders with respect to the Expansion Space shall modify the Expansion Costs,
upwards or downwards, as the case may be, that is set forth in the proposal
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required to be delivered by Landlord to Tenant pursuant to Section 2A.2 hereof.
Any increase in the amount of the Expansion Costs set forth in said Landlord's
proposal as a result of a Change Order in respect to the Expansion Space shall
be paid by Tenant within thirty (30) days of Tenant's receipt of an invoice
therefor.
SECTION 2A.8 WARRANTY AS TO EXPANSION SPACE. Landlord shall warrant all
portions of the improvements constructed pursuant to the Expansion Plans for a
period of one (1) year after Substantial Completion thereof, under the same
terms, conditions and undertakings, and with the same limitations as set forth
in Section 2.8 above.
SECTION 2A.9 EXPANSION PUNCH LIST. Landlord shall notify Tenant of the
date which is approximately seven (7) days prior to the estimated date on which
Substantial Completion for the Expansion Space is expected to be achieved
(herein referred to as "Expansion Inspection Date"). Landlord and Tenant shall,
on the Expansion Inspection Date, make a joint physical inspection of the
Expansion Space to list any items of work to be completed or corrected (herein
referred to as "Expansion Punch List Items"). Landlord shall deliver, in
writing, its promise to complete the Expansion Punch List Items, within such
reasonable period of time in respect to each item as is necessary to complete
same, taking into account diligence and good workmanlike practices. In the event
of a disagreement between the parties as to the inclusion or the exclusion of an
item as an Expansion Punch List Item, Tenant and the Expansion Architect shall
appoint an Independent Architect to make such determination, and the decision of
the Independent Architect (which decision shall be based solely on the
determination of whether the item in question was constructed in substantial
conformity with the Expansion Plans) shall control.
SECTION 2A.10 EXPANSION COSTS. For purposes of determining the Base
Rent for the Expansion Space for the fifteen (15) year period of the Term
occurring on and after the Expansion Commencement Date, "Expansion Costs" shall
be the aggregate of all payment obligations of those contracts for so-called
"hard costs" and "soft costs," including, but not necessarily limited to, all
actual construction costs, direct project overhead, insurance, reasonable
construction interest costs, architect's and engineer's fees, permit fees
(including impact fees imposed by any governmental authority) and other
municipality costs, which are incurred by or on behalf of Landlord for the
construction of the Expansion Space pursuant to the Expansion Plans. Landlord
agrees to conduct its construction of the Expansion Space on an "open-book"
basis so that Tenant shall have the opportunity to review and verify all of the
component elements that comprise the Expansion Costs.
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ARTICLE 3
RENT
SECTION 3.1 BASE RENT. Tenant shall pay to Landlord at such place or to
such other party as Landlord may from time to time designate in writing, in coin
or currency which, at the time of payment, is legal tender for private or public
debts of the United States of America, base rent (the "Base Rent") during the
Term, which shall be the sum applicable for the Initial Improvements described
in sub-paragraph (a) below, plus the sum applicable for the Expansion Space Rent
(if any) described in sub-paragraph (b) below.
(a) BASE RENT FOR INITIAL IMPROVEMENTS. Subject to adjustments referred
to in Section 3.3, if any, for each of the following periods during the Term,
the Base Rent applicable for the Initial Improvements shall be as follows:
(1) INITIAL TERM. Base Rent for the Initial Improvements for the
Initial Term shall be as follows:.
Years 1-5 $3.32 per square foot
Years 6-10 $3.74 per square foot
Years 11-15 $4.19 per square foot
On or before the Commencement Date, Landlord shall deliver to
Tenant the Initial Architect's determination of the square
footage contained within the Building. Tenant shall have the
right to review and approve such determination and in the event
of a disagreement between the parties as to the square footage
contained within the Building, Tenant and the Initial Architect
shall appoint an Independent Architect to make such
determination, and the decision of the Independent Architect
shall control.
(2) RENEWAL TERM. Base Rent for the Initial Improvements
for the Renewal Term shall be the greater of (a) Base
Rent for the Initial Improvements during the Initial
Term or the last year of the preceding Renewal Term, as
the case may be, and (b) ninety-five percent (95%) of
the "Fair Market Base Rent" determined pursuant to
Section 3.1(c) below.
(b) EXPANSION SPACE RENT. For each of the following periods during the
Term on and after the Expansion Commencement Date, Tenant shall pay to Landlord,
as Base Rent for the Expansion Space, the following amounts ("Expansion Space
Rent"):
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(1) EXPANSION SPACE TERM. As of the date this Lease is executed,
Landlord shall determine the "Spread" defined as the difference
between the yield on 20-year United States Treasury Bonds on the
date this Lease is executed and 9.75%. For the period commencing
on the Expansion Commencement Date to the end of the fifth year
of the Expansion Space Term, the Expansion Space Rent shall be
the annual amount equal to the Expansion Costs (as defined in
Section 2A.10 hereof) multiplied by the greater of (i) the sum of
the Spread plus the yield on 20-year United States Treasury Bonds
on the Expansion Commencement Date or (ii) 9.00%, with such
product then being divided by 97.5% to take into account a 2.5%
vacancy factor, and then adding a $.05 per square foot structural
reserve. Notwithstanding the foregoing sentence, in the event
that at the time that Tenant delivers the Expansion Notice to
Landlord, the yield on 20-year Treasury Bonds has increased to
such an extent that it would be advantageous for Tenant to fund
the proposed expansion through other sources available to Tenant,
then Tenant, at the time of delivery of such Expansion Notice,
shall be given the opportunity to negotiate with Landlord with
respect to such other funding of the expansion, provided that an
acceptable return for Landlord with respect to the expansion
project can be agreed upon by the parties. Based upon the
foregoing computations, within seven (7) days after the Expansion
Commencement Date, Landlord shall advise Tenant, in writing, of
the amount of the Expansion Space Rent and Landlord's calculation
thereof as provided above. The Expansion Space Rent shall
increase every five (5) years of the Expansion Space Term
commencing on the fifth (5th) anniversary date of the Expansion
Commencement Date and every five (5) years thereafter by twelve
and one-half percent (12 1/2%) over the Expansion Space Rent
payable during the immediately preceding five (5) year period.
For example, assuming the 20-year Treasury Bond rate on the Lease
execution date is 6.94%, and such rate is 8.00% on the Expansion
Commencement Date, and the Expansion Costs for a requested
160,000 square foot expansion totaled $4,800,000, the annual
Expansion Space Rent for the first five years of the Expansion
Space Term would be $540,185.00, calculated as follows:
$4,800,000 x (9.75% - 6.94% + 8.00%) / 97.5% + (160,000 x $.05) =
$540,185.00
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(2) RENEWAL TERMS. The Expansion Space Rent for the Renewal Terms
shall be the greater of (a) the Expansion Space Rent required to
be paid by Tenant during the last year of the Expansion Space
Term or the last preceding Renewal Term, as the case may be, and
(b) ninety five percent (95%) of the Fair Market Base Rent for
the Expansion Space determined pursuant to Section 3.1(c) below.
(c) FAIR MARKET BASE RENT DETERMINATION. The parties agree that the
Base Rent for the Initial Improvements or for the entire Demised
Premises, as applicable, for the applicable Renewal Term, shall
be the current market rent then being charged by landlords for
new tenants (as opposed to a "renewing tenant") in arms length
bona fide negotiations of similar size and stature to Tenant for
buildings comparable to the Building in the Solon/Glenwillow
suburban market and taking into account all allowances and
concessions provided, or paid to tenants, including, but not
limited to: free rent, tenant improvements, buy-out of existing
leases, signing bonuses, relocation expenses, and payment of
service providers such as architects and brokers.
In the event that the foregoing rent determination cannot
reasonably be made, then, the Fair Market Base Rent for the
applicable Renewal Term shall be determined by appraisal, and
Landlord, in a notice to Tenant sent fifteen (15) months prior to
the commencement of a Renewal Term, shall notify Tenant of the
identity of Landlord's third-party appraiser. Tenant, within
fifteen (15) days of receipt of Landlord's notice, shall
identify, in writing, its third-party appraiser. Thereafter,
within fifteen (15) days after Tenant identifies to Landlord its
third-party appraiser, both third-party appraisers shall mutually
agree on the designation of a third-party, independent appraiser
("Independent Appraiser"). If a party fails to identify its
third-party appraiser or the identified appraisers fail to
mutually agree on the designation of an Independent Appraiser,
then such unidentified or undesignated appraiser shall be
appointed by the Chief Judge of the United States District Court
for the Northern District of Ohio, Eastern Division. Landlord
shall pay all costs associated with the appraiser designated by
Landlord; Tenant shall pay all costs associated with the
appraiser designated by Tenant; and Landlord and Tenant shall
share equally in all costs associated with the Independent
Appraiser. All three appraisers shall be reputable real estate
appraisers, each of whom shall be knowledgeable and experienced
in the appraisals of
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rent for office-warehouse-manufacturing buildings in the Cuyahoga
County, Ohio suburban and, in particular, the Solon/Glenwillow
market.
Fair Market Base Rent shall be determined based upon such
criteria as the appraisers deem appropriate, but such criteria
shall include: (1) the then current use of the Demised Premises;
(2) the size and condition of the entire Demised Premises; (3)
the duration of the Renewal Term; and (4) rental rates then being
charged by landlords for new tenants of similar size and stature
in the Solon/Glenwillow suburban market.
After their appointment, the appraisers shall be directed to
independently determine the Fair Market Base Rent, which shall
include a determination of appropriate periodic increases to the
Fair Market Base Rent as so determined during the period for
which the determination is being made, and which shall be
determined on a per square foot basis. Within thirty (30) days
after the designation of the Independent Appraiser, all three
appraisals of the Fair Market Base Rent shall be submitted, in
writing, to Landlord and Tenant. The weighted-average of the Fair
Market Base Rent determined by the appraisers as aforesaid shall
be used in determining the Base Rent for the applicable Renewal
Term as provided in Section 3.1(a) and (b) hereof.
If the Fair Market Base Rent is not determined until after the
commencement of any such subsequent period, Tenant shall continue
to pay the Base Rent paid in the year immediately preceding. When
the Fair Market Base Rent is determined as provided above, and if
such determination would have caused the Base Rent for the
Initial Improvements or the entire Demised Premises, as
applicable, for the subsequent period to increase, within thirty
(30) days following such determination, Tenant shall pay to
Landlord the deficiency of the Base Rent theretofore paid,
prorated from the commencement of the subsequent period to the
date paid.
SECTION 3.2 RENT PAYABLE WITHOUT PRIOR DEMAND; MAXIMUM RATE OF
INTEREST. Except as set forth herein, all payments of Base Rent for the Initial
Improvements and, if applicable, Expansion Space and Additional Rent (as
hereafter defined) shall be payable without previous demand therefor. If the
Initial Term or any Renewal Term commences other than on the first day of a
month or ends other than on the last day of a month, the Base Rent for such
month and such portion of the Demised Premises shall be pro-rated accordingly.
Except as specifically provided herein, the Base Rent shall be absolutely net to
Landlord so that this Lease shall yield, net to Landlord, the Base Rent
specified in
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Section 3.1. Except as otherwise provided herein, in each year of the Term, all
impositions, insurance premiums, utility charges, maintenance, repair and
replacement expenses (except for Warranty Work, Landlord's Repairs and Punch
List Items), all expenses relating to Compliance with Laws (as hereafter
defined) chargeable to Tenant in accordance with the terms of Section 7.1
hereof, and all other costs, fees, charges, expenses, reimbursements and
obligations of every kind and nature whatsoever relating to the Demised Premises
which may arise or become due during the Term or by reason of events then
occurring shall be paid or discharged by Tenant as additional rent
(collectively, the "Additional Rent"). Tenant hereby agrees to indemnify, defend
and save Landlord harmless from and against any and all such impositions,
insurance premiums, utility charges, maintenance, repair and replacement
expenses, all expenses relating to Compliance with Laws chargeable to Tenant in
accordance with the terms of Section 7.1 hereof, and all other costs, fees,
charges, expenses, reimbursements and obligations. Base Rent, Additional Rent
and all other payment obligations of Tenant to Landlord hereunder are sometimes
hereinafter collectively referred to as "Rent." In case of nonpayment by Tenant
of any item of Rent payable to Landlord when the same is due, Landlord,
following five (5) days' notice to Tenant, shall have, in addition to all its
other rights and remedies, all of the rights and remedies available to Landlord
under the provisions of this Lease or by law as if in the case of nonpayment of
Base Rent. The performance and observance by Tenant of all the terms, covenants,
conditions and agreements to be performed or observed by Tenant hereunder shall
be performed and observed by Tenant at Tenant's sole cost and expense.
Any installment of Base Rent or Additional Rent payable to Landlord or
any other charges payable by Tenant to Landlord under the provisions hereof
which shall not be paid when due shall bear interest at an annual rate equal to
three (3.0%) percentage points per annum in excess of the rate of interest from
time to time announced by KeyBank National Association (or similar institution
if said bank shall cease to exist or to publish such a rate) as its corporate
base rate of interest, but in no event in excess of the maximum lawful rate
permitted to be charged by Landlord against Tenant plus an administrative charge
equal to one percent (1%) of such late payments. Said rate of interest is
sometimes hereinafter referred to as the "Maximum Rate of Interest".
Notwithstanding the foregoing, Tenant shall be granted a "grace" period two (2)
times per any consecutive twelve (12) month period during the Term for which
interest on late payments shall not be charged provided same are received by
Landlord within five (5) days following written notice from Landlord to Tenant.
SECTION 3.3. GOVERNMENTAL ASSISTANCE. Base Rent shall be reduced in the
event Landlord receives contributions from any governmental entity for on-site
costs which are part of Landlord's original scope of work. The reduction in Base
Rent
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shall be calculated as the product of the total cost savings multiplied by
9.75%. Such reduction, however, does not apply to off-site costs, such as road
curb cuts, deceleration lanes or sewer extensions which are not a part of
Landlord's original cost estimates.
ARTICLE 4
PAYMENT OF TAXES, ASSESSMENTS, ETC.
SECTION 4.1 ADDITIONAL RENT. Tenant covenants and agrees to pay as
Additional Rent, before any fine, penalty, interest or cost may be added thereto
for the nonpayment thereof, all real estate taxes, special assessments, water
rates and charges, sewer rates and charges, including any sum or sums payable
for sewer or water capacity, charges for public utilities (the charges for the
electric power portion thereof to be at rates charged by the applicable
regulated utility providing such electricity, at Tenant's request), insurance
premiums, street lighting, excise levies, licenses, permits, governmental
inspection fees (incurred after Substantial Completion) and all other charges or
burdens of whatsoever kind and nature (including costs, fees, and expenses of
complying with any restrictive covenants or similar agreements to which the
Demised Premises is subject) incurred in the use, occupancy, operation, leasing
or possession of the Demised Premises (except as otherwise provided in Section
4.3 hereof), without particularizing by any known name or by whatever name
hereafter called, and whether any of the foregoing be general or special,
ordinary or extraordinary, foreseen or unforeseen (collectively, "Impositions"),
which at any time during the Term may be payable. Landlord represents that it
has received no notice of any change in the assessed valuation of the Land or
any special assessment applicable to the Land. Tenant shall pay all components
of Additional Rent as set forth in this Section 4.1 directly to the applicable
public utility or other entity.
Notwithstanding anything to the contrary herein, Landlord agrees that
Impositions shall not include: (i) leasing commissions and attorneys fees
incurred in connection with the negotiation and execution of this Lease; (2)
costs incurred by Landlord in the discharge of its obligations under this Lease;
(3) any amortization or depreciation on the Building; (4) costs incurred by
Landlord to the extent due to a violation by Landlord of any of the terms of
this Lease; (5) interest on debt or amortization payments on any mortgages or
any other debt for borrowed money; (6) repairs or other work occasioned by fire,
windstorm, or other casualty to the extent same are paid by the proceeds of
insurance or condemnation awards; and (7) costs incurred to the extent resulting
from the failure of the Building to comply with any applicable law, rule,
regulation, or code in effect as of the Commencement Date of any governmental
authority having jurisdiction over the Building.
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Tenant shall pay all special (or similar) assessments or installments
thereof (including interest thereon) for public improvements or benefits which,
during the Term shall be laid, assessed, levied or imposed upon or become a lien
upon the Demised Premises and which are payable during the Term, or any portion
thereof; provided, however, that if by law any special assessment is payable
(without default) or, at the option of the party obligated to make such payment,
may be paid (without default) in installments (whether or not interest shall
accrue on the unpaid balance of such special assessment), Tenant may pay the
same, together with any interest accrued on the unpaid balance of such special
assessment in installments as the same respectively become payable and before
any fine, penalty, interest or cost may be added thereto for the nonpayment of
any such installment and the interest thereon.
Except as hereafter provided, Tenant shall pay all special assessments
or installments thereof (including interest accrued thereon), whether heretofore
or hereafter laid, assessed, levied or imposed upon the Demised Premises, or any
portion thereof, which are due and payable during the Term (regardless of the
period to which such assessments relate). Landlord shall pay all installments of
special assessments (including interest accrued on the unpaid balance) which are
payable prior to the commencement and after the termination of this Lease.
Except as hereafter provided, Tenant shall pay all real estate taxes, whether
heretofore or hereafter levied or assessed upon the Demised Premises, or any
portion thereof, which are due and payable during the Term (regardless of the
period to which such taxes relate). Provisions herein to the contrary
notwithstanding, Landlord shall pay that portion of the real estate taxes and
installments of special assessments due and payable in respect to the Demised
Premises during the year the Term commences and the year in which the Term ends
which the number of days in said year not within the Term of this Lease bears to
365, and except as hereafter provided, Tenant shall pay the balance of said real
estate taxes and installments of special assessments during said years. The
provisions of this Section 4.1 shall survive the expiration or earlier
termination of this Lease.
In the event the Land is currently taxed as part of a larger parcel for
real estate tax purposes, promptly upon the execution of this Lease, Landlord
will use good faith efforts to have the Land divided into a separate and
distinct real estate tax parcel. Until such time as said tax division occurs,
Landlord shall compute the portion of the real estate tax bill attributable to
the Demised Premises and which portion is attributable to other property, if
necessary.
Landlord agrees to provide copies of all tax bills and Landlord's
calculation of Tenant's proportionate share of the Real Estate taxes (until the
tax division) promptly upon receipt of the tax bill. After the tax division of
the Land occurs, Landlord will cause all real estate tax bills, assessments and
notices to
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be sent directly to Tenant, and Tenant agrees promptly to furnish copies of same
to Landlord. Tenant's address for real estate tax purposes shall be the address
for the Leased Premises.
SECTION 4.2 RIGHT TO CONTEST IMPOSITIONS. Landlord agrees to notify
Tenant of any Impositions as soon as possible so as to enable Tenant, if it so
elects, to contest the validity, amount, propriety, or accuracy of any
Imposition in a timely manner. If Tenant desires to contest the validity,
amount, propriety, or accuracy of any Imposition, Tenant shall notify Landlord
of same which notice shall state the nature of the Imposition being contested
and the grounds for such contest.
Tenant shall have the right, at its own expense, to contest the amount,
propriety, accuracy, or validity, in whole or in part, of any Imposition by
appropriate proceedings diligently conducted in good faith, but only after
payment of such Imposition, unless non-payment would not cause a lien to be
filed against title to the Demised Premises or would otherwise jeopardize title
to the Demised Premises or Tenant's leasehold interest therein; in which event,
notwithstanding the provisions of Section 4.1 hereof, Tenant may postpone or
defer payment of such Imposition. Upon the termination of any such proceedings,
Tenant shall pay the amount of such Imposition or part thereof, if any, as
finally determined in such proceedings, the payment of which may have been
deferred during the prosecution of such proceedings, together with any costs,
fees, including attorney's fees, interest, penalties, fines and other liability
in connection therewith. Tenant shall be entitled to the refund of any
Imposition, penalty, fine and interest thereon received by Landlord or that are
paid directly to Tenant which have been paid by Tenant or which have been paid
by Landlord but for which Landlord has been previously reimbursed in full by
Tenant.
Landlord shall not be required to join in any proceedings referred to
in this Section 4.2 unless the provisions of any law, rule or regulation at the
time in effect shall require that such proceedings by brought by or in the name
of Landlord, in which event Landlord shall join in such proceedings or permit
the same to be brought in Landlord's name upon compliance with such conditions
as Landlord may reasonably require. Landlord shall not ultimately be subject to
any liability for the payment of any fees, including attorney's fees, costs and
expenses in connection with such proceedings. Tenant agrees to pay all such fees
(including reasonable attorney's fees), costs and expenses or, on demand, to
make reimbursement to Landlord for such payment.
SECTION 4.3 TAXES ON RENT. Except for any net income tax, if at any
time during the Term, any method of taxation shall be such that there shall be
levied, assessed or imposed on Landlord, or on the Base Rent or Additional Rent,
or on the Demised Premises, or any portion thereof, in lieu of real property
taxes, a capital levy, gross receipts tax (based on receipts from
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the Demised Premises only) or other tax on the rents received therefrom, or a
franchise tax, or an assessment, gross levy or charge measured by or based in
whole or in part upon such gross Rents, Tenant, to the extent permitted by law,
covenants to pay and discharge the same, it being the intention of the parties
hereto that the Base Rent to be paid hereunder shall be paid to Landlord
absolutely net without deduction or charge of any nature whatsoever, foreseeable
or unforeseeable, ordinary or extraordinary, or of any nature, kind or
description, except as otherwise expressly provided in this Lease.
Notwithstanding the foregoing sentence, in the event that any method of taxation
shall be such that there shall be levied, assessed, or imposed on Landlord, or
on the Base Rent or Additional Rent, in lieu of a net income tax, a gross
receipts tax (based on receipts from the Demised Premises only) or other tax on
the rents received therefrom, Landlord shall be responsible for such tax without
any right to pass the cost thereof through to Tenant. If such is the case that
it cannot reasonably be determined whether a gross receipts tax is imposed in
lieu of real property taxes or in lieu of a net income tax, Landlord and Tenant
shall share the cost of such tax equally. Nothing contained in this Lease shall
require Tenant to pay any Municipal, County, State or Federal net income or
excess profits taxes assessed against Landlord, or any Municipal, State, County
or Federal, estate, succession, inheritance or transfer taxes of Landlord, or
corporation franchise taxes imposed upon any corporate owner of the fee of the
Demised Premises.
SECTION 4.4 RECEIPTS FOR IMPOSITIONS. Tenant covenants to furnish
Landlord, within ten (10) days after the date upon which any Imposition or other
tax, assessment, levy or charge is finally payable by Tenant, official receipts
of the appropriate taxing authority, or other appropriate proof satisfactory to
Landlord, evidencing the payment of the same. The certificate, advice or bill of
the appropriate official designated by law to make or issue the same or to
receive payment of any Imposition or other tax, assessment, levy or charge may
be relied upon by Landlord as sufficient evidence that such Imposition or other
tax, assessment, levy or charge is due and unpaid at the time of the making or
issuance of such certificate, advice or bill.
SECTION 4.5 LANDLORD'S RIGHT TO CONTEST IMPOSITIONS. In addition to the
right of Tenant under Section 4.2 to contest the amount or validity of
Impositions, Landlord shall also have the right, but not the obligation, to
contest the amount or validity, in whole or in part, of any Impositions not
contested by Tenant, by appropriate proceedings conducted in the name of
Landlord or in the name of Landlord and Tenant. If Landlord elects to contest
the amount or validity, in whole or in part, of any Impositions, such contests
by Landlord shall be at Landlord's expense, provided, however, that if the
amounts payable by Tenant for Impositions are reduced (or if a proposed increase
in such amounts is avoided or reduced) by reason of Landlord's contest of
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Impositions, Tenant shall reimburse Landlord for costs incurred by Landlord in
contesting Impositions, but such reimbursements shall not be in excess of the
amount saved by Tenant by reason of Landlord's actions in contesting such
Impositions.
ARTICLE 5
INSURANCE
SECTION 5.1 PROPERTY INSURANCE. Tenant shall obtain and continuously
maintain in full force and effect at all times during the Term, at Tenant's sole
cost and expense, policies of insurance covering Landlord's Improvements
constructed, installed or located on the Demised Premises, which insurance shall
be for the benefit of Landlord and Landlord's designated mortgagee, trust deed
holder or ground lessor (individually, "Mortgagee," and collectively,
"Mortgagees"), as the named insured, against (i) loss or damage by fire; (ii)
loss or damage from such other risks or hazards now or hereafter embraced by an
"Extended Coverage Endorsement," including, but not limited to, windstorm, hail,
explosion, vandalism, riot and civil commotion, damage from vehicles, smoke
damage, water damage and debris removal; (iii) loss from flood if the Demised
Premises is in a Federally designated flood area; (iv) loss from so-called
explosion, earthquake (if appropriate), collapse and underground hazards; and
(v) loss or damage from such other risks or hazards of a similar or dissimilar
nature which are now or may hereafter be customarily insured against with
respect to improvements similar in construction, design, general location, use
and occupancy to the Demised Premises (hereinafter referred to as "Property
Insurance").
At all times the Property Insurance coverage shall be in an amount
equal to one hundred percent (100%) of the then "Full Replacement Cost" of
Landlord's Improvements and shall include a so-called "Agreed Value
Endorsement." Full Replacement Cost shall be interpreted to mean the cost of
replacing Landlord's Improvements without deduction for depreciation,
obsolescence, or wear and tear, and it shall include a reasonable sum for
architectural, engineering, legal, interest charges, administrative and
supervisory fees connected with the restoration or replacement of Landlord's
Improvements in the event of damages thereto or destruction thereof. Full
Replacement Cost shall be determined from time to time, at the request of Tenant
or of Landlord or its mortgagee or trust deed holder, by an appraiser, engineer,
architect or contractor designated by the party requesting such determination
and at such party's expense.
The Property Insurance provided by Tenant under this Section 5.1 shall:
(a) be written with companies licensed to do business in the State of Ohio,
having a Best's "General Policy Holding Rating" of A+ or better and a financial
rating class of IX or better; (b) cite the interest of Landlord and Landlord's
mortgagee(s) or trust deed holder(s) in standard mortgagee clauses
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effective as of the Commencement Date (or earlier if required elsewhere herein);
and (c) be maintained continuously through the Term hereof.
During any period of construction of Landlord's Improvements, Landlord
shall maintain in full force and effect, (i) worker's compensation insurance as
may be required by the statutes of the State of Ohio or any applicable federal
or municipal laws or regulations and (ii) on a completed value basis, insurance
coverage on the Initial Improvements and the Expansion Space, as the case may
be, through "builder's risk" insurance, an installation floater, or other
comparable coverage.
SECTION 5.2 MUTUAL WAIVER OF CLAIMS AND SUBROGATION RIGHTS. Whenever
any loss, cost, damage, or expense resulting from fire, explosion or any other
casualty or occurrence is incurred by either of the parties to this Lease, or
anyone claiming by through, or under them in connection with the Demised
Premises, and such party is then covered in whole or in part by insurance with
respect to such loss, cost, damage or expense, which is required under this
Lease to be so insured, the party so insured (or required to be insured) hereby
waives all claims against and releases the other party from any liability which
such other party may have on account of such loss, cost, damage or expense to
the extent of any amount recovered by reason of such insurance (or which could
have been recovered had such insurance been carried as so required) and waives
any right of subrogation which might otherwise exist in or accrue to any person
on account thereof.
SECTION 5.3 COMMERCIAL GENERAL LIABILITY INSURANCE. Landlord and
Tenant, during the Term, shall obtain and continuously maintain in full force
and effect, at such party's sole cost and expense, commercial general liability
insurance with broad liability endorsement for personal injury or property
damage for any loss, liability or damage on, about or relating to the Demised
Premises, or any portion thereof, having limits of not less than Five Million
and 00/100 Dollars ($5,000,000.00) combined single limit coverage on an
occurrence basis written by a reputable and financially sound insurance company
authorized to insure such risks in the State of Ohio. Tenant's policy shall name
Landlord, its mortgagee(s), beneficiaries, partners, and agents as additional
insureds and Landlord's policy shall name Tenant and its beneficiaries and
agent's as additional insureds. Tenant's and Landlord's insurance shall
specifically insure (by contractual liability endorsement) Tenant's indemnity
obligations under Section 19.3(a) and Section 2.10(c) of this Lease, and
Landlord's indemnity obligations under Sections 2.10(a), 2.10(b) and 19.3(b) of
this Lease respectively, but only to the extent that same directly or indirectly
relate to death, bodily or personal injuries, and/or property damage.
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SECTION 5.4 TENANT'S PROPERTY INSURANCE. Tenant shall maintain
insurance coverage upon all personal property of Tenant (including boiler and
pressure vessel and machinery peculiar to Tenant's use of the Demised Premises),
and the personal property of others kept, stored or maintained on the Demised
Premises against loss or damage by fire, windstorm or other casualties or causes
for the full replacement cost thereof. Tenant shall also maintain such other
insurance and in such amounts as may from time to time be reasonably required by
Landlord, against other insurable hazards which at the time are commonly insured
against in the case of premises and/or buildings and/or improvements similar in
construction, design, general location, use and occupancy to those on or
appurtenant to the Demised Premises. At Tenant's election, Tenant may choose not
to obtain insurance to manage the risks described in this Section, and shall be
entitled to self-insure as to same; provided, however, that Tenant releases
Landlord from any damages that would otherwise have been covered had Tenant
maintained such insurance, and agrees to indemnify and hold harmless Landlord
against such damages.
SECTION 5.5 TENANT'S BUSINESS INTERRUPTION INSURANCE. Tenant shall
maintain business interruption insurance with a coverage period of not less than
one (1) year and policy limits equal to the Rent paid for the preceding twelve
(12) month period. For the first year of the Initial Term, the policy limits
shall be One Million Five Hundred Thousand Dollars ($1,500,000).
SECTION 5.6 PROCEEDS, PAYMENT AND POLICY PROVISIONS. All policies of
insurance required by Section 5.1 shall provide that the proceeds thereof shall
be payable to Landlord and shall be applied to the repair, replacement or
Restoration (as that term is defined in Section 11.1) of Landlord's Improvements
(or paid to Landlord in the event of Lease termination). Each policy of
insurance required of Tenant or Landlord under this Article 5 shall have
attached thereto (i) an endorsement that such policy shall not be canceled or
materially changed without at least thirty (30) days' prior written notice to
the other party, and (ii) an endorsement to the effect that the insurance as to
the interests of the other party shall not be invalidated by any act or neglect
of any person.
SECTION 5.7 INSURANCE APPROVAL. All policies of insurance required of
Tenant and Landlord under this Article shall be written in such form and by such
companies licensed to do business in the State of Ohio as shall be reasonably
satisfactory to Landlord. Certificates of insurance acceptable to Landlord and
Tenant shall be delivered to the other party on or before the Commencement Date
(or upon the date upon which Tenant exercises its rights to Early Access
described herein). A new or replacement certificate of insurance acceptable to
each party shall be delivered to both parties not less than fifteen (15) days
prior to the expiration of the then current policy term.
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ARTICLE 6
USE AND MAINTENANCE OF THE DEMISED PREMISES
SECTION 6.1 PREMISES USE. Tenant shall use and occupy the Demised
Premises as a manufacturing, storage, assembly facility, sales office and for
general office purposes, and for such other purposes consistent with all zoning
and other applicable laws (the "Premises Use"). Tenant shall not use or occupy
the same, or knowingly permit them to be used or occupied, contrary to any
statute, rule, order, ordinance, requirement or regulation applicable thereto,
or in any manner which would violate any certificate of occupancy affecting the
same, or which would make void or voidable any insurance then in force with
respect thereto or which would make it impossible to obtain fire or other
insurance thereon required to be furnished hereunder by Tenant, or which would
cause structural injury to Landlord's Improvements or which would constitute a
public or private nuisance or waste. Tenant agrees that it will promptly, upon
discovery of any such use, compel the discontinuance of such use.
Tenant shall not use, suffer or permit the Demised Premises, or any
portion thereof, to be used by Tenant, any third party or the public (as such),
without restriction or in such manner as might reasonably tend to impair
Landlord's title to the Demised Premises, or in such manner as might reasonably
make possible a claim or claims of adverse usage or adverse possession by the
public, as such, or third persons, or of implied dedication of the Demised
Premises, or any portion thereof. Nothing contained in this Lease and no action
or inaction by Landlord shall be deemed or construed to mean that Landlord has
granted to Tenant any right, power or permission to do any act or make any
agreement that may create, or give rise to or be the foundation for any such
right, title, interest, lien, charge or other encumbrance upon the estate of
Landlord in the Demised Premises.
SECTION 6.2 TENANT'S REPAIRS. Except for Landlord's Repairs, Warranty
Work and subject to the limitation set forth in Section 6.6 below, Tenant, at
its sole cost and expense, throughout the Term of this Lease, shall take good
care of the Demised Premises, and shall keep the same in good order, condition
and repair, and shall make and perform all routine maintenance thereof and all
necessary repairs thereto, interior and exterior. All repairs made by Tenant,
except as hereafter provided, shall be at least equal in quality to the original
work and, in all events, shall be made by Tenant in Compliance with Laws. The
necessity for or adequacy of maintenance and repairs shall be measured by the
standards which are appropriate for improvements of similar construction and
class, provided that Tenant shall in any event make all repairs necessary to
avoid any structural damage or other damage or injury to the Improvements.
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In addition, Tenant shall timely and properly maintain all of the
Demised Premises, including, but not necessarily limited to mechanical systems,
electrical systems, plumbing and sewage systems, fire protection systems, floor
slabs, roof, foundation walls and footings, structural steel, driveways,
roadways, sidewalks, curbs, parking areas, loading areas, and landscaping.
Tenant shall obtain a preventative maintenance contract on the heating,
ventilating and air conditioning systems which shall be subject to Landlord's
reasonable approval. Tenant shall provide Landlord with a copy of the
preventative maintenance contract no later than ninety (90) days after the
Commencement Date. The preventative maintenance contract shall provide for the
inspection and maintenance of the heating, ventilating and air conditioning
system on not less than a semi-annual basis. Tenant shall also keep all portions
of the Demised Premises in a clean and orderly condition, free from unreasonable
accumulations of snow, ice, dirt rubbish, debris and unlawful obstructions. All
of Tenant's obligations and requirements described above in this Section 6.2 are
collectively called "Tenant's Repairs." In addition to the foregoing, except for
Landlord's Repairs, Warranty Work and the limitation set forth in Section 6.6
hereof, Tenant's Repairs shall include the following maintenance (but not repair
or replacement obligations that are a part of Landlord's Repair) of the
following portions of the Demised Premises:
(a) ROOF. Tenant shall maintain the roof of the Demised Premises in
accordance with the specifications therefor established by the
manufacturer of the roof membrane. Such maintenance shall not
include repair or replacement of the roof provided Tenant
maintains the same as described in the foregoing sentence.
(b) STRUCTURAL MEMBERS. Tenant shall maintain the structural members
of the Demised Premises which shall include, but shall not
necessarily be limited to, painting, snow removal and prevention
of undermining.
The time permitted by Tenant to effectuate Tenant's Repairs shall be extended
for such period as may reasonably be necessary provided Tenant is continuously,
diligently and in good faith prosecuting the same. In addition, Landlord, may
cause at Landlord's expense, independent private building inspectors, qualified
in the specific discipline, to make inspections of the Building and Building
systems or segments thereof to determine Tenant's compliance under this Section.
If Tenant does not timely or properly perform Tenant's Repairs as above
provided, Landlord may, but need not, after thirty (30) days' notice to Tenant,
make such repairs, replacements or maintenance in a reasonably diligent fashion,
and Tenant shall pay Landlord forthwith upon being billed for same by Landlord
all of Landlord's actual costs incurred in connection therewith. Landlord may,
but shall not be required to, enter the Demised Premises at all reasonable times
upon reasonable notice
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(except in the instance of an emergency) to make such repairs, alterations,
improvements and additions to the Demised Premises or to any equipment, fixtures
or landscaping located on the Demised Premises as Landlord deems reasonably
necessary and which Tenant failed to do as required in this Lease after written
notice from Landlord. However, any and all repairs, replacements or maintenance
made by Landlord pursuant to this Lease shall be done in a reasonably diligent
manner and so as to minimize any disruption to Tenant's business operations.
SECTION 6.3 LANDLORD'S REPAIRS. Notwithstanding anything to the
contrary contained in Section 6.2, from and after the date constructed and
during the Term, at Landlord's sole cost and expense, Landlord shall repair and
replace the roof, and repair any defect in materials or workmanship relating to
the foundation walls, footings, and structural steel which comprise a part of
the Landlord's Improvements (collectively, "Landlord's Repairs").
Notwithstanding the foregoing, that portion of Landlord's Repairs the scope of
which was materially increased or necessitated as a result of (a) the willful or
negligent failure of Tenant to timely (except in emergency conditions) notify
Landlord of a condition which does or, with the passage of time, could
necessitate Landlord's Repairs; (b) the willful or negligent failure of Tenant
to make Tenant's Repairs; and (c) any act or omission of Tenant in contravention
to the provisions of this Lease, shall be performed by Landlord at Tenant's cost
and expense.
SECTION 6.4 PROHIBITION AGAINST WASTE. Tenant shall not do or suffer
any waste or damage, disfigurement or injury to the Demised Premises, or any
improvements hereinafter erected thereon, or to the fixtures or equipment
therein, or permit or suffer any overloading of the floors or other use of the
Improvements that would place an undue stress on the same or any portion thereof
beyond that for which the same was designed.
SECTION 6.5 MISUSE OR NEGLECT. Tenant shall be responsible for all
repairs to the Demised Premises which are made necessary by any misuse or
neglect by: (i) Tenant or any of its officers, agents, employees, contractors,
licensees, or subtenants; or (ii) any visitors, patrons, guests, or invitees of
Tenant or its subtenant while in or upon the Demised Premises, exclusive of
Landlord and its contractors, sub-contractors, employees or agents.
SECTION 6.6 LIMITATION ON TENANT'S REPAIRS. If: (i) Tenant's Repairs
requires Tenant to replace a capital item, being an item which is reasonably
expected to have a useful life in excess of one year ("Capital Replacement"),
and (ii) such Capital Replacement is required at any time during the last sixty
(60) months of the Term, and (iii) the Capital Replacement is expected to cost
in excess of $10,000.00, and (iv) the Capital Replacement has a "Recovery
Period" (as determined under the Internal Revenue Code and Regulations
applicable thereto) which exceeds the balance
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of the Term, then Tenant shall so notify Landlord in writing, and of the cost
and other specific arrangements in regard to Tenant's proposed Capital
Replacement, and the remaining provisions of this Section shall apply. Landlord
and Tenant shall reasonably and mutually agree whether the Capital Replacement
proposed by Tenant is appropriate under the circumstances, or whether a less
costly Capital Replacement is appropriate, or whether a satisfactory repair not
including a Capital Replacement is practicable. Such agreement shall be based
on, among other things, local industry standards for properties comparable to
the Demised Premises. Neither party's agreement shall be unreasonably withheld
or delayed.
The cost of each and every Capital Replacement upon which Landlord and
Tenant agree, as aforesaid, shall be shared by Landlord and Tenant as follows:
(i) Landlord shall pay the amount determined by multiplying the total costs paid
for such Capital Replacement by a fraction, the numerator of which is the total
number of days contained in the Recovery Period of the Capital Replacement less
the number of days from the date the Capital Replacement was placed in service
to the date of the expiration of the Term, and the denominator of which is the
total number of days contained in the Recovery Period of the Capital
Replacement; and (ii) Tenant shall pay the entire balance of the total costs for
such Capital Replacement. Each of the parties shall pay its portion of the costs
of a Capital Replacement as and when payment for the same is due with respect to
all such Capital Replacement work. If after the computation of the cost of the
Capital Replacement as aforesaid, the Term is extended for either the Expansion
Space Term or a Renewal Term, Landlord's portion of the cost of Capital
Replacement shall be re-computed within thirty (30) days after each such
extension, and Tenant shall then pay to Landlord the difference between that
which the Landlord paid as of the date of the original computation and that
which Landlord is required to pay as a result of such re-computation.
ARTICLE 7
COMPLIANCE WITH LAWS AND ORDINANCES
SECTION 7.1 COMPLIANCE. Except as required of the Landlord to construct
the Initial Improvements as provided in Section 2.3 hereof, and except as
required of Landlord to construct the Expansion Space as provided in Section
2A.6, Tenant shall, throughout the Term and at Tenant's sole cost and expense,
promptly fully comply or cause full compliance with or remove or cure any
violation of any and all present and future laws, ordinances (zoning or
otherwise), orders, rules, regulations and requirements of all Federal, State,
County, Municipal and other governmental bodies having jurisdiction over the
Demised Premises and the appropriate departments, commissions, boards and
officers thereof (excluding only Environmental Laws which are separately
addressed in Section 7.3), and the orders, rules and regulations
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of the Board of Fire Underwriters where the Demised Premises is situated, or any
other body now or hereafter constituted exercising lawful or valid authority
over the Demised Premises, or any portion thereof, or the sidewalks, curbs,
roadways, alleys or entrances adjacent or appurtenant thereto, or exercising
authority with respect to the use or manner of use of the Demised Premises and
whether the compliance, curing or removal of any such violation and the costs
and expenses necessitated thereby shall have been foreseen or unforeseen,
ordinary or extraordinary, and whether or not the same shall be presently within
the contemplation of Landlord or Tenant or shall involve any change of
governmental policy, or require structural or extraordinary repairs, alterations
or additions by Tenant and irrespective of the costs thereof (hereafter referred
to as "Laws" and the compliance therewith as aforesaid is hereafter referred to
as "Compliance with Laws").
Notwithstanding the foregoing, in the event of a change in any laws,
statutes or ordinances of any governmental authority having jurisdiction over
the Demised Premises or over Tenant and Tenant's business operations, and such
change in the law requires physical alterations or improvements to be made to
the Building, then if such change in law is such that the required physical
alterations or improvements to the Building are specific or peculiar to Tenant
or to Tenant's business operations, all costs associated with making such
physical alterations or improvements and otherwise complying with the changes in
said law shall be borne by Tenant. Otherwise all costs associated with making
such physical alterations or improvements and otherwise complying with the
changes in said law shall be borne initially by Landlord and such costs shall be
amortized over the Recovery Period of such alteration or physical improvement
and Tenant shall reimburse Landlord the amount determined by multiplying the
total costs paid for such alteration or improvement by a fraction, the numerator
of which is the total number of days remaining in the Term and the denominator
of which is the total number of days in the Recovery Period. If after the
computation of the cost of an alteration or improvement described in this
Section 7.1, the Term is extended for either the Expansion Space Term or a
Renewal Term, Landlord's portion of the cost of Capital Replacement shall be
recomputed within thirty (30) days after each such extension, and Tenant shall
then pay to Landlord the difference between that which the Landlord paid as of
the date of the original computation and that which Landlord is required to pay
as a result of such re-computation.
SECTION 7.2 OTHER COMPLIANCE. Tenant, at its sole cost and expense,
shall comply with all agreements, contracts, easements, restrictions,
reservations or covenants, if any, running with the Land, or hereafter created
by Tenant or consented to, in writing, by Tenant or requested, in writing, by
Tenant. Tenant shall also comply with, observe and perform all provisions and
requirements of all policies of insurance at any time in force
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with respect to the Demised Premises and required to be obtained and maintained
under the terms of Article 5 hereof and shall comply with all development
permits issued by governmental authorities issued in connection with development
of the Demised Premises.
SECTION 7.3 ENVIRONMENTAL MATTERS. Tenant acknowledges receipt of a
copy of the environmental report (the "Environmental Report") prepared by EDP
Consultants, Inc. as attached hereto as Exhibit D. In addition to the compliance
requirements set forth herein, and not by way of limitation thereof, Tenant and
Landlord mutually covenant and agree as follows:
(a) DEFINITIONS: As used in this Section 7.3:
(1) "Environmental Condition(s)" means the presence
on, in, under, or migrations from the Demised Premises of a
Hazardous Substance(s), except naturally occurring substances,
which exceed any applicable and effective state or federal
cleanup standards, whether such presence is in ambient air,
surface water, groundwater, land surface or subsurface strata.
(2) "Environmental Liability(ies)" means any
Environmental Conditions with respect to which there are
effective and applicable Environmental Laws pursuant to which
the regulatory authorities having jurisdiction over the
Demised Premises would have authority to require remediation
activities. Designation of a condition as an Environmental
Liability by regulatory authorities or other third parties,
pursuant to this Agreement shall not be construed as an
admission by either party.
(3) "Environmental Laws" means all federal and state
environmental laws and regulations thereunder that are
applicable to the Demised Premises, including, but not limited
to, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601, et seq. (CERCLA); the
Solid Waste Disposal Act (SWDA) and Resource Conservation and
Recovery Act (RCRA), 42 U.S.C. Section 6901, et seq.; the
Clean Water Act, 33 U.S.C. Section 1251, et seq.; the Clean
Air Act, 42 U.S.C. Section 7401, et seq.; the Toxic Substances
Control Act, 15 U.S.C. Section 2601, et seq.; and the Safe
Drinking Water Act, 42 U.S.C. Section 300f through 300j, and
the Ohio Environmental Protection Act, Ohio Revised Code
Section 3745, et. seq.
(4) "Hazardous Substances" means all hazardous
substances, as that term is defined in CERCLA or other
Environmental Laws, petroleum or petroleum products,
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and any other federal, state or local environmental law,
ordinance, rule or regulation now or hereafter in effect.
(b) LANDLORD INDEMNITY. Except to the extent Tenant, its
employees, agents, contractors or subcontractors cause
Environmental Conditions, to the extent Landlord is
indemnified by Milstein (as defined in Section 20.1)
pursuant to Section 15 of that certain Real Property
Purchase Agreement dated as of August 29, 1996, Landlord
shall defend, hold harmless and indemnify Tenant and its
directors, officers, parent, subsidiaries and affiliates
from and against any and all claims, liabilities, damages,
costs, penalties, forfeitures, losses, or expenses
(including attorney fees) that such indemnified party or
person may sustain, suffer, or incur arising out of any
Environmental Liabilities based on Environmental Laws in
existence, effective and applicable to the Demised Premises
and attributable to Environmental Conditions existing as of
the Commencement Date.
(c) TENANT INDEMNITY. Except to the extent Landlord, its
employees, agents, contractors, or subcontractors cause
Environmental Conditions, and except to the extent Landlord
indemnifies Tenant pursuant to Section 7.3(b) hereof, Tenant
shall defend, hold harmless and indemnify Landlord and its
beneficiaries, officers, agents, partners and affiliates
from and against any and all claims, liabilities, damages,
costs, penalties, forfeitures, losses or expenses (including
attorneys fees) that such indemnified party or person may
sustain, suffer, or incur arising out of Environmental
Liabilities based on Environmental Laws in existence as of
the Commencement Date or enacted or adopted at any time
thereafter, arising out of, or as a direct result of the
acts or omissions of Tenant, its employees, contractors,
agents, subtenants, assignees, or business invitees, or as a
direct result of a spill, discharge or other release of
Hazardous Substances onto the Demised Premises caused by the
acts or omissions of Tenant, its employees, contractors,
agents, subtenants, assignees or business invitees during
the Term. In the event the Environmental Condition which
gives rise to an Environmental Liability for which a claim
for indemnification is made by Landlord hereunder, is the
migration onto or within the Demised Premises during the
Term of Hazardous Substances from a source or sources other
than the Demised Premises, then Tenant's obligations to
indemnify Landlord hereunder shall only be effective if (i)
Tenant has actual knowledge of such Environmental Condition,
or in the exercise of reasonable business practices should
have known thereof, and (ii) Tenant failed to promptly take
all
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reasonable steps necessary to abate, mitigate or otherwise
prevent such migrating Hazardous Substances onto the Demised
Premises. If Tenant becomes aware of an Environmental
Condition which could give rise to any Environmental
Liability, Tenant shall promptly notify Landlord of same.
(d) NOTICE. If a claim by a third person (including without
limitation any governmental entity) is made against any
person indemnified hereunder and the party against which
said claim is made intends to seek indemnification with
respect to such claim under this Section 7.3, the party
seeking such indemnification shall promptly give notice of
such claim to the indemnifying party. In addition, if a
party indemnified under this Section 7.3 comes into
possession of facts which could reasonably lead to a claim
for indemnification under this Section 7.3, such party shall
promptly give notice of such facts to the indemnifying
party.
(e) EXCLUSIVE REMEDY AND SURVIVAL. Notwithstanding the indemnity
provided in Section 19.3 of this Lease, the parties agree
that the foregoing indemnifications shall exclusively define
their rights and obligations with respect to Environmental
Liabilities arising from or related to the Demised Premises.
Except as expressly provided otherwise in this Lease, the
provisions of this Section 7.3 shall survive the termination
of the Lease and be effective for so long as Landlord or
Tenant may have any liability whatsoever with respect to the
Demised Premises.
(f) COMPLIANCE WITH OTHER LAWS. Tenant, at its sole cost and
expense, shall fully comply with, and provide to Landlord
all information needed from time to time in regard to, all
provisions of the federal and state environmental protection
acts, responsible property transfer laws, RCRA, CERCLA, and
any other applicable federal, state or local environmental
liability or protection or cleanup responsibility laws,
either currently in effect or hereafter enacted which affect
Tenant's operations at the Demised Premises.
(g) STORAGE OF HAZARDOUS MATERIALS. Tenant agrees not to use or
store on or in the Demised Premise, any Hazardous Substances
or any material deemed to be toxic or hazardous by any
governmental authority having jurisdiction over the Land,
except in full compliance with all applicable laws,
statutes, regulations or ordinances.
(h) ENVIRONMENTAL AUDITS. Upon request by Landlord during the
Term of this Lease, prior to the exercise of any
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option to renew for any Renewal Term and/or prior to
Tenant's vacation of the Demised Premises, Tenant shall
undertake and submit to Landlord an environmental audit from
an environmental company reasonably acceptable to Landlord
which audit shall evidence Tenant's compliance with this
Article 7. If Tenant, at any time during the Term prior to
Landlord's request for an environmental audit, has been
cited for violation of any Environmental Requirements, or
other hazardous materials laws by any governmental body
having jurisdiction thereof, or if a violation of an
Environmental Law or a breach of this Section 7.3 is
discovered or confirmed by such audits, then such
environmental audits shall be at Tenant's sole cost and
expense. In all other instances, Landlord shall pay the cost
and expense of such requested environmental audits.
(i) TERMINATION OF LEASE. In the event of an Environmental
Liability affecting the health and welfare of the occupants
and invitees of the Land, Building or any portion thereof
that is not the subject of the Landlord indemnity set forth
in subparagraph (b) above or the Tenant indemnity contained
in sub-paragraph (c) above (a "Third Party Cause"),
Landlord, at its option, upon written notice to Tenant
within sixty (60) days following the date of such Third
Party Cause (or such later date that Landlord knew of the
occurrence of such Third Party Cause), shall elect to either
remediate such Third Party Cause or decline the obligation
of such remediation. If Landlord fails to give such notice,
it shall be presumed that Landlord has elected not to
remediate. If Landlord elects to remediate, it shall do so,
at its sole cost and expense, as promptly as practical under
the circumstances, but in any event with diligence. If
Landlord elects or is presumed to have elected not to
remediate, Tenant, at its option upon written notice to
Landlord within sixty (60) days following the date Landlord
elected or was presumed to have elected not to remediate the
Third Party Cause, shall elect to either remediate such
Third Party Cause or terminate this Lease effective on the
date provided below. If Tenant elects to remediate, it shall
do so, at its sole cost and expense, as promptly as
practical under the circumstances, but in any event with
diligence. If Tenant has elected to terminate this Lease,
Landlord, within ten (10) business days thereafter, upon
written notice to Tenant, shall have the further option to
either elect to remediate the Third Party Cause (thereby
voiding Tenant's option to terminate this Lease as above
provided) or to decline such remediation. If Landlord fails
to give such ten (10) business day notice, it shall be
presumed that Landlord has elected to decline remediation
and this
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Lease shall terminate as hereafter provided. However, if
Landlord elects to remediate, it shall do so at its sole
cost and expense, as promptly as possible under the
circumstances, but in any event with diligence, and this
Lease shall remain in full force and effect in such event.
However, if Landlord elected or is presumed to have elected
not to remediate as last above provided, within ten (10)
business days following Landlord's election or presumed
election (whichever first occurs), Tenant may notify
Landlord, in writing, that Tenant elects to have the Term
remain in effect, on a year to year basis, on the same terms
and conditions as provided in this Lease (except as
hereafter provided), commencing on the first to occur of the
date Landlord last above elected or is presumed to have
elected not to remediate, and ending on the day before the
first anniversary of such commencement (but in no instance
longer than the Term provided for in Article 1 hereof),
unless, one hundred twenty (120) days prior to such
anniversary, Tenant, by written notification to Landlord,
elects to further cause the Term to remain in effect for one
(1) additional calendar year (but in no instance longer than
the Term provided for in Article 1 hereof). If Tenant so
elects to cause the Term to remain in effect for one (1) or
two (2) more years as above provided, it shall be on the
same terms and conditions provided for in this Lease, except
that Landlord, in no instance, shall be liable to Tenant or
anyone claiming by, through or under Tenant for any loss,
damage, injury, claim, demand, action or cause of action
(Tenant hereby releasing and waiving the same) resulting
from the subject Third Party Cause Environmental
Liabilities. If Tenant does not elect to have the Term
remain in effect as aforesaid, this Lease shall terminate on
the date Landlord last above elected or is presumed to have
elected not to remediate, whichever first occurs.
ARTICLE 8
MECHANIC'S LIENS AND OTHER LIENS
SECTION 8.1 LIENS AND RIGHT OF CONTEST. Tenant shall not suffer or
permit any mechanic's lien or other lien to be filed against the Demised
Premises, or any portion thereof, by reason of work, labor, skill, services,
equipment or materials supplied or claimed to have been supplied to the Demised
Premises at the request of Tenant, or any one holding the Demised Premises, or
any portion thereof, through or under Tenant. If any such mechanic's lien or
other lien shall at any time be filed against the Demised Premises, or any
portion thereof, Tenant shall, within forty-five (45) days after the date of
filing the same, either cause the same to be discharged of record or bond over
the same, if pursuant to
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Ohio law such bonding over has the effect of expunging the encumbrance of the
lien. However, in the event Tenant desires to contest the validity of any lien,
it shall, within forty-five (45) days of the date such lien was recorded, notify
Landlord, in writing, that Tenant intends to so contest same, and either (i)
bond over the lien, if pursuant to Ohio law such bonding over has the effect of
expunging the encumbrances of the lien; or (ii) cause a title insurer
satisfactory to Landlord to insure over such lien, in form and content
satisfactory to Landlord.
If Tenant complies with the foregoing, and Tenant continues, in good
faith, to contest the validity of such lien by appropriate legal proceedings
which shall operate to prevent the collection thereof and the sale or forfeiture
of the Demised Premises, or any part thereof, to satisfy the same, Tenant shall
be under no obligation to pay such lien until such time as the same has been
decreed, by court order, to be a valid lien on the Demised Premises. Provided
that nonpayment of such lien does not cause Landlord to be in violation of any
of its contractual undertakings, Landlord agrees not to pay such lien during the
period of Tenant's contest. Tenant shall indemnify and defend Landlord against
and save Landlord and the Demised Premises, and any portion thereof, harmless
from and against all losses, costs, damages, expenses, liabilities, suits,
penalties, claims, demands and obligations, including, without limitation,
reasonable attorney's fees, resulting from the assertion, filing, foreclosure or
other legal proceedings with respect to any such mechanic's lien or other lien
or the attempt by Tenant to discharge same as above provided.
All materialmen, contractors, artisans, mechanics, laborers and any
other person now or hereafter furnishing any labor, services, materials,
supplies or equipment to Tenant with respect to the Demised Premises, or any
portion thereof, are hereby charged with notice that they must look exclusively
to Tenant to obtain payment for the same. Notice is hereby given that Landlord
shall not be liable for any labor, services, materials, supplies, skill,
machinery, fixtures or equipment furnished or to be furnished to Tenant upon
credit, and that no mechanic's lien or other lien for any such labor, services,
materials, supplies, machinery, fixtures or equipment shall attach to or affect
the estate or interest of Landlord in and to the Demised Premises, or any
portion thereof.
SECTION 8.2 LIENS ON LANDLORD'S WORK. The provisions of Section 8.1
above shall not apply to any mechanic's lien or other lien for labor, services,
materials, supplies, machinery, fixtures or equipment furnished to the Demised
Premises in the performance of Landlord's obligations to construct the
Landlord's Improvements, provide Warranty Work, or Punch List Item or Expansion
Punch List Item work required herein. Landlord agrees to indemnify and defend
Tenant against and save Tenant and the Demised Premises, and any portion
thereof, harmless from all
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losses, costs, damages, expenses, liabilities and obligations, including,
without limitation, reasonable attorney's fees resulting from the assertion,
filing, foreclosure or other legal proceedings with respect to any such
mechanic's lien or other lien.
SECTION 8.3 OTHER LIENS. Tenant shall not create, permit or suffer,
and, subject to the right to contest as set forth in Section 8.1 hereof, shall
promptly discharge and satisfy of record, any other lien, encumbrance, charge,
security interest, or other right or interest which, as a result of Tenant's
action or inaction contrary to the provisions hereof, shall be or become a lien,
encumbrance, charge or security interest upon the Demised Premises, or any
portion thereof, or the income therefrom.
ARTICLE 9
INTENT OF PARTIES
SECTION 9.1 NET RENT. Landlord and Tenant do each state and represent
that it is their respective intention that this Lease be interpreted and
construed as an absolute net lease and all Base Rent and Additional Rent shall
be paid by Tenant without abatement, deduction, diminution, deferment,
suspension, reduction, set off, defense or counterclaim with respect to the same
(except as expressly provided herein). Except as otherwise provided herein, the
obligations of Tenant shall not be affected by reason of damage to or
destruction of the Demised Premises from whatever cause, nor shall the
obligations of Tenant be affected by reason of any condemnation, eminent domain
or like proceedings. Except as provided herein, all Impositions, insurance
premiums, utility expense, repair and maintenance expenses, and all other costs,
fees, interest, charges, expenses, reimbursements and obligations of every kind
and nature whatsoever relating to the Demised Premises, or any portion thereof,
which may arise or become due during the Term, or any extension or renewal
thereof, shall be paid or discharged by Tenant as Additional Rent.
SECTION 9.2 LANDLORD'S PERFORMANCE FOR TENANT. If Tenant shall at any
time fail to pay any Imposition in accordance with the provisions of Article 4,
or to take out, pay for, maintain and deliver any of the insurance policies or
certificates of insurance provided for in Article 5, or shall fail to make any
other payment or perform any other act on its part to be made or performed, then
Landlord, after fifteen (15) days prior written notice to Tenant (or without
notice in case of emergency), and without waiving or releasing Tenant from any
obligation of Tenant contained in this Lease, may, but shall be under no
obligation to do so, (i) pay after said fifteen (15) days' written notice to
Tenant, any Imposition payable by Tenant pursuant to the provisions of Article
4; (ii) take out, pay for and maintain any of the insurance policies provided
for in this Lease; or (iii) make any other payment on Tenant's part to be paid
hereunder. Landlord may enter
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upon the Demised Premises for any such purpose and take all such action therein
or thereon as may be necessary therefor and all such action taken by Landlord
shall be in a reasonably diligent fashion.
SECTION 9.3 PAYMENT FOR LANDLORD'S PERFORMANCE FOR TENANT. All sums so
paid by Landlord and all costs and expenses, including reasonable attorney's
fees, reasonably incurred by Landlord in connection with the performance of any
such act, together with interest thereon at the Maximum Rate of Interest from
the respective dates of Landlord's making of each payment of such cost and
expense, including reasonable attorney's fees, shall be paid by Tenant to
Landlord on demand.
ARTICLE 10
DEFAULTS AND LANDLORD'S REMEDIES
SECTION 10.1 DEFAULT. The following events, following the expiration of
the applicable cure periods, in this Article are sometimes referred to as an
event of "Default:"
(a) If default shall be made by Tenant, under the provisions of
Article 13 hereof relating to assignment, sublease, mortgage or
other transfer of Tenant's interest in this Lease or in the
Demised Premises or in the income arising therefrom;
(b) If default shall be made in the due and punctual payment of Base
Rent or any installment thereof and such default shall continue
for five (5) business days after written notice to Tenant, or if
default shall be made in the payment of Additional Rent or in the
payment of any other sum required to be paid by Tenant under this
Lease and such default shall continue for seven (7) business days
after written notice to Tenant;
(c) If default shall be made in the observance or performance of any
of the other covenants or conditions in this Lease which Tenant
is required to observe and perform and such default shall
continue for thirty (30) days after written notice to Tenant, or
if a default involves a hazardous or emergency condition and is
not cured by Tenant immediately; provided, however, the time
allowed Tenant (except in the instance of hazardous or emergency
conditions) within which Tenant is permitted to cure the same
shall be extended for such reasonable period as may be necessary
for the curing provided Tenant is continuously, diligently and in
good faith prosecuting such cure; and
(d) If, during the term of this Lease: (1) Tenant shall make an
assignment for the benefit of creditors; (2) a
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voluntary petition shall be filed by Tenant under any law having
for its purpose the adjudication of Tenant a bankrupt, or Tenant
shall be adjudged a bankrupt pursuant to an involuntary petition
in bankruptcy; (3) a receiver is appointed for the property of
Tenant; (4) any department of the state or federal government, or
any officer thereof duly authorized, shall take possession of the
business or property of Tenant; or (5) any involuntary petition
in bankruptcy shall be filed against Tenant under any federal or
state bankruptcy or insolvency laws and shall not have been
dismissed within ninety (90) days from the filing thereof.
Landlord may treat the occurrence of any one or more of the foregoing
events of Default as a breach of this Lease. In any such event, Landlord, at any
time thereafter during the continuance of any such event of Default, may give
written notice to Tenant specifying such event of Default or events of Default
and stating that this Lease and the Term hereby demised shall expire and
terminate on the date specified in such notice, and upon the date specified in
such notice this Lease and the Term hereby demised, and all rights of Tenant
under this Lease, including all rights of renewal whether exercised or not,
shall expire and terminate, or in the alternative or in addition to the
foregoing remedy, Landlord may assert and have the benefit of any and all other
remedies and rights provided at law or in equity.
SECTION 10.2 RE-LETTING AFTER DEFAULT. To the extent permitted by law,
in the event of a Default, Landlord may terminate Tenant's right of possession
and may repossess the Demised Premises by forcible entry and detainer suit, by
taking peaceful possession or otherwise, without terminating this Lease, in
which event Landlord shall use commercially reasonable efforts to relet the same
for the account of Tenant, for such rent and upon such terms as may be
satisfactory to Landlord. For the purpose of such re-letting, Landlord is
authorized to repair the Demised Premises. If Landlord shall fail to relet the
Demised Premises, Tenant shall pay to Landlord, as damages, a sum equal to the
amount of Rent reserved in this Lease for the balance of the Initial Term or the
Renewal Term, as the case may be, as the same becomes due and payable. If the
Demised Premises is relet and a sufficient sum shall not be realized from such
re-letting after paying all of the costs and expenses of all repairs and the
reasonable expenses of such re-letting (which expenses shall be limited to
attorneys' fees and brokerage commissions) and of the collection of the rent
accruing therefrom to satisfy the Rent provided for in this Lease, Tenant shall
satisfy and pay the same upon demand therefor from time to time. For purposes of
this Article 10, costs relating to remodeling or altering the Demised Premises
shall not be deemed expenses of re-letting. It is understood and agreed that if
Landlord incurs any cost or expense for re-letting as described above, such cost
and expense shall be
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amortized over the term of the lease that is the subject of such re-letting, and
Tenant's obligation to Landlord in respect thereto shall be an amount equal to
such cost and expense multiplied by a fraction, the numerator of which is the
number of days remaining in the unexpired Term hereof, and the denominator of
which is the number of days in the term of the lease that is the subject of the
re-letting. Tenant agrees that Landlord may file suit to recover any sums
falling due under the terms of this Article 10 from time to time and that no
suit or recovery of any portion due to Landlord hereunder shall be any defense
to any subsequent action brought for any amount not theretofore reduced to
judgment in favor of Landlord.
SECTION 10.3 ACCEPTANCE AFTER DEFAULT. No failure by Landlord or
Tenant, as the case may be, to insist upon the performance of any of the terms
of this Lease or to exercise any right or remedy consequent upon a breach
thereof, and no acceptance by Landlord of full or partial Rent from Tenant or
any third party during the continuance of any such breach, shall constitute a
waiver of any such breach or of any of the terms of this Lease. None of the
terms of this Lease to be kept, observed or performed by either party hereunder,
and no breach thereof, shall be waived, altered or modified except by a written
instrument executed by Landlord and by Tenant. No waiver of any breach shall
affect or alter this Lease, but each of the terms of this Lease shall continue
in full force and effect with respect to any other then existing or subsequent
breach of this Lease. No waiver of any Default of Tenant herein shall be implied
from any omission by Landlord to take any action on account of such Default, if
such Default persists or is repeated and no express waiver shall affect any
Default other than the Default specified in the express waiver and that only for
the time and to the extent therein stated. One or more waivers by Landlord or by
Tenant, as the case may be, shall not be construed as a waiver of a subsequent
breach of the same covenant, term or condition.
SECTION 10.4 REMEDIES CUMULATIVE. In the event of any breach or
threatened breach by Tenant of any of the terms contained in this Lease,
Landlord shall be entitled to invoke any right or remedy allowed at law or in
equity or by statute or otherwise (including injunctive relief) as though entry,
re-entry, summary proceedings and other remedies, as the case may be, were not
provided for in this Lease. Each remedy or right of Landlord provided for in
this Lease shall be cumulative and shall be in addition to every other right or
remedy provided for in this Lease, or now or hereafter existing at law or in
equity or by statute or otherwise, and the exercise or the beginning of the
exercise by Landlord of any one or more of such rights or remedies except as
otherwise provided herein, shall not preclude the simultaneous or later exercise
by Landlord of any or all other rights or remedies.
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ARTICLE 11
DESTRUCTION AND RESTORATION
SECTION 11.1 RESTORATION. In case of damage to or destruction of all or
a portion of the Landlord's Improvements by fire or other casualty (a
"Casualty"), after the date on which Substantial Completion of the Initial
Improvements is achieved and during the Term, Landlord, to the extent of
insurance proceeds received shall promptly restore, repair, replace and rebuild
the same as nearly as possible to the condition for which the Property Insurance
set forth in Section 5.1 was procured. Tenant shall forthwith give Landlord
written notice, except in cases of emergency when Landlord may be notified by
telephone, of Casualty upon the occurrence thereof and specify in such notice,
in reasonable detail, the extent thereof. Such restoration, repairs,
replacements, rebuilding, including the cost of temporary repairs for the
protection of the Demised Premises, or any portion thereof, pending completion
thereof are sometimes hereinafter referred to as the "Restoration."
Landlord shall employ its diligent good faith efforts to complete the
Restoration reasonably promptly and with as little disruption as to the Premises
Use as is reasonably possible. If Landlord advises Tenant thirty (30) days after
damage or destruction that Landlord is unable to complete the Restoration within
nine (9) months following the destruction, Tenant, on not less than thirty (30)
days written notice to Landlord, may terminate this Lease provided Tenant
vacates the undamaged portion of the Demised Premises as otherwise provided in
this Lease.
SECTION 11.2 INSURANCE PROCEEDS. All insurance moneys recovered by
Landlord or its Mortgagee on account of such Casualty, less the costs, if any,
to Landlord or its Mortgagee of such recovery, shall be applied by Landlord to
the payment of the costs of the Restoration and shall be paid out from time to
time as the Restoration progresses. If the net amount of the insurance proceeds
(after deduction of all costs, expenses and fees related to recovery of the
insurance proceeds) recovered is insufficient to complete the Restoration of
such improvements (exclusive of Tenant's personal property and Tenant's Trade
Fixtures which shall be restored, repaired or rebuilt out of Tenant's separate
funds), Tenant shall provide all additional funds necessary to complete the
Restoration.
SECTION 11.3 TENANT'S OBLIGATIONS FOLLOWING A CASUALTY. If the Casualty
shall render the Demised Premises wholly untenantable or unusable for the
Premises Use in Tenant's reasonable judgment, Base Rent payable hereunder shall
abate from the date of Casualty to the date on which Restoration is complete. If
the Casualty shall render a portion of the Demised Premises untenantable or
unusable for the Premises Use in Tenant's reasonable judgment, Base Rent shall
abate proportionately to the square footage of the Demised Premises rendered
untenantable or
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unusable until Restoration of such portion of the Demised Premises is complete.
SECTION 11.4 DESTRUCTION PRIOR TO COMMENCEMENT DATE. The provisions of
this Article 11 apply only to a Casualty occurring (a) as to the Initial
Improvements, after the Commencement Date and (b) as to the Expansion Space,
after the Expansion Commencement Date. Any such Casualty occurring to the
Initial Improvements prior to the Commencement Date or occurring to the
Expansion Space prior to the Expansion Commencement Date shall be restored,
repaired, replaced and rebuilt by Landlord, and during such period of
construction, Landlord shall obtain and maintain the insurance coverage referred
to in Section 5.1 hereof. All moneys received by Landlord under its insurance
coverage shall be applied by Landlord to complete the Restoration of such
Casualty, and if such insurance proceeds are insufficient, Landlord shall
provide all additional funds necessary to complete the Restoration of the
Initial Improvements or the Expansion Space, as appropriate.
SECTION 11.5 RESTORATION AT END OF TERM. If, within twelve (12) full
calendar months prior to the expiration of the Initial Term, Expansion Space
Term or Renewal Term(s), as the case may be, Landlord's Improvements shall be
destroyed or damaged, Landlord shall be relieved of the obligation to make the
Restoration, and this Lease shall terminate, provided, however, if Tenant,
within thirty (30) days following such Casualty, elects, in writing with no
right of withdrawal, to extend the Term for whatever Renewal Term then is
available to Tenant (if such a Renewal Term is available), Landlord shall not be
permitted to terminate this Lease pursuant to the provisions of this Section
11.5 and shall be required to complete the necessary Restoration in accordance
with the terms of this Article 11.
ARTICLE 12
CONDEMNATION
SECTION 12.1 TOTAL CONDEMNATION. If, during the Term, the entire
Demised Premises shall be taken as the result of the exercise of the power of
eminent domain (the "Proceedings"), this Lease and all right, title and interest
of Tenant hereunder shall terminate on the date of vesting of title pursuant to
such Proceedings, and Landlord shall be entitled to and shall receive the total
award made in such Proceedings. Except in the instance of a separate award for
moving expenses and loss of Tenant's Trade Fixtures, or in the instance of a
single award where moving expenses and loss of Tenant's Trade Fixtures are
reasonably and separately ascertainable, Tenant hereby assigns any interest in
such award, damages, consequential damages and compensation to Landlord.
Landlord agrees that it will not object to the petition of Tenant for a separate
award as set forth herein provided such
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petition or award in no way diminishes the award otherwise payable to Landlord
hereunder.
SECTION 12.2 PARTIAL CONDEMNATION. If during the Term, less than the
entire Demised Premises shall be taken in any such Proceedings, this Lease
shall, upon vesting of title in the Proceedings, terminate as to the portion of
the Demised Premises so taken. If the portion of the Demised Premises taken
shall, in the good faith exercise of Tenant's reasonable business judgment,
substantially and materially interfere with or inhibit Tenant's use of the
Demised Premises, Tenant may, at its option, terminate this Lease as to the
remainder of the Demised Premises. Such termination as to the remainder of the
Demised Premises shall be effected by notice in writing given not more than
sixty (60) days after the date of vesting of title in such Proceedings, and
shall specify a date not more than sixty (60) days after the giving of such
notice as the date for such termination. Upon the date specified in such notice,
the Term, and all right, title and interest of Tenant hereunder, shall cease and
terminate. If this Lease is terminated as provided in this Section 12.2,
Landlord and Tenant shall receive so much of the award as is provided in Section
12.1 hereof In the event that Tenant elects not to terminate this Lease as to
the remainder of the Demised Premises, the rights and obligations of Landlord
and Tenant shall be governed by the provisions of Section 12.3 hereof.
SECTION 12.3 RESTORATION AFTER CONDEMNATION. If, in the case of partial
taking, this Lease is not terminated as provided in Section 12.2 hereof, this
Lease shall, upon vesting of title pursuant to the Proceedings, terminate as to
the parts so taken, and, except as provided in Section 12.1 hereof, Tenant shall
have no claim or interest in the award, damages, consequential damages and
compensation, or any part thereof. Landlord, in such case and to the extent
Landlord receives proceeds from such Proceedings, covenants and agrees to
promptly restore that portion of the Demised Premises not so taken to a complete
architectural and mechanical unit for Tenant's use as provided in this Lease.
SECTION 12.4 BASE RENT REDUCTION. In the event of a partial taking of
the Demised Premises under Section 12.2 hereof, followed by Tenant's election
not to terminate this Lease, the fixed Base Rent payable hereunder during the
period from and after the date of vesting of title pursuant to such Proceedings
to the earlier of the termination of this Lease or until the next date upon
which Rent is determined under Section 3.1 above, shall be determined by
multiplying the Base Rent then being paid by Tenant by a fraction, the numerator
of which is the square footage of the Building after such taking and after the
same has been restored to a complete architectural unit, and the denominator of
which is the square footage of the Building prior to such taking.
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ARTICLE 13
ASSIGNMENT AND SUBLETTING
Provided Tenant remains primarily liable for all of Tenant's
obligations under this Lease, Tenant may assign or sublet all or any portion of
the Demised Premises upon prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed. Landlord's consent shall be deemed to
have been unreasonably withheld if: (a) the proposed assignee's or sublessee's
stockholder's equity is equal to or greater than Tenant's Stockholder's Equity
as of the date of the proposed assignment or subletting, and (b) the proposed
assignee's or sublessee's business reputation is at least as good as Tenant's.
Thirty (30) days prior to Tenant assigning or subletting all or any portion of
the Premises or any assignee or sublessee subsequently assigning or subletting
all or any portion of the Demised Premises, Tenant shall notify Landlord, in
writing, with reasonable specificity, of the terms, provisions and conditions of
such assignment or sublease.
ARTICLE 14
SUBORDINATION, NON-DISTURBANCE,
NOTICE TO MORTGAGEE AND ATTORNMENT
SECTION 14.1 SUBORDINATION. This Lease and all rights of Tenant herein,
and any and all interest or estate of Tenant in the Demised Premises, or any
portion thereof, shall be subject and subordinate to the lien held by or in
favor of any Mortgage which at any time may be placed upon the Demised Premises,
or any portion thereof, by Landlord, and to any replacements, renewals,
amendments, modifications, extensions or refinancing thereof, and to each and
every advance made under any Mortgage; provided however, the subordination
herein agreed upon shall not be effective unless and until Landlord, Landlord's
mortgagee and Tenant execute and deliver a subordination, non-disturbance and
attornment agreement substantially in the form attached hereto as Exhibit F (the
"Subordination Agreement"). Landlord and Tenant agree at any time hereafter, and
from time to time on demand of the other party, to promptly execute and deliver
to each other any reasonable instruments, releases or other documents that may
reasonably be required to carry out the intent of this Section 14.1. The lien of
any Mortgage shall not cover Tenant's Trade Fixtures or other personal property
located in or on the Demised Premises.
SECTION 14.2 MORTGAGEE PROTECTION CLAUSE. In the event of any act or
omission of Landlord constituting a default by Landlord, Tenant shall not
exercise any remedy until Tenant has given Landlord and any mortgagee (whose
identity and address have been provided to Tenant) of the Demised Premises a
thirty (30) day written notice of such act or omission, and until a reasonable
period of time to allow Landlord or the mortgagee to remedy such
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act or omission shall have elapsed following the giving of such notice. However,
if such act or omission cannot, with due diligence and in good faith, be
remedied within such thirty (30) day period, Landlord and the mortgagee shall be
allowed such further reasonable period of time as may be reasonably necessary
provided that it commence remedying the same with due diligence and in good
faith within said thirty (30) day period. Nothing herein contained shall be
construed or interpreted as requiring any mortgagee to remedy such act or
omission.
SECTION 14.3 ATTORNMENT. If any mortgagee shall succeed to the rights
of Landlord under this Lease or to ownership of the Demised Premises, whether
through possession or foreclosure or delivery of a deed in lieu of foreclosure,
then, upon the written request of such mortgagee so succeeding to Landlord's
rights hereunder, provided such mortgagee assumes, in writing, the obligations
of Landlord hereunder accruing on and after the date such mortgagee acquired
title to the Demised Premises, and further provided such mortgagee executes and
delivers to Tenant a Subordination Agreement, Tenant shall attorn to and
recognize such mortgagee as Tenant's landlord under this Lease. In the event of
any other transfer of Landlord's interest hereunder, upon the written request of
the transferee and Landlord, provided such transferee assumes, in writing, the
obligations of Landlord hereunder accruing on and after the date of such
transfer, Tenant shall attorn to and recognize such transferee as Tenant's
landlord under this Lease and shall execute and deliver any reasonable
instrument that such transferee and Landlord may reasonably request to evidence
such attornment.
SECTION 14.4 COSTS. Landlord agrees to reimburse Tenant up to One
Thousand Dollars ($1,000.00) for its reasonable fees of outside counsel incurred
in connection with the review of any Subordination Agreements (other than the
form of Subordination Agreement set forth as Exhibit F attached hereto) or
estoppel letter described in Section 19.7 (other than the form of "Estoppel
Letter" set forth as Exhibit E attached hereto) which Landlord may request
Tenant to execute.
ARTICLE 15
SIGNS
Tenant may erect signs on the exterior or interior of the Building or
on the landscaped area adjacent thereto, provided that such sign or signs (i) do
not cause any structural damage or other damage to the Building; (ii) do not
violate applicable governmental laws, ordinances, rules or regulations; (iii) do
not violate any existing restrictions affecting the Demised Premises are
compatible with the architecture of the Building and the landscaped area
adjacent thereto and (iv) have been approved by Landlord, which approval shall
not be unreasonably withheld or delayed.
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ARTICLE 16
TRADE FIXTURES
It is the intent of the parties that Trade Fixtures shall include those
items of personal property which are specifically used by Tenant in the conduct
of the Tenant's business and shall belong to Tenant. The parties agree that all
items contained in the Final Plans and Expansion Plans shall be deemed not to be
Trade Fixtures, but shall (absent the written agreement of the parties to the
contrary) constitute fixtures or real property and shall belong to the Landlord
as part of the Landlord's Improvements.
ARTICLE 17
CHANGES AND ALTERATIONS
Tenant shall have the right at any time, and from time to time during
the Term, to make such changes and alterations, structural or otherwise, to the
Building, improvements and fixtures hereafter erected on the Demised Premises as
Tenant shall deem necessary or desirable in connection with the requirements of
its business, which changes and alterations (other than changes or alterations
of Tenant's Trade Fixtures and equipment) shall be made in all cases subject to
the following conditions, which Tenant covenants to observe and perform:
(a) No change or alteration shall be undertaken until Tenant shall
have procured and paid for, so far as the same may be required
from time to time, all Municipal, State and Federal permits and
authorizations of the various governmental bodies and departments
having jurisdiction thereof, and Landlord agrees to join in the
application for such permits or authorizations whenever such
action is necessary, all at Tenant's sole cost and expense,
provided such applications do not cause Landlord to become liable
for any cost, fees or expenses, and provided, at Landlord's
direction, such approval is terminated, at the option of
Landlord, at the expiration of the Term.
(b) In any undertaking of Tenant pursuant to this Article 17, except
in the instance of interior decorating, no structural change or
alteration shall be undertaken until detailed plans and
specifications have been first submitted to and approved in
writing by Landlord, which approval shall not unreasonably be
withheld or delayed. Before commencement of any such change,
alteration, restoration or construction ("New Work") which in
Landlord's reasonable judgment would alter the mechanical,
structural, or other Building systems, Tenant shall: (i) obtain
Landlord's prior written
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consent, (which consent may be withheld if the change or
alteration would, in the reasonable judgment of Landlord, impair
the value or usefulness to Landlord of the Land or Landlord's
Improvements, or any substantial part thereof or would
unreasonably alter the aesthetics of the Demised Premises); (ii)
guarantee the completion thereof within a reasonable time
thereafter (1) free and clear of all mechanic's liens or other
liens, encumbrances, security interests and charges, and (2) in
accordance with the plans and specifications approved by
Landlord; and (iii) Tenant shall promptly upon the completion of
the New Work deliver to Landlord two (2) complete sets of "as
built" drawings for the New Work.
(c) Any change or alteration shall, when completed, be of such
character as not to reduce the value or utility of the Demised
Premises below its value or utility to Landlord immediately
before such change or alteration, nor shall such change or
alteration reduce the area or cubic content of the Building, nor
change the character of the Demised Premises as to use without
Landlord's express written consent.
(d) All New Work shall be done promptly and in a good and workmanlike
manner and in Compliance with Laws and in accordance with the
orders, rules and regulations of the Board of Fire Underwriters
where the Demised Premises is located, or any other body
exercising similar functions. The cost of any such change or
alteration shall be paid by Tenant so that the Demised Premises
and all portions thereof shall at all times be free of liens for
labor and materials supplied to the Demised Premises, or any
portion thereof. The New Work shall be prosecuted with reasonable
dispatch, delays due to strikes, lockouts, acts of God, inability
to obtain labor or materials, governmental restrictions or
similar causes beyond the reasonable control of Tenant excepted.
Tenant shall obtain and maintain, at its sole cost and expense,
during the performance of the New Work, workers' compensation
insurance covering all persons employed in connection with the
New Work and with respect to which death or injury claims could
be asserted against Landlord or Tenant or against the Demised
Premised or any interest therein, together with comprehensive
general liability insurance for the mutual benefit of Landlord
and Tenant with limits of not less than One Million Dollars
($1,000,000.00) in the event of injury to one person, Three
Million Dollars ($3,000,000.00) in respect to any one accident or
occurrence, and Five Hundred Thousand Dollars ($500,000.00) for
property damage, and the fire insurance with "extended coverage"
endorsement required by Section 5.1 hereof shall be supplemented
with
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"builder's risk" insurance on a completed value form or other
comparable coverage on the New Work. All such insurance shall be
in a company or companies authorized to do business in Ohio and
reasonably satisfactory to Landlord. All such policies of
insurance or certificates of insurance shall be delivered to
Landlord endorsed "Premium Paid" by the company or agency issuing
the same, or with other evidence of payment of the premium
satisfactory to Landlord, prior to the commencement of any New
Work.
(e) All improvements and alterations (other than Tenant's Trade
Fixtures, equipment and signs) made or installed by Tenant shall
immediately, upon completion or installation thereof, become the
property of Landlord without payment therefor by Landlord, and
shall be surrendered to Landlord on the expiration of the Term
(unless the parties agree to the contrary).
(f) No change, alteration, restoration or new construction shall be
in or connect Landlord's Improvements with any property, building
or other improvement located outside the boundaries of the Land
and Expansion Land, nor shall the same obstruct or interfere with
any then existing easement.
ARTICLE 18
SURRENDER OF PREMISES
SECTION 18.1 SURRENDER OF POSSESSION. Tenant shall, upon termination of
this Lease for any reason whatsoever, surrender to Landlord the Demised
Premises, together with all buildings, structures, fixtures and building
equipment or real estate fixtures upon the Demised Premises, together with all
additions, alterations and replacements thereof (except Tenant's personalty and
Trade Fixtures) in good order, condition and repair, with all mechanical,
electrical and plumbing systems in good working order and repair, reasonable
wear and tear excepted (provided that said exception shall in no way be deemed
to relieve Tenant from its obligations to make all necessary and appropriate
Tenant Repairs as and when required hereunder).
SECTION 18.2 REMOVAL OF TENANT'S PROPERTY; HOLDOVER RENT. Except as
otherwise provided herein, at the expiration of the Term, Tenant shall surrender
the Demised Premises and shall surrender all keys to the Demised Premises to
Landlord at the place then fixed for the payment of Base Rent and shall inform
Landlord of all combinations on locks, safes and vaults, if any. Except as
otherwise provided herein, Tenant shall at such time remove all of its property
(including its Trade Fixtures) therefrom and all alterations and improvements
placed thereon by Tenant if so requested by Landlord pursuant to Article 17
hereof.
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Tenant shall repair any damage to the Demised Premises caused by such removal,
and any and all such property not so removed when required shall, at Landlord's
option, become the exclusive property of Landlord or be disposed of by Landlord,
at Tenant's cost and expense, without further notice to or demand upon Tenant.
In addition to Additional Rent, Tenant shall pay to Landlord a sum
equal to 125% of the Base Rent herein provided for the month immediately prior
to the termination during each month or portion thereof for which Tenant shall
remain in possession of the Demised Premises or any part thereof after the
termination of the Term or of Tenant's rights of possession, whether by lapse of
time or otherwise and in such case, Tenant shall become a tenant from month to
month. The provisions of this Section 18.2 shall not be deemed to limit or
constitute a waiver of any other rights or remedies of Landlord provided herein
at law or at equity, and shall not be deemed to be a consent to any holdover nor
to grant Tenant any right to holdover.
All property of Tenant not removed on or before the last day of the
Term of this Lease shall be deemed abandoned. Tenant hereby appoints Landlord
its agent to remove all property of Tenant from the Demised Premises upon
termination of this Lease and to cause its transportation and storage for
Tenant's benefit, all at the sole cost and risk of Tenant and Landlord shall not
be liable for damage, theft, misappropriation or loss thereof and Landlord shall
not be liable in any manner in respect thereto. Tenant shall pay all costs and
expenses of such removal, transportation and storage. Tenant shall reimburse
Landlord upon demand for any expenses incurred by Landlord with respect to
removal or storage of abandoned property and with respect to restoring said
Demised Premises to good order, condition and repair.
ARTICLE 19
MISCELLANEOUS PROVISIONS
SECTION 19.1 RIGHT OF INSPECTION. Upon reasonable advance notice to
Tenant (except for emergency situations), Tenant agrees to permit Landlord and
its authorized representatives to enter upon the Demised Premises at all
reasonable times during ordinary business hours for the purpose of inspecting
the same and, pursuant to the terms of this Lease, making any necessary repairs
to comply with any laws, ordinances, rules, regulations or requirements of any
public body, or the Board of Fire Underwriters, or any similar body. Except as
otherwise provided herein, nothing shall imply any duty upon the part of
Landlord to do any such work which, under any provision of this Lease, Tenant
may be required to perform and the performance thereof by Landlord shall not
constitute a waiver of Default in failing to perform the same. Landlord shall
not unreasonably interfere with the use and occupancy of the Demised Premises
pursuant to the provisions of this Section 19.1.
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SECTION 19.2 DISPLAY OF DEMISED PREMISES. Upon reasonable advance
notice to Tenant, Landlord is hereby given the right during usual business hours
at any time during the Term to enter upon the Demised Premises and to exhibit
the same for the purpose of mortgaging or selling the same. During the final
year of the Term, Landlord shall be entitled to display the Demised Premises for
sale or lease without such prior notice, and shall be allowed to post
appropriate signage in or about the Demised Premises but in such manner as to
not unreasonably interfere with Tenant's business. Landlord shall not
unreasonably interfere with the use and occupancy of the Demised Premises
pursuant to the provisions of this Section 19.2.
SECTION 19.3 INDEMNITIES.
(a) TENANT. Tenant shall at all times indemnify, defend and hold
Landlord and Landlord's mortgagee(s), beneficiaries, partners, and managing
agent harmless against and from any and all claims, costs, liabilities, actions
and damages (including, without limitation, reasonable attorneys' fees and
costs) by or on behalf of any person or persons, firm or firms, corporation or
corporations, to the extent arising from the conduct or management, or from any
work or things whatsoever done in or about the Demised Premises during the Term,
and will further indemnify, defend and hold Landlord harmless against and from
any and all claims arising during the term of this Lease, to the extent arising
from any condition of the Improvements or any curb or sidewalk adjoining the
Demised Premises, or of any passageways or space therein or appurtenant thereto,
or to the extent arising from any breach or default on the part of Tenant in the
performance of any covenant or agreement on the part of Tenant to be performed,
pursuant to the terms of this Lease, or arising from any negligence of Tenant,
its agents, servants, employees or licensees, or arising from any accident,
injury or damage whatsoever caused to any person, firm or corporation occurring
during the term of this Lease, in or about the Demised Premises, or upon the
sidewalk and the land adjacent thereto, and from and against all costs,
reasonable attorney's fees, expenses and liabilities incurred in or about any
such claim or action or proceeding brought thereto; and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, covenants to defend such action proceeding by counsel
reasonably satisfactory to Landlord. The indemnity obligations of Tenant under
this Section 19.3(a) which relate directly or indirectly to death, bodily or
personal injury or property damage, shall be insured by contractual liability
endorsement on Tenant's policies of insurance required under the provisions of
Article 5. Notwithstanding anything contained herein to the contrary, Tenant's
obligations to indemnify, defend and hold Landlord harmless against and from any
and all claims, costs, liabilities, actions and damages shall not apply to any
claims, costs, liabilities, actions and damages to the extent
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arising as a result of (i) the negligence or willful misconduct or omissions of
Landlord; and/or (ii) the failure of Landlord to comply with a provision of this
Lease.
(b) LANDLORD. To the fullest extent permitted by law, Landlord shall
at all times indemnify, defend and hold Tenant and Tenant's shareholders and
employees harmless from any and all claims, costs, liabilities, actions and
damages (including, without limitation, reasonable attorneys' fees and costs) by
or on behalf of any person or persons, firm or firms, corporation or
corporations, to the extent arising from the conduct of or the failure to
conduct any of Landlord's obligations hereunder, or any negligence in the
performance thereof and from and against all costs, reasonable attorneys' fees,
expenses and liabilities incurred in or about any such claim, action or
proceeding brought thereon; and in case any action or proceeding be brought
against Tenant by reason of such claim, Landlord, upon notice from Tenant,
covenants to defend such action or proceeding by counsel reasonably satisfactory
to Tenant. The indemnity obligations of Landlord under this Section 19.3(b)
which relate directly or indirectly to death, bodily or personal injury or
property damage, shall be insured by contractual liability endorsement on
Landlord's policy of insurance required under the provisions of Section 5.
Notwithstanding anything contained herein to the contrary, Landlord's
obligations to indemnify, defend and hold Tenant harmless against and from any
and all claims, costs, liabilities, actions and damages shall not apply to any
claims, costs, liabilities, actions and damages to the extent arising as a
result of (i) the negligence or willful misconduct or omissions of Tenant;
and/or (ii) the failure of Tenant to comply with a provision of this Lease.
SECTION 19.4 NOTICES. All notices, demands and requests which may be or
are required to be given, demanded or requested by any party to the other shall
be in writing. All transmittals by Landlord or Tenant shall be delivered by
private messenger, or sent by United States registered or certified mail,
postage prepaid, or by Federal Express or similar overnight courier service,
addressed to Tenant (prior to the Commencement Date) as follows:
Health o meter Products, Inc.
24700 Miles Road
Bedford Heights, Ohio 44146
Attention: Steven M. Billick
and thereafter, to each of them, at the Demised Premises, or at such other place
as Tenant may from time to time designate by written notice to Landlord.
Tenant's address for billing and invoicing is same as above.
Any such transmittals by Tenant to Landlord shall be delivered by
private messenger, or sent by United States
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registered or certified mail, postage prepaid or by Federal Express or similar
overnight delivery service, addressed to Landlord at the following address:
Duke Realty Limited Partnership
8888 Keystone Crossing, Suite 1200
Indianapolis, Indiana 46240
Attn: Legal Department
or at such other place as Landlord may from time to time designate by written
notice to Tenant. Notices, demands and requests which shall be served upon
Landlord by Tenant, or upon Tenant by Landlord, in the manner aforesaid, shall
be deemed to be sufficiently served or given for all purposes hereunder three
(3) days after the time such transmittals shall be mailed, or upon the actual
date of delivery to the addressee if sent by private messenger, or overnight
courier.
SECTION 19.5 QUIET ENJOYMENT. Landlord covenants and agrees that
Tenant, upon paying the Rent, and upon observing and keeping the covenants,
agreements and conditions of this Lease on its part to be kept, observed and
performed, shall lawfully and quietly hold, occupy, and enjoy the Demised
Premises during the Term without hindrance or molestation.
SECTION 19.6 LANDLORD AND SUCCESSORS. The term "Landlord", as used in
this Lease so far as covenants or obligations on the part of Landlord are
concerned, shall be limited to mean and include only the owner or owners at the
time in question of the fee of the Demised Premises, and in the event of any
transfer or transfers or conveyance (provided that such grantee assumes in
writing the obligations of Landlord hereunder on and after the date of such
conveyance), the then grantor shall be automatically freed and relieved, from
and after the date of such transfer or conveyance, of all liability with respect
to any covenants or obligations on the part of Landlord contained in this Lease,
the performance of which first accrues on or after the date of such transfer,
provided that any funds in the hands of such landlord or the then grantor at the
time of such transfer, in which Tenant has an interest, shall be turned over to
the grantee, and any amount then due and payable to Tenant by Landlord or the
then grantor under any provision of this Lease shall be paid to Tenant. It is
intended that the covenants and obligations contained in this Lease on the part
of Landlord shall, subject to the aforesaid, be binding on Landlord, its
successors and assigns, only during and in respect of their respective
successive periods of ownership.
SECTION 19.7 ESTOPPELS. Tenant shall, without charge at any time and
from time to time, within thirty (30) days after written request by Landlord,
certify by written instrument in substantially the form set forth as Exhibit E
hereto, duly executed, acknowledged, and delivered to any mortgagee, assignee
54
<PAGE> 61
of a mortgagee, proposed mortgagee, or to any purchaser or proposed purchaser,
or to any other person dealing with Landlord or the Demised Premises as to the
matters set forth in Exhibit E attached hereto.
SECTION 19.8 SEVERABILITY; GOVERNING LAWS. If any covenant, condition,
provision, term or agreement of this Lease shall, to any extent, be held invalid
or unenforceable, the remaining covenants, conditions, provisions, terms and
agreements of this Lease shall not be affected thereby, but each covenant,
condition, provision, term or agreement of this Lease shall be valid and in
force to the fullest extent permitted by law. This Lease shall be construed and
be enforceable in accordance with the laws of the State of Ohio.
SECTION 19.9 BINDING EFFECT. The covenants and agreements herein
contained shall bind and inure to the benefit of Landlord, its successors and
assigns, and Tenant and its permitted successors and assigns.
SECTION 19.10 CAPTIONS. The caption of each Article and Section of this
Lease is for convenience of reference only, and in no way defines, limits or
describes the scope or intent of such Article or Section of this Lease.
SECTION 19.11 LANDLORD TENANT RELATIONSHIP. This Lease does not create
the relationship of principal and agent, or of partnership, joint venture, or of
any association or relationship between Landlord and Tenant, the sole
relationship between Landlord and Tenant being that of landlord and tenant; nor,
except as otherwise provided herein, shall any person, firm or corporation be
entitled to claim any rights as a third party beneficiary hereof.
SECTION 19.12 MERGER OF AGREEMENTS. All preliminary and contemporaneous
negotiations are merged into and incorporated in this Lease. This Lease contains
the entire agreement between the parties and shall not be modified or amended in
any manner except by an instrument in writing executed by the parties hereto.
Submission of the form of the Lease for examination shall not bind Landlord in
any manner, and no Lease or obligations of Landlord shall arise until this
instrument is signed by both Landlord and Tenant and is delivered to each.
SECTION 19.13 LANDLORD'S PROPERTY. Tenant acknowledges that the Demised
Premises is the property of Landlord and that Tenant has only the right to
possession and use thereof upon the covenants, conditions, provisions, terms and
agreements set forth in this Lease.
SECTION 19.14 SURVIVAL. All obligations of the parties hereunder
(together with interest on Tenant's monetary obligations
55
<PAGE> 62
at the Maximum Rate of Interest) accruing prior to expiration of the Term shall
survive the expiration or other termination of this Lease.
SECTION 19.15 REASONABLENESS. Any consent, action or inaction required
to be given (or which may be withheld), done or not done by any of the parties
hereto shall, at all times, be given (or not withheld), done or not done in a
commercially reasonable fashion.
SECTION 19.16 REAL ESTATE BROKER. The Tenant represents that Tenant has
dealt with (and only with) Cleveland Real Estate Partners as its broker in
connection with this Lease (whose commission shall be paid by Landlord in
accordance with its agreement with same), and that insofar as Tenant knows, no
other outside broker negotiated this Lease (although Tenant acknowledges
Landlord is a broker but further understands Tenant is not paying Landlord a
commission) or is entitled to any commission in connection therewith. Tenant
agrees to indemnify, defend and hold Landlord harmless from and against any
claims made by any broker or finder other than the broker named above for a
commission or fee in connection with this Lease, provided that Landlord has not
in fact retained such broker or finder. Landlord agrees to indemnify, defend and
hold Tenant harmless from and against any claims made by any broker or finder
other than the broker named above for a commission or fee in connection with
this Lease.
SECTION 19.17 EXHIBITS; RIDER PROVISIONS. Any Exhibits attached hereto
are an integral part hereof and this Lease Agreement shall be construed as
though such Exhibits were set forth in full herein. In the event that there are
one or more Riders attached to this Lease, then the provisions of such Rider(s)
shall take precedent over any conflicting provisions contained herein.
SECTION 19.18 RECORDING. A Memorandum of Lease prepared by Tenant and
acceptable in form and content to Landlord, reciting the operative provisions of
this Lease, may, at the request of either party, be executed and recorded with
the Cuyahoga County, Ohio, Recorder of Deeds Office.
SECTION 19.19 FINANCIAL STATEMENTS. During the Term, Tenant shall
provide to Landlord on an annual basis, within one hundred twenty (120) days
following the end of the Tenant's fiscal year, a copy of Tenant's most recent
audited financial statements prepared as of the end of Tenant's fiscal year.
SECTION 19.20. LIMITATION OF LANDLORD'S LIABILITY. If Landlord shall
fail to perform or observe any term, condition, covenant or obligation required
to be performed or observed by it under this Lease and if Tenant shall, as a
consequence thereof, recover a money judgment against Landlord (whether
compensatory
56
<PAGE> 63
or punitive in nature), Tenant agrees that it shall look solely to Landlord's
right, title and interest in and to the Building and to Landlord's insurance for
indemnity obligations insured under the provisions of Article 5 for the
collection of such judgment; and Tenant further agrees that no other assets of
Landlord shall be subject to levy, execution or other process for the
satisfaction of Tenant's judgment and that Landlord shall not be personally
liable for any deficiency.
ARTICLE 20
CONTINGENCIES
SECTION 20.1 LANDLORD'S CONTINGENCIES. The obligations of Landlord
hereunder are contingent upon the following:
(a) Landlord's purchase by October 31, 1996 of the Land from Carl
Milstein, Trustee for the Carl Milstein Trust ("Milstein") on terms and
conditions satisfactory to Landlord, at a cost not to exceed Forty Thousand
Dollars ($40,000.00) per acre.
(b) The Village establishing by October 30, 1996 a Community
Reinvestment Area and abating 100% of the taxes of the real estate taxes
relating to the Demised Premises for fifteen (15) years.
SECTION 20.2 TENANT'S CONTINGENCIES. The obligations of Tenant
hereunder are contingent upon the Village establishing by October 30, 1996 a
Community Reinvestment Area and abating 100% of the real estate taxes relating
to the Demised Premises for fifteen (15) years.
SECTION 20.3 WAIVER. Landlord may waive in writing any of the
contingencies set forth in Section 20.1 and Tenant may waive in writing any of
the contingencies set forth in Section 20.2 and thereafter, such contingency
shall be of no further force or effect.
57
<PAGE> 64
IN WITNESS WHEREOF, each of the parties hereto has caused this LEASE
AGREEMENT, to be duly executed as of the day and year first above written.
Signed in the presence of: LANDLORD:
DUKE REALTY LIMITED PARTNERSHIP
/s/ R.C. Farro
- ---------------------------- ------------------------------------------
Print Name: R.C. Farro
----------------- By: Duke Realty Investments, Inc.
/s/ Brent D. Ballard Its: General Partner
- ----------------------------
Print Name: Brent D. Ballard
----------------- By: /s/ William E. Linville, III
------------------------------------
William E. Linville, III,
Vice President-Indiana
Industrial Group
TENANT:
HEALTH O METER PRODUCTS, INC.
/s/ R.C. Farro By: /s/ Steven M. Billick
- ---------------------------- ---------------------------------------
Print Name: R.C. Farro Steven M. Billick,
----------------- Senior Vice President, Treasurer
and Chief Financial Officer
/s/ Brent D. Ballard
- ----------------------------
Print Name: Brent D. Ballard
-----------------
58
<PAGE> 65
STATE OF Ohio )
----------------- )ss
COUNTY OF Cuyahoga )
----------------
Before me, a Notary Public in and for said County and State, personally
appeared William E. Linville, III, Vice President, Indiana Industrial Group of
Duke Realty Investments, Inc., general partner of Duke Realty Limited
Partnership, who acknowledged that he did execute the foregoing on behalf of
said partnership and said corporation and that the same is his free act and deed
as such officer and the free act and deed of said partnership and corporation.
WITNESS my hand and Notarial Seal this 15th day of October, 1996.
/s/ Brent D. Ballard
-----------------------------------------
Notary Public
Printed Name: Brent D. Ballard
----------------------------
My commission expires: No Expiration Date
-------------------
STATE OF Ohio )
----------------- )ss
COUNTY OF Cuyahoga )
----------------
Before me, a Notary Public in and for said County and State, personally
appeared Steven M. Billick, Senior Vice President, Treasurer and Chief Financial
Officer of Health o Meter Products, Inc., who acknowledged that he did execute
the foregoing on behalf of said corporation and that the same is his free act
and deed as such officer and the free act and deed of said corporation.
WITNESS my hand and Notarial Seal this 15th day of October, 1996.
/s/ Brent D. Ballard
-----------------------------------------
Notary Public
Printed Name: Brent D. Ballard
----------------------------
My commission expires: No Expiration Date
-------------------
59
<PAGE> 66
LEASE AGREEMENT
TENANT: HEALTH O METER PRODUCTS, INC.
SCHEDULE OF EXHIBITS
--------------------
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<S> <C>
A Legal Description of Land
B Performance Criteria
C Design Plan Packages (to be
attached when complete)
D Environmental Report
E Estoppel Letter
F Subordination Agreement
</TABLE>
60
<PAGE> 1
Exhibit 10.19
-------------
<PAGE> 2
A G R E E M E N T
-----------------
Between
HEALTH-0-METER, INC.
And
MANUFACTURING, PRODUCTION AND SERVICE
WORKERS UNION, LOCAL NO. 24, AFL-CIO
November 14, 1994
Through
November 13, 1997
<PAGE> 3
TABLE OF CONTENTS
PAGE
----
ARTICLE I - Recognition and Union Security............................. 1
Section 1.1 Recognition in Bargaining Unit................. 1
Section 1.2 Union Security................................. 1
Section 1.3 Checkoff....................................... 1
Section 1.4 Indemnification................................ 2
ARTICLE II - Management Rights...................................... 2
ARTICLE III - No-Strike, No Lockout................................. 2
Section 3.1 No Strike...................................... 2
Section 3.2 Union Responsibility........................... 3
Section 3.3 No Lockout..................................... 4
ARTICLE IV - Hours of Work............................................. 4
Section 4.1 Workday and Workweek........................... 4
Section 4.2 Normal Hours................................... 4
Section 4.3 Overtime....................................... 4
Section 4.4 Assignment of Overtime......................... 4
Section 4.5 Reporting Pay.................................. 5
Section 4.6 Call-In Pay.................................... 5
Section 4.7 Rest Periods................................... 6
ARTICLE V - Holidays................................................... 6
Section 5.1 Recognized Holidays............................ 6
Section 5.2 Computation of Holiday Pay..................... 7
Section 5.3 Eligibility.................................... 7
Section 5.4 Pay For Holidays Worked........................ 8
Section 5.5 Holidays observed During Vacation.............. 8
Section 5.6 Personal Day................................... 8
ARTICLE VI - Vacations................................................. 9
Section 6.1 Eligibility.................................... 9
Section 6.2 Computation of Vacation Pay.................... 9
Section 6.3 Vacation Bonus................................. 10
Section 6.4 Scheduling of Vacations........................ 10
Section 6.5 Terminated Employees........................... 10
-i-
<PAGE> 4
ARTICLE VII - Grievance Procedure and Arbitration...................... 10
Section 7.1 Grievances..................................... 10
Section 7.2 First Step..................................... 11
Section 7.3 Second Step.................................... 11
Section 7.4 Third Step..................................... 11
Section 7.5 Arbitration.................................... 11
Section 7.6 Authority of Arbitrator........................ 12
Section 7.7 Time Limits.................................... 13
Section 7.8 Pay For Meetings With Management .............. 13
Section 7.9 Waiver......................................... 13
Section 7.10 Work Stoppage Arbitration...................... 13
ARTICLE VIII - Leave of Absence........................................ 13
Section 8.1 Military Leave................................. 13
Section 8.2 Medical and Personal Leave..................... 14
Section 8.3 Maternity Leave................................ 14
Section 8.4 Union Leave.................................... 14
ARTICLE IX - Seniority................................................. 14
Section 9.1 Definition..................................... 14
Section 9.2 Probationary Period............................ 14
Section 9.3 Continued Accumulation......................... 14
Section 9.4 Reduction-in Force, Layoff &
Recall......................................... 15
Section 9.5 Temporary Layoffs.............................. 15
Section 9.6 Job Posting.................................... 16
Section 9.7 Termination of Seniority....................... 17
Section 9.8 Seniority Lists................................ 18
Section 9.9 Superseniority................................. 18
ARTICLE X - Miscellaneous.............................................. 18
Section 10.1 Jury Pay....................................... 18
Section 10.2 Injury on the Job.............................. 18
Section 10.3 Funeral Pay.................................... 18
Section 10.4 Safety Committee............................... 18
Section 10.5 Movement of Facility........................... 19
Section 10.6 Distribution of Paychecks...................... 19
Section 10.7 Supervisors Working............................ 19
Section 10.8 Pay Telephone.................................. 19
Section 10.9 First Aid Certification........................ 19
Section 10.10 First Aid Kits................................. 19
Section 10.11 Disciplinary Warning Slips..................... 19
Section 10.12 Incentive Committee............................ 19
Section 10.13 Uniforms....................................... 19
-ii-
<PAGE> 5
ARTICLE XI - Wages..................................................... 20
Section 11.1 Regular Wage Rates.............................. 20
Section 11.2 Cost of Living Adjustment....................... 20
Section 11.3 Completion of Probationary Period............... 20
Section 11.4 Wage Rates Effective November 14, 1994.......... 20
Section 11.5 Wage Rates Effective November 20, 1995.......... 22
Section 11.6 Wage Rates Effective November 18, 1996.......... 23
Section 11.7 Daywork Job Classification...................... 24
Section 11.8 Piecework Job Classification.................... 25
Section 11.9 Employee Classification Plan
For Daywork Employees........................... 25
Section 11.10 Employee Classification Plan
For Piecework Employees......................... 26
Section 11.11 Daywork Wage Payment Plan....................... 27
Section 11.12 Piecework Wage Payment Plan..................... 29
Section 11.13 Notice of Rates................................. 36
ARTICLE XII - Insurance ............................................... 36
Section 12.1 Agreement to Contribute......................... 36
Section 12.2 Initial Contribution............................ 36
Section 12.3 Succeeding Contributions........................ 37
Section 12.4 Purposes........................................ 37
Section 12.5 Irrevocable Trust............................... 37
Section 12.6 Representation as to Lawfulness
and Qualification............................... 37
Section 12.7 Joint Administration............................ 37
Section 12.8 Authority of Trustees........................... 37
Section 12.9 Employer Payments............................... 38
Section 12.10 Delinquencies................................... 38
Section 12.11 Corrections of Erroneous Contributions.......... 39
Section 12.12 Supplemental Coverage........................... 39
Section 12.13 Claims Information.............................. 39
ARTICLE XIII - Pension Plan............................................ 40
ARTICLE XIV - Waiver and Entire Agreement.............................. 40
ARTICLE XV - Duration of Agreement..................................... 40
EXHIBIT A - Job Posting Form........................................... 42
-iii-
<PAGE> 6
A G R E E M E N T
This AGREEMENT is entered into as of the 14th day of November,
1994 between HEALTH-O-METER, INC. (hereinafter referred to as the "Company") and
MANUFACTURING, PRODUCTION AND SERVICE WORKERS UNION, LOCAL NO. 24, AFL-CIO
(hereinafter referred to as the "Union").
WHEREAS, the parties desire to set forth herein their entire
agreement covering rates of pay, wages, hours and other conditions of employment
to be observed by the parties hereto; to secure the efficient and profitable
operation of the company; to secure and sustain maximum productivity of each
employee by this Agreement; and to provide the procedure for the prompt and
peaceful settlement of grievances which may arise between the Company and its
employees or the Union;
NOW THEREFORE, it is agreed as follows:
ARTICLE I
RECOGNITION AND UNION SECURITY
SECTION 1.1. RECOGNITION IN BARGAINING UNIT. The company
recognizes the Union as the sole and exclusive bargaining agency with respect to
rates of pay, hours of work, and other terms and conditions of employment, for
all regular production and maintenance employees, excluding office clericals,,
professionals, technical employees, truck drivers, temporary and casual
employees, supervisors and guards as defined in the National Labor Relations
Act. This recognition is given by the Company pursuant to its obligation under
the National Labor Relations Act and nothing in this clause shall be deemed as a
guarantee of or obligation to continue operations or any portion thereof or as a
guarantee of employment to any employee.
SECTION 1.2. UNION SECURITY. All Employees must as a condition
of employment become and remain members of the Union in good standing Forty-five
(45) days after the effective date of this agreement or upon completion of their
probationary period as provided in Section 9.2 of this agreement, whichever is
later.
SECTION 1.3. CHECKOFF. Upon receipt of a lawfully executed
written authorization from an employee, the Company agrees to deduct the
initiation fees and the regular union monthly membership dues of such employee
from the employee's first pay received each month and to remit such deduction
within ten (10) days to the official designated by the Union in writing to
receive such deductions. Such deduction authorization shall be revocable in the
manner provided by law. The Union will notify the Company in writing of the
exact amount of such regular membership dues to be deducted. The Union will
<PAGE> 7
notify the Company in writing of the exact amount of such regular membership
dues to be deducted. The Union will refund to the Company or the employee any
dues which may erroneously be deducted or any monies which may erroneously be
remitted to the Union.
SECTION 1.4. INDEMNIFICATION. The Union agrees to indemnify and
hold the Company harmless against any and all claims, suits, orders or
judgments, brought or issued against the Company as a result of any action taken
or not taken by the Company under the provisions of this Article.
ARTICLE II
MANAGEMENT RIGHTS
-----------------
Except as specifically limited by the express language of other
provisions of this Agreement, all functions of management of the enterprise
shall be retained by the management of the Company. The functions listed in this
Article are illustrations of the rights retained by the Company and are not
intended as an all-inclusive list. The management of the manufacturing
operations; methods of production; the determination of the means and places of
production or manufacturing; the direction of the work force, including but not
limited to, the right to direct and control all the operations or services to be
performed in or at the plant or by the employees of the Company; to decide what
work, products, components or services shall be performed in or made in the
plant or by employees of the Company; to schedule working hours; to hire; to
promote, demote, and transfer for legitimate cause; to suspend, discipline, and
discharge for cause; to relieve employees because of lack of work or other
legitimate reasons; to make and enforce reasonable shop rules and regulations;
to establish reasonable production standards and reasonable rates for new or
changed jobs; to introduce new and improved methods, materials, equipment or
facilities; to change or eliminate existing methods, materials, equipment or
facilities, are among the rights vested exclusively in management.
ARTICLE III
NO-STRIKE, NO-LOCKOUT
---------------------
SECTION 3.1. NO STRIKE. During the term of this Agreement the
grievance machinery of this Agreement and the administrative and judicial
remedies and procedures provided by statute shall be the sole and exclusive
means of settling any dispute between the employees and/or the Union and the
Company whether relating to the application of this Agreement, economic matters,
or otherwise. Accordingly, neither the Union nor the
-2-
<PAGE> 8
employees will instigate, promote, sponsor, engage in or condone any strike,
slow-down, picketing, concerted stoppage of work or any other intentional
interruption of production. The Company shall have the right to discharge or
otherwise discipline any employee (and such discipline need not be uniform) who
violates the provisions of the foregoing sentence and in the event a grievance
is filed, the sole question for arbitration shall be whether the employee
engaged in the prohibited activity.
A threat to commit any of the above acts shall be considered a
violation of this Article.
SECTION 3.2. UNION RESPONSIBILITY. In the event that any
employee or group of employees covered by this Agreement shall, during its term,
participate or engage in any of the activities herein prohibited, the Union
agrees, immediately upon being notified by the Company, to direct such employee
or group of employees to cease such activity and resume work at once. This
requirement will be deemed satisfied if the Union takes the following steps:
(1) Post signed copies of the following notice on the designated
bulletin boards:
"Employees of Health-o-meter":
We have been advised by the Company that acts
interfering with production which are prohibited by our
collective bargaining agreement have occurred. If you are
engaging in or have engaged in such activity, you are hereby
officially instructed to cease participation immediately and
resume normal operations. Your failure to resume normal
operations may subject you to severe discipline including
discharge. All Union officials and employees are being sent a
copy of this notice and no one is authorized to give contrary
instructions.
Manufacturing, Production and
Service Workers Union, Local No. 24
By:______________________
"President"
(2) Mail a copy of the above notice duly signed to each
employee in the bargaining unit or to employees in the bargaining unit
participating in the interference with production.
(3) If the Union in good faith abides by the foregoing
provisions of this Article, it shall be
-3-
<PAGE> 9
absolved of any damages for any claimed violation of this Article.
SECTION 3.3. NO LOCKOUT. During the term of this Agreement the
Company agrees that there shall be no lockout on its part for any reason
whatsoever including controversies and grievances between the Company, the
Union, and the employees.
ARTICLE IV
HOURS OF WORK
-------------
SECTION 4.1. WORKDAY AND WORKWEEK. The employee workday will be
a twenty-four (24) hour period commencing with the scheduled starting time of
the regular first shift except that for first shift employees whose regular job
assignments commence daily prior to the starting time of the regular first
shift, the workday shall commence at the regular starting time of their job
assignments.
The employee workweek shall be a period of seven (7) consecutive
twenty-four (24) hour days commencing with the scheduled starting time of the
regular first shift on Monday; except that for the first shift employees whose
regular job assignments commence daily prior to the starting time of the regular
first shift, such workweek shall commence on Monday at the starting time of
their job assignments.
SECTION 4.2. NORMAL HOURS. For purposes of computing overtime
only, a normal workday shall consist of eight (8) consecutive hours, exclusive
of meal periods, and a normal workweek shall consist of five (5) consecutive
normal workdays.
SECTION 4.3. OVERTIME PAY. Overtime pay shall be paid at the
rate of one and one-half (1-1/2) times the regular straight-time earnings for
all hours worked in excess of eight (8) hours in one workday and in excess of
forty (40) hours in one work-week. For the purpose of computing weekly overtime
only, an employee eligible to receive holiday pay under the provisions of
Article V will be credited with eight (8) hours worked whether such hours were
actually worked or not. There shall be no pyramiding of overtime, nor shall
holiday pay and overtime pay be paid for the same hours.
Employees shall receive time and one-half (1-1/2) for all work
performed on Saturday.
Employees shall receive double time for all work performed on
Sunday.
SECTION 4.4. ASSIGNMENT OF OVERTIME. Overtime work shall be
required on a reasonable basis as a condition of
-4-
<PAGE> 10
continued employment. The Company shall determine the need for overtime work
and shall schedule it in accordance with the following:
(a) overtime will first be assigned to the employee or employees
regularly scheduled to work an the particular assignment.
(b) Upon reasonable request honored by the Company to be excused
from the work assigned under (a) above, the work shall be assigned to
an employee (or employees) in the same job classification and
department as the employee or employees so excused. In making such
assignments under this paragraph (b), the Company shall attempt to make
said assignment of overtime hours as equally as practicable among
employees who are qualified to perform the work. An employee who fails
for any reason to work assigned overtime or who is excused shall, for
equal distribution purposes, be credited with having worked the
overtime that was available.
(c) If upon the complaint of an employee, it is determined that
there has been a misassignment or an error in the distribution of
overtime hours under paragraph (b) above, such employee shall be given
preference for future overtime assignments for which he is qualified in
his classification and department and such future preference shall be
the sole remedy for the misassignment or error in overtime
distribution.
(d) An employee scheduled to work on Saturday will be notified
of such assignment before the end of his shift Thursday except in those
cases where the Company did not know of the condition causing the
overtime work in time to give such notice.
SECTION 4.5. REPORTING PAY. An employee who reports for work at
his scheduled starting time and has not been notified by the Company not to
report shall receive not less than four (4) hours pay at his regular
straight-time rate, unless the failure to work is due to the fault or refusal of
the employee, the disciplining of him, a stoppage of work in connection with a
labor dispute, or causes beyond the Company's control, such as, but not limited
to, accidents, fires, power breakdowns, or extreme weather.
An employee who completes more than four (4) hours of work but
less than six (6) hours of work, will be guaranteed six (6) hours of work or
pay.
SECTION 4.6. CALL-IN PAY. An employee who is called in to work
at a time other than his scheduled starting time shall receive a guaranteed
minimum of four (4) hours pay at the
-5-
<PAGE> 11
rate of pay for the job to which he is assigned.
SECTION 4.7. REST PERIODS. Employees working on daywork jobs
shall be given two fifteen (15) minute rest periods, one in the first half of
his normal 8 hour day and the other in the second half of his normal 8 hour
day.
Employees working on piece work jobs are provided with an
allowance for personal and fatigue time in the calculation of their incentive
earnings and shall be permitted to the take rest periods in accordance with such
allowances.
The time of such rest periods may be specified by the Company,
but such rest periods shall be scheduled as close to mid-morning and
mid-afternoon as possible.
SECTION 4.8. CHANGE IN WORKWEEK.
(a) The Company will have the right to institute a four (4) day
workweek at ten (10) hours per day with overtime after ten (10) hours
during the period Monday through Thursday for the entire plant or any
part thereof.
(b) The Company will have the right to institute a special shift
for Friday, Saturday and Sunday consisting of new hires at the above
new hire rates and at straight time pay and also consisting of current
employees at existing contract rates including applicable premium pay.
Seniority and any other applicable contract provisions will apply in
the selection of such special shift employees.
ARTICLE V
HOLIDAYS
--------
SECTION 5.1. RECOGNIZED HOLIDAYS. The following days shall be
considered holidays:
New Year's Day Day after Thanksgiving
Good Friday Day before Christmas Day
Memorial Day Christmas Day
Independence Day Day before New Year's Day
Labor Day Employee's Birthday
Thanksgiving Day
The Employee's birthday may be observed on the following Friday
or Monday.
When a holiday falls on Saturday, the preceding Friday will be
observed as the holiday.
When a holiday falls on Sunday, the following Monday
-6-
<PAGE> 12
will be observed as the holiday.
When Christmas and New Year's fall, or are observed, on Monday,
the holidays scheduled for the day before Christmas and New Year's will be
observed on the preceding Friday.
When Christmas and New Year's fall, or are observed, on Tuesday
or Friday, the day preceding each will be observed as the holidays scheduled for
the Day before Christmas Day and the Day before New Year's Day.
When Christmas and New Year's fall an Wednesday, the two days
preceding Christmas will be observed as the holidays scheduled for the Day
before Christmas Day and the Day before New Year's Day.
When Christmas and New Year's fall on Thursday, the Friday
following each will be observed as the holidays scheduled for the Day before
Christmas Day and the Day before New Year's Day.
A holiday as recognized herein shall be a period of twenty-four
(24) consecutive hours commencing at the same hour of the day as the beginning
of the employees' workday.
SECTION 5.2. COMPUTATION OF HOLIDAY PAY. Employees eligible for
holiday pay for a holiday not worked shall receive eight (8) hours pay at their
regular straight-time rate computed as follows:
(a) Holiday pay for an employee who is regularly scheduled on
the night shift at the time a holiday is observed shall be paid his
night shift differential in addition to his regular holiday pay.
(b) Holiday pay for a daywork employee shall be computed on
the basis of his regular day work hourly rate in effect at the time the
holiday is observed, excluding night shift differential and premium pay
for overtime worked.
(c) Holiday pay for a piecework employee shall be computed on
the basis of his average hourly earnings calculated in accordance with
Section 11.12, 8 (a), Payment of Average Earnings.
SECTION 5.3. ELIGIBILITY. In order to be eligible for holiday
pay for holidays not worked, an employee must have completed his probationary
period and must have worked at least one full day in the workweek in which the
holiday is observed, and must also have worked the scheduled day immediately
preceding the holiday and the scheduled day immediately after the holiday.
Management may excuse absence for a partial day or
-7-
<PAGE> 13
for a full day. It is understood that such excuse shall not be unreasonably
denied.
An employee who is not actively at work during the week in which
a holiday occurs because of disabling illness or injury will become eligible for
holiday pay if he returns to work within ninety (90) days following the holiday
and works one full workweek immediately thereafter.
The Company shall notify employees of scheduled work to be
performed on a premium workday which falls immediately prior to or following a
holiday within ten (10) days of the premium workday. Employees desiring to be
excused from working the premium workday without jeopardy to their holiday pay
shall make such request not later than seven (7) days prior to the premium
workday. Depending on business conditions, plant operations and the number of
employees making such requests, management may excuse employees from working the
premium workday; however, it is understood that such excuse shall not be
unreasonably denied. Management shall respond to employee requests not later
than the end of their Monday shift preceding the premium workday. All conditions
being equal, requests will be honored in seniority order with due regard to
equitable rotation.
SECTION 5.4. PAY FOR HOLIDAYS WORKED. In the event an employee
is required to work on any of the recognized holidays he shall be paid triple
time for all hours actually worked plus holiday pay for the difference between
the number of hours worked that day (if less than eight (8)), and eight (8).
An employee who is scheduled to work on a holiday and who
without reasonable cause fails to report and perform such holiday work shall
receive pay for such holiday not worked provided he meets the other eligibility
requirements. However, he may be subject to disciplinary action for failure to
report and perform the scheduled work.
SECTION 5.5. HOLIDAYS OBSERVED DURING VACATION. When a holiday
is observed during an eligible employee's scheduled vacation he shall be paid
for the unworked holiday in addition to his vacation pay without regard to the
provisions of Section 5.3. As an option, an employee may elect to receive an
additional day of vacation in lieu of the holiday pay. The additional day of
vacation shall be the last scheduled day preceding or the first scheduled day
following the vacation.
An employee who has elected to receive an additional day of
vacation as provided in this section but who is required to work on both his
last scheduled work day immediately preceding and his next scheduled workday
immediately following his vacation, shall be paid for such next scheduled
workday immediately following his vacation as though it were a holiday
-8-
<PAGE> 14
worked by him. In no event, however, shall he be paid triple time for more than
eight hours work.
SECTION 5.6. PERSONAL DAY. All full-time non-probationary
employees shall be granted one (1) personal day off with pay each year of this
Agreement. Notice of such day shall be given to the Company as far in advance as
practicable. A request for a particular day off shall not be unreasonably denied
by the Company.
ARTICLE VI
VACATIONS
---------
SECTION 6.1. ELIGIBILITY. Effective January 1, 1992 an employee
who on or before December 1st of the current calendar year has attained both
years of continuous service and the days of attendance as indicated in the table
below shall be eligible for vacation as follows:
<TABLE>
<CAPTION>
Years Days of
of Attendance Prior
Service 1 2 6 7 8 9 12 13 14 15 16 20 Calendar Year*
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 10 12 13 14 15 16 17 18 19 20 21 120 or more
4 8 10 10 11 12 13 14 14 15 16 17 100 - 119
Days 3 6 7 8 8 9 10 10 11 11 12 13 80 - 99
of 2 4 5 5 6 6 6 7 7 8 8 9 60 - 79
Vacation 1 2 2 3 3 3 3 3 4 4 4 5 40 - 59
0 0 0 0 0 0 0 0 0 0 0 0 0 - 39
<FN>
* 12 month period commencing with date of hire for an employee who has only one year of
seniority on or before December 1st of the current calendar ear.
</TABLE>
For the purpose of determining the number of days worked, only
whole days worked shall be counted.
In order to be eligible for a vacation in the current calendar
year, an employee must work for the Company on the last scheduled workday in the
prior calendar year. If he should be absent for any reason on such last
scheduled workday, he may qualify for a vacation by working at least one full
day of the current calendar year.
SELECTION 6.2. COMPUTATION OF VACATION PAY. For each day of
vacation an employee shall receive eight (8) hours of vacation pay at his
regular straight time rate computed in accordance with the following:
(a) An employee regularly scheduled to work on the night shift
during the period immediately prior to vacation shall be paid a night
shift differential
-9-
<PAGE> 15
in addition to his regular vacation pay.
(b) Regular vacation pay for a day work employee shall be
computed on the basis of his regular day rate in effect at the time the
employee takes his vacation, excluding night shift differential and
premium pay for overtime worked.
(c) Regular vacation pay for a piecework employee shall be
computed on the basis of his average hourly earnings calculated in
accordance with Section 11.12, paragraph 8 (a), Payment of Average
Earnings.
SECTION 6.3. VACATION BONUS. Vacation bonus will be added to an
employee's vacation pay at the rate of one (1) hour's pay for each full year of
seniority in excess of 18 years. Such bonus will be calculated in the same
manner as vacation pay.
SECTION 6.4. SCHEDULING OF VACATIONS. As promptly as possible
after January 1st of each year each employee entitled or expected to become
entitled to take vacation time off in that year will be requested to specify the
vacation period or periods he desires.
In the event that the orderly operations of the plant would be
jeopardized, the Company reserves the right to limit the number of employees in
a department who may take their vacation allotment in any single week. The
Company's right to limit is conditioned upon the right of the most senior
employees to have preference and to take their time allotments so long as there
are employees remaining who are qualified to perform the work required by the
Company during the week in question. If an employee has not filed a request by
April 1st his seniority shall not be given consideration when scheduling his
vacation.
Vacations must be taken in the current calendar year and shall
not be allowed to accrue from one year to the next.
Upon mutual agreement of the Company and the employee, pay in
lieu of vacation time off may be taken by an employee in any calendar year in
which the employee is eligible for vacation.
The Company reserves the right to schedule a plant shutdown for
vacation commencing with the first Monday in July. Employees will be given sixty
(60) days notice of such shutdown.
Employees entitled to more vacation than the period of the plant
shutdown may take such additional vacation at a time selected by the Company,
according due consideration to the preference of the employee, which preference
may be based on
-10-
<PAGE> 16
seniority, all other factors being relatively equal.
SECTION 6.5. TERMINATION EMPLOYEES. An employee terminated for
any reason during a year in which he is eligible for a vacation shall receive
his vacation pay at the same time he receives his pay for the last period
worked.
ARTICLE VII
GRIEVANCE PROCEDURE AND ARBITRATION
-----------------------------------
SECTION 7.1. GRIEVANCES. A grievance shall be defined as a claim
by the employees or the Union that the Company has violated or is violating the
provisions of a specific section or sections of this Agreement.
The provisions of this Article shall set forth the sole and
exclusive procedures for the adjustment of any grievance of the employees or the
Union.
SECTION 7.2. FIRST STEP. A grievance must first be raised by the
employee with his foreman, either with or without his Steward at the employee's
option. A grievance must be raised within three working days of its occurrence.
A grievance involving a continuing violation may be raised at any time during
the period of such continuation, but in no case will the resolution of such
grievance have any retroactive effect before the date upon which it was raised.
SECTION 7.3. SECOND STEP. Upon denial of the grievance by the
foreman or upon his failure to respond within three working days, the employee
and his Steward may appeal the grievance within five additional working days to
the Vice President of Human Resources by a written submission signed by both the
employee and the Steward. The Vice President of Human Resources shall then have
three working days within which to answer the grievance in writing.
SECTION 7.4. THIRD STEP. Upon denial of the grievance by the
Vice President of Human Resources or upon his failure to answer the grievance in
writing within three workdays of his receipt of the grievance, the Union may
appeal the grievance to the Vice President of Manufacturing which grievance
shall designate the specific section or sections of this Agreement which are
claimed to have been violated by the Company. The Vice President of
Manufacturing shall respond to the grievance in writing within five (5) working
days from his receipt of the grievance. Upon mutual agreement of the parties,
they shall meet for the purpose of discussing the grievance.
Upon mutual agreement of the parties to this Agreement, any step
or steps of this grievance procedure may be
-11-
<PAGE> 17
omitted in a particular case. Any grievance brought by the Union on behalf of
itself shall commence at the Third Step.
SECTION 7.5. ARBITRATION. Upon denial of the grievance by the
Vice President of Manufacturing, his failure to respond within five (5) working
days of his receipt of the grievance, or upon the Union's dissatisfaction with
the Vice President of Manufacturing's proposed settlement of the grievance at
the meeting or meetings held for such purpose, if any, the Union alone may
appeal the grievance to arbitration under the following procedure:
(a) Within ten (10) days of receipt of the Company's last
answer, the Union must give written notice to the Vice President of
Manufacturing of its desire to proceed to arbitration.
(b) If the grievance is appealed to arbitration, representatives
of the Company and the Union shall meet to select an arbitrator. If the
parties are unable to agree on an arbitrator within (10) working days
after the Union has served its written notice upon the Company, the
parties shall request the Federal Mediation and Conciliation Service to
submit a list of five arbitrators. The Union shall strike two names
from the list and the Company shall then strike two names and the
person whose name remains shall be the arbitrator, provided that either
party, before striking any names, shall have the right to reject one
panel of arbitrators.
(c) The arbitrator shall be notified of his selection by a joint
letter from the Company and the Union requesting that he set a time and
place for the hearing, subject to availability of the Company and Union
representatives, and the letter shall specify the issue(s) to the
arbitrator in the following form:
"Did the Company violate Section(s) of its labor agreement
with the Union by taking the action or position complained of
in Grievance No.______________?"
(d) The costs of the arbitrator and hearing room, if any, and of
a transcript, if jointly requested, shall be borne equally by the
parties. If a transcript is requested by only one party, that party
shall assume the full cost of same, including that of the arbitrator's
copy. Each party shall bear its own costs of preparation, including
those of witnesses and representatives at the hearing.
SECTION 7.6. AUTHORITY OF ARBITRATOR. If the matter sought to be
arbitrated does not involve a grievance concerning
-12-
<PAGE> 18
the interpretation or application of any term or condition of this Agreement,
the arbitrator shall so rule in his award.
An arbitrator shall have no authority to add to, detract from or
amend in any way the express terms of this Agreement. It is understood that the
parties intended nothing more than that which is expressly set forth in this
Agreement or in any written, mutually executed supplement or amendment hereto.
The decision of the arbitrator shall be final and binding upon
the Company, the Union and the employees.
SECTION 7.7. TIME LIMITS. All time limits set forth in an
Article shall be rigidly maintained unless the parties specifically agree to the
waiver of same in a particular case. If no such waiver takes place, a grievance
not timely raised or appealed shall be deemed waived and settled as of the last
answer. Any grievance not timely answered by the Company shall be deemed denied
and immediately appealable to the next step.
SECTION 7.8. PAY FOR MEETINGS WITH MANAGEMENT. Time spent in
meetings with management shall be paid for as follows:
If the grievant or Steward is a daywork employee he shall be paid his
regular daywork rate.
If the grievant or Steward is a piecework employee he shall be paid in
accordance with the allowance rules set forth in Section 11.12.
SECTION 7.9. WAIVER. Since the Company has granted the employees
a grievance and arbitration procedure for resolving grievances, the Union and
the employees waive their right to pursue any judicial remedy against the
Company as to any matter subject to the procedures established in this article
until said procedures have been exhausted.
SECTION 7.10. WORK STOPPAGE ARBITRATION. Notwithstanding the
foregoing procedure, if the Union or any of its members violates Article III of
this Agreement the Union agrees to have the matter immediately submitted to an
arbitrator of the Company's choice to adjudicate the existence of the work
stoppage. The sole question presented to the arbitrator shall be whether in fact
employees are engaging in a work stoppage. If the arbitrator finds that a work
stoppage has occurred, he shall order the employees to cease their activity and
to return immediately to work. Utilization of the procedure established in this
Section is purely discretionary with the Company and shall not operate as a
condition precedent upon the Company's resort to other contractual,
administrative, or judicial remedies.
-13-
<PAGE> 19
ARTICLE VIII
LEAVE OF ABSENCE
----------------
SECTION 8.1. MILITARY LEAVE. Leaves of absence shall be granted
to employees who enter into the Armed Forces of the United States. Such
employees shall be accorded reinstatement rights in accordance with the
Selective Service Act, as amended, upon release from service.
SECTION 8.2. MEDICAL AND PERSONAL LEAVE. Upon written request on
a form provided by the Company, employees may request a leave of absence for
medical or personal reasons. The Company will give consideration to the
circumstances of each application and shall have the right to determine whether
or not the leaves shall be granted and the duration of any such leave. Such
requests shall not be unreasonably denied. Any leave required to be granted
pursuant to law will be granted in accordance with applicable law.
SECTION 8.3. MATERNITY LEAVE. A leave of absence for pregnancy
will be granted by the Company. The effective date and the duration of leave
shall take into consideration the recommendations of the employee's personal
physician.
SECTION 8.4. UNION LEAVE. Upon request of the Union in writing
submitted to the Company, a maximum of two (2) duly selected employees at a time
will be given a leave of absence not to exceed two (2) weeks in duration in
order to attend annual Union conventions; provided that such request shall be
submitted at a reasonable time but not less than two (2) weeks in advance of the
commencement of the leave.
ARTICLE IX
SENIORITY
---------
SECTION 9.1. DEFINITION. For the purpose of serving as a
qualification of benefits expressly provided for in this Agreement and for no
other purpose, plant seniority shall be defined as the length of an employee's
continuous service with the Company at the plant covered by this Agreement,
dating from his last date of hire.
SECTION 9.2. PROBATIONARY PERIOD. Each employee shall be
considered as a probationary employee for his first forty-five (45) calendar
days; provided that upon written notice to the Union, the Company can extend the
probationary period an additional thirty (30) calendar days.
-14-
<PAGE> 20
When an employee has completed his probationary period his plant
seniority shall date from his date of hire. There shall be no seniority among
probationary employees, who may be laid off, discharged, or otherwise terminated
at the sole discretion of the Company.
SECTION 9.3. CONTINUED ACCUMULATION. When an employee is
promoted from a bargaining unit job to a position outside the unit, he shall
continue to accumulate seniority for an additional period, not to exceed one
year. If he is transferred back to the bargaining unit, he shall be entitled to
a job in accordance with such total seniority and ability as if he has been on
layoff.
SECTION 9.4. REDUCTION-IN-FORCE, LAYOFF AND RECALL. In the event
of a reduction-in-force the employee or employees with the least seniority shall
be laid off, provided the remaining employees are qualified to perform the work
required. The following procedures shall apply in effecting such
reduction-in-force:
(a) If an employee whose job is eliminated is not the least
senior employee in his department, he shall displace the least senior
employee in the department whose work he is qualified to perform.
(b) If an employee whose job is eliminated is the least senior
employee in his department or if he is not qualified to displace a less
senior employee in the department, he shall be removed from the
department.
(c) If an employee removed from his department under (b)above is
not the least senior employee in the plant, he shall displace the least
senior employee in the plant whose work he is qualified to perform.
(d) If an employee removed from his department under (b) above
is the least senior employee in the plant or if he is not qualified to
displace a less senior employee in the plant, he shall be laid off.
(e) The provisions of (a), (b), (c) and (d) above shall be
applicable to an employee who is displaced by a senior employee in
which event the displaced employee shall be treated as though he were
an employee whose job has been eliminated by a reduction-in-force.
(f) No employee with seniority shall be displaced under (a) or
(c) above if there is a job opening in the plant for which the senior
employee is qualified, in which event said senior employee will be
assigned to the job opening.
-15-
<PAGE> 21
When job openings occur, laid off employees with seniority will
be recalled in order of seniority, provided they are qualified to performed the
work.
SECTION 9.5. TEMPORARY LAYOFFS. In cases of temporary
curtailment of work not exceeding two (2) workdays, decreases in force may be
made by the Company without regard to the provisions of this Article, provided
that the period of temporary layoff may be extended by one (1) additional day
upon mutual agreement of the Company and the Union. The Union will not
unreasonably withhold its agreement to such an extension.
If other work is available in the plant and the Company offers
the option to employees to perform this work, qualified employees affected by
the temporary layoffs will be given the option by seniority to perform this
work.
SECTION 9.6. JOB POSTING. In the event that a permanent job
vacancy develops in a classification covered by this agreement, notice of such
vacancy shall be posted on the form set forth in exhibit A for a period of two
(2) workdays during which employees may apply therefore in writing to the Vice
President of Human Resources. This provision shall not be construed to mean that
employees have the right to select their job assignments within their
classification. Job assignments shall be made with due regard for seniority and
qualifications to perform the work required. A copy of each job posting will be
given to each union steward. At the conclusion of the posting period a copy of
the completed form will be posted showing the names of the bidders and the
identification of the successful bidder, if any. A copy of the completed form
will be furnished to any steward or any of the unsuccessful bidders upon
request. Upon request by an unsuccessful bidder, the reason for his failure to
get the job assignment will be explained to him.
The Company is not obligated to consider a bid by a probationary
employee or an employee who has been assigned to his current job for less than
thirty (30) days.
The job will be filled in accordance with the following:
(a) First consideration shall be given to any employee who
previously held the vacant job but was displaced or removed from such
job pursuant to the provisions of Section 9.4., provided that the
employee is qualified to perform the work.
(b) In the event that the vacant job is not filled under (a)
above, consideration shall be given to employees whose regular
department is the department wherein the vacancy has occurred. As
between employees whose skill and ability is relatively
-16-
<PAGE> 22
equal, primary consideration shall be given to seniority.
(c) In the event that no employees covered under (b) above apply
or if the Company decides that none of the applicants under (b) above
have the necessary skill and ability, consideration shall be given to
employees in the plant. As between such employees whose skill and
ability is relatively equal, primary consideration shall be given to
seniority.
Nothing contained in this Section shall prevent the Company from
temporarily filling a posted vacancy until it is determined whether there are
applicants with the ability to perform satisfactorily the work involved or from
offering the posted vacancy to a qualified employee who did not apply, or hiring
a new qualified employee for the vacancy if there are no applicants during the
period of posting, or if none of the applicants has the ability to perform
satisfactorily the work involved.
Permanent job vacancies, except for entry level jobs, will not
go unposted for bidding purposes for more than thirty (30) days after the
Company determines such permanent vacancy.
Any employee who accepts a position in another job
classification pursuant to this Section and fails to demonstrate his ability
during a trial period, if any, to perform the work involved in a satisfactory
manner shall be retransferred to his former classification, displacing the
employee, if any, who replaced him.
SECTION 9.7. TERMINATION OF SENIORITY. Seniority and the
employment relationship shall be terminated when an employee:
(a) Voluntarily leaves the Company's employment by resignation
or quits; or
(i) Is absent from work for three (3) consecutive working
days without reporting the reason for such absence;
(ii) Fails to report for work at the expiration of vacation
or leave of absence unless excused in advance by the Company; or
(iii) If a laid off employee fails to report for work within
a period of three (3) working days, unless such period is
extended by the Company;
(b) Is discharged for cause;
-17
<PAGE> 23
(c) Is laid off and not recalled to work for the Company within
a period of two (2) years or the length of his seniority at the time of
layoff, whichever is shorter;
(d) Is absent from work due to disabling illness or injury for a
period of two (2) years or the length of his seniority at the time he
last worked for the Company, whichever is shorter, which time may be
extended by the Company; or
(e) Works for another employer or is self-employed while on a
leave of absence from the Company, unless excused by the Company; or
(f) Retires.
SECTION 9.8. SENIORITY LISTS. Once each six (6) months the
Company will furnish the Chief Union Steward with an up-to-date seniority list,
a copy of which will be posted on the Union Bulletin Board.
SECTION 9.9. SUPERSENIORITY. Union Stewards shall head the
seniority list for the plant during their respective terms of office. Such
preferred seniority shall be applicable only to prevent their being laid off for
a period in excess of three (3) working days, provided they are qualified to
perform a remaining job or jobs in the plant.
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1. JURY PAY. An employee who is called for Jury
Service will be granted time off with pay. In the case of a daywork employee,
such pay will be computed at his regular daywork hourly rate for hours for each
day of Jury Service, less the amount of jury pay received. In the case of a
piecework employee, such pay shall be computed at the hourly rate for his
classification for eight (a) hours for each day of Jury Service, less the amount
of jury pay received.
SECTION 10.2. INJURY ON THE JOB. An employee who is injured on
the job, reports such injury on the day of its occurrence, and is sent to the
Company doctor, shall receive pay for the balance of his scheduled shift upon
certification by the doctor that he is unable to work the balance of the day.
Such pay in the case of a daywork employee will be computed at his regular day
work hourly rate and such pay for a piecework employee will be computed in
accordance with the allowance rules set forth in Section 11.12.
-18-
<PAGE> 24
SECTION 10.3. FUNERAL PAY. When a death occurs in a
non-probationary employee's immediate family (spouse, parent, child, sister,
brother, or parent-in-law), he shall be granted time off with pay for not less
than one (1) normal workday nor more than three (3) normal workdays (for the
death of a grandparent, no more than two (2) normal workdays; and for the death
of a grandchild, brother-in-law or sister-in-law, no more than one (1) normal
workday), provided the employee attends the funeral. Such pay in the case of a
daywork employee will be computed at his regular daywork hourly rate, and such
pay in the case of a piecework employee will be computed at the base rate of his
piecework classification.
SECTION 10.4. SAFETY COMMITTEE. Two employees designated by the
Union shall attend and participate in monthly safety meetings. A daywork
employee shall be paid his regular daywork hourly rate. A piecework employee
shall be paid in accordance with the allowance rules set forth in Section 11.12.
SECTION 10.5. MOVEMENT OF FACILITY. In the event the plant
and/or any of its operations are moved to another location, employees affected
by such move will be offered the opportunity to transfer, and this contract
shall continue in effect until its expiration date, provided the Union
represents a majority of the employees at such new location after the move.
SECTION 10.6. DISTRIBUTION OF PAYCHECKS. Paychecks shall be
distributed to employees each Friday following the afternoon rest period.
SECTION 10.7. SUPERVISORS WORKING. Supervisors shall not perform
bargaining unit work which results in the displacement of qualified bargaining
unit employees on straight time or overtime, except when an emergency arises,
when the work is experimental or instructional in nature, or is negligible in
amount.
SECTION 10.8. PAY TELEPHONES. Two pay telephones shall be
installed in convenient locations for the use of employees.
SECTION 10.9. FIRST AID CERTIFICATION. Within forty (40) days
following the effective date of this agreement, designated first-aid personnel
shall update their certification cards.
SECTION 10.10. FIRST AID KITS. There shall be one emergency
first-aid kit located in each department.
SECTION 10.11. DISCIPLINARY WARNING SLIPS. Each six (6) months
the Company will notify the Chief Union Steward of disciplinary warning slips
not retained by the Company for more than six (6) months.
-19-
<PAGE> 25
All disciplinary suspensions and discharges will be issued in
the presence of the Vice President of Human Resources or his designated
representative, the Foreman, a Union Steward and the employee involved.
SECTION 10.12. INCENTIVE COMMITTEE. An incentive committee
meeting will be held monthly at the Union's request. Company and Union incentive
committee will consist of not more than two persons each who will be
knowledgeable of the subject matter to be discussed.
SECTION 10.13. UNIFORMS. Adequate protective clothing will be
providing by the Company for employees performing painting job and tank cleaning
job as directed by supervision.
ARTICLE XI
WAGES
-----
SECTION 11.1. REGULAR WAGE RATES. Effective November 14, 1994
wage rates will be as set forth in Section 11.4. Daywork employees will be given
increases to place them in the same relative position in their rate range.
Piecework employees will be paid in accordance with the provisions of Section
11.12.
Commencing with the first pay period next succeeding the first
anniversary of this Agreement, wage rates will be as set forth in Section 11.5.
These wage rates will be applied in the same manner as described above.
SECTION 11.2. COST OF LIVING ADJUSTMENT. The $0.28 COLA payment
in effect at the conclusion of the 1982 Agreement shall continue to be paid as
an "add-on" to hours worked and paid for the duration of the 1994 contract.
SECTION 11.3. COMPLETION OF PROBATIONARY PERIOD. A daywork
employee will receive a ten cent($0.10) per hour increase upon completion of
his probationary period.
EFFECTIVE NOVEMBER 14, 1994
SECTION 11.4. WAGE RATES.
<TABLE>
<CAPTION>
DAYWORK RATE STRUCTURE
----------------------
Labor Minimum Mid-Range Maximum
GRADE RATE RATE RATE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
1 $7.77 $8.20 $8.63
</TABLE>
-20-
<PAGE> 26
<TABLE>
<CAPTION>
Labor Minimum Mid-Range Maximum
GRADE RATE RATE RATE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
2 $8.13 $8.58 $9.03
3 $8.52 $9.00 $9.47
- -------------------------------------------------------------------------
4 $8.92 $9.41 $9.91
5 $9.39 $9.91 $10.43
6 $9.92 $10.47 $11.02
- -------------------------------------------------------------------------
7 $10.84 $11.44 $12.04
8 $11.70 $12.35 $13.00
9 $12.66 $13.37 $14.07
- -------------------------------------------------------------------------
10 $14.36 $15.16 $15.96
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
PIECEWORK RATE STRUCTURE
------------------------
<CAPTION>
Labor Base Hourly Earning
Grade Rate Rate objective
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1 $7.66 $8.14 $9.58
2 $8.01 $8.51 $10.01
3 $8.40 $8.93 $10.50
4 $8.80 $9.35 $11.00
5 $9.21 $9.79 $11.51
- -------------------------------------------------------------------------
6 $9.63 $10.23 $12.04
7 $10.13 $10.76 $12.66
8 $10.62 $11.28 $13.28
9 $11.10 $11.79 $13.88
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
DAYWORK LEARNER RATE STRUCTURE
------------------------------
<CAPTION>
Labor Minimum Maximum Maximum
Grade Rate Rate Weeks
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
3 $7.75 $8.61 3
4 $8.09 $8.99 6
5 $8.53 $9.48 13
- ----------------------------------------------------------------------------
6 $9.01 $10.01 26
7 $9.83 $10.92 52
8 $10.61 $11.79 78
- ----------------------------------------------------------------------------
9 $11.48 $12.76 104
- ----------------------------------------------------------------------------
</TABLE>
-21-
<PAGE> 27
EFFECTIVE NOVEMBER 20. 1995
SECTION 11.5. WAGE RATES
<TABLE>
DAYWORK RATE STRUCTURE
----------------------
<CAPTION>
Labor minimum Mid-Range Maximum
Grade Rate Rate Rate
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1 $7.93 $8.36 $8.80
2 $8.29 $8.75 $9.21
3 $8.69 $9.18 $9.66
4 $9.10 $9.60 $10.11
5 $9.58 $10.11 $10.64
- -------------------------------------------------------------------------
6 $10.12 $10.68 $11.24
7 $11.06 $11.67 $12.28
8 $11.93 $12.60 $13.26
9 $12.91 $13.64 $14.35
- -------------------------------------------------------------------------
10 $14.65 $15.46 $16.28
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
PIECEWORK RATE STRUCTURE
------------------------
<CAPTION>
Labor Base Hourly Earning
Grade Rate Rate Objective
- -------------------------------------------------------------------------
<S> <C> <C> <C>
1 $7.81 $8.30 $9.77
2 $8.17 $8.68 $10.21
3 $8.57 $9.11 $10.71
- -------------------------------------------------------------------------
4 $8.98 $9.54 $11.22
5 $9.39 $9.99 $11.74
6 $9.82 $10.43 $12.28
- -------------------------------------------------------------------------
7 $10.33 $10.98 $12.91
8 $10.83 $11.51 $13.55
9 $11.32 $12.03 $14.16
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
DAYWORK LEARNER RATE STRUCTURE
<CAPTION>
Labor Minimum Maximum Maximum
Grade Rate Rate Weeks
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
3 $7.91 $8.78 3
4 $8.25 $9.17 6
5 $8.70 $9.67 13
- -------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE> 28
<TABLE>
<CAPTION>
Labor Minimum Maximum Maximum
Grade Rate Rate Weeks
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
6 $9.19 $10.21 26
7 $10.03 $11.14 52
8 $10.82 $12.03 78
- -------------------------------------------------------------------------------
9 $11.71 $13.02 104
- -------------------------------------------------------------------------------
</TABLE>
EFFECTIVE NOVEMBER 18, 1996
---------------------------
SECTION 11.6. WAGE RATES
<TABLE>
DAYWORK RATE STRUCTURE
----------------------
<CAPTION>
Labor minimum Mid-Range Maximum
Grade Rate Rate Rate
- -------------------------------------------------------------------------
<S> <C> <C> <C>
1 $8.09 $8.53 $8.98
2 $8.46 $8.93 $9.39
3 $8.86 $9.36 $9.85
- -------------------------------------------------------------------------
4 $9.28 $9.79 $10.31
5 $9.77 $10.31 $10.85
6 $10.32 $10.89 $11.46
- -------------------------------------------------------------------------
7 $11.28 $11.90 $12.53
8 $12.17 $12.85 $13.53
9 $13.17 $13.91 $14.64
- -------------------------------------------------------------------------
10 $14.94 $15.77 $16.61
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
PIECEWORK RATE STRUCTURE
------------------------
<CAPTION>
Labor Base Hourly Earning
Grade Rate Rate Objective
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1 $7.97 $8.47 $9.97
2 $8.33 $8.85 $10.41
3 $8.74 $9.29 $10.92
- ---------------------------------------------------------------------
4 $9.16 $9.73 $11.44
5 $9.58 $10.19 $11.97
6 $10.02 $10.64 $12.53
- ---------------------------------------------------------------------
7 $10.54 $11.20 $13.17
8 $11.05 $11.74 $13.82
9 $11.55 $12.27 $14.44
- ---------------------------------------------------------------------
</TABLE>
-23-
<PAGE> 29
<TABLE>
DAYWORK LEARNER RATE STRUCTURE
------------------------------
<CAPTION>
Labor Minimum Maximum Maximum
Grade Rate Rate Weeks
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
3 $8.07 $8.96 3
4 $8.42 $9.35 6
5 $8.87 $9.86 13
- -------------------------------------------------------------------------
6 $9.37 $10.41 26
7 $10.23 $11.36 52
8 $11.04 $12.27 78
- -------------------------------------------------------------------------
9 $11.94 $13.28 104
- -------------------------------------------------------------------------
</TABLE>
SECTION 11.7. DAYWORK JOB CLASSIFICATIONS. All jobs will be
placed within one of the classifications listed below and will be given a labor
grade by the Company based on professionally accepted standards. Prior to the
starting of a new job classification or a changed job classification the Company
shall notify the Union and furnish the Union with a job description and the
proposed rates of pay applicable to such classification. When a new or changed
classification has been in operation for a period of thirty (30) days, either
the Company or the Union may, within the succeeding thirty (30) days, request
negotiations pertaining to the rate for a new or changed job classification. In
the absence of a request during such period, the rates contained in the
Company's notice shall be deemed permanent upon the expiration of the second
thirty (30) day period. Where negotiations are requested, the rates resulting
therefrom shall constitute the permanent rates. Where negotiations do not result
in establishing agreed rates, the issue shall be taken up at Step 3 of the
grievance procedure and processed in accordance with the provisions.
LABOR GRADE CLASSIFICATION NAME
3 Conveyor Paint Line
4 Degreaser
5 Driver-Shop Truck or Stacker
3 Line Inspector
4 Inspector
7 Inspector
7-11 Leader
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<PAGE> 30
10 Maintenance Mechanic (major)
7 Maintenance Mechanic (minor)
6 Painter
6 Receiving Clerk
3 Repairer
8 Setter Punch Press
5 Setter Assembly
7 Setter Welding
5 Shipping Order Filler
3 Stock Helper & Stacker
5 Stockkeeper
10 Toolmaker
SECTION 11.8. PIECEWORK JOB CLASSIFICATIONS
LABOR GRADE CLASSIFICATION NAME
2 Assembler
3 Assembler
4 Assembler
3 Bench Worker
4 Drill Press
3 Grinder
4 Milling Machine
5 Polisher
4 Punch Press (Secondary)
5 Punch Press (Automatic)
5 Welder
8 Setter Punch Press
5 Setter Assembly
-25-
<PAGE> 31
7 Setter Welding
SECTION 11.9. EMPLOYEE CLASSIFICATION PLAN FOR DAYWORK EMPLOYEES
1. ASSIGNED WORK IN ONE CLASSIFICATION
--------------------------------------
An employee regularly assigned to perform work in one daywork
classification shall be classified in such daywork classification.
2. ASSIGNED WORK IN TWO OR MORE CLASSIFICATIONS
-----------------------------------------------
(a) In same labor grade. An employee regularly assigned to
perform work in two or more daywork classifications in the same labor grade
shall be classified in the daywork classification which covers the work which
occupies the greatest percentage of the employee's time.
(b In different labor grades. An employee regularly assigned to
perform work in daywork classifications in two or more labor grades shall be
classified in the highest daywork classification which covers work that occupies
ten percent (10%) or more of the employee's time.
3. CALCULATION OF PERCENTAGES
-----------------------------
In order that the calculation of percentages referred to herein
will reflect average conditions, a sufficient period of time, in the past or
projected into the future, shall be used so that all of an employee's regular
assignments are included, and normal variations in time spent on each assignment
are taken into consideration.
SECTION 11.10. EMPLOYEE CLASSIFICATION PLAN FOR PIECEWORK
EMPLOYEES
1. ASSIGNED JOBS IN ONE CLASSIFICATION
--------------------------------------
An employee regularly assigned to perform operations all of
which are classified in the same piecework classification shall be classified in
such piecework classification.
2. ASSIGNED JOBS IN TWO OR MORE CLASSIFICATIONS
-----------------------------------------------
(a) In same labor grade. An employee regularly assigned to
perform operations classified in two or more piecework classifications in the
same labor grade shall be classified in the piecework classification which
covers the work which constitutes the greatest percentage of the employee's
piecework earnings. For example, an employee who makes 60% of his piecework
earnings from Grade 2 Assembly work and 40% from B22 Bench Work will be
classified as a Grade 2 Assembler.
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<PAGE> 32
(b) In different labor grades. An employee regularly assigned to
perform operations classified in piecework classifications in two or more labor
grad es shall be classified in the highest piecework classification which covers
operations that constitute ten percent (10%) or more of the employee's piecework
earnings.
3. CALCULATION OF PERCENTAGES
-----------------------------
In order that the calculation of the percentages referred to
herein will reflect average conditions, a sufficient period of time, in the past
or projected into the future, shall be used so that all of an employee's regular
assignments are included, and normal variations in time spent on each assignment
are taken into consideration.
SECTION 11.11. DAYWORK WAGE PAYMENT PLAN
1. PURPOSE
----------
The purpose of the Daywork Wage Payment Plan is to encourage
high employee productivity by enabling employees to earn a rate of pay within
their rate range on the basis of their demonstrated performance, reliability,
and length of time on the assigned job.
2. DEFINITIONS
--------------
"Maximum Rate". The maximum rate is the rate which represents
the value of the job. It is the rate which the average skilled employee will be
paid when he has been assigned to a classification for a sufficient period of
time to demonstrate his ability to perform all of the requirements of the job in
a reliable and workmanlike manner.
"Mid-Range Rate." The mid-range rate is ninety-five percent
(95%) of the maximum rate. An employee who fails to show that he merits a rate
equal to or above the mid-range rate within a reasonable period of time after
his assignment to a classification should be considered unqualified and be
removed from the job.
"Minimum Rate". The minimum rate is ninety (90%) of the maximum
rate. A new employee, or an employee newly assigned to a classification who has
some experience on the type of work required will normally be paid between the
minimum and the mid-range rate.
3. DAYWORK RATE STRUCTURE
-------------------------
The daywork rate structure shall be set forth in the separate
schedule entitled "Daywork Rate Structure."
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<PAGE> 33
4. STARTING RATES
-----------------
(a) All employees who are hired after November 14, 1994 will
be paid the following wage rates for the term of this contract, and
with respect to such employees this provision will supercede all other
terms of the contract to the contrary:
Labor Grades 1-3: $6.50/Hour
Labor Grades 4-6: $7.50/Hour
Labor Grades 7-9: $9.50/Hour
Labor Grade10: $10.00/Hour
Such employees assigned to piecework jobs will have the above rates as
their base rates. The contractual piecework formula will then apply to
those rates.
(b) Subject to paragraph (a) above, an employee assigned to a
classification will be paid a rate within the rate range of his
classification on the basis of an evaluation of his experience on the
type of work required, either within the Company or elsewhere, except
as provided in Section 8 below.
5. INCREASES
------------
An employee's rate will be reviewed at frequent intervals, and
increases within the rate range of his classification will be granted when
warranted on the basis of the employee's demonstrated performance and
reliability.
6. TEMPORARY ASSIGNMENTS
------------------------
An employee temporarily assigned to a different daywork
classification for a period of one full week or more shall be paid a rate within
the rate range of such classification to which he is temporarily assigned. When
an employee is temporarily assigned for one full day or more to a job on which
he has previously worked at least five (5) full days, he will be paid a
temporary rate within the rate range of such temporary job. But in no case shall
his rate for the temporary assignment be less than his rate for his regular
classification.
An employee temporarily assigned to work classified in a
piecework classification will continue to be paid his regular daywork rate,
except that if his earnings on priced piecework operations exceed his regular
rate for the day, he will be paid such piecework earnings in excess of his
regular rate.
7. MEDICAL TREATMENT
--------------------
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<PAGE> 34
An employee will be paid his regular daywork rate for time spent
during his regular shift while receiving medical treatment at the Company's
direction in case of injury arising out of and in the course of employment,
provided he performs work for the Company on the day such treatment is received.
8. LEARNERS
-----------
Except for employees hired after November 14, 1994, an employee
newly assigned to a classification, who has no experience or requires training
to perform the minimum requirements of such classification in labor grades 3 to
9 may be identified as learner and paid a rate below the minimum rate for his
classification but not lower than the minimum learner rate specified in the
separate schedule entitled "Daywork Learner Rate Structure." His rate will be
reviewed at regular intervals and increases will be granted consistent with his
progress in learning and performing the work assigned. Not later than the time
limits set forth in the schedule, the employee's learner rate will be
discontinued and the employee will be paid a rate within the rate range of his
classification in accordance with all other provisions of the Plan.
9. OVERTIME AND INVENTORY
-------------------------
An employee assigned to work outside his regular working hours
or during inventory will be paid the rate applicable to such work.
SECTION 11.12.
A. PIECEWORK WAGE PAYMENT PLAN
1. PURPOSE
----------
The purpose of the Piecework Wage Payment Plan is to encourage
high employee productivity by enabling employees to attain piecework earnings in
direct relation to their productivity.
2. DEFINITIONS
--------------
"SELECT TIME" The select time for an operation is the time
required for a skilled pieceworker to perform the operation when working under
standard working conditions and under full incentive stimulation. Select time
does not include allowances for incidental duties, fatigue, personal, delays,
etc.
"STANDARD TIME" The standard time for an operation is the total
time established for the performance of the operation. The standard time is
based on select time,
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<PAGE> 35
but includes allowances added for incidental duties, fatigue, personal, delays,
etc.
"PRODUCTION STANDARD" The production standard for an operation
is the number of pieces which will be produced per hour when the operation is
performed within the standard time. The production standard is computed by
dividing the standard time into 60:
Production Standard = 60
-------------
Standard Time
"BASE Rate" The base rate is the monetary rate used to calculate
piecework pieces and is the rate of pay an employee will earn on a priced
piecework operation when producing the number of pieces per hour equal to the
production standard. The base rate is also used as the minimum earnings
guaranteed a pieceworker when working on a priced piecework operation and for
other purposes described below.
"HOURLY RATE" The hourly rate is a rate of pay which is paid to
pieceworkers under certain circumstances when not working on a priced piecework
operation. The hours rate is six and a quarter percent (6.25%) above the base
rate. The application of the hourly rate is described below.
"EARNING OBJECTIVE" The earning objective is the rate of pay an
employee will earn on a priced piecework operation when exceeding the production
standard by twenty-five percent (25%).
3. STANDARD ALLOWANCE IN STANDARD TIME
--------------------------------------
After the select time and incidental allowance included in the
time study of an operation are totalled, a standard allowance shall be
calculated as follows:
(a) Nineteen and four tenths percent (19.4%) of such total shall
be added to bring the select time and incident allowances up to the industry
concept of normal performance and to cover personal time, fatigue, an
miscellaneous delays. The time required for personal time, fatigue and
miscellaneous delays will vary from day to day. The standard allowance covers
the average time required.
(i) The allowance for personal time compensates for up to
thirty (30) minutes per day to meet washroom and other personal needs.
(ii) The allowance for fatigue covers all piecework
operations, taking into consideration:
a. Employees are reasonably suited for
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<PAGE> 36
the classification to which they are assigned and, therefore,
are capable of performing the work without undue strain.
b. Standard times compensate for all measurable items,
such as weight, distance, etc., in terms of time.
c. Classifications are evaluated to compensate for
working conditions.
(ii) The allowance for miscellaneous delays compensates for
delays of six (6) minutes duration or less which are not included in
the time study, such a job variations, interruptions, normal make
ready, normal clean-up, change-over from one operation to another,
punching job tickets in and out where required, recording pieces
produced, making out time-cards, receiving instructions, etc.
(b) Twenty-five percent (25%) of the total arrived at in the
preceding paragraph (a) shall be added to provide the opportunity to exceed the
production standard through the application of incentive effort by the
pieceworker.
4. PIECEWORK RATE STRUCTURE
------------------------
The piecework rate structure shall be as set forth in the
separate schedule entitled "Piecework Rate Structure"
5. PIECEWORK PRICES
----------------
Piecework prices are computed by multiplying the standard time
by the base rate times 100 and dividing by 60.
Piecework Price per 100 = STD. TIME X BASE RATE X 100
-----------------------------
60
6. APPLICATION OF STANDARDS AND PRICES
-----------------------------------
Established production standards and piecework prices shall
apply to an operation only when the methods and conditions are precisely the
same as those upon which the standards and prices are based.
(a) An established production standard and piecework price for
an operation shall not be changed so long as the methods and conditions
remain precisely the same as those upon which the standard and price
are based, except that arithmetical and clerical errors may be
corrected at any time.
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<PAGE> 37
(b) When a change occurs in the methods or conditions upon
which the standard and price are based, the standard and price shall
not be applicable to such changed operation.
(c) The Company will establish standards and prices on
piecework operations without undue delay.
(d) There shall be no limit on the earnings a pieceworker may
earn provided:
(i) The employee performs the operation under the precise
condition and methods on which the production standard and
piecework price are based.
(ii) The employee maintains the quality standards
required on the operation.
(iii) Time paid by the hour is accurately recorded.
7. SPECIAL PIECEWORK PRICES
------------------------
A special piecework price may be established for a temporary
period during which an operation is performed under one or more of the following
conditions:
(a) Tooling, methods, or material are under investigation, and
have not yet been approved for establishment of the permanent standard
and piecework price.
(b) An operation is changed and is not yet ready for the
establishment of the permanent standard and the piecework price.
(c) An operation is performed under methods or conditions
different from those upon which the standard and price are based, and
such methods or conditions are not adopted as an approved change.
8. ALLOWANCE PAYMENTS
-------------------
Allowance payments in addition to piecework earnings will be
paid under certain circumstances:
(a) Payment of Average Earnings.
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<PAGE> 38
An Employee will be paid an allowance at his average earnings for the following:
(1) Instructing other employees.
(2) Performing no-price set-up or tear down operations for
other employees/
(3) Acting as an assistant supervisor or leader.
(4) Attending meetings called by the Company
(5) Steward attending grievance meeting with management.
(6) Employee representative attending safety committee meeting
with management.
A pieceworker's average earnings shall be computed an the basis of his
average hourly earnings for the first four (4) of the last six (6) weeks worked
prior to the week in which the allowance is paid, excluding night shift
differential and premium pay for overtime worked. However, no week in which the
employee has worked less than twenty (20) hours, nor any week in which the
employee's average earnings are adversely affected as the result of an
on-the-job injury, shall be used for such computation; in this event, the next
prior week in which he has worked twenty (20) or more hours shall be used. An
employee who has been transferred to a piecework classification within the last
six (6) weeks prior to the week in which the allowance is paid shall have his
average hourly earnings for the entire period of such recent assignment to
piecework up to and including the day before the payment of the allowance,
excluding night shift differential and premium pay for overtime worked.
(b) Payment of Hourly Rate
(1) An employee will be paid an allowance at the hourly rate of his
classification for the
following:
a. Performing no-price piecework operations.
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<PAGE> 39
b. Performing extra work not covered by a piecework price where
the time necessary to perform such extra work can be accurately
estimated.
c. Standing by or performing a substitute assignment other than
a priced piecework operation in lieu of idle time during any period in
excess of six (6) minutes where a delay of more than six (6) minutes
occurs while an employee is working on a period piecework operation.
d. Reworking materials, parts, or assemblies where no standard
and piecework price are established.
e. Grievant attending grievance meetings with management.
f. Employee injured on the job, for time lost on day of injury
as provided in Section 10.2.
(2) An employee will be paid an allowance to bring his earnings up to
the hourly rate of his classification during any period when he is directed to
continue operating a priced piecework job under conditions or methods which
impede his output, where such methods or conditions are other than those upon
which the standard and price are based.
(3) An employee will be paid an allowance at the hourly rate two (2)
labor grades higher than the hourly rate for his classification for setup or
tear-down of a machine when changing over from one operation to another, where
such work is not covered by a standard and price.
(c) Payment of Base Rate.
(1) An employee will be paid an allowance to bring his earnings up to
the base rate of his classification for the time that he works on each priced
piecework operation.
In order to be eligible for such allowance, the employee shall notify
his supervisor in advance and the time the job is started and completed will be
recorded and initialled by both the employee and the supervisor. Deductions will
-34-
<PAGE> 40
be made from the recorded time for any period during which the employee is paid
an allowance based on time, or for time away from the job for personal time in
excess of that allowed in the piecework price or for lunch.
(2) An employee who due to his own fault produces faulty pieces or
performs work on faulty pieces or performs work on faulty material or pieces
while working on a priced piecework operation, where the quantity of such faulty
pieces is in excess of the acceptable percentage of faulty pieces shall be paid
as follows:
a. He shall not receive credit for the excess number of faulty
pieces in calculating his piecework earnings.
b. He shall be paid the base rate for time spent in producing
such excess number of faulty pieces. The allowance shall be computed by
the formula:
Allowance = 80% x no. faulty pcs. x price.
This provision shall be inoperative if the employee has already
received his pay at the time of the discovery of the error, or if the
Company uses the faulty pieces without increased cost for inspecting,
sorting, reworking, or for paying special rates or allowances.
(d) In order to be eligible to receive an allowance as provided herein,
an employee shall notify his supervisor of the condition for which an allowance
is payable.
Allowances shall not be paid for any time prior to such notification.
(e) An employee will not become eligible to receive the allowance
payments set forth herein until he has demonstrated by actual performance that
he can consistently maintain piecework earnings equal to or higher than the
hourly rate for his classification. Until such time an employee reaches the
required level of output, he shall be paid for such allowance conditions at a
rate between the base rate and the hourly rate of his classification on a merit
rating basis.
9. LEARNERS
--------
-35-
<PAGE> 41
An employee newly assigned to a classification in labor grades 3
to 7 may be identified as a learner and paid a rate between the base rate less
10% and the hourly rate of his classification on a merit rating basis, such rate
to be paid for total time worked, whether on priced or no-priced piecework
operations. However, not later than the time limits set forth below, the
employee's learner rate will be discontinued and the employee shall be paid in
accordance with all the other provisions of the Plan.
Labor Grade Time Limit
----------- ----------
3 2 weeks
4 4 weeks
5 8 weeks
6 16 weeks
7 26 weeks
10. OVERTIME ASSIGNMENTS
--------------------
A piecework employee assigned to work other than priced
piecework operations outside his regular working hours or during inventory shall
be paid the rate applicable to such work.
B. GROUP INCENTIVE PLAN
--------------------
In any case where two or more Employees are working on an
incentive part, they will be paid in accordance with a group incentive rate as
established by the Company. Such rate will be the existing incentive rate as
measured by the count of finished parts produced by the group.
C. Notwithstanding anything to the contrary in Section 11.12 above, the
Company will have the right to set standards using MTM or Watchtime methods.
SECTION 11.13. NOTICE OF RATES. When the Company changes a
piecework rate in accordance with the provisions of this Agreement, the Union
Steward and the Union will be given written notice of such change prior to its
being placed into effect. The Union Steward and the Union will be given the
following:
a. Data explaining the reason for the change and supporting the
accuracy of the new rate;
b. Upon request, a meeting with management, consisting of no more than
3 employees in the affected area, to discuss the new rate;
C. An opportunity to study the rate with an expert selected by the
Union and to present the findings to
-36-
<PAGE> 42
the Company.
The Company will be entitled to put the new rate into effect after
notice to the Union steward; provided that any subsequent disagreement with the
rate that cannot be resolved after the above requests have been satisfied will
be subject to the grievance procedure.
ARTICLE XII
INSURANCE
---------
SECTION 12.1. AGREEMENT TO CONTRIBUTE. The Employer agrees that
for each employee with thirty (30) days or more of service and in the active
employ of the Company (except as modified in Section 12.9(b) and Section 12.9(c)
of this Article), it shall make the monthly contributions to the Central States
Joint Board Health and Welfare Trust Fund for coverage under its "Plan B" as
follows:
SECTION 12.2. INITIAL CONTRIBUTIONS. Effective January 1, 1995,
the contributing employer agrees to pay on behalf of each eligible employee as
described in Section 1 into the Central States Joint Board, Health & Welfare
Trust Fund, an amount not to exceed $205.00 per month.
SECTION 12.3. SUCCEEDING CONTRIBUTIONS. Effective January 1,
1996, and January 1, 1997, the contributing employer agrees to pay on behalf of
each eligible employee as described in Section 12.1 into the Central States
Joint Board, Health and Welfare Trust Fund, an amount that shall not exceed the
previous year's rate by more than 18%. The actual contribution level shall be
determined after completion of an actuarial study of the Fund.
The contributing Employer shall be notified in writing of the
monthly contribution actuarially determined not later than 60 days preceding
January 1, of each year.
SECTION 12.4. PURPOSES. The Fund shall use these payments for
purposes permitted under the Trust Agreement and to provide health, welfare,
death and such other benefits as permitted by said Trust Agreement, as amended,
from time to time, and by Section 302(c) of the Labor Management and Relations
Act of 1947 and the Employee Retirement Income Security Act of 1974.
SECTION 12.5. IRREVOCABLE TRUST. The Union represents that the
Fund is an irrevocable Trust heretofore created by an Agreement and Declaration
of Trust (Trust Agreement), pursuant to Collective Bargaining Agreements between
certain employers and the Union.
-37-
<PAGE> 43
SECTION 12.6. REPRESENTATION AS TO LAWFULNESS AND OUALIFICATION.
(a) The Union represents to the Company that said Trust is lawful and is
qualified under all applicable provisions of the Internal Revenue Code, so that
all contributions by the Company will be deductible for income tax purposes; and
the obligation of the Company to contribute to the Trust shall cease at any time
the Fund loses its qualification under the Internal Revenue Code.
(b) The Company's sole liability shall be for the payment of the
monthly contributions set forth in Sections 1, 2, & 3, of this Article and in no
way guarantees payment of the benefits established by Trust Fund nor the
solvency of the Fund.
SECTION 12.7. JOINT ADMINISTRATION. The Union represents that
this Fund is administered jointly by Trustees equal in number appointed by the
Union and appointed by the Employers who contribute to the Fund.
SECTION 12.8. AUTHORITY OF TRUSTEES. The Trustees of the Fund
shall have the sole power (a) to construe the provisions of the Trust Agreement
and rules and regulations and all terms used therein, and (b) to determine all
disputes with respect to eligibility, the right to participate in benefits of
the Fund, time, method of payment, payment during periods of Employee illness or
disability, methods of enforcement of payment and related matters, and any
construction adopted and any determination made by the Trustees in good faith
shall be final and binding upon all Employers, Employees, participants, legal
representatives, dependents, relatives and all persons and parties.
SECTION 12.9. EMPLOYER PAYMENTS. The Employer payments to the
Fund shall be as follows:
(a) The amount per Employee per month shall be paid for each
Employee covered by this Agreement by the 10th of the month next
following the end of the Employee's probationary period and by the 10th
of each month thereafter, and who has received at least eight (8) hours
of compensation for that month, including the month in which an
employee terminates active employment.
(b) If a covered Employee is absent because of
non-occupational illness or injury, the Employer shall pay the required
payment for a minimum of Two (2) additional month(s) following the
month in which the illness or injury occurred.
(c) If a covered Employee is absent because of occupational
illness or injury, the Employer shall pay the required payment for a
period of two (2) month(s).
-38-
<PAGE> 44
SECTION 12.10. DELINQUENCIES.
(a) Whenever the Trustees of the Fund determine thatthe Company
is delinquent in making payments to the Fund, as required undernthis Article or
the rules and regulations of the Fund then the Company shall be responsible for
any losses of any Health & Welfare benefits resulting thereby and agrees to make
full reimbursement to the Fund for all costs incurred in the collection of said
delinquencies or the enforcement of this Article.
(b) The Union also may elect to submit the issue of
delinquencies to the grievance-arbitration procedure. In the event a judgment by
a court of competent jurisdiction or an arbitrator against the Company for
payment of such delinquencies is not complied with within three (3) weeks after
such award is sent by registered or certified mail to the Company, the Union may
order a strike or picketing to enforce the judgment or award, notwithstanding
the provisions of Article III of this Agreement. Upon compliance with the
judgment or award, such activity shall cease.
SECTION 12.11. CORRECTIONS OF ERRONEOUS CONTRIBUTIONS. No
payment of credits, due to contributions made by the employer for an
ineligibleemployee, or for family plan premiums submitted in error, shall be
allowed if claim for such credit is not made on or prior to the last day of the
month for which the report containing the error was due and payable.
SECTION 12.12. SUPPLEMENTAL COVERAGE. Effective January 1, 1991,
employees shall pay $8.00 per week to the Company, and the Company shall pay the
cost to provide the following insurance benefits, which supplement the benefits
provided by the Central States Joint Board Health and Welfare Trust Fund Plan B:
LIFE INSURANCE (employee only) -- $10,000.00
SICKNESS AND ACCIDENT (Non-Occupational, employee only) 65% of
salary for employees with 3 years or more seniority, and 60% of salary
for employees with less than 3 years seniority, to a maximum weekly
benefit of $300.00 from the first day of an accident, eighth day of an
illness, for a maximum of 26 weeks.
DENTAL (Employee Only as per Plan B) After a payment of $500 in
any one year by the Central States Joint Board, Health and Welfare
Trust Fund pursuant to its published schedule of procedures existing as
of the date hereof, the Company will supplement such benefits by
extending said published schedule of procedures to a
-39-
<PAGE> 45
maximum overall payment by the Company of $500 per individual.
The provisions of this Section 12.12 are subject to the terms
and provisions of the insurance policy or policies issued by the insurance
carrier. Provided that these benefit levels are maintained, the Company may
unilaterally change insurance carriers of such supplemental benefits during the
term of this Agreement in order to obtain cost or administrative advantages.
Employees shall, as a condition of obtaining such supplemental
benefits, execute such reasonable authorizations permitting payroll deductions
of $8.00 per week as the Company may from time-to-time request. Employees shall
be required to provide reasonable and adequate data to substantiate claims
pursuant to this Article.
SECTION 12.13. The Union will provide the Company with
reasonable claims experience information annually as requested by the Company.
ARTICLE XIII
PENSION PLAN
------------
Employees will be covered by the Health-O-Meter, Inc. 401(k)
Plan which will be administered in accordance with its terms and applicable law.
No Company action respecting the plan nor any disputes relating to the Plan will
be subject to arbitration under this agreement, unless otherwise mutually agreed
by the parties in writing.
ARTICLE XIV
WAIVER AND ENTIRE AGREEMENT
---------------------------
The parties acknowledge that during the negotiations resulting
in this Agreement, each had the unlimited right and opportunity to make demands
and proposals with respect to any and all subjects or matters not removed by law
from the area of collective bargaining and that the understandings and
agreements arrived at by the parties after exercise of that right and
opportunity are set forth in this Agreement and in any future Letters of
Understanding. Therefore, the Company and the Union each voluntarily and
unqualifiedly waive the right, and each agrees that the other shall not be
obligated to bargain collectively with respect to any subject or matter referred
to
-40-
<PAGE> 46
or covered in this Agreement, unless specifically provided in this Agreement
to the contrary, even though such subject or matter may not have been within the
knowledge or contemplation of either or both of the parties at the time that
they negotiated or signed this Agreement.
All rights and duties of both parties are specifically expressed
in this Agreement and in any future Letters of Understanding and such expression
is all-inclusive. This Agreement and any future Letters of Understanding
constitute the entire agreement between the parties and concludes collective
bargaining for its term except for the Grievance and Arbitration procedures set
forth in Article VII, and the matters referred to in Article X, Section 10.5.
ARTICLE XV
DURATION-OF AGREEMENT
---------------------
This Agreement shall remain in full force and effect until
Midnight, November 13, 1997 and shall thereafter be continued for annual periods
unless notice of termination is given in writing by registered or certified mail
by either party at least sixty(60) days prior to November 13, 1997 or any
subsequent annual expiration date.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals as of the day and year first above written.
MANUFACTURING, PRODUCTION IND
SERVICE WORKERS UNION, LOCAL HEALTH-O-METER, INC.
NO. 24, AFL-CIO
/s/ Dennis Mascolo /s/ Charles Shreiber
- ------------------------------- -------------------------------
Business Representative Director of Operations
/s/ Richard Lostroscia /s/ Valentinas Zilinskas
- ------------------------------- -------------------------------
/s/ Janinina Wargacki V. P. H. R.
- -------------------------------
/s/ Stanley Yarka
- -------------------------------
/s/ William Buck
- -------------------------------
/s/ Ross Hegner
- -------------------------------
/s/ Diane Carmona
- -------------------------------
/s/ Diana Chapman
- -------------------------------
/s/ Eleanor Fleisleber
- -------------------------------
<PAGE> 47
-42-
/s/
- -------------------------------
/s/
- -------------------------------
EXHIBIT A
JOB OPENING
Date:_____________________
Department_____________________________________________________________________
Occupation_____________________________________________________________________
_______________________________________________________________________________
Classification_________________________________________________________________
PIECEWORK RATE DAYWORK RATE
-------------- ------------
Base_____________________ Min.__________________________
Earning objective
(25%) over base_____________ Control_________________________
If you wish to be considered for this job, apply at the
Personnel Office.
<PAGE> 1
Exhibit 23.1
------------
<PAGE> 2
The Board of Directors
Health o meter Products, Inc.:
We consent to incorporation by reference in the Registration Statement (No.
333-04019) on Form S-8 of Health o meter Products, Inc. of our report dated
December 3, 1996, relating to the consolidated balance sheets of Health o meter
Products, Inc. and subsidiary as of September 29, 1996 and October 1, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years ended September 29, 1996, October 1, 1995, and
for the nine-month period ended October 2, 1994, and all related schedules,
which report appears in the September 29, 1996, annual report on Form 10-K of
Health o meter Products, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Cleveland, Ohio
December 3, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000883327
<NAME> HEALTH O METER PRODUCTS, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> SEP-29-1996
<CASH> 736
<SECURITIES> 0
<RECEIVABLES> 60,552
<ALLOWANCES> 2,592
<INVENTORY> 43,626
<CURRENT-ASSETS> 109,007
<PP&E> 41,250
<DEPRECIATION> 22,728
<TOTAL-ASSETS> 273,490
<CURRENT-LIABILITIES> 48,393
<BONDS> 170,531
<COMMON> 91
0
0
<OTHER-SE> 48,916
<TOTAL-LIABILITY-AND-EQUITY> 273,490
<SALES> 282,977
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<CGS> 192,706
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<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000925252
<NAME> HEALTH O METER, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> OCT-02-1995
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<OTHER-EXPENSES> 0
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</TABLE>
