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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ______________.
COMMISSION FILE NUMBER 0-24234
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
FOILMARK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3101034
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
5 MALCOLM HOYT DRIVE, NEWBURYPORT, MASSACHUSETTS 01950
(Address of principal executive officers)
Registrant's telephone number, including area code: (978) 462-7300
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 and (2) has been subject to such filing for
the past 90 days. Yes /X/ No / /
/ / Indicate by check mark if disclosure of delinquent files pursuant to
Item 405 of Regulations S-K is not contained herein, and will not be contained,
to the best of the 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 voting stock held by non-affiliates of the
registrant as of March 12, 1999 was $3,898,377.
The number of shares of all classes of the registrant's common stock at
March 12,1999--4,183,700
<TABLE>
<S> <C>
Exhibit Index Number of
Located on Pages Comprising
Page--28 This Report--99
</TABLE>
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<PAGE>
ITEM 1 BUSINESS
GENERAL
Foilmark, Inc. manufactures and markets foils, films and applicating systems
and supplies that are used to mark and/or enhance the customer's items. The
Company's primary product is hot-stamping foils. Hot-stamping, a dry process,
uses heat and pressure to apply a design used on greeting cards, hardback and
paperback book covers, wine labels, cosmetic and other paper and plastic
packaging, household appliances and electronics, plastic housewares, automotive
components, medical devices, credit cards and sporting cards or lettering to a
flat, contoured or cylindrical shaped surface. A foil consists of a plastic
backing with a series of coatings on one side. The coatings may consist of a
single color, such as metallized gold, used for embossed lettering, or may
include complex designs, including patterns and holographic (or diffractive)
designs. The coated side of the foil is placed against the surface to be
stamped, and a die is pressed against the other side to affix the design, and if
desired, to give texture to the design. The process requires a stamping press,
stamping die or roller, tooling for supporting or locating the part to be marked
or decorated and stamping foil. Hot stamping foil varies from bright metallic
and pigment colors, through printed designs such as wood-grains, multi-color
transfers, diffraction patterns and holograms. With stamping machinery, the
foils can be applied to a wide variety of products, to decorate, to label, or to
increase their eye appeal at point-of-sale. Hot-stamping foils are manufactured
by the Company's subsidiary, Foilmark Manufacturing Corporation ("FMC"), and its
FHI Division, which produces holographic (i.e., three-dimensional effect) and
embossed film for packaging, greeting cards, hardback and paper book covers,
wine labels, cosmetic and other paper and plastic packaging and household
appliances and electronics, plastic housewares, automotive components, medical
devices, credit cards and sporting cards.
In August 1995, the Company acquired substantially all of the assets of
Imtran Industries, Inc., a manufacturer of pad printing and silk screening
equipment and related supplies. Pad printing is a marking and enhancement
process, in which ink decoration is applied to a multitude of products and
packaging. There are two basic methods of printing and decorating: the wet
marking method and the dry method of hot stamping. The pad printing method of
product identification is used extensively in the medical device, sporting
goods, appliance, advertising specialty, automotive, toy, optical apparatus,
computer equipment, and components industries.
In October 1997, the Company discontinued manufacturing hot stamping
machines and related equipment that were manufactured by the Company's
subsidiary, FMC, formerly known as Kensol-Olsenmark, Inc. in order to focus on
its hot stamping foil and holographic film products and its pad printing
machinery and supply business segments. The assets of a portion of the hot
stamping equipment product line, consisting of vertical stamping presses, were
sold in December 1997. The credit card and chain-operated machines were sold in
March 1998. The Company ceased manufacturing hot stamping machines at the end of
December 1997, except to fill existing purchase orders received prior to October
15, 1997. The hot stamping machinery product line is presented as discontinued
operations for the year ended December 31, 1997, and all the financial
statements shown in this report have been restated accordingly.
The Company's hot stamp foil product line, holography and pad printing
machinery, tooling and dies product line accounted for approximately 72%, 6% and
22%, respectively, of its net sales for the fiscal year ended December 31, 1998.
HISTORY
Kensol-Olsenmark, Inc. was established in New York in 1924 and manufactured
(i) marking devices and indelible inks for the laundry, fur and shirt
industries, and (ii) hot stamping machinery. After World War II,
Kensol-Olsenmark, Inc. took advantage of the tremendous growth in the plastics
industry by marketing plastic decorating equipment and supplies. In 1977, FMC
was incorporated as a separate company to manufacture hot stamping foil.
Kensol-Olsenmark, Inc. began making dies and related tooling in June, 1991.
2
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In 1992, the Company acquired a foil stamping machinery manufacturer,
Franklin Manufacturing Corporation, which increased the Company's annual
machinery sales by 136% in that year, as compared to the prior year. The
acquisition enabled the Company to produce specialized machines, targeted at the
label and credit card industries. In December 1992, the Company entered into a
joint venture with Arrow Coated Products Limited, an Indian corporation, in
order to expand its sales of hot stamping foil in the Far East. To date, the
joint venture revenues are minimal. Also in 1992, FMF Properties, Inc. (a
corporation holding the Melville real property) merged into Kensol-Olsenmark,
Inc., and Foil Properties (a partnership holding the Newburyport real and
personal property) merged into Foilmark Manufacturing Corporation.
The Company opened an office in China in July 1994 in order to expand its
sales into the Chinese hot-stamping foil market. To date, no significant sales
have been generated, although the office was instrumental in obtaining a
$560,000 contract with China Banknote for producing debit cards. An additional
contract for $2,760,000 was obtained through Segue with China North Industries,
to supply equipment to manufacture, convert and apply hot stamping foils and
holographic products. The equipment for China was shipped in February, 1997.
In November 1994, the Company purchased West Foils, Inc., through an
exchange of stock and cash, from its owner and former President, Edward
Sullivan. The agreements included an Agreement of Exchange, a Registration
Rights Agreement with Mr. Sullivan, an Employment Agreement, and a Voting
Agreement between certain Foilmark shareholders. The Company paid Mr. Sullivan
$750,000 and issued 153,847 shares of common stock. Mr. Sullivan was appointed
Director and Vice President of West Coast Operations of Foilmark, and Director,
Vice President and General Manager of West Foils. Under his four year agreement
with West Foils, he receives a base salary of $120,000, plus 15% of West Foils
earnings, over a base amount of $300,000 per annum. Mr. Sullivan and the Company
mutually agreed to terminate his employment contract, effective December 31,
1996. Mr. Sullivan and the Company entered into a two year consulting agreement,
effective January 1, 1997. This agreement expired December 31, 1998. Mr.
Sullivan and the Company entered into a new consulting agreement effective
January 1, 1999, and expiring December 31, 1999, containing substantially the
same terms as his previous consulting agreement.
In December 1994, following the consolidation of the Company's machine
operations in Norwood, Massachusetts, the Company merged Kensol-Olsenmark, Inc.,
a New York corporation, into Kensol-Olsenmark, Inc., a Delaware corporation.
In June 1995, the Company entered into an agreement with the Massachusetts
Industrial Finance Agency (MIFA), which issued a $4.4 million tax-exempt
Industrial Development Bond (IDB), the net proceeds of which were used to
purchase production and manufacturing equipment for the Newburyport foil
manufacturing facility and the Norwood hot stamping machine manufacturing
location. Both sites were expanded through the construction of additions of
approximately 10,000 square feet in Norwood and 4,000 square feet in
Newburyport.
In August 1995, the Company acquired substantially all of the assets of
Imtran Industries, Inc., a Newburyport, Massachusetts-based manufacturer of pad
printing equipment and a distributor of related supplies, for $2.95 million in
cash and 257,044 shares of common stock. The acquisition allowed Foilmark to
enter into the pad printing field, a marking enhancement process in which ink
decoration is applied to products and packaging. As part of the acquisition
agreement, Imtran's former owners, Kenneth Harris and Steven Meredith, remained
as Vice President and Consultant to the Company, respectively, for three years.
In addition, by agreement, Kenneth Harris was elected as Director of the
Company.
In March 1996, the Company established the "Foilmark Technology Group" to
unify the Kensol-Olsenmark hot stamping and the Imtran pad transfer printing
subsidiaries. At the same time, the Company consolidated all machinery and
related supplies operations in a dedicated, modern facility in Newburyport,
Massachusetts.
In June and August 1997, the Melville, New York and Norwood, Massachusetts
properties were sold, with the majority of the proceeds used for bank debt
reduction.
3
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In October 1997, the Company discontinued manufacturing the Kensol and
Franklin hot stamping equipment in order to focus on its hot stamping foil and
holographic film products, as well as its pad printing machinery and supply
business segments. During the third quarter of 1997, the Company incurred a
charge of approximately $4,000,000, net of tax benefit, including restructuring
charges of $1,153,000, for severance and other costs related to the
discontinuation. The hot stamping equipment product line was sold in December
1997, including the Kensol and Franklin names. In February 1998, the credit card
machinery product line was sold.
Effective July 1, 1998, Imtran Foilmark, Inc. and Foilmark Manufacturing
Corporation, Delaware corporations and wholly-owned subsidiaries of Foilmark,
merged with and into Olsenmark, Inc., a Delaware corporation and a wholly-owned
subsidiary of Foilmark. The survivor, Olsenmark, Inc., changed its name to
Foilmark Manufacturing Corporation. In addition, West Foils, Inc., a California
corporation and a wholly-owned subsidiary of Foilmark, merged with and into
Foilmark, effective July 1, 1998.
RECENT INFORMATION--On November 17, 1998, the Company entered into a definitive
agreement ("Merger Agreement") with HoloPak Technologies, Inc., pursuant to
which the parties agreed, subject to stockholder approval and other conditions,
to merge (the "Merger") HoloPak with and into Foilmark's acquisition subsidiary,
which will continue as the survivor of the merger and a wholly-owned subsidiary
of Foilmark. HoloPak stockholders will receive 1.11 shares of Foilmark common
stock, par value of $0.01 per share, plus $1.42 in cash for each share of
HoloPak common stock. The Merger is expected to be completed in the first half
of 1999, subject to customary conditions and approval of the merger by
stockholders of both Foilmark and HoloPak.
PRODUCTS AND PROCESSES
Hot Stamping Foils--Hot stamping foils represented $22.3 million, or 72%, of
the Company's net sales in 1998 compared to $24.7 million or 74% of the
Company's net sales in 1997 and $21.8 million or 73% of net sales in 1996. Hot
stamping foil is used for decorative and marking purposes on a wide array of
products, including cosmetic packaging, book covers, wine labels, greeting
cards, credit cards, toys and automotive and appliance components.
The Company's foil products currently include (i) metallized foil (metallic
effect), (ii) pigmented foil (different colors), (iii) diffraction or
"prismatic" foil (shattering effect), (iv) holographic foil (three-dimensional
effect), (v) printed pattern foils (for the picture frame and graphic arts
industry), (vi) specialty coated films. Metallized foil decorates a product with
a brilliant, metallic imprint, typically in gold or silver.
Holographic Foils--Holographic foils, which are metallized foil embossed
with two-dimensional and three-dimensional images, represent the fastest growing
segment of the market and are used in a variety of decorative applications on
products such as gift wrap and gift boxes, packaging applications, greeting
cards and trophy components. In addition, holographic foils are increasingly
used as a security device for credit cards, computer software and high value
product packaging. Holographic foils represented $1.8 million, or 6% of the
Company's net sales in 1998. Holographic foils represented $1.8 million or 6% of
the Company's net sales in 1998 compared to $2.6 million or 8% of the Company's
net sales in 1997 and $1.4 million or 5% of net sales in 1996.
Foilmark manufactures foils in its Newburyport, Massachusetts plant.
Metallized hot stamping foils, in their simplest form, are constructed by
applying a number of thin coatings to a carrier, composed of a thin layer of
vaporized aluminum, sandwiched between a top coat (also known as "color coat")
and an adhesive coat (also known as "sizing coat"). A thin layer of aluminum, or
chrome, is added to create a metallic finish. An image is embossed onto the
coatings to create diffraction and holographic foils. The construction of the
composite and the number of layers varies slightly, according to the final
application.
Pad Printing Machinery and Tooling--Pad printing machines, tooling, dies and
supplies constituted $6.7 million, or 22%, of the Company's net sales from
continuing operations in 1998, as compared to $6.0 million, or 18%, of the
Company's net sales in 1997, and $6.5 million, or 22%, of net sales in 1996.
4
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Foilmark manufactures its line of Imtran pad printing equipment and supplies
in Newburyport, Massachusetts. The Company's line of equipment consists of three
standard models, as well as customized systems, designed for specific
applications. The prices for the Company's standard machines range from $7,000
to $24,000, and for custom systems range from $20,000 to $200,000. Standard
presses are used to apply images from a dot to 10" X 10". Customized systems
include machines with automatic feeding devices, such as shuttles, turntables
and carousels. They also include multiple headed machines and those with
advanced automation.
The manufacturing operation at Imtran consists of five departments, or
areas: (1) the engineering department, responsible for ongoing machine
development and improvement. Specialized equipment design, automation, and
customized tooling, are also handled by this department. All design work is done
through computer aided design (CAD) to maximize engineering productivity; (2)
the machining group which manufactures all of the machine components and tooling
used in the manufacture of the systems. This group utilizes computer numerical
control equipment, as well as conventional machine tools; (3) the assembly
group, responsible for the assembly of standard and customized systems. This
group is also responsible for marrying high speed feeders, tooling, and other
devices, to meet specific customer requirements; (4) the technical service
group, responsible for the final set up of equipment, once it is completed by
the assembly group. The technical service group is also responsible for in-house
and field training. Calls from customers regarding application issues are
fielded through this group; (5) the supply group, responsible for the
manufacture of rubber pads, inks, etched steel printing plates (or cliches) silk
screens and other supply items, and also includes an in-house art department.
This group also includes the silicone rubber tooling manufacture, for hot
stamping systems, that was relocated after the acquisition. Included in the
manufacture of silicone dies is magnesium etching for dies and molds, as well as
high tonnage presses for their manufacture. Silicone rollers for hot stamping
and laminating are also manufactured by this group.
SALES, MARKETING AND CUSTOMERS
The Company has fourteen full-time, outside sales representatives and one
domestic manufacturer's representative (who is compensated on a commission
basis), along with twenty-three inside sales support personnel. The Company
markets its products and services by way of industry trade shows, advertising,
public relations, telemarketing, direct mail and the Company's Internet web
site.
The Company has a diverse customer base and seeks to market its hot stamp
foil, holographic film and supplies on a broad range of consumer products. The
Company's products are sold to more than 3,500 active customers worldwide,
ranging from small companies to Fortune 500 companies. No single customer
accounted for more than 3.5% of total net sales of foil, pad print machines, or
tooling and dies, in 1998. Of the largest 15 customers, 10 have been customers
for five or more years. Distributors sell the Company's products worldwide, on
terms of either letters of credit or open account. The Company has worked with
distributors, on both an exclusive and non-exclusive basis, for periods ranging
from two to fifteen years. Foreign customers accounted for 15% of net sales in
1998 and 20% of net sales in 1997.
The Company sells its foil through its direct sales force, and indirectly
through distributors. No foil customer accounted for more than 4% of total net
foil sales in 1998. Hot stamping foils, manufactured by the Company, are sold
domestically, under private label, by distributors. Terms of sale for hot
stamping foils are typically "net 30."
The Company sells its pad printing machinery directly, or through
manufacturer's representatives. No pad printing customer accounted for more than
4% of total net sales of machines in 1998. Terms of sale for machines are
typically 30% down, 60% prior to shipment, and the balance "net 30" days.
Backlog does not play a significant role in the sale of foil, although it
has some significance in the sale of machinery, due to the longer time required
to manufacture machines.
5
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FOREIGN SALES
The Company's foreign sales are made principally to customers in Western and
Eastern Europe, South Africa, the Middle East, Mexico, South America and Central
America. During the fiscal year ended December 31,1997, approximately $2,000,000
of special machinery was shipped to China North Industries under a contract to
supply equipment to manufacture, convert and apply hot stamping foils and
holographic products. The Company will not solicit this type of business in the
future as it is not within the scope of the Company's standard product line. The
sale to China North Industries accounted for 6% of the Company's total sales in
1997 and 29% of the Company's foreign sales.
All foreign sales are payable in US Dollars and therefore, settlement
amounts do not fluctuate with changes in exchange rates. No single country
accounted for more than 2% of the Company's sales in 1998.
<TABLE>
<CAPTION>
TOTAL FOREIGN PERCENT OF COMPANY
YEAR SALES SALES
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<S> <C> <C>
1998..... 4,505,246 15%
1997..... 6,686,274 20%
1996..... 4,092,468 14%
1995..... 4,048,000 15%
</TABLE>
RESEARCH AND DEVELOPMENT
The engineering department and chemistry lab are responsible for the
Company's ongoing product development and improvement as well as quality
control. The department consists of a team of 10 chemists, engineers and
technicians. The Company's research and development program focuses on the
development of new products and applications. The Company expenses its research
and development costs as incurred. Such expenses amounted to $374,000, $540,000
and $488,000 in 1996, 1997 and 1998, respectively.
COMPETITION
The product enhancement industry in which the Company competes includes a
large number of foreign and domestic competitors. The Company estimates that the
present, worldwide market for the products in which Foilmark competes is $900
million in annual sales of foil and film and more than $100 million in annual
domestic sales of machinery, tools, dies and supplies. In the foil industry, the
Company competes with approximately 30 manufacturers worldwide and believes that
it supplies approximately 3% of the world market. In the pad printing machine
industry, the Company competes with 15 primary manufacturers and several smaller
companies and believes it supplies approximately 5% of the domestic market.
Competition is based on price, variety of products and quality of products
and services. Some competitors have greater financial resources while other
competitors, especially foreign, may have lower cost structures or exchange
rates that may affect the Company's competitive position. However, the Company
believes that its product quality, long standing customer relationships,
proprietary machinery and processes, continuity of management and experienced
personnel, are competitive advantages. The printing industry, in general, has
certain technological barriers to entry. The process and machinery required to
produce hot stamp foils have been perfected through years of research and
development. A blend of art and chemistry is necessary to produce competitive
high quality foils which evolved from years of experience working with foils for
a broad range of applications.
RAW MATERIALS AND SUPPLIES
The Company is not dependent upon any one supplier for any of its raw
materials. The Company purchases polyester film, the main component of its foil
products, from a variety of different suppliers. All raw materials used in
manufacturing foil are readily available on terms favorable to the Company.
6
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SAFETY AND ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the air and water and establish standards for treatment, storage
and disposal of solid and hazardous wastes. The Company believes that it is in
material compliance with all applicable environmental laws and regulations
relating to its material business operations. The Company has not been
sanctioned by any regulatory body with respect to this matter. As future laws
and regulations relating to the environment may be adopted, or interpretations
of existing laws and regulations relating to the environment may change, new
requirements may be imposed upon the Company regarding future activities which
may create liability, retroactively, with respect to past activities. Failure to
comply with applicable laws and regulations could subject the Company to
monetary damages and injunctive actions that could adversely affect the
Company's financial performance. It is the policy of the Company to comply with
all applicable safety standards and laws and to provide employees with a
workplace free of recognized safety and health hazards. Every effort has been
made, and is currently being made, to maintain commitment to the safety and
health of the employees.
PATENTS, TRADEMARKS, AND PROPRIETARY INFORMATION
While the Company owns certain patents, trademarks and logos, it relies
heavily upon trade secrets, know-how and other proprietary information to
protect its processes and products. Management believes that patent and
trademark protection are not material to the Company's business. Certain key
employees of the Company are parties to employment agreements which contain
confidentiality provisions with respect to inventions and which assign rights to
inventions to the Company during the employment term. The Company also requires
all key employees to enter into confidentiality and non-competition agreements
to protect its confidential information. However, there is no assurance that
those agreements would be enforceable if they were breached or, if enforced,
that they would adequately protect the Company.
EMPLOYEES
At March 1, 1999, the Company employed approximately 211 people, including
in manufacturing, 30 in sales and support, 19 in technical and development and
33 in administrative and management positions. None of the Company's employees
are represented by a union and the Company is not aware of any efforts to
unionize any employees of the Company. The Company believes that its
relationship with its employees is satisfactory.
FORWARD-LOOKING INFORMATION
The Company and its subsidiaries, and their representatives, may make
written or oral statements from time to time, including statements contained in
the Company's filings with the Securities and Exchange Commission and in its
reports to shareholders, including this annual report, which constitutes or
contains "forward-looking statements," as that term is defined in the Private
Securities Litigation Reform Act of 1995, or by the SEC in its rules,
regulations, and releases.
All statements, other than statements of historical facts, included in this
annual report, regarding the Company's financial position, operating and
strategic initiatives and addressing industry developments, are forward-looking
statements. In any forward-looking statement where the Company, or its
management, express an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis. There can be no assurance that the statement of expectation or
belief will result, be achieved, or be accomplished. Factors which could cause
actual results to differ materially from those anticipated, include but are not
limited to, general economic; financial and business conditions; competition in
the product enhancement industry (particularly the hot stamping sector); the
availability and cost of raw materials; the success and costs of the Company's
consolidation and integration efforts; the availability and terms of capital;
the business abilities and judgment of personnel; the costs and effects of legal
proceedings; the impacts of unusual items resulting from ongoing evaluations of
business strategies; and changes in business strategy.
7
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ITEM 2 PROPERTIES
The principal properties of the Company are:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE STATUS
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<S> <C> <C>
Newburyport, MA
Foil Manufacturing.................. 52,000 Own (1)
Sales and Service................... 2,000 Own (1)
Corporate Office.................... 2,000 Own (1)
Pad Print Manufacturing.............
Tool and Die........................ 20,000 Lease (Expires July 2000)(2)
Sales, service, office.............. 7,500 Lease (Expires July 2000)(2)
Holographic Manufacturing........... 20,000 Lease (Expires April 2002)(2)
Financial, Accounting and Lease (Expires April 2002)(2)
Administrative offices............ 5,000
Warehouse........................... 5,000 Lease (Expires July 2000)(2)
Plainview, NY
Foil Distribution................... 7,298 Lease (Expires April 2002)(2)
Newbury Park, CA
Foil Distribution................... 8,500 Lease (Expires February 2004)(2)
Pad Print Distribution.............. 7,000 Lease (Expires April 2002)(2)
</TABLE>
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(1) These properties are subject to mortgages.
(2) See note 14 to the Notes to Consolidated Financial Statements for the
aggregate amounts of the Company's lease commitments.
The foil manufacturing facility currently operates at 70% of capacity on
three shifts, five days a week. The pad printing and tool and die manufacturing
facility is currently being utilized at approximately 70% of capacity with one 9
hour shift. The holographic foil manufacturing operation is at approximately 60%
of capacity with three shifts.
ITEM 3 LEGAL PROCEEDINGS
None.
ITEM 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
8
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PART II
ITEM 5 MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on The NASDAQ National Market under the
trading symbol "FLMK." The range of high and low closing sale prices for
Foilmark common stock, as reported on The NASDAQ National Market is set forth
below.
<TABLE>
<CAPTION>
HIGH
QUARTER ENDED SALE LOW SALE
- ------------------------------ -------- ---------
<S> <C> <C>
March 31, 1997................ 3 3/16 1 7/8
June 30, 1997................. 4 3/4 1 13/16
September 30, 1997............ 4 2 7/8
December 31, 1997............. 4 2 15/16
March 31, 1998................ 4 1/2 2 3/4
June 30, 1998................. 4 1/8 2 3/4
September 30, 1998............ 3 1 5/8
December 31, 1998............. 3 1 5/16
March 12, 1999................ 1 7/8 1 3/4
</TABLE>
As of March 12, 1999, there were approximately 64 holders of record and
approximately 568 beneficial owners of the Common Stock.
The Company has never paid dividends on capital stock. The Company intends
to retain earnings to finance future operations and expansion, and does not
expect to pay any dividends within the foreseeable future. The Company is
currently restricted from declaring, or paying dividends, under the provisions
of its bank loan agreement. See Note 8 of the Notes to the Consolidated
Financial Statements.
ITEM 6 SELECTED FINANCIAL DATA
FOILMARK, INC. & SUBSIDIARIES
YEARS ENDED DECEMBER 31ST
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DEC 31, DEC 31, DEC 31, DEC 31, DEC 31,
1998(D) 1997(C) 1996 1995(B) 1994(A)
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<S> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS
Revenue...................................... 30,886 33,379 29,692 26,656 20,349
Operating Income............................. 1,181 2,824 707 3,438 2,556
Net Income................................... 357 1,475 189 1,895 1,409
Earnings Per Share........................... 0.09 0.35 0.05 0.47 0.47
Weighted Average Shares Outstanding.......... 4,173 4,161 4,142 3,999 2,900
Financial Condition.......................... --
Total Assets................................. 29,821 32,082 40,332 37,952 26,499
Total Long-Term Debt......................... 9,106 10,750 12,165 10,732 3,401
Working Capital.............................. 10,625 11,757 12,782 11,766 10,120
Stockholder's Equity......................... 15,366 14,978 18,250 19,243 16,178
</TABLE>
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(a) Effective October 1, 1994, the Company acquired all of the outstanding stock
of West Foils, Inc., a California company engaged in the distribution of
foils for $750,000 in cash and 153,847 shares of common stock of the
Company.
9
<PAGE>
(b) On August 21, 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of Imtran Industries, Inc.. The acquired assets
consist primarily of equipment and other property used in the manufacture
and distribution of pad printing equipment. The Company has transferred all
of the assets of the newly formed, wholly owned, subsidiary called Imtran
Foilmark,
Inc., which will continue operations in the pad printing business.
(c) On October 15, 1997, the Company announced its discontinuing the manufacture
of hot stamping equipment. Discontinuation of the hot stamping line resulted
in a one time charge of $3,894,400 and $892,076 loss from operations, net of
tax benefit, equal to a total loss of $4,786,476 net of tax benefit.
(d) Effective July, 1998, Imtran Foilmark, Inc. and Foilmark Manufacturing
Corporation, Delaware corporation and wholly owned subsidiaries of Foilmark,
merged with and into Olsenmark, Inc., a Delaware corporation and a
wholly-owned subsidiary of Foilmark. The survivor, Olsenmark, Inc., changed
its name to Foilmark Manufacturing Corporation. In addition, West Foils,
Inc., a California corporation and a wholly owned subsidiary of Foilmark,
merged with and into Foilmark, effective July 1, 1998.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING INFORMATION
The Company and its subsidiaries, and their representatives, may make
written or oral statements from time to time, including statements contained in
the Company's filings with the Securities and Exchange Commission, and in its
reports to shareholders, including this annual report, which constitutes or
contains forward-looking statements, as that term is defined in the Private
Securities Litigation Reform Act of 1995, or by the SEC in its rules,
regulations, and releases.
All statements, other than statements of historical facts, included in this
annual report, regarding the Company's financial position, operating and
strategic initiatives, and addressing industry developments, are forward-looking
statements. In any forward-looking statement where the Company, or its
management, express an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis. But there can be no assurance that the statement of
expectation or belief will result, be achieved, or be accomplished. Factors
which could cause actual results to differ materially from those anticipated,
include but are not limited to, general economic, financial and business
conditions; competition in the product enhancement industry (particularly the
hot stamping sector); the availability and cost of raw materials; the success
and costs of the Company's consolidation and integration efforts; the
availability and terms of capital; the business abilities and judgment of
personnel; the costs and effects of legal proceedings; the impacts of unusual
items resulting from ongoing evaluations of business strategies; and changes in
business strategy.
RECENT INFORMATION--On November 17, 1998 the Company entered into a
definitive agreement (the Merger Agreement") with HoloPak Technologies, Inc.,
pursuant to which the parties agreed, subject to stockholder approval and other
conditions, to merge (the "Merger") the Company with HoloPak Technologies, Inc.
Foilmark will continue as the survivor of the merger. When the merger is
completed, HoloPak shareholders will receive 1.11 shares of Foilmark common
stock, par value of $0.01 per share, plus $1.42 in cash for each share of
HoloPak common stock. The merger is expected to close in the first half of 1999,
subject to customary conditions and approval of the merger by stockholders of
both Foilmark and HoloPak.
RESULTS OF CONTINUING OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales for the year ended December 31, 1998 declined to $30.9 million,
from $33.4 million in fiscal 1997. The decrease in revenues of $2.5 million or
7.5% was due primarily to a non-recurring sale of
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<PAGE>
specialized equipment aggregating $1.9 million in 1997. Total foil sales,
including holographic, in 1998 decreased $1.2 million from 1997 due primarily to
the reduction in export sales of general hot stamping foils (as a result of
Asian manufacturers utilizing their excess capacity) and a decline in sales of
the FHI holographic division as a result of a shift in ordering patterns from
the first half of the year to the second half, which was not replaced by
additional business.
However sales of pad print machinery and supplies increased by 8.0% to $6.7
million, up from $6.2 million in fiscal 1997. The increase in sales was
attributable in large part to the reorganization of the sales force instituted
at the end of 1997, which resulted in the Company employing dedicated direct
salesmen selling Foilmark products exclusively.
Gross Profit in 1998 declined 5.8% to $9.0 million from $9.6 million in
1997. The reduction in gross profit was directly related to the $2.5 million
decline in net revenues. Gross profit as a percentage to sales increased
slightly in 1998 to 29.3 % up from 28.8% in 1997. The improvement in gross
margin resulted primarily from core foil products constituting a greater
percentage of sales as compared to 1997, which included a non-recurring sale of
specialized equipment at a significantly lower gross profit. Additionally, gross
profit margins in hot stamping foils improved in the second half of 1998 over
1997 due to the cost reduction program instituted in June 1998.
The FHI holographic division operated at virtually no gross profit due to
the low sales volume in 1998 and expenses associated with the start up of new
embossing machines and the development and testing of new products that have not
as yet been marketed. Gross profit from pad print machinery and supplies were
virtually the same in 1998 as in 1997 despite a sales increase of $500,000.
Gross profit as a percentage of sales, declined to 35.8% from 38.4% in 1997
primarily as a result of various manufacturing problems related to pad printing
machinery orders, which delayed shipment and increased the manufacturing costs.
Selling, General and Administrative Expenses increased by $1.09 million or
16.1% in 1998 over fiscal 1997. Of the increase $150,000 was due to a marketing
campaign initiated by the Company in 1998 to promote product awareness and
recognition. In addition, changes were made in the marketing and sales
organization to improve coverage of the various product lines. These changes
increased selling expenses, commissions and customer service salaries by
$550,000 in 1998 over 1997.
Operating Income declined to $1.18 million for the year ended December 31,
1998 compared to $2.82 million for the year ended December 31, 1997. The
decrease in operating income was attributable to the loss in gross profit as a
result of the $2.5 million decline in net sales and the increase of $1.09
million in selling, general and administrative expenses compared to 1997.
Interest expense for the year ended December 31, 1998 was $726,265 compared
to $403,201 for the comparable 1997 period. The increase in interest expense was
due to the increased financing requirements of continuing operations to fund
operations and capital expenditures.
Income Tax Expense totaled $121,834 for the twelve months ended December 31,
1998 compared to $983,519 for the year ended December 31,1997. The effective tax
rates were 26% and 40% for the 1998 and 1997 years. The decrease in the
effective tax rate is due to a reduction in state income taxes and a refund of
approximately $60,000 from a prior year.
Net Income and Earnings per Share from continuing operations were $356,742
or $0.09 per share for the fiscal year ended December 31, 1998. Net income and
earnings per share from continuing operations for the year ended December 31,
1997 was $1,475,279, or $0.35 per share All earnings per share data is basic and
fully diluted. For the fiscal year ended December 31, 1997 the Company incurred
a net loss of $0.80 per share after giving effect to a loss from discontinued
operations of $4,786,476, or $1.15 per share.
Net income and earnings per share for the 1998 year were adversely affected
by a general softness in the standard hot stamping foil product sales that
existed for most of the year, especially in the foreign sales area, and a
decline in sales volume for the FHI Holographic division for the first six
months of the year.
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<PAGE>
Additionally, total revenues declined in 1998 compared to 1997 as a result of
the $1.9 million non-recurring sale of specialized equipment in 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Sales for the year ended December 31, 1997 increased 12.4% to $33.4
million, from $29.7 million in 1996. Foil sales accounted for all of the
increase, expanding to $27.4 million from $23.2 million in the prior year, an
increase of 19.1%.
Included in the 1997 total, and the foil sales, was $1.9 million in
equipment to manufacture, convert and apply hot stamping foils and holographic
products, which the Company previously announced will no longer continue to
manufacture or sell due to excessive demands placed on the Company's resources.
Excluding the $1.9 million from the 1997 total and foil sales, the increase over
1996 would have been 6.1% and 10.8% respectively.
The increase in foil sales was due primarily to the strengthening demand for
foil products that existed, for most of 1997, compared to the soft market
conditions of 1996, coupled with the universal acceptance and demand for the
recently introduced "OG" series hot stamping foil product line. Additionally,
the Company experienced an 84% increase in sales of the Foilmark Holographic
division products.
Pad print machinery and supplies declined by 7.7% to $6.0 million, down from
$6.5 million in 1996. The decline in pad printing machinery sales was directly
related to the soft market for pad print machines that existed for most of 1997.
Sales for machinery supplies continued to expand in 1997, and increased by 24%
over 1996. In order to offset the decline in machinery sales, the Company has
reorganized the sales force by employing dedicated direct salesmen, selling
Foilmark products exclusively.
Gross Profit increased by $1,918,537, or 25.0%, for the year ended December
31, 1997, compared to 1996. Gross profit, as a percentage to sales, improved to
28.8% in 1997, from 25.9% for the comparable twelve-month period in 1996.
The improvement in gross profit resulted from increased revenues, improved
manufacturing efficiencies at the hot stamping foil manufacturing plant,
continuing expense reductions, availability of the state-of-the-art metallizer
for the full year, and increased contributions from the Foilmark Holographic
division.
Gross profit from pad print machinery and supplies declined by $265,111 as a
direct result of the 7.7% decline in net sales, and the decrease in gross profit
percentage to sales to 37.7% in 1997 from 41.0% in 1996.
Selling, General and Administrative Expenses declined by $197,861, or 2.8%,
for the year ended December 31, 1997, compared to 1996. The reduction was due
primarily to changes made in the Company's marketing strategies. At the
beginning of 1997, the direct outside sales force was expanded, with a
corresponding reduction in the number of manufacturer's representatives. This
strategy provided the Company with more cost-effective sales coverage. In
addition, the $1.9 million sale to China had relatively no associated selling,
general and administrative expenses, which together with the change in marketing
strategy, resulted in a decline as a percentage to sales to 20.3% in 1997 from
23.5% in 1996.
Operating Income increased by 299%, to $2,823,877 for the year ended
December 31, 1997, compared to $707,479 for the year ended December 31, 1996.
The primary reason for the increase in income from continuing operations was the
return to profitability for the foil group, which accounted for all of the
income from operations. In addition, the state-of-the-art metallizer was
available for manufacturing for all of 1997. The ongoing cost reductions due to
efficient operation of the new production equipment, new cost effective
formulations and reduction in selling expenses also contributed to the increase
in income from operations.
Interest Expense for 1997, at $403,201, was $196,306 less than the 1996
expense, or a decline of 32.7%. As a percentage to sales, interest expense
decreased to 1.2% for the year ended December 31, 1997, from
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<PAGE>
2.0% for the comparable 1996 period. The decline in interest expense was
partially due to a reduction in bank debt of $2.2 million during 1997.
Provision for Income Taxes for the year ended December 31, 1997, was
$983,519, based on income from continuing operations before taxes of $2,458,798,
compared to $131,073 on pre-tax income of $319,692 for 1996. The effective tax
rate used was 40.0% and 41.0%, respectively, for the 1997 and 1996 years.
Net Income from continuing operations for the year ended December 31, 1997,
was $1,475,279, compared to $188,619 for the year ended December 31, 1996. The
increase in net income was directly attributable to the 12.4% increase in net
sales, a 25.0% increase in gross profit, and a 13.6% decrease in selling,
general and administrative expenses as a percentage of net sales.
As a result of the loss from discontinued operations, the total net loss for
1997 was $3,311,197, or $0.80 per share, compared to a total net loss of
$1,040,126 or $0.25 per share in 1996.
DISCONTINUED OPERATIONS
In October 1997, Foilmark announced that it was discontinuing the
manufacture of hot stamping machinery and related equipment in order to focus on
its hot stamping foil and holographic film, as well as its pad printing
machinery and supply products.
The total loss from discontinued operations, net of tax benefit was
$4,786,476, or $1.15 per share for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998 the Company had a total of $5,500,000 outstanding under
the revolving line of credit, a decrease of $1,095,944 from December 31, 1997.
The Company was in compliance with all the financial covenants under the
revolving line of credit, with the exception of the tangible net worth
provision. The credit agreement required the Company to have tangible net worth
of $11,750,000 at December 31, 1998. At that date the Company had tangible net
worth of $11,386,521. The Company has received a waiver from the bank dated
February 18, 1999 for this covenant through March 31, 1999. The Company
believes, it will be in compliance with this covenant as modified by the waiver,
for the quarter ending June 30, 1999 and thereafter.
Cash generated by operations in 1998 was used to invest in property, plant
and equipment, amounting to $1,272,092, and to reduce total debt by $1,710,089.
The Company expects that cash from operations and the existing credit facility
will be sufficient to meet its operating needs for the foreseeable future.
In connection with the Merger, Foilmark expects to pay to HoloPak
stockholders the cash portion of the merger consideration from working capital
of the combined businesses and from drawing on its revolving line of credit with
Fleet National Bank.
OTHER MATTERS
YEAR 2000--Management believes that substantially all of its computer
systems are, or will be, year 2000 compliant, as a result of the most recent
upgrades. The Company has performed an assessment of its Year 2000 readiness and
established an implementation plan to address Year 2000 issues. The areas
assessed were the Company's financial, operational and information systems. The
majority of the Company's products do not include software, or have embedded
microprocessors, and of those that do, all have been determined to be Year 2000
compliant. As a result of the assessment phase, the Hewlett-Packard Unix
platform, on which the company operates its software, needs an upgrade in order
to be Y2K compliant. The cost of the upgrade is approximately $10,000. The
Company is upgrading the HP unix server for increased speed and performance. The
new server is expected to be installed, tested and
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<PAGE>
operational in the 2nd quarter of 1999. The cost of the server is approximately
$100,000. The Company currently does not believe that either it's a Year 2000
issues, or any future costs necessary to ensure the Company's Year 2000
readiness will have a material effect on its business, results of operations, or
financial condition. The estimated costs to complete the Year 2000 remediation
are approximately $100,000. Foilmark has incurred approximately $12,000 in
connection with Year 2000 remediation in expected costs for hardware upgrades
will be incurred in the second and the third quarters of 1999.
In the event that the Company's hardware is not replaced or modified in
time, the most likely worst case scenario would affect the IT manufacturing
system. If the operating system could not correctly handle 2000 and beyond, then
any database function that gets its date from " today " will be inaccurate. This
would still pose only minor problems, since all billing, shipping, invoicing and
reporting is done with a manual date entry and allows for the selection of date
ranges which can be correctly entered.
None of Foilmark's manufacturing equipment or products are date sensitive.
Hot stamping foils and supplies have no computerized equipment embedded in them,
and pad-printing machines have no date sensitive embedded microprocessors. The
Company's new network hardware is fully compliant and not date sensitive.
Foilmark has sent out Year 2000 questionnaires to suppliers, customers and
critical service providers. Evaluations of Foilmark's critical suppliers will be
completed by the end of March 1999. Although Foilmark cannot control external
suppliers' and customers' ability to be Year 2000 compliant, it can certainly
express its concerns for not being compliant. The questionnaire assesses whether
the suppliers and customers are compliant, and whether and to what extent they
will be compliant prior to January 1, 2000. If respondents indicate
non-compliance, Foilmark intends to assess the consequences and included any
steps it deems necessary in its contingency plan, which is expected to be
complete not later than September 30, 1999.
Foilmark is in the process of creating a contingency plan to address
internal and external issues specific to Year 2000 compliance. These plans will
include performing certain processes manually, changing non-compliant suppliers
and increasing inventory levels. The Company expects to complete its contingency
plan by September 30, 1999.
Year 2000 compliance has been a senior management priority for some time.
The company believes that it has more state-of-the-art technology, which will
not need as comprehensive a program as compared to companies with older systems.
Nevertheless, the Company can not reasonably predict the effect on its
operations if its customers, vendors and service providers are not Y2K
compliant. Although senior management does not think this will be the case, the
impact on the Company's business could have a negative effect on 1st quarter
2000 results.
EFFECTS OF INFLATION--During the two-year period ended December 31, 1998,
inflation did not have a significant impact on the Company's operations.
However, there can be no assurance that the Company's business will not be
affected by inflation in the future.
RECENT ACCOUNTING PRONOUNCEMENTS--The Financial Accounting Standards Board
("FASB") recently issued Statement of Financial Standards Number 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and hedging, requiring recognition of all derivatives as either
assets or liabilities in the statement of financial position measured at fair
value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The effect of adopting SFAS 133 is not expected
to have a material impact on the Company's financial condition, results of
operations or cash flows.
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ITEM 7a QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as part of this report, are the financial
statements and supplementary data listed in the list of Financial Statements and
Schedules, under Item 14 hereof.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS
FRANK J. OLSEN, JR. Director since 1992
Frank J. Olsen, Jr. 47, has served as Chairman of the Board since October
1995 and President of the Company since March 1992. He is the Chief Executive
Officer of the Company and each of its subsidiaries. Prior to March 1992 he was
employed as Vice President--Engineering, and in various other capacities with
the Company and its predecessors since 1976. Mr. Olsen is the brother of Carol
J. Robie and nephew of Martin A. Olsen.
WILHELM P. KUTSCH Director since 1994
Wilhelm P. Kutsch, 56, has been Senior Vice President--Foil Operations since
March 1992, and served as Vice President--Foil Operations prior to March 1992.
He has also served as Vice President and Operations Manager of Foilmark
Manufacturing Corporation since 1979. Mr. Kutsch has over 20 years experience in
the hot stamping industry.
CAROL J. ROBIE Director since 1992
Carol J. Robie, 43, has been Vice President--Administration since March
1992. She served as Administrative Manager of the Company in 1990 and 1991, and
also has been employed in various capacities by Foilmark Manufacturing
Corporation since 1977. She also serves as Secretary of the Company. Ms. Robie
is the sister of Frank J. Olsen, Jr. and niece of Martin A. Olsen
THOMAS R. SCHWARZ Director since 1997
Thomas R. Schwarz, 62, was Chairman of Grossman's Inc., a retailer of
building materials, from 1990 to 1994. From 1980 to 1990, he was President,
Chief Operating Officer and a director of Dunkin' Donuts Incorporated, a food
service company. Mr. Schwarz has been a director of Tridex Corporation since
1995 (and a member of the Compensation Committee), Chairman of the Board of
Directors of TransAct Technologies Incorporated (and a member of the
Compensation Committee) since 1996 and a director of Lebhar-Friedman Publishing
Company since 1995.
MARTIN A. OLSEN Director since 1992
Martin A. Olsen, 73, retired as an active employee of the Company in October
1995. Prior to that time he was Chairman of the Board of Directors since March
1992 and Secretary of the Company and all of its subsidiaries since September
1993. He was employed by Kensol-Olsenmark, Inc. a predecessor of the Company, in
various capacities since 1946 and was its President since 1962. Mr. Olsen is the
uncle of Frank J. Olsen, Jr. and Carol J. Robie.
EDWARD D. SULLIVAN Director since 1994
Edward Sullivan, 65, has served as a consultant to the Company since his
retirement on December 31, 1996. Mr. Sullivan served as Vice President--West
Coast Operations of the Company from 1994 until his
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<PAGE>
retirement on December 31, 1996 and Vice President and General Manager of West
Foils, Inc., a subsidiary of the Company, from 1995 until December 31, 1996. He
was President of West Foils, Inc. which he founded in 1988, through 1994.
MICHAEL J. BERTUCH Director since 1997
Michael J. Bertuch, 38, has been the President of ViaTech Publishing
Solutions, a manufacturer of custom binders related packaging and on-demand
printing, since January 1992. From 1986 to 1992, he was employed by DVC
Industries the predecessor company to ViaTech Publishing Solutions in various
executive capacities.
MICHAEL FOSTER Director since 1997
Michael Foster, 64, is the founder of and since 1988 has served as Chairman
of the Board and Chief Executive Officer of WPI Group, Inc., a publicly-held
manufacturer of hardware, software and electronic products for commercial and
industrial markets.
KENNETH R. HARRIS Director since 1996
Kenneth R. Harris, 48, is Vice President--Pad Printing Operations of the
Company since August 1995. From 1978 to 1995 he was Vice President of Imtran
Industries, Inc. He also is secretary and Treasurer of COMDEC, Inc. a commercial
decorating company. Mr. Harris has over 20 years experience in the pad printing
industry.
NON-DIRECTOR EXECUTIVE OFFICERS:
PHILIP LEIBEL Officer since 1992
Philip Leibel, 61, has been Vice President--Finance since March 1992 and is
Treasurer, Assistant Secretary and Chief Financial Officer of the Company and
each of its subsidiaries. He has been Chief Financial Officer of the Company and
its predecessors since 1977.
GENERAL INFORMATION ABOUT THE BOARD OF DIRECTORS
There were four (4) regular and two (2) special meetings of the Board of
Directors in the 1998 fiscal year. During this period each incumbent director
attended at least 75% of the aggregate of (a) the total number of meetings of
the Board held during the period from which such incumbent was a director, and
(b) the total number of meetings held by all committees of the Board on which
such incumbent served.
Directors of the Company who are not full time employees of the Company or
its operating subsidiaries receive a retainer of $2,000 per calendar quarter as
well as a fee of $750 per Board Meeting attended and $350 per committee meeting
attended in person or telephonically.
The Board of Directors has four standing committees: the Executive
Committee, the Compensation Committee, the Audit Committee and the Stock Option
Committee. The Executive Committee consists of Frank J. Olsen, Jr., Michael J.
Bertuch, Michael Foster and Edward D. Sullivan. In addition, Philip Leibel
attends Executive Committee Meetings in a non-voting capacity. The Executive
Committee conducts the affairs and business of the Company between meetings of
the Board of Directors, subject to certain limitations set forth in the
Company's Certificate of Incorporation. The Executive Committee met three (3)
times during fiscal 1998.
The Compensation Committee consists of Michael J. Bertuch, Michael Foster,
Thomas R. Schwarz, Frank J. Olsen, Jr. and Leonard A. Mintz (until his
resignation in December 1998). The Compensation Committee determines the
compensation to be paid by the Company to its officers. The Compensation
Committee met three (3) times during fiscal 1998.
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The Audit Committee consists of Michael J. Bertuch and Michael Foster. The
Audit Committee is responsible primarily for recommending the accounting firm to
be appointed as independent public accountant to audit the Company's financial
statements and to perform services related to the audit, reviewing the scope and
results of the audit with the independent public accountants, reviewing with
management and the independent public accountants the Company year-end operating
results, considering the adequacy of the internal accounting and control
procedures of the Company, reviewing the non-audit services to be performed by
the independent public accountants and considering the effect of such
performance on the accountants' independence. The Audit Committee met two (2)
times during fiscal 1998.
The Stock Option Committee consisted of Michael J. Bertuch, Michael Foster
and Thomas R. Schwarz. The Stock Option Committee administers the 1993 and 1995
Stock Option Plans and the Non-Employee Directors' Stock Plan and determines to
whom such options will be granted and the number of shares of Common Stock to be
included in such options. The Stock Option Committee met two (2) times during
fiscal 1998.
Martin A. Olsen, a director of the Company and until October 1995, Chairman
of the Board and Secretary of the Company, received $176,800 in 1998 pursuant to
a Consulting Services Agreement with the Company which was entered into in
December 1995. The Consulting Agreement provides for annual compensation of
$176,800 and terminated December 1998.
On January 1, 1997, the Company and Edward D. Sullivan entered into a
Consulting Agreement which expired December 31, 1998 and terminates and replaces
an Employment Agreement with the same term. Under the Consulting Agreement, Mr.
Sullivan shall receive fifty percent (50%) of his average compensation for 1995
and 1996, which was payable pursuant to his Employment Agreement. In return, Mr.
Sullivan shall provide advisory services to the Company in conjunction with
sales management, strategic sales objectives and general supervision of the
Company's Westfoils subsidiary. The Consulting Agreement prohibits Mr. Sullivan
from competing with the Company during the term of the Consulting Agreement and
for a period of three (3) years thereafter. The Consulting Agreement prohibits
the disclosure of any confidential or proprietary information including
inventions. The Agreement also entitles Mr. Sullivan to the use of an
automobile. A new agreement with a one (1) year term was entered into effective
January 1, 1999, containing substantially the same terms as the prior Consulting
Agreement.
On December 21, 1998, Leonard Mintz resigned from the Board of Directors and
as an executive officer of the Company. At that time Mr. Mintz entered into a
non-competition agreement with Foilmark expiring on December 1, 2003. Under the
non-competition agreement, Foilmark agreed to pay Mr. Mintz $14,886 per month
for 18 months commencing January 1, 1999; $5,763 on July 1, 2000 and $4,167 per
month commencing January 1, 1999 through December 1, 2003. The compensation
payable to Mr. Mintz under the non-competition agreement is substantially the
same as that under Mr. Mintz's employment agreement.
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ITEM 11 EXECUTIVE COMPENSATION
The following table sets forth the total compensation of the chief executive
office and the other two most highly compensated executive officers (the "Named
Executive Officers") of the Company for services in all capacities to the
Company or its subsidiaries for the fiscal year ended December 31, 1998 and the
total compensation earned by such individuals for the Company's two previous
fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM COMPENSATION
COMPENSATION(S) AWARDS
--------------------------------- ------------------------------
ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) (A)(B) COMPENSATION(C)
- --------------------------------------------------------- --------- --------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Frank J. Olsen, Jr....................................... 1998 233,295 -- 34,666 3000
President and Chief Executive Officer 1997 202,413 -- -- 4160
1996 195,546 -- 10,000 --
Wilhelm P. Kutsch........................................ 1998 184,235 -- 29,466 3,000
Senior Vice President 1997 172,272 -- -- 4,160
1996 180,098 9,352 8,500 --
Philip Leibel............................................ 1998 173,785 -- 24,534 3,000
Vice President & Chief Financial Officer 1997 160,789 -- -- 4,160
1996 155,498 -- 7,500 --
</TABLE>
- ------------------------
(a) Any perquisites or other personal benefits received from the Company by any
of the named executives were substantially less than the reporting
thresholds established by the Securities and Exchange Commission (the lesser
of $50,000 or 10% of the Individual's salary and bonus).
(b) There were no option grants made to the Named Executive Officers during the
fiscal year ended December 31, 1997.
(c) Amounts in the "All Other Compensation" column represent contributions to
the Company's Profit-Sharing Plan.
The following table sets forth certain information regarding stock options
exercised during 1998 and unexercised options held by the Named Executive
Officers as of the end of the 1998 fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SAR AT IN-THE-MONEY OPTION/
SHARES VALUE FISCAL YEAR END 1998 SARS($)
OPTIONS/SARS($) ACQUIRED REALIZED ---------------------- -------------------------------
NAME ON EXERCISE ($)(A) EXERCISABLE/UNEXERCISABE EXERCISABLE/UNEXERCISABLE(B)
- -------------------------------------- --------------- ------------- ---------------------- -------------------------------
<S> <C> <C> <C> <C>
Frank J. Olsen, Jr.................... -- -- 67,766/0 0/0
Wilhelm P. Kutsch..................... -- -- 70,866/0 0/0
Philip Leibel......................... -- -- 62,734/0 0/0
</TABLE>
- ------------------------
(a) Based on closing price of the Common Stock on date of exercise less the
exercise price.
(b) Based on the closing price of the Common Stock on December 31, 1998 ($1.72)
minus the exercise price.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for setting and administering the
policies which govern both annual compensation and incentive programs for key
managerial executives. The Committee usually meets twice annually for the
purpose of granting salary increases and bonus awards. It evaluates corporate
and individual performance, current compensation and share ownership of the
managerial group. The employees of the Company who participate in the bonus and
stock option plans are those who, in the estimation of the Compensation
Committee, have a substantial opportunity to enhance shareholder value over
time.
The Committee's purpose is to ensure that management is enabled to attract
and retain well-qualified employees who are capable of managing for the benefit
of shareholders and contributing to the Company's success. To accomplish this
goal, compensation is intended to be competitive both within the industry as a
whole and when compared to like-size companies in the geographical areas served
by the Company. Inflation, the cost of living and business conditions are taken
into consideration. Additionally, the Company surveys other manufacturing
companies and obtains compensation information from approximately 10 industry
participants.
The final determination of the base salary adjustments and incentive bonus
awards is made solely by the Compensation Committee after consultation with the
Chief Executive Officer. Stock Option grants are made by the Stock Option
Committee, which presents it recommendations to the Compensation Committee for
review before final Stock Option Grants are made by the Stock Option Committee.
In setting an executive's base salary and bonus and in granting stock options,
consideration is given to maintenance of the executive's level of
responsibility, and the performance of the executive's area of responsibility.
Stock options are granted considering the nature of the industry and the
desirability of long-term incentives. Bonus awards are paid following fiscal
year end and represent awards for the preceding year.
With respect to compensation of the Chief Executive Officer ("CEO"), the
Compensation Committee meets without him being present to evaluate his
performance and reports on that evaluation to the independent directors of the
Board. The Compensation Committee exercises greater discretion with respect to
CEO compensation than with other key executives, and considers the performance
of the Company relative to the Company's profit goals. The Compensation
Committee also considers the short and long-term performance of the company
relative to industry peers and to similar industries. Major weight is given to
operating earnings, as with other managers. Finally, the Compensation Committee
considers particular accomplishments of the CEO which are judged to contribute
to long-term shareholder value. Other factors which influence the CEO's
compensation include his establishment of clear and sound objectives and the
achievement of those objectives, his ability to create overall management
strength, his performance in communicating and in causing top managers to
communicate effectively with the Board, and his use of the Board as a resource
to aid effective management. The Committee does not evaluate these factors by a
predetermined formula or weighting, but reaches its conclusions based on the
judgments of its members. There were no bonuses paid to executive officers of
the Company in 1998.
The foregoing reports are presented by the following:
As to the matters relating to cash compensation:
Michael J. Bertuch
Michael Foster
Thomas R. Schwarz
Frank J. Olsen, Jr.
19
<PAGE>
As to the matters relating to stock options:
Michael J. Bertuch
Michael Foster
Thomas R. Schwarz
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 12, 1999 as to (a) each person known
to the Company who beneficially owns 5% or more of the outstanding shares of
Common Stock (b) directors (c) each of the named executive officers and (d) all
directors and executive officers as a group. Each of such shareholders has sole
voting and investment power as to shares shown unless other noted.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF PERCENT
BENEFICIAL OF
NAME OF BENEFICIAL OWNER (A) OWNERSHIP CLASS
- ----------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Martin A. Olsen (b)(c)................................................. 507,477 12.1%
Estate of Frank J. Olsen............................................... 222,724 5.3%
Frank J. Olsen, Jr. (b)(d)............................................. 490,758 11.7%
Leonard A. Mintz (b)(e)................................................ 234,696 5.6%
Wilhelm P. Kutsch (f).................................................. 107,696 2.6%
Philip Leibel(g)....................................................... 80,664 1.9%
Carol J. Robie (b)(h).................................................. 212,409 5.1%
Edward D. Sullivan (b)................................................. 153,847 3.7%
Michael Bertuch(i)..................................................... 5,000 *
Michael Foster(j)...................................................... 10,000 *
Thomas R. Schwarz(k)................................................... 5,000 *
Kenneth R. Harris...................................................... 128,522 3.1%
Parties to Voting Agreement(l)......................................... 1,589,761 38.0%
All Directors and Executive Officers
As a Group (13 persons) (c)(m)....................................... 1,936,043 46.3%
</TABLE>
- ------------------------
* Less than one percent
(a) If applicable, beneficially owned shares include shares owned by the spouse,
children and certain other relatives of the beneficial owner, director,
nominee or officers, as well as shares held by trusts of which the person is
a trustee or in which he has a beneficial interest. Any such beneficially
owned shares will be noted separately for each owner, except in the case of
shares beneficially owned by all directors and executive officers as a
group. All information with respect to beneficial ownership has been
furnished by the respective directors, officers and 5% owners. Except as set
forth above, management knows of no person who, as of March 12, 1999, owned
beneficially more than 5% of the Company's outstanding Common Stock. The
information includes, where applicable, shares issuable upon exercise of
stock options granted under the Company's 1993 and 1995 Stock Option Plans,
which options are presently exercisable. Unless otherwise indicted, the
address of--the persons identified in above is c/o Foilmark, Inc., 4
Mulliken Way, Newburyport, MA 01950.
(b) Excludes shares held by other parties to the Voting Agreement described in
"Certain Relationships and Related Transactions" which may be deemed to be
beneficially owned by these individuals.
(c) Includes (i) 11,000 shares held by Mr. Olsen's wife as to which he disclaims
beneficial ownership and (ii) 27,356 shares deemed beneficially owned in his
capacity as executor of the Estate of Florence J. Olsen. Mr. Olsen's address
is 3299 Old Barn Road East, Ponte Vedra Beach, Florida 32082.
20
<PAGE>
(d) Includes 67,766 shares issuable upon exercise of options which are presently
or will become exercisable within 60 days, and 222,724 shares deemed
beneficially owned in his capacity as executor of the Estate of Frank J.
Olsen.
(e) Mr. Mintz's address is 89 Blueberry Lane, Westwood, Massachusetts 02090.
(f) Includes 70,866 shares issuable upon exercise of options which are presently
or will become exercisable within 60 days.
(g) Includes 62,734 shares issuable upon exercise of options which are presently
or will become exercisable within 60 days.
(h) Includes 21,100 shares issuable upon exercise of options which are presently
or will become exercisable within 60 days.
(i) Includes 5,000 shares issuable upon exercise of options which are presently
or will become exercisable within 60 days. Mr. Bertuch's address is c/o
ViaTech Publishing Solutions, 1440 Fifth Avenue, Bayshore, New York 11706.
(j) Includes 5,000 shares issuable upon exercise of options which are presently
or will become exercisable within 60 days. Mr. Foster's address c/o WPI
Group, Inc., 1155 Elm Street, Manchester, New Hampshire 03101.
(k) Includes 5,000 shares issuable upon exercise of options which are presently
or will become exercisable within 60 days. Mr. Schwarz's address is 60
Westcliff Road, Weston, Massachusetts 02193.
(l) For the purposes of disclosure of beneficial ownership under the Securities
Exchange Act of 1934, the persons identified as parties to the Voting
Agreement described in "Certain Relationships and Related Transactions" are
deemed to be a single person and the beneficial owners of the shares of
Common Stock owned by all parties to the Voting Agreement.
(m) Includes 222,466 shares issuable upon exercise of options which are
presently or will become exercisable within 60 days.
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who beneficially own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission and furnish the Company with reports
of securities ownership and changes in such ownership.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, or written representations that no other
reports were required for those persons, the Company believes that during the
fiscal year ended December 31, 1998 its officers, directors and greater than ten
percent (10%) beneficial owners complied with all Section 16(a) filing
requirements.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with executive officers and
key employees in September 1993. The terms of the employment agreements are
substantially the same except for the base salary and duties to be performed.
The 1998 base salaries for the officers listed in the Summary Compensation Table
are as follows: Frank J. Olsen, Jr.--$225,000, Wilhelm P. Kutsch--$180,497, and
Philip Leibel--$163,722. Each employment agreement expired December 31, 1998
with successive one-year renewal terms unless terminated by either party. It is
the intention of the Company to renegotiate new employment agreements as of the
effective date of the merger. If an employee's employment is terminated with
cause or as a result of his death or disability, the Company's obligation to
compensate the employee under his employment agreement also terminates. If the
Company terminates an employee's employment
21
<PAGE>
without cause, the Company is obligated to pay severance of one month's salary
for every year that the employee has been employed. In connection with the
Imtran acquisition Imtran Foilmark entered into a three year employment
agreement with Kenneth Harris providing for a base salary in the first year of
$100,000, with review at the end of each calendar year by the Board of Directors
(see "Certain Relationships and Related Transactions" for further information).
The terms of Harris' employment agreement are substantially the same as the
employment agreements with other executive officers and key employees.
Each employment agreement prohibits the employee from competing with the
Company during the term of the agreement and for a period of up to two years
following the date of termination. Each employee is eligible under the
agreements to a calendar year-end bonus at the Board's discretion. Employee
benefits include group medical insurance coverage (partially contributory),
holidays, life insurance, long-term disability insurance (contributory),
short-term disability insurance (partially contributory), travel accident
insurance, profit sharing plan and four weeks paid vacation each year. The
employment agreements prohibit employees from using or disclosing any
proprietary information to any other party at any time during the period of
employment by the Company or thereafter, except with the written consent of the
Board of Directors of the Company or as may be required under any state or
federal law, rule or regulation or by a court of competent jurisdiction during
the period of employment by the Company or thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998 the Compensation Committee consisted of Michael J.
Bertuch, Michael Foster, Thomas R. Schwarz, Frank J. Olsen, Jr. and Leonard A.
Mintz (until his resignation in November 1998). Mr. Olsen is an executive
officer of the Company.
22
<PAGE>
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the acquisition of the assets of Imtran Industries, Inc.
("Imtran") in 1995, the Company entered into a Registration Rights Agreement
with Kenneth R. Harris. The Agreement obligates the Company to include at its
expense (except underwriting commissions) securities owned by Mr. Harris in a
registration statement initiated by the Company on a pro rata basis, to the
extent the managing underwriter advises the Company that the aggregate number of
securities sought to be offered can be sold.
Also in connection with the Imtran acquisition, Imtran Foilmark, Inc., the
wholly owned subsidiary of the Company to which Imtran's assets were
transferred, entered into a five year lease of the premises where Imtran
operated its business. Mr. Harris is a trustee of the trust that owns the
premises. The terms of the lease provide for annual rent of $137,500 during the
initial five year term, and payment of "Market Rent" for the duration of a
single extension term of two years. In July 1996, in consideration of the use by
the Company of additional space, the Company increased its annual rental
payments by $5,000 per year to $142,500 per year.
In connection with the Consulting Services Agreement with Martin A. Olsen,
the Company entered into a Registration Rights Agreement with him individually
and in his capacity as guardian for Florence Olsen. Mr. Olsen, or persons to
whom rights under the Registration Rights Agreement have been transferred in
accordance with the provisions thereof, has the right to demand that one
registration statement be filed by the Company with respect to any portion of
his securities so long as Olsen is a director or officer of the Company, or he
and/or his assignees hold beneficial ownership of at least ten percent (10%) of
the Company's Common Stock. The Company is also obligated to include stock owned
by Mr. Olsen or his assignees on a pro rata basis in any registration not
initiated by Mr. Olsen or his assignees.
In November 1994, Leonard A. Mintz, Martin A. Olsen, Frank J. Olsen, Jr.,
Carol J. Robie and Florence J. Olsen (collectively, the "Management
Shareholders") entered into a Voting Agreement with Edward Sullivan, which
obligates the parties to vote for each Management Shareholder as a Director so
long as such individual maintains ownership of a least 5% of the Company's
Common Stock outstanding on such date (without regard to new issues) and remains
an officer of the Company or any of its subsidiaries and (ii) obligates the
Management Shareholders to vote for the election of Mr. Sullivan as a Director
of the Company, so long as he is a shareholder of the Company and an officer or
employee of the Company or any of its subsidiaries. The Voting Agreement expires
in 2004. An aggregate of 1,589,761 shares of Common Stock is beneficially owned
by the parties to the Voting Agreement, including 222,724 shares held by Frank
J. Olsen, Jr. in his capacity as executor of the Estate of Frank J. Olsen and
27,356 shares held by Martin A. Olsen in his capacity as executor of the Estate
of Florence J. Olsen.
COMPARATIVE PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Common Stock with the cumulative total shareholder return of (I) the Standard
and Poor's 500 Index (the "S & P 500 Index"), (ii) the Dow Jones
Industrial-Diversified index selected by the Company for purpose of the
comparison ("DJ Industrial-Dvrsfd"), and (iii) a peer group of companies
consisting of Advanced Deposition Technologies, CFC International Inc.,
Envirodyne Industries, Inc., HoloPak Technologies, Inc. and Outlook Group Corp.
(the "Peer Group") assuming an investment of $100 on June 23, 1994, in each of
the Common Stock of the Company, the S & P 500 Index, the DJ Industrial-Dvrsfd
and the Peer Group stocks. The graph assumes dividend reinvestment with respect
to companies in the DJ Industrial-Dvrsfd and Peer Group and the returns of each
such company have been weighted at each measurement point to reflect relative
stock market capitalization. The graph commences as of June 23, 1994, the date
the Common Stock became publicly traded.
23
<PAGE>
COMPARISON OF 54 MONTH CUMULATIVE TOTAL RETURN*
AMONG FOILMARK, INC., THE S & P 500 INDEX
AND A PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FOILMARK, INC. PEER GROUP S & P 500
<S> <C> <C> <C>
6/23/94 $100 $100 $100
12/94 $111 $103 $104
12/95 $102 $70 $143
12/96 $40 $87 $175
12/97 $53 $106 $234
12/98 $29 $64 $301
*$100 INVESTED ON 6/23/94 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
</TABLE>
24
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits:
<TABLE>
<S> <C> <C>
(1) Financial Statements and Supplementary Data--See Form 10-K, Item 8
(2) Financial Statement and Schedules:
Independent Auditors' Report..................................................... F-1
Consolidated Balance Sheets--December 31, 1998 and 1997.......................... F-2
Consolidated Statement of Operations--Years Ended December 31, 1998 1997 and
1996............................................................................ F-3
Consolidated Statement of Stockholders Equity--Years Ended December 31, 1998,
1997, and 1996.................................................................. F-4
Consolidated Statements of Cash Flows--Years Ended December 31, 1998 1997, and
1996............................................................................ F-5
Notes to Consolidated Financial Statements For the three years ended December 31,
1998............................................................................ F-6
Schedule II--Valuation and Qualifying Accounts................................... S-1
</TABLE>
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements of notes thereto.
(3) Index of Exhibits:
The following is a list of exhibit files as part of this Annual Report on
Form 10-K. For exhibits incorporated by reference, the location of the exhibit
in the previous filing is indicated in parenthesis.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of November 17, 1998 is incorporated herein by reference to the
Company's Current Report on Form 8-K filed with the Commission on November 25, 1988.
3.1 Restated Certificate of Incorporation of the Company dated as of October 14, 1993 is incorporated
herein by reference to the Company's Registration Statement on Form S-1 filed with the Commission on
October 25, 1993.
3.2 Restated By-Laws of the Company are incorporated herein by reference to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 and filed with the Commission on March 27,
1998.
3.3 Specimen Stock Certificate of the Company is incorporated herein by reference to the Company's
Current Report on Form 8K filed with the Commission on May 24, 1994.
3.4 Restated Certificate of Incorporation of the Company is incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and filed with the
Commission.
3.5 Restated By-Laws of the Company dated as of May 5, 1995 are incorporated herein by reference to the
Company" Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and filed with the
Commission.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.6 Second Amended and Restated Certificate of Incorporation dated as of November 20, 1998 is
incorporated herein by reference to the registration statement on Form S-4 filed with the Commission
on March 22, 1999.
9.1 Voting Agreement dated as of November 17, 1994 between the Company, Martin A. Olsen, Florence J.
Olsen, Frank J. Olsen, Carol J. Robie, Leonard A. Mintz and Edward Sullivan is incorporated herein by
reference to the Company's Current Report on Form 8-K filed with the Commission on November 30, 1994.
10.1 Form of Employment Agreement of the Company is incorporated herein by reference to the Company's
Registration Statement on Form S-1 filed with the Commission on October 25, 1993
10.2 1993 Stock Option Plan is incorporated herein by reference to Amendment No. 2 to the Company's
Registration Statement on Form S-1 filed with the Commission on May 9, 1994.
10.4 Technical Collaboration Agreement between the Company and Arrow Coated Products Ltd. dated December
18, 1992 is incorporated herein by reference to the Company's Registration Statement on Form S-1
filed with the Commission on October 25, 1993.
10.5 Agreement for the Purchase of Patents between the Company and Leonard Mintz and Franklin
Manufacturing Corporation dated March 12, 1992 is incorporated herein by reference to the Company's
Registration Statement on Form S-1 filed with the Commission on October 25,1993.
10.9 Registration Rights Agreement between the Company and Leonard Mintz dated as of March 17, 1992 is
incorporated herein by reference to Amendment No. 1 to the Company's Registration Statement on Form
S-1 filed with the Commission on December 3, 1993.
10.10 Waiver Agreement between the Company and Leonard Mintz is incorporated herein by reference to
Amendment No. 1 to the Company's Registration Statement on Form S-1 filed with the Commission on
December 3, 1993.
10.11 Stockholders Agreement dated February 2, 1992 is incorporated herein by reference to Amendment No. 1
to the Company's Registration Statement on Form S-1 filed with the Commission 3, 1993.
10.14 Form of Promissory Note and Schedule of Notes is incorporated herein by reference to Amendment No. 2
to the Company's Registration Statement on Form S-1 filed with the Commission on May 9, 1994.
10.15 Form of Shareholder Note and Schedule of Notes is incorporated herein by reference to Amendment No. 2
to the Company's Registration Statement on Form S-1 filed with the Commission on May 9, 1994.
10.17 China Sales and Distribution Agreement between the Company and X.D. Trading and Consulting Company
dated as of October 25,1993 is incorporated herein by reference to Amendment No. 3 to the Company's
Registration Statement on Form S-1 filed with the Commission on June 17, 1994 .
10.20 Sales and Licensing Agreement between the Company and Embossing Technology Limited dated as of
November 10, 1994 is incorporated herein by reference to the Company's Current Report on Form 8-K
filed with the Commission on November 30, 1994.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.22 Registration Rights Agreement between the Company and Edward Sullivan dated as of November 17, 1994
is incorporated herein by reference to the Company's Current Report on Form 8-K filed with the
Commission on November 30, 1994.
10.23 Industrial Revenue Bond Loan Agreement dated June 28, 1995 is incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and filed with the
Commission.
10.24 1995 Employee Stock Purchase Plan is incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 and filed with the Commission.
10.25 1995 Employee Stock Option Plan is incorporated herein by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995 and filed with the Commission.
10.26 Asset Purchase Agreement between Imtran Industries, Inc. et al, and the Company dated as of August 3,
1995 is incorporated herein by reference to the Company's Current Report on Form 8-K filed with the
Commission on September 1, 1995.
10.26 Registration Rights Agreement between Foilmark, Inc. and Martin A. Olsen dated as of December 31,
1995 is incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 and filed with the Commission on March 30, 1996.
10.28 Amended and Restated Employee Stock Purchase Plan dated as of January 31, 1996 is incorporated herein
by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
and filed with the Commission on March 30, 1996.
10.29 Amended and Restated Employee Stock Option Plan dated as of January 31, 1996 is incorporated herein
by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
and filed with the Commission on March 30, 1996.
10.31 Waiver and Amendment to Loan Agreement between the Company and Fleet Bank dated as of March 20, 1997
is incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 and filed with the Commission on April 14, 1997.
10.32 Consulting Agreement between the Company and Edward Sullivan dated as of January 1, 1999 is
incorporated herein by reference to the Company's registration statement on Form S-4 filed with the
Commission on March 22, 1999.
10.33 Lease Agreement between the Company and Edward G. Molin dated as of April 21, 1997 is incorporated
herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 and filed with the Commission on August 12, 1997.
10.34 Lease Agreement between the Company and Parker Street Realty Trust dated as of July 1, 1997 is
incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 and filed with the Commission August 12, 1997.
10.35 Lease Agreement between the Company and Faircourt Realty Co. dated as of April 1, 1997 is
incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 and filed with the Commission on August 12, 1997.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.36 1997 Non-Employee Director Stock Plan dated as of April 11, 1997 is incorporated herein by reference
to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and filed with the
Commission on August 12, 1997.
10.37 Shareholder Agreement between the Company and certain shareholders of HoloPak Technologies, Inc.
dated as of November 17, 1998 is incorporated herein by reference to the Company's Current Report on
Form 8-K filed with the commission on November 25, 1998.
10.38 Shareholder Agreement between certain substantial shareholders of the Company and HoloPak
Technologies, Inc. dated as of November 17, 1998 is incorporated herein by reference to the Company's
Current Report on Form 8-K filed with the Commission on November 25, 1998.
10.39 Non-Competition Agreement between the Company and Leonard Mintz dated as of December 23, 1998 is
incorporated herein by reference to the Company's registration statement on Form S-4 filed with the
Commission on March 22, 1999.
10.40 Amendment No. 1 to Registration Rights Agreement between the Company and Leonard Mintz dated November
30, 1998 incorporated herein by reference to the Company's registration statement on Form S-4 filed
with the Commission on March 22, 1999.
10.41 Waiver to Loan Agreement between the Company and Fleet Bank dated February 18, 1999 is incorporated
herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998 and filed with the Commission on March 29, 1999.
10.42 Employment Agreement dated March 26, 1998 between Douglas Parker and the Company and filed with the
Commission on March 29, 1999.
10.43 Lease Agreement between the Company and Anchor Associates dated May 14, 1998 commencing March 1, 1999
and filed with the Commission on March 29, 1999.
27 Financial Data Schedule.
</TABLE>
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(g) of the Securities
Exchange Act of 1934, the Registrant has duly caused this document to be signed
on its behalf by the undersigned, thereunto duly authorized.
FOILMARK, INC.
By: /s/ FRANK J. OLSEN, JR.
-----------------------------------------
Frank J. Olsen, Jr.--President
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- ------------------------------ --------------------------- -------------------
/s/ FRANK J. OLSEN, JR. Chairman of the Board
- ------------------------------ Chief Executive Officer March 29, 1999
Frank J. Olsen, Jr.
/s/ PHILIP LEIBEL Vice President--Finance
- ------------------------------ Chief Financial Officer March 29, 1999
Philip Leibel
/s/ WILHELM P, KUTSCH Senior Vice President
- ------------------------------ & Director March 29, 1999
Wilhelm P, Kutsch
/s/ EDWARD SULLIVAN Vice President--West Coast
- ------------------------------ Operations & Director March 29, 1999
Edward Sullivan
/s/ CAROL J. ROBIE Vice President--
- ------------------------------ Administration & Director March 29, 1999
Carol J. Robie
/s/ KENNETH HARRIS Vice President--Pad Print
- ------------------------------ Operations & Director March 29, 1999
Kenneth Harris
SIGNATURE CAPACITY DATE
- ------------------------------ --------------------------- -------------------
29
<PAGE>
<TABLE>
<C> <S> <C>
/s/ MARTIN A. OLSEN Chairman of the Board
- ------------------------------ Emeritus & Director March 29, 1999
Martin A. Olsen
/s/ MICHAEL J. BERTUCH Director
- ------------------------------ March 29, 1999
Michael J. Bertuch
/s/ MICHAEL FOSTER Director
- ------------------------------ March 29, 1999
Michael Foster
/s/ THOMAS SCHWARZ Director
- ------------------------------ March 29, 1999
Thomas Schwarz
</TABLE>
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
KPMG LLP
Board of Directors and Stockholders
Foilmark, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Foilmark,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1998. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in item 14(a)(2). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Foilmark, Inc. and subsidiaries, at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, 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 LLP
Melville, New York
February 19, 1999
F-1
<PAGE>
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................................. $ 237,561 $ 629,170
Accounts receivable--trade (less allowance for doubtful accounts of $146,000 and
$348,000 in 1998 and 1997).......................................................... 4,896,086 4,807,705
Inventories........................................................................... 8,134,490 7,884,701
Other current assets.................................................................. 748,610 211,943
Deferred acquisition costs............................................................ 261,482 --
Income taxes receivable............................................................... 50,872 1,327,421
Deferred income taxes................................................................. 718,602 1,221,135
Current assets of discontinued operations............................................. -- 977,138
---------- ----------
Total current assets................................................................ 15,047,703 17,059,213
Property, plant and equipment, net...................................................... 9,088,889 9,150,509
Bond and mortgage financing costs (net of accumulated amortization of $156,975 and
$98,010 in 1998 and 1997, respectively)............................................... 364,226 369,295
Intangible assets, net.................................................................. 4,262,331 4,520,581
Restricted cash......................................................................... 233,333 166,667
Other assets............................................................................ 78,432 75,967
Notes receivable........................................................................ 745,958 739,818
---------- ----------
$29,820,872 $32,082,050
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable--stockholders................................... $ 119,827 $ 112,922
Current installments of other long-term debt.......................................... 428,792 501,220
Accounts payable...................................................................... 2,432,045 2,936,885
Accrued expenses...................................................................... 1,507,514 439,759
Customer deposits..................................................................... 167,817 207,311
Current liabilities of discontinued operations........................................ -- 1,270,450
---------- ----------
Total current liabilities........................................................... 4,655,995 5,468,547
Long-term debt:
Notes payable to stockholders, net of current installments............................ 534,605 654,431
Other long-term debt, net of current installments..................................... 8,571,066 10,095,806
---------- ----------
9,105,671 10,750,237
Deferred income taxes................................................................... 693,560 884,773
Commitments and contingencies (notes 14 and 18)
Stockholders' equity:
Preferred stock ($.01 par value; 500,000 shares authorized; 0 shares issued and
outstanding in 1998 and 1997)....................................................... -- --
Common stock ($.01 par value; 10,000,000 shares authorized; 4,179,601 and 4,167,355,
shares issued and outstanding in 1998 and 1997, respectively)......................... 41,796 41,673
Additional paid-in capital.............................................................. 13,434,445 13,404,157
Retained earnings....................................................................... 1,889,405 1,532,663
---------- ----------
Total stockholders' equity.......................................................... 15,365,646 14,978,493
---------- ----------
$29,820,872 $32,082,050
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................... $ 30,886,135 $ 33,379,482 $ 29,692,240
Cost of sales....................................................... 21,839,367 23,779,459 22,010,754
------------- ------------- -------------
Gross profit........................................................ 9,046,768 9,600,023 7,681,486
Selling, general and administrative expenses........................ 7,865,290 6,776,146 6,974,007
------------- ------------- -------------
1,181,478 2,823,877 707,479
------------- ------------- -------------
Other income (expense):
Interest expense--net........................................... (726,265) (403,201) (599,507)
Other income.................................................... 23,363 38,122 211,720
------------- ------------- -------------
Income from continuing operations before income taxes......... 478,576 2,458,798 319,692
Income tax expense.................................................. 121,834 983,519 131,073
------------- ------------- -------------
Income from continuing operations............................. 356,742 1,475,279 188,619
Discontinued operations:
Loss from operations, net of income tax benefit................. -- (892,076) (1,228,745)
Loss on disposition, net of income tax benefit.................. -- (3,894,400) --
------------- ------------- -------------
-- (4,786,476) (1,228,745)
------------- ------------- -------------
Net income (loss)................................................... $ 356,742 $ (3,311,197) $ (1,040,126)
------------- ------------- -------------
------------- ------------- -------------
Net income (loss) per share
From continuing operations--basic and diluted................... $ 0.09 $ 0.35 $ 0.05
From discontinued operations--basic and diluted................. -- (1.15) (0.30)
------------- ------------- -------------
Net income (loss) per share--basic and diluted.................. $ 0.09 $ (0.80) $ (0.25)
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding................................. 4,173,139 4,161,463 4,142,318
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
--------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995.............................. $ 41,358 $ 13,317,982 $ 5,883,986 $ 19,243,326
Shares issued under stock grants........................ -- 8,923 -- 8,923
Shares issued under benefit plans....................... 159 37,499 -- 37,658
Net loss................................................ -- -- (1,040,126) (1,040,126)
--------- ------------- ------------ -------------
Balance at December 31, 1996.............................. 41,517 13,364,404 4,843,860 18,249,781
Shares issued under stock grants........................ -- 4,136 -- 4,136
Shares issued under benefit plans....................... 156 35,617 -- 35,773
Net loss................................................ -- -- (3,311,197) (3,311,197)
--------- ------------- ------------ -------------
Balance at December 31, 1997.............................. 41,673 13,404,157 1,532,663 14,978,493
--------- ------------- ------------ -------------
Shares issued under benefit plan........................ 123 30,288 -- 30,411
Net income.............................................. -- -- 356,742 356,742
--------- ------------- ------------ -------------
Balance at December 31, 1998.............................. $ 41,796 $ 13,434,445 $ 1,889,405 $ 15,365,646
--------- ------------- ------------ -------------
--------- ------------- ------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FOILMARK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income from continuing operations........................................ $ 356,742 $1,475,279 $ 188,619
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................................... 1,373,948 1,285,841 1,063,852
Amortization............................................................... 317,216 314,763 310,454
Provision for doubtful accounts............................................ 119,000 85,000 150,000
Deferred taxes............................................................. 311,320 89,117 58,289
Change in assets and liabilities, net of effects of acquisitions:
Increase in accounts receivable.......................................... (207,381) (28,034) (261,215)
(Increase) decrease in inventories....................................... (249,789) 1,616,981 (2,302,714)
Decrease (increase) in income taxes receivable........................... 1,276,549 (859,150) (468,271)
(Increase) decrease in bond and mortgage financing costs and other
assets................................................................. (593,029) 78,317 (4,328)
Increase in deferred acquisition costs................................... (261,482) -- --
(Decrease) increase in customer deposits................................. (39,494) (243,140) 450,451
Increase (decrease) in accounts payable and accrued expenses............. 562,915 (1,639,592) 1,081,651
--------- --------- ---------
Net cash provided by operating activities.................................. 2,966,515 2,175,382 266,788
--------- --------- ---------
Net cash used in discontinued operations....................................... (339,728) (531,905) (437,736)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures....................................................... (1,272,052) (1,305,609) (2,103,900)
Proceeds from sale of facilities........................................... -- 2,536,557 --
(Increase) decrease in cash-restricted..................................... (66,666) (100,000) 970,923
--------- --------- ---------
Net cash used in investing activities...................................... (1,338,718) (1,130,948) (1,132,977)
--------- --------- ---------
Cash flows from financing activities:
Payments of notes payable to stockholders.................................. (112,921) (131,814) (204,760)
Proceeds of other long-term debt........................................... -- 1,512,445 3,667,750
Payments of other long-term debt........................................... (1,597,168) (3,699,051) (2,536,646)
Proceeds from shares issued under benefit plans............................ 30,411 35,773 37,658
Issuance of common stock to employees under stock grants................... -- 4,136 8,923
--------- --------- ---------
Net cash (used for) provided by financing activities....................... (1,679,678) (2,278,511) 972,925
--------- --------- ---------
Net (decrease) increase in cash................................................ (391,609) 495,914 (331,000)
Cash--beginning of year........................................................ 629,170 133,256 464,256
--------- --------- ---------
Cash--end of year.............................................................. $ 237,561 $ 629,170 $ 133,256
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest................................................................... $ 731,370 $ 944,188 $ 893,392
--------- --------- ---------
Income taxes............................................................... $ 59,000 $ 408,000 $ 129,100
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) THE COMPANY
Foilmark, Inc. (the "Company" or "Foilmark") develops, manufactures and
distributes hot stamping foils and holographic films, used by the graphic arts,
plastics and packaging industries, to decorate or enhance products and their
packaging. It also produces image transfer equipment, pad printing machinery,
screen printing systems and printing supplies. Foilmark's products are used on
such items as cosmetic packaging, book covers, wine labels, greeting cards and
many other consumer goods.
On November 17, 1998, the Company entered into an Agreement and Plan of
Merger with HoloPak Technologies, Inc. ("HoloPak"), pursuant to which HoloPak
will be merged into a Foilmark subsidiary. Each outstanding share of HoloPak
common stock will be converted into 1.11 shares of Foilmark common stock and the
right to receive $1.42 in cash. As of December 31, 1998, there were
approximately 3,347,000 shares of HoloPak common stock outstanding. Consummation
of the merger is expected to occur during the first half of 1999, and is subject
to various conditions, including, but not limited to, approval by the
stockholders of the Company and HoloPak. The merger will be accounted for under
the purchase method of accounting.
HoloPak manufactures and distributes hot-stamp foils and manufactures
laminated foil and direct metallized paper. HoloPak also produces holographic
foil.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material inter-company balances and
transactions are eliminated in consolidation.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Plant and equipment under
capital leases are stated at the present value of minimum lease payments.
Depreciation is computed as follows:
<TABLE>
<CAPTION>
ESTIMATED
METHODS USEFUL LIFE
-------------- -------------
<S> <C> <C>
Building and improvements........................................ Straight-line 15-40 years
Machinery, furniture and fixtures................................ Straight-line 3-10 years
Automobiles...................................................... Straight-line 3 years
</TABLE>
(d) Notes Receivable
Notes receivable are recorded at cost, less any required allowance for
impaired notes receivable. Management, considering current information and
events regarding the borrowers' ability to repay their obligations, considers a
note to be impaired when it is probable that the Company will be unable to
collect all amounts due, according to the contractual terms of the note
agreement.
F-6
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Bond and Mortgage Financing Costs
Bond and mortgage financing costs are amortized over the life of the related
obligations.
(f) Revenue Recognition
Revenue is recognized when products are shipped to the customer. A provision
is made for estimated product returns, claims and allowances.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Research and Development
The Company incurs costs in the research and development of new products and
applications. Such costs are expensed as incurred and amounted to $488,000,
$540,000, and $374,000, and for the years ended December 31, 1998, 1997, and
1996 respectively, and were included as a component of cost of sales.
(i) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company accounts for long-lived assets in accordance with the provisions
of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(k) Stock Option Plan
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, in accounting for its
fixed plan stock options. As such, compensation expense would be
F-7
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price.
(l) Earnings per Share
Basic earnings per share is computed by dividing net earnings by the
weighted average number of shares outstanding for the year. Diluted earnings per
share is similar except that the weighted average number of shares outstanding
is increased by shares issuable upon exercise of stock options and warrants for
which market price exceeds exercise price, less shares which could have been
purchased by the Company with the related proceeds. Basic and diluted earnings
per share were the same for all periods presented as common stock equivalents
were not dillutive.
(m) Reclassifications
Certain amounts have been reclassified to conform to current year
presentation.
(3) DISCONTINUED OPERATIONS
In October 1997, the Company's Board of Directors adopted a plan to
discontinue the manufacture of hot stamping equipment. Accordingly, the
operating results of the hot stamping division, including provisions for
disposal of the hot stamping line of $3,894,400, net of tax benefit, were
segregated from continuing operations and reported as a separate line item on
the statement of operations. The total loss from discontinued operations, net of
tax benefit, including the provision for disposition, was $4,786,476, or $1.15
per share, for the year ended December 31, 1997. The Company has restated its
prior years' financial statements to present the operating results of the hot
stamping line as a discontinued operation. The assets and liabilities of such
operations, at December 31, 1998 and 1997, have been reflected as current or
non-current assets and liabilities of discontinued operations, based
substantially on the original classification of such assets and liabilities.
The Company recorded notes receivable related to the sale of certain assets
of the hot stamping division. The notes receivable are recorded at the present
value of future cash flows, and are included in long term assets in the
accompanying financial statements.
F-8
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(3) DISCONTINUED OPERATIONS (CONTINUED)
Operating results from discontinued operations are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Net sales........................................................................... $ 6,395,424 $ 7,498,371
Costs and expenses:
Cost of sales....................................................................... 5,611,009 6,604,210
Selling, general and administrative expenses........................................ 1,746,681 2,111,746
------------- -------------
7,357,690 8,715,956
Operating loss...................................................................... (962,266) (1,217,585)
Interest and other expenses......................................................... (524,527) (620,204)
------------- -------------
Loss before income tax benefit...................................................... (1,486,793) (1,837,789)
Income tax benefit.................................................................. 594,717 609,044
------------- -------------
Loss from operations................................................................ (892,076) (1,228,745)
------------- -------------
Loss on disposition, net of income tax benefit...................................... (3,894,400) --
------------- -------------
Net loss from discontinued operations............................................... $ (4,786,476) $ (1,228,745)
------------- -------------
------------- -------------
</TABLE>
The following summarizes assets and liabilities of the discontinued
operations, which have been segregated in the accompanying consolidated balance
sheets at December 31, 1997:
<TABLE>
<S> <C>
Current assets--discontinued operations:
Accounts receivable, net...................................... $ 459,119
Inventories................................................... 355,000
Other assets.................................................. 163,019
---------
$ 977,138
---------
---------
Current liabilities--discontinued operations:
Accounts payable.............................................. $ 441,662
Accrued restructuring......................................... 828,788
---------
$1,270,450
---------
---------
</TABLE>
(4) INVENTORIES
Inventory balances at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Raw materials......................................................................... $ 1,893,978 $ 1,658,159
Work-in-progress...................................................................... 2,000,185 2,108,422
Finished goods........................................................................ 4,240,32 4,118,120
------------ ------------
$ 8,134,490 $ 7,884,701
------------ ------------
------------ ------------
</TABLE>
F-9
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(4) INVENTORIES (CONTINUED)
Polyester, the primary raw material in foil manufacturing, is subject to
fluctuations in price depending on industry supply and demand.
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Land.............................................................. $ 78,673 $ 78,673
Building and improvements......................................... 3,871,695 3,753,821
Machinery, furniture and fixtures................................. 14,161,771 12,970,912
Automobiles....................................................... 120,325 116,730
------------ ------------
------------ ------------
18,232,464 16,920,136
Less accumulated depreciation..................................... 9,143,575 7,769,627
------------ ------------
$ 9,088,889 $ 9,150,509
------------ ------------
------------ ------------
</TABLE>
(6) INTANGIBLE ASSETS
Intangible assets at December 31, 1998 and 1997 include the following:
<TABLE>
<CAPTION>
AMORTIZATION
1998 1997 PERIOD
------------ ------------ -------------
<S> <C> <C> <C>
Excess of cost over fair value of assets acquired..................... $ 4,914,940 $ 4,914,940 20 Years
Patents............................................................... 251,846 251,846 10-17 Years
------------ ------------ -------------
5,166,786 5,166,786
Less: accumulated amortization........................................ 904,455 646,205
------------ ------------
$ 4,262,331 $ 4,520,581
------------ ------------
------------ ------------
</TABLE>
The Company assesses the recoverability of the excess of cost over fair
value of assets acquired quarterly based upon the projected un-discounted future
cash flows of the acquired entity. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Any diminution in
value is recorded when identified.
Amortization expense of $258,250, $258,250, and $254,454 relating to
intangible assets was charged to operations in 1998, 1997 and 1996,
respectively.
F-10
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(7) NOTES PAYABLE--STOCKHOLDERS
Notes payable to stockholders' at December 31, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Notes due to stockholders, payable in semi-annual payments of $19,911, which include
interest at 6% per annum. Payments began May 1, 1993 and continue through November 1,
2005, subordinated through the due date................................................. $ 435,332 $ 486,548
Notes payable to stockholders with interest at 6% and balance due in equal quarterly
installments through 2003, subordinated to bank notes and/or industrial revenue bonds... $ 130,403 $ 157,317
Promissory notes to a stockholder, subordinated except for monthly installments through
the due date to industrial development revenue bonds, bearing a stated interest rate of
6% due in quarterly installments of $10,357 including interest through 2001............. $ 88,697 $ 123,488
---------- ----------
Total notes payable stockholders.......................................................... $ 654,432 $ 767,353
Less current installments................................................................. $ 119,827 $ 112,922
---------- ----------
Notes payable-stockholders, excluding current installments................................ $ 534,605 $ 654,431
---------- ----------
---------- ----------
</TABLE>
Interest amounting to $43,903, $52,048, and $57,935 in 1998, 1997 and 1996,
respectively, was paid to the Company's stockholders or other related parties.
(8) OTHER LONG-TERM DEBT
Other long-term debt at December 31, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Borrowings under revolving credit loan financing agreement, see(a)................... $ 5,500,000 $ 6,595,944
Borrowings under The Massachusetts Industrial Financing Agreement, see (b)........... 3,300,000 3,700,000
Mortgage loans payable, interest at 7.75%, see (c)................................... 151,315 162,066
Capital lease obligation payable in quarterly installments of $21,379, including
interest at 6%, through March 1999................................................. 14,041 95,626
Note payable, interest at 9.95%, due in monthly installments of $594, plus interest,
through August, 2001............................................................... 16,637 21,826
Capital lease obligation payable in monthly installments of $464, including interest
at 9.40%, through October, 2001.................................................... 17,865 21,564
------------ -------------
Total other long-term debt........................................................... $ 8,999,858 $ 10,597,026
Less current installments............................................................ 428,792 501,220
------------ -------------
Other long-term debt, excluding current installments................................. $ 8,571,066 $ 10,095,806
------------ -------------
------------ -------------
</TABLE>
- ------------------------
(a) In 1995, the Company entered into an unsecured, revolving credit agreement
which permitted the Company to borrow up to $6,000,000 at an interest rate
that equals the reserve adjusted LIBOR rate (5.28% and 5.91% at December 31,
1998 and 1997) plus 2%. In 1997, the unsecured, revolving credit
F-11
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(8) OTHER LONG-TERM DEBT (CONTINUED)
agreement was amended to permit the Company to borrow up to $10,000,000. The
Company must pay a quarterly commitment fee of 1/4 of 1% per annum on the
average daily amount of the available revolving credit commitment. As of
December 31, 1998, the Company had an outstanding total of $5,500,000, under
the revolving credit agreement. Principal payments are not required until
maturity on June 30, 2000.
(b) In 1995, the Company entered into a financing agreement with the Company's
primary bank and the State of Massachusetts (MIFA Industrial Development
Revenue Bonds) that permitted the Company to borrow up to $4,400,000 at the
bank's fluctuating seven day interest rate (5.28% and 5.91% at December 31,
1998 and 1997). The Company must pay a monthly commitment fee of 1/12th of
one percent (1%) per annum on the average daily stated amount of the letter
of credit. The bonds are subject to mandatory redemption through sinking
fund installment payments prior to maturity on each June 1 as follows:
$400,000 for years 1999-2005, and $100,000 for years 2006--2010. At December
31, 1998 and 1997, the sinking fund balance of $233,333 and $166,667 was
included in restricted cash and was not available for operations.
(c) In 1996, the Company borrowed $180,250 under two mortgage loan agreements.
The mortgages are payable monthly with interest at 7.75%. At December 31,
1998, a building with a net book value of $190,133 was pledged as collateral
for this loan.
The terms of the various long term debt agreements require, among other
things that the Company maintain certain amounts of tangible net worth, ratios
of current assets to current liabilities, total liabilities to tangible net
worth plus subordinated liabilities, and debt service coverage and restrict the
amount of capital expenditures, and the payment of dividends. At December 31,
1998, the Company was not in compliance with one of these covenants. The Company
has received a waiver from the bank for this covenant through March 31, 1999.
Based on the Company's projections, it believes that it will be in compliance
with this covenant as modified by the waiver.
F-12
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(8) OTHER LONG-TERM DEBT (CONTINUED)
Maturities of all long term debt are as follows:
<TABLE>
<CAPTION>
TOTAL STOCKHOLDERS OTHER
------------ ------------ ------------
<S> <C> <C> <C>
Year ending December 31:
1999.............................................. $ 548,619 $ 119,827 $ 428,792
2000.............................................. 6,184,295 127,155 6,057,140
2001.............................................. 515,393 105,915 409,478
2002.............................................. 503,481 99,034 404,447
2003.............................................. 474,015 74,015 400,000
Thereafter........................................ 1,428,487 128,486 1,300,001
------------ ------------ ------------
$ 9,654,290 $ 654,432 $ 8,999,858
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(9) EMPLOYEE RETIREMENT PLANS
The Company maintains a profit sharing plan for the benefit of eligible
employees of certain subsidiaries. Contributions are made at the sole discretion
of the Board of Directors, but may not exceed the amounts deductible for income
tax purposes. Contributions are first allocated based upon an integration with
the social security taxable wage base and the remainder based upon total
eligible compensation. Retirement plan expense amounted to $0, $138,000, and $0
in the years 1998, 1997 and 1996, respectively.
The Company also maintains a profit sharing plan, which conforms with
Section 401 (k) of the Internal Revenue Code. Contributions are made exclusively
by the participants. The Company does not contribute to the Plan.
The Company does not provide post-retirement or other post-employment
benefits.
(10) INCOME TAXES
The provision for income tax expense from continuing operations for the
years ended December 31, 1998, 1997, and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current................................................. $ (101,563) $ 727,587 $ 18,551
Deferred................................................ 353,711 75,737 89,557
----------- ---------- ----------
252,148 803,324 108,108
----------- ---------- ----------
State:
Current................................................. (87,923) 166,815 54,233
Deferred................................................ (42,391) 13,380 (31,268)
----------- ---------- ----------
(130,314) 180,195 22,965
----------- ---------- ----------
$ 121,834 $ 983,519 $ 131,073
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
F-13
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(10) INCOME TAXES (CONTINUED)
Income tax benefit from discontinued operations totaled $2,881,905 and
$609,044, respectively, for the years ended December 31, 1997 and 1996.
Income tax expense from continuing operations for the years ended December
31, 1998, 1997, and 1996 differed from the amounts computed by applying the U.S.
federal income tax rate of 34% to pretax income from continuing operations as a
result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense......................... $ 161,525 $ 835,991 $ 108,695
Increase in income taxes resulting from: Nondeductible
expenses.............................................. 26,047 21,130 26,096
State and local income taxes, net of federal income tax
benefit (where applicable)............................ (118,082) 118,929 15,157
Other, net.............................................. 52,344 7,469 (18,875)
----------- ---------- ----------
$ 121,834 $ 983,519 $ 131,073
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998, and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating losses, federal and state.......................... $ 550,891 $ 474,137
Accounts receivable principally due to allowance for doubtful
accounts....................................................... 295,583 137,424
Inventories, cost capitalization................................. 134,832 133,726
Intangible assets................................................ 5,057 25,850
Compensated absences, principally due to accrual for financial
reporting purposes............................................. 65,995 68,237
Discontinued operations.......................................... -- 679,508
Other accrued expenses........................................... 194,605 42,251
----------- -----------
Net deferred tax assets.......................................... 1,246,963 1,561,133
----------- -----------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation and capitalized interest.......................... (1,221,921) (1,224,771)
----------- -----------
Net deferred tax asset........................................... $ 25,042 $ 336,362
----------- -----------
----------- -----------
</TABLE>
As of December 31, 1998 and 1997 no valuation allowance has been established
relative to the deferred tax assets. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, carryback availability, and projected future taxable income in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable
F-14
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(10) INCOME TAXES (CONTINUED)
income over the periods, which the deferred tax assets are deductible,
management believes that it is more likely than not the Company will realize the
benefits of these deductible differences. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
Deferred taxes are classified in the accompanying consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Current deferred tax asset......................................... $ 718,602 $ 1,221,135
Non-current deferred tax liability................................. (693,560) (884,773)
----------- ------------
Net deferred tax asset............................................. $ 25,042 $ 336,362
----------- ------------
----------- ------------
</TABLE>
(11) STOCKHOLDERS' EQUITY
(A) STOCK GRANTS
Since 1986 the Company has granted 61,992 shares of its common stock to
certain key employees. The grants are recorded at net book value, which was
considered the fair market value on the date of the grant, as determined by
Company management. Granted shares vest 20% per year beginning on the December
31 immediately after the grant. As of December 31, 1998, no shares remain
un-vested. No shares were granted in 1998 and 1997. Compensation expense of $0,
$4,136, and $8,923, relating to these grants, was recorded for the years ended
December 31, 1998, 1997 and 1996, respectively.
(B) STOCK OPTION PLAN
The Company had three stock option plans in effect at December 31, 1998: The
1993 Employees Stock Option Plan (1993 Plan), the 1995 Employees Stock Option
Plan (1995 Plan) and the Non-Employee Directors Stock Option Plan (Directors'
Plan).
The 1993 and 1995 Employees Stock Option Plans provide for the issuance to
key employees and officers a maximum of 200,000 and 400,000 shares of common
stock, respectively, in the form of stock options. Stock options issued under
these Plans may be granted as "Incentive Stock Options" (as defined by the
Internal Revenue Code of 1986) or non-qualified stock options. Options may be
exercised only within ten years from the date of grant.
The Non-Employee Directors Stock Option Plan provides for the issuance, to
non-employee directors, a maximum of 75,000 shares of common stock in the form
of stock options. Stock options issued under the plan are non-qualified stock
options. Options may only be exercised within 10 years of the date of the grant,
and shall vest six months after the date of grant.
At December 31, 1998, there were 60,050 additional shares available for
grant under the 1993 Plan, 160,242 additional shares available under the 1995
Plan, and 60,000 shares available under the Non-Employee Directors Stock Option
Plan. The per share weighted-average fair value of stock options granted during
1998, 1997 and 1996 was $2.07, $3.63 and $2.48 respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: In 1998, expected dividend yield 0%, risk-free
interest rate ranging from 4.61% to 5.00%, and an expected life of 5 years. In
F-15
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(11) STOCKHOLDERS' EQUITY (CONTINUED)
1997, expected dividend yield 0%, risk-free interest rate ranging from 5.53% to
5.69%, and an expected life of 5 years. In 1996, expected dividend yield 0%,
risk-free interest rate ranging from 5.95% to 6.03%, and an expected life of 5
years. The expected volatility rate was 84.4% for all plans in 1988, 88.7% 1997,
and 39% in 1996.
The Company applies APB Opinion No. 25 in accounting for the plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) from
continuing As reported............... $ 356,742 $ 1,475,279 $ 188,619
operations Pro forma................. 100,874 1,407,130 (59,223)
Net income (loss) per
share As reported............... 0.09 0.35 0.05
--basic and diluted Pro forma................. 0.02 0.34 (0.01)
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.
The following table summarizes the activity in the Plan:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OPTION PRICE
OF SHARES PER SHARE
----------- -----------------
<S> <C> <C>
Outstanding,
December 31, 1995................................................ 160,150 $ 5.50
Granted........................................................ 47,950 4.50
Balance,......................................................... -- --
December 31, 1996................................................ 208,100 $ 5.27
Granted........................................................ 15,000 3.79
Forfeited...................................................... (15,200) 5.39
Balance,......................................................... -- --
December 31, 1997................................................ 207,900 $ 5.61
Granted........................................................ 199,058 3.20
Forfeited...................................................... (12,250) 4.83
----------- -----
Balance,
December 31, 1998................................................ 394,708 $ 4.10
----------- -----
----------- -----
</TABLE>
At December 31, 1998, 1997 and 1996, the number of options exercisable was
394,708, 202,900 and 160,150 with a weighted-average exercise price of $4.10,
$5.21 and $5.50.
F-16
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(11) STOCKHOLDERS' EQUITY (CONTINUED)
(C) EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan (the "ESPP") covers substantially all
employees. The ESPP allows eligible employees the right to purchase common stock
every eight weeks at 85% of the average market price during the eight week
period. As of December 31, 1998 there were 400,000 shares of common stock
reserved for the ESPP. The number of shares issued under the plan in 1998 and
1997 were 12,246, and 15,636 shares for $29,711 and $35,773 respectively.
(12) FOREIGN SALES
The Company's foreign sales are made principally to customers in Europe,
South Africa, the Middle East, Mexico, and South and Central America. All
foreign sales are payable in U.S. dollars. No single country accounted for more
than 5% of the Company's sales. Such sales amounted to $4,505,246, $6,686,274
and $4,092,468 for the years ended December 31, 1998, 1997, and 1996
respectively.
(13) OPERATING SEGMENTS
The Company organizes its business units into three reportable segments: hot
stamp foil, holography and pad printing machinery and supplies. The hot stamp
foil segment develops manufactures and distributes value added hot stamping
foils, used by the graphic arts, plastic and packaging industries, to decorate
or enhance products and their packaging. The holography segment manufactures
holographic media used in the packaging and product enhancement industries. The
pad print and supplies segment manufactures image transfer equipment, pad
printing machinery, screen print systems and printing supplies. The segment's
accounting policies are the same as those described in the summary of
significant accounting policies except that income tax expense is not allocated
to the individual operating segments when determining segment profit or loss.
The Company's segments are managed separately, as they require different
technologies, offer different products and serve different customers.
F-17
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(13) OPERATING SEGMENTS (CONTINUED)
The following table sets forth the twelve months ended December 31, 1998,
1997 and 1996 segment financial information:
<TABLE>
<CAPTION>
CORPORATE
HOT STAMP PAD-PRINT AND
FOIL HOLOGRAPHY AND SUPPLIES UNALLOCATED TOTAL
------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sales to external customers............ 1998 $ 22,326,349 $ 1,825,599 $6,734,187 $ -- $ 30,886,135
1997 24,707,905 2,643,741 6,027,836 -- 33,379,482
1996 21,769,881 1,434,964 6,487,395 -- 29,692,240
Interest expense....................... 1998 577,767 35,160 182,665 (69,327) 726,265
1997 227,000 7,147 169,054 -- 403,201
1996 287,800 19,101 292,606 -- 599,507
Depreciation and amortization.......... 1998 1,233,739 152,412 305,013 -- 1,691,164
1997 1,118,001 182,488 300,115 -- 1,600,604
1996 1,001,343 76,207 296,756 -- 1,374,306
Segment profit (loss).................. 1998 1,799,106 (368,788) (132,889) (818,853) 478,576
1997 2,548,772 228,183 212,858 (531,015) 2,458,798
1996 458,478 126,251 263,827 (528,864) 319,692
Segment assets......................... 1998 17,794,165 2,039,784 7,868,264 2,118,659 29,820,872
1997 18,764,401 1,197,670 7,502,841 4,617,138 32,082,050
1996 20,479,835 926,161 7,569,387 11,356,734 40,332,117
Capital expenditures for segment
assets............................... 1998 525,924 689,321 56,807 -- 1,272,052
1997 1,020,313 196,548 88,748 -- 1,305,609
1996 1,771,669 53,318 278,913 -- 2,103,900
</TABLE>
The corporate and unallocated assets include assets of discontinued
operations, notes receivable, income tax receivable, deferred income tax assets
and other corporate assets. Assets of discontinued operations were $977,138 in
1997 and $9,827,026 in 1996.
(14) COMMITMENTS
RENTAL COMMITMENTS
The Company's minimum annual rentals under various non-cancelable operating
leases for warehouse space, equipment and autos expiring through 2002 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ---------------------------------------------------------------------------------------
<S> <C>
1999................................................................................... 555,464
2000................................................................................... 425,809
2001................................................................................... 333,154
2002................................................................................... 83,574
</TABLE>
Rental expense under operating leases was $598,000, $516,000, and $438,000
in 1998, 1997 and 1996, respectively.
F-18
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(15) BUSINESS AND CREDIT CONCENTRATIONS
The Company's customers are located primarily throughout the United States.
There were no accounts receivable from a customer greater than 5% of the
Company's total stockholders' equity at December 31, 1998. In addition, no
customer had sales greater than 10% of consolidated sales for the years ended
December 31, 1998 and 1997.
(16) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth quarterly financial information for 1998,
1997 and 1996 (in thousands, except for per share data):
<TABLE>
<CAPTION>
NET INCOME
(LOSS) NET LOSS PER
INCOME (LOSS) LOSS FROM NET PER SHARE: SHARE:
NET GROSS FROM CONTINUING DISCONTINUED INCOME CONTINUING DISCONTINUED
SALES PROFIT OPERATIONS OPERATIONS (LOSS) OPERATIONS OPERATIONS
--------- --------- --------------- ------------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998:
First quarter............... $ 8,291 $ 2,412 $ 197 $ -- $ 197 $ 0.05 $ --
Second quarter.............. 7,542 2,348 76 -- 76 0.02 --
Third quarter............... 7,881 2,370 256 -- 256 0.06 --
Fourth quarter.............. 7,172 1,917 (172) -- (172) (0.04) --
--------- --------- ------ ------------- --------- ------ ------
$ 30,886 $ 9,047 $ 357 $ -- $ 357 $ 0.09 $ --
--------- --------- ------ ------------- --------- ------ ------
1997:
First quarter............... $ 9,801 $ 2,472 $ 473 $ (238) $ 235 $ 0.11 $ (0.05)
Second quarter.............. 7,756 2,473 361 (33) 328 0.09 (0.01)
Third quarter............... 8,417 2,495 396 (4,365) (3,969) 0.10 (1.05)
Fourth quarter.............. 7,405 2,160 245 (150) 95 0.06 (0.04)
--------- --------- ------ ------------- --------- ------ ------
$ 33,379 $ 9,600 $ 1,475 $ (4,786) $ (3,311) $ 0.09 $ (1.15)
--------- --------- ------ ------------- --------- ------ ------
1996:
First quarter............... $ 7,036 $ 1,749 $ (71) $ (112) $ (183) $ (0.02) $ (0.02)
Second quarter.............. 8,352 2,392 255 (112) 143 0.06 (0.03)
Third quarter............... 7,619 2350 294 (224) 70 0.07 (0.05)
Fourth quarter.............. 6,685 1,190 (289) (781) (1,070) (0.07) (0.19)
--------- --------- ------ ------------- --------- ------ ------
$ 29,692 $ 7,681 $ 189 $ (1,229) $ (1,040) $ 0.05 $ (0.30)
--------- --------- ------ ------------- --------- ------ ------
<CAPTION>
TOTAL NET
INCOME
(LOSS) PER
SHARE
-----------
<S> <C>
1998:
First quarter............... $ 0.05
Second quarter.............. 0.02
Third quarter............... 0.06
Fourth quarter.............. (0.04)
-----------
$ 0.09
-----------
1997:
First quarter............... $ 0.06
Second quarter.............. 0.08
Third quarter............... (0.95)
Fourth quarter.............. 0.02
-----------
$ (0.80)
-----------
1996:
First quarter............... $ (0.04)
Second quarter.............. 0.03
Third quarter............... 0.02
Fourth quarter.............. (0.26)
-----------
$ (0.25)
-----------
</TABLE>
Basic and diluted net income (loss) per share were the same for all periods
presented.
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Accounts receivables-trade, other current assets, notes payable to banks,
accounts payables and accrued expenses, customer deposits and deferred income
taxes: The carrying amounts of these financial instruments approximate fair
value because of the short maturity of those instruments.
Notes payable-stockholders and other long-term debt: The fair value of the
Company's long-term debt is estimated by discounting the future cash flows of
each instrument at rates currently offered to the
F-19
<PAGE>
FOILMARK, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Company for similar debt instruments of comparable maturities by the Company's
bank. Such fair values approximated carrying values at December 31, 1998 and
1997.
(18) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in an action alleging failure to pay certain
sales commissions. The plaintiff is seeking damages in the amount of $1,582,000.
Examination in the case is in the preliminary stages. However, the Company and
its counsel believe that its defenses to this action are strong, although no
prediction as to the ultimate outcome of the proceeding can be made at this
time.
The Company is also involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management the
ultimate disposition of these matters will not have a material adverse effect on
the Company's consolidated financial position, results of operations or
liquidity.
The results of operations during fiscal year end 1996 included $305,000 to
cover the settlement costs of a group of consolidated lawsuits.
F-20
<PAGE>
SCHEDULE II
FOILMARK, INC. AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COL. B COL. C COL. F
BALANCE AT CHARGED TO COL. D BALANCE AT
COL. A BEGINNING COST AND DEDUCTIONS COL. E END OF
CLASSIFICATION OF PERIOD EXPENSE (1) OTHER PERIOD
- ----------------------------------------------------------- ----------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1996:
Allowance for doubtful accounts (deducted from accounts
receivable).............................................. 149,000 150,000 -- 40,000 339,000
For the year ended December 31, 1997:
Allowance for doubtful accounts (deducted from accounts
receivable).............................................. 339,000 85,000 (76,000) -- 348,000
For the year ended December 31, 1998:
Allowance for doubtful accounts (deducted from accounts
receivable).............................................. 348,000 119,000 (321,000) -- 146,000
</TABLE>
- ------------------------
(1) Deductions relate to uncollectible accounts charged off to valuation
accounts, net of recoveries.
S-1
<PAGE>
James M. Clark
Assistant Vice President
Commercial Central
[LOGO]FLEET
Fleet Bank
Mail Stop: MA OF DO4B
One Federal Street
Boston, MA 02110-2010
617-346-5018
Fax 617-346-4843
[email protected]
February 18, 1999
Mr. Philip Leibel
Chief Financial Officer
Foilmark, Inc
5 Malcolm Hoyt Drive
Newburyport, MA 01950
Dear Phil:
We are in receipt of the preliminary projected financial statement for Foilmark,
Inc. and affiliates(s) (the Borrower") for the twelve month period ending
December 31, 1998. According to our calculations Foilmark will be in violation
of the loan covenant pertaining to the Minimum Tangible Net Worth as defined and
contained in the loan and security agreement(s) governing the Borrower's
Commercial loans.
Fleet National Bank ("Fleet" or the "Bank") hereby waives the covenant provision
for the above cited covenant violations for the periods ending December 31,
1998. Additionally, the Bank resets the above cited covenant to be the
following:
o $11,300,000 for the twelve month period ending December 31, 1998;
o 11,550,000 for the three month period ending March 31, 1999, and
thereafter.
All other terms, conditions, and covenants of the loan agreement between the
Borrower and the Bank remain in effect. Any amendments or modifications not
specifically referenced herein shall also remain in effect.
Very truly yours,
/s/ James M. Clark
James M. Clark
Vice President
<PAGE>
FOILMARK
HOT STAMPING FOILS
5 MALCOLM HOYT DRIVE o NEWBURYPORT, MA 01950 o 978-462-7300 o fax 978-462-0831
www.foilmark.com
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is between Imtran Foilmark, Inc., a Delaware
corporation with a principal place of business at 25 Hale Street, Newburyport,
Massachusetts 01950, (the "Company"), and DOUGLAS PARKER with a mailing address
of 32 Tower Hill Road, North Reading, MA 01864, (the "Employee").
IT IS MUTUALLY AGREED by the parties hereto as follows:
1. Employment. The Company hereby employs Employee upon the terms and
conditions set forth herein. The Employee hereby accepts this employment.
2. Term. The term of this agreement is for a period ending April 1, 2005.
The term of this Employment Agreement may be extended for additional one-year
periods by mutual consent of the parties.
3. Duties. The Employee shall serve in the capacity of Vice President,
Sales-Imtran Pad Print Products (the "Position"). As such, Employee will perform
such duties of a nature as are indicated in the job description in the attached
Exhibit A and such other duties consistent with his Position as may be
reasonably determined and assigned to him from time to time by the General
Manager-Imtran and the CEO/President of Foilmark, Inc. Employee may be assigned
duties on behalf of any Affiliate of the Company so long as such duties do not
substantially interfere with Employee's ability to carry out his primary
responsibilities in the Position, nor materially reduce Employee's stature
within the Company, which responsibilities and stature may be increased but
shall not be decreased during the term of this agreement. During the terms of
this Agreement, Employee agrees to devote his best efforts and full time and
capacity to further the interests of the Company, and shall not be engaged in
any other commercial activity or assume any other corporate affiliations that
would in any material respect interfere with his ability to devote his best
efforts and full time to the Company without the prior consent in writing to the
Board of Directors of the Company. It is understood that Employee and his family
are engaged in the business of custom embroidery, and that Employee may spend
personal or vacation time to that and related businesses so long as such does
not materially interfere with his responsibilities set forth above.
4. Compensation.
4.1 The Employee will be paid a base salary in the amount of $115,000 per
annum effective April 1, 1998. Such salary shall be reviewed no less frequently
than annually and shall be increased (but never decreased) consistent with
Company policy and practice.
FOILMARK EAST, DISTRIBUTION AND INTERNATIONAL SALES, 120 FAIRCHILD AVENUE,
PLAINVIEW, NY 11803 FOILMARK WEST, 2150-B ANCHOR COURT, NEWBURY PARK, CA 91320
<PAGE>
Such salary to be payable weekly in arrears, subject to such tax and other
normal deductions as are required by law. A commission of 1% on all sales of
Imtran pad print and screen print related products, along with new products
added to the line mutually agreed upon (the "Products") will be paid monthly,
promptly following months end.
4.2 A bonus of $50,000 will be paid upon reaching $8,000,000 of annual
sales of Products. An additional bonus of $50,000 will be paid upon reaching
$10,000,000 of annualized sales of the same products. The bonus will be paid 1/2
in December of the year it is due and the balance after promptly upon completion
of the financial audit for such year but in any event not later than March 31 of
the following year.
4.2(a) The Employee will be granted 25,000 Incentive Stock Options issued
at market as a signing incentive. Such options will vest in accordance with
Company policy and the approved Foilmark Employee Stock Option Plan.
Additionally, the Employee will be granted options conditional to the
Compensation Committee and Foilmark's compensation plan. Options are not
guaranteed to any Employee in any year, but should the senior management group
of employees of Foilmark similar to Employee in compensation or stature be
granted options in any year, Employee shall receive an option grant in line with
such other employee or employees based on Employee's contribution toward meeting
corporate goals.
4.2(b) In the event that the Imtran pad print operations is sold for
$5,200,000 or more during the term of the agreement, the Employee will receive a
payment of $250,000 out of the proceeds.
4.3 Reimbursable Expenses. Employee is authorized to incur reasonable
expenses for conducting and promoting the business of the Company in accordance
with normal policy of the Company in effect from time to time. The Company will
reimburse the Employee for all such expenses as well as other reasonable travel
and business expenses incurred on behalf of the Company upon the presentation by
the Employee, at least monthly, of an itemized account of such expenditures.
4.4 Automobile Allowance. The Employee will receive a car allowance of
$700/month. In addition to this, the Employee will be entitled to charge or be
reimbursed for $1,200 per year for gasoline and maintenance expenses.
5. Benefits. Employee shall be eligible for all fringe benefits provided
to the Company's and Foilmark Inc.'s executive employees in accordance with
normal policy of Company and Foilmark. These benefits presently include group
medical insurance coverage (partially contributory), holidays, life insurance,
long-term disability insurance (contributory), automobile allowance, travel
accident insurance, 401K and profit sharing plan. Employee shall be entitled to
five (5) weeks paid vacation each year during the term hereof.
2
<PAGE>
6. Location. Employee's base office will be in Newburyport, Massachusetts.
This location is subject to change at the discretion of the President of the
Company and with the consent of Employee.
7. Termination.
a. The Company may terminate the Employee's employment under this
Agreement: (i) upon Employee's death; (ii) at any time, for "Cause," which means
(A) Employee's willful refusal to substantially perform his obligations under
this Agreement or other acts or omissions constituting gross neglect or
dereliction of his duties hereunder, it being understood that the failure by
Employee or the Company to achieve any sales, profit, transactional, customer,
performance, organizational or other goals, budgets or objectives due to events
outside of Employee's control shall not constitute "Cause" hereunder, (B) fraud,
dishonesty or other acts or omissions constituting a crime involving moral
turpitude by Employee, or (C) Employee's violation in any material respect of
Paragraphs 11, 12, or 13; (iii) at any time, for any reason, upon three (3)
months written notice to Employee; or (iv) upon Employee's disability, subject
to the provisions of Paragraph 9.
b. Employee may terminate Employee's employment under this
Agreement: (i) at any time, for any reason, upon three (3) months written notice
to the Company; (ii) at any time, for cause, upon written notice of failure or
refusal by the Company or any Affiliate to substantially perform its obligations
under this Agreement or the Guaranty, (iii) upon Employee's disability subject
to the provisions of Paragraph 9 or (iv) at any time within 12 months of (A) a
material change in the base office of Employee.
c. In the event of termination of Employee's employment for Cause
under Paragraph 7(a)(ii) of this Agreement, all future financial obligations
cease as of the date of the termination.
d. In the event of termination of Employee's employment under
Paragraph 7(a)(iii) 7(b)(ii) or 7(b)(iv) of this Agreement, the Company shall be
obligated to pay Employee or his estate, as the case may be, (i) all salary and
other compensation earned or accrued up to the date of termination, (ii)
severance equal to the amount of the previous six months salary and commission.
Severance will increase one month for every two years of service within the term
of this agreement. During such severance period Employee shall continue to
receive all benefits provided for hereunder, including without limitations those
under paragraphs 4.1, 4.2, 4.2(a), 4.2(b), 4.4 and 5 hereunder, shall remain
eligible for all contingent payments hereunder and shall continue to vest with
respect to benefits and compensation which may require vesting, including
without limitation with respect to options granted to Employee.
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8. Death. In the event of Employee's death during the term hereof,
Employee's legal representative shall be entitled to receive the salary and
other compensation due Employee through the last day of the calendar month in
which his death occurred, as well as any additional compensation or payments,
including contingent payments, provided for in this Agreement.
9. Disability. The Company or Employee shall have the right to terminate
Employee's employment under this Agreement, if during the term hereof Employee
shall be ill or so disabled as substantially to impair Employee's ability to
devote the major portion of Employee's working days to the performance of his
duties for a period of four (4) successive months or eight (8) months in any
period of twenty-four consecutive months during the term hereof. The right to
terminate Employee's employment under this Agreement, if because of disability,
to be effective, must be exercised while Employee's disability continues. The
Company shall be obligated to pay to Employee any compensation and benefits
provided for herein less any insurance benefits during such disability.
10. Affiliates. The Affiliates of the Company include Foilmark, Inc.;
Olsenmark, Inc.; Kensolmark, Inc.; Foilmark Manufacturing Corp.; Imtran
Foilmark, Inc.; and all future subsidiaries, parents, and successors thereto.
11. Disclosure of Information.
a. Proprietary Information shall be defined as all information
utilized by the Company, and its. Affiliates in their business. Proprietary
Information shall not include information which (i) is now or hereafter in the
public domain, (ii) was known to Employee, other than as a result of his
ownership or employment by the Company, prior to the date hereof, or (iii) is
disclosed to Employee by a third party not bound by any duty of confidentiality
to the Company. Proprietary Information shall specifically (but not exclusively)
include the following: the identification of all customers, suppliers, products,
or employees; all contracts; all financial affairs; all business records or
reports; all inventions, trade secrets, processes, or methods of design,
distribution, procurement or manufacturer. Proprietary Materials shall mean all
documents, papers, or other materials containing Proprietary Information.
b. Employee agrees that any Proprietary Information which Employee
obtains, develops, or otherwise acquires in the course of the performance of
Employee's duties hereunder shall be deemed to be confidential in character.
Employee will not use any Proprietary Information or disclose it to any other
party at any time, except in the ordinary course of Employee's duties with the
Company or with the written consent of the Board of Directors of the Company or
as may be required under any state or federal law, rule or regulation or by a
court of competent jurisdiction. This restriction shall apply during the period
of employment by the Company or thereafter, provided that nothing in this
paragraph shall prevent or hinder the Employee in pursuing business ventures
contemplated hereby, including those permitted by paragraph 13(e) hereof.
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c. All Propriety Materials shall be the exclusive property of the
Company and its Affiliates. Upon termination of this Agreement for any reason
whatsoever, Employee agrees to not take any Proprietary Materials with him, and
to turn over to the Company all proprietary materials in Employee's possession
and control.
d. This paragraph shall be binding upon Employee's heirs,
successors, and legal representatives.
e. The Employee understands that Foilmark, Inc., the sole
Shareholder of the Company, is a publicly traded company and is subject to
federal securities laws which prohibit any person who has material, non-public
information about a company from purchasing or selling securities of such
company. The Employee agrees to not trade on such material non-public
information and agrees to make every effort to avoid any use, for himself or for
outsiders of material non-public information or other confidential information
of the Company or its Shareholder, Foilmark, Inc. Further, the Employee agrees
to not discuss internal Company or Foilmark matters or developments with anyone
outside the Company or Foilmark, except as required in the performance of the
Employee's duties hereunder. By signing this Agreement, the Employee agrees to
comply with the provisions of this paragraph.
12. Inventions.
a. Any and all inventions, products, improvements, processes,
manufacturing methods or techniques, formulas, designs or styles (collectively
hereinafter referred to as "inventions"), made, developed or created by Employee
(alone or in conjunction with others, during regular hours of work or otherwise)
during the term of his employment by the Company which may be directly or
indirectly useful in, or relate to, any business of the Company or its
Affiliates in which the Employee is involved or tests being carried on by them,
shall be the Company's exclusive property and at all times shall be made
available to the Board of Directors of the Company or such persons as may be so
designated by the Board of Directors.
b. Employee will, upon the Company's request, execute any documents
reasonably necessary or advisable in the opinion of the Company's counsel to
direct issuance of patents to the Company or its Affiliates with respect to such
inventions as are to be the Company's exclusive property under this section or
to vest in the Company or its Affiliates title to such inventions, the expense
of securing any patents, however, to be borne by the Company.
c. Employee will keep confidential and will hold for the Company's
and its Affiliates' sole benefit any invention which is to be theirs exclusively
under this section for which no patent is issued.
d. This nondisclosure provision contained in Paragraph 11 of this
Agreement shall specifically apply to said Inventions.
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13. Non-Competition. Employee recognizes that the services to be rendered
by Employee pursuant to the terms of this Agreement are special, unique and of
an extraordinary character. Employee therefore agrees that during the term of
his employment pursuant to this Agreement or, if Employee's employment under
this Agreement is terminated for Cause by the Company, then also for a period of
one year following the date of termination, Employee agrees that he will not,
directly or indirectly, alone or as a member of a partnership or as an officer,
director, stockholder, agent or employee of any other corporation:
a. Intentionally do any act which is likely or intended to impair
the business or goodwill of the Company or its Affiliates.
b. Intentionally do any act or thing which is likely or intended to
deprive the Company or its Affiliates of the goodwill of suppliers, customers,
employees and others having business relations.
c. Solicit the employment of or otherwise induce any person who is
currently employed by the Company or its Affiliates to leave the Company.
d. Engage in competition with the business conducted by Foilmark,
Inc. (the "Business"), with the exception of pad print and screen print
machinery, supplies, and related services.
e. The Company acknowledges Employee's expertise in the business of
machinery and supplies for the pad print machinery and supplies industry.
Nothing contained in this Agreement shall preclude Employee from using his
expertise in this area, or making use of any information known to him as of the
date hereof, upon termination of this Agreement. It is understood that Employee
may engage in business which is competitive with that of the Company and the
affiliates other than Foilmark Business, and such engagement and such use of
information shall not constitute a violation of subparagraph a, b, or c. Hereof
so long as Employee does not actively denigrate the Company or Affiliates or
actively solicit or induce the employees thereof.
f. Employee understands and agrees that the covenants made by
Employee in Paragraphs 11 through 13 of this Agreement are being made in view of
the unique and essential nature of the services Employee is to perform hereunder
and the irreparable injury that would befall Foilmark, Inc. should Employee
compete with or serve a competitor of Foilmark Business.
14. No Prior Restrictions on Employment. Employee warrants that he is not
subject to any restrictive covenants or non-disclosure agreements with any
former employers or other third parties that will in any way interfere with his
performance under this Agreement, and agrees to indemnify the Company and its
Affiliates from any such claims.
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15. Guaranty Agreement. The payment and performance of the Company's
obligations hereunder have been guaranteed by the Affiliates pursuant to the
terms of a Guaranty Agreement, dated of the date herewith, by and among
Employee, Affiliates and the Company.
16. Effect of Waiver. The waiver of either party or a breach of any
provisions of this Agreement shall not operate or be construed as a waiver of
any subsequent breach thereof.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association, and judgment upon the award rendered by the Arbitrator(s) may be
entered in any Court having jurisdiction thereof.
18. Binding/Assignment. This Agreement shall be binding upon Employee, his
heirs, executors, administrators and legal representatives. The rights and
benefits of the Company under this Agreement shall be transferable, and all
covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against its successors and assigns. However, such transfer
shall not relieve the Company of any liability under the terms of the Agreement.
19. Notice. Any notice required or permitted to be given under this
Agreement shall be given in writing and sent by certified or registered mail or
delivered in person; in the case of the Company, at Foilmark, Inc.'s offices in
Newburyport, Massachusetts, and in the case of Employee, to Employee's residence
as indicated in the Company records, or to such other address as the parties
hereto may hereafter designate in writing.
20. Entire Agreement. This Agreement contains the entire agreement between
the parties respecting the employment of the Employee by the Company and
supersedes any and all prior employment agreements existing between Employee and
the Company, whether oral or written, and shall govern all subsequent
relationships between them. This Agreement may be changed only by an agreement
in writing signed by the party against whom enforcement of any change is sought.
21. Governing Law. This Agreement shall be governed by the Laws of the
Commonwealth of Massachusetts. In the event any provision of this Agreement is
invalid, illegal or unenforceable for any reason, such provision shall be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting or impairing the remainder of such provision or any other
provision of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and first above mentioned.
Accepted and agreed to this IMTRAN FOILMARK, INC.
26 day of March, 1998
By: /s/ Frank J. Olin Jr.
-------------------------------
/s/ Douglas Parker Its CEO/President
- ------------------------------- -------------------------------
Douglas Parker
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STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
received
6-1-98
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, May
14, 1998, is made by and between Anchor Associates, a California General
Partnership ("Lessor") and Foilmark, Inc., a Delaware Corporation ("Lessee"),
(collectively the "Parties," or individually a "Party").
1.2 (a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor Under the terms of this Lease,
commonly known by the street address of 2150A Anchor Court, Newbury Park,
located in the city of Thousand Oaks, County of Ventura, State of California,
with zip code 91320, as outlined on Exhibit A attached hereto ("Premises"). The
"Building" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): an existing concrete
tilt-up industrial facility of approximately 15,489 square feet, of which the
Premises, comprising approximately 8,843 square feet, is a portion thereof.
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior wails or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "Industrial
Center." (Also see Paragraph 2.)
1.2(b) Parking: 0 unreserved vehicle parking spaces ("Unreserved Parking
Spaces"); and 22 reserved vehicle parking spaces ("Reserved Parking
Spaces").*(Also see Paragraph 2.6.) Also see Paragraph 54 of the Addendum)
1.3 Term: 5 years and 0 months ("Original Term") commencing March 1, 1999
("Commencement Date") and ending February 29, 2004 ("Expiration Date"). (Also
see Paragraph 3.)
1.4 Early Possession: N/A ("Early Possession Date"). (Also see Paragraphs
3.2 and 3.3.)
1.5 Base Rent: $6,547.00 per month ("Base Rent"), payable on the first day
of each month commencing March 1. 1999 (Also see Paragraph 4.) (Also see
Paragraph 49 of the Addendum)
|_| If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum __________, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $6,547.00 as Base Rent for the
period March 1, 1999, through March 31, 1999
1.6(b) Lessee's Share of Common Area Operating Expenses: Fifty-four and *
percent (54.76% ("Lessee's Share") as determined by |X| prorata square footage
of the Premises as compared to the total square footage of the Building
1.7 Security Deposit: $6,547.00 ("Security Deposit"). (Also see Paragraph
5.) *seventy-six hundredths
1.8 Permitted Use: wholesale distribution, warehousing and packaging of
metal foils and the display and wholesale distribution of the machinery for hot
stamping and office related activities and for **(Permitted Use") (Also see
Paragraph 6.) **no other purpose.
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 56,and Exhibits A through --- , all of
which constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by Lessor to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
*as allocated by Lessor from time to time.
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MULTI-TENANT - MODIFIED NET
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2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) if Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to be
paid by Lessor for the Building and the Common Areas under Paragraph 10 hereof.
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such over
Initials: PL JC
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<PAGE>
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement. See Paragraphs 51 and 52 of the Addendum.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lesser may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) Indemnification. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3). and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke
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detection systems and equipment, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the exterior or interior surfaces of exterior walls
nor shall Lessor be obligated to maintain, repair or replace windows, doors or
plate glass of the Premises. Lessee expressly waives the benefit of any statute
now or hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair,
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises, The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures, "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not loss than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
8.1 Payment of Premiums. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "Insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage and the perils of flood and earthquake,
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Building required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. See Paragraph 56 of the
Addendum.
(b) Rental Value. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide". Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in
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this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven (7)
days after the earlier of the Early Possession Date or the Commencement Date,
certified copies of, or certificates evidencing the existence and amounts of,
the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be
cancelable or subject to modification except after thirty (30) days' prior
written notice to Lessor. Lessee shall at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage - Uninsured Loss. if Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
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to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 Real Property Tax Definition. As used herein, the term "Real Property
Taxes" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Industrial Center by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Industrial Center or any portion thereof, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net
Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("Lessor's Notice"), increase the monthly Base Rent
for the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Promises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio as
the new rental bears to the Base Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
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(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph 13.1
(b), (c) or (d). In such case, the applicable grace period under the unlawful
detainer statue shall run concurrently after the one such statutory notice, and
the failure of Lessee to cure the Default within the greater of the two (2) such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
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(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than ninety (90) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than ninety (90) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such ninety (90) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. Lessor's Liability, The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day
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delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail. If
notice is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party brings an action or proceeding to enforce the
terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorneys' fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party of its claim or defense. The attorneys' fee award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. Lessor shall
be entitled to attorneys' fees, costs and expenses incurred in preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs. See Paragraph*
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. in addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, including but not limited to the obligation to provide
the Tenancy Statement and information required in Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession, Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
*53 of the Addendum.
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39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Promises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (ill) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
race-ways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
Initials: PL JC
-------------
-------------
MULTI-TENANT - MODIFIED NET
(C) American Industrial Real Estate Association 1993
-10-
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE
OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO
WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA,
AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Sherman Oaks, CA
-----------------------------------
on: 6/9/98
--------------------------------------------
By LESSOR:
Anchor Associates
- -----------------------------------------------
a California General Partnership
- -----------------------------------------------
By: /s/ Jack Cooper
--------------------------------------------
Name Printed: Jack Cooper
----------------------------------
Title: General Partner
-----------------------------------------
By:
--------------------------------------------
Name Printed:
----------------------------------
Title:
-----------------------------------------
Address: 15233 Ventura Boulevard, Suite 700
---------------------------------------
Sherman Oaks, CA 91403-2201
- -----------------------------------------------
Telephone: (818) 907-5593
-------------------------------------
Facsimile: (818) 981-6341
-------------------------------------
BROKER:
Executed at:
-----------------------------------
on:
--------------------------------------------
By:
--------------------------------------------
Name Printed:
----------------------------------
Title:
-----------------------------------------
Address:
---------------------------------------
- -----------------------------------------------
Telephone: ( )
-------------------------------------
Facsimile: ( )
-------------------------------------
Executed at:
-----------------------------------
on:
--------------------------------------------
By LESSEE:
Foilmark, Inc.
- -----------------------------------------------
a Delaware Corporation
- -----------------------------------------------
By: /s/ Phil Leibel
--------------------------------------------
Name Printed: Phil Leibel
----------------------------------
Title: CFO
-----------------------------------------
By:
--------------------------------------------
Name Printed:
----------------------------------
Title:
-----------------------------------------
Address: 2150B Anchor Court
---------------------------------------
Newbury Park, CA 91320
- -----------------------------------------------
Telephone: (805) 499-8896
-------------------------------------
Facsimile: (805) 498-4894
-------------------------------------
BROKER:
Executed at:
-----------------------------------
on:
--------------------------------------------
By:
--------------------------------------------
Name Printed:
----------------------------------
Title:
-----------------------------------------
Address:
---------------------------------------
- -----------------------------------------------
Telephone: ( )
-------------------------------------
Facsimile: ( )
-------------------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345
So. Figueroa St., M-1, Los Angeles, CA 90071. (213) 687-8777.
Initials: PL JC
-------------
-------------
MULTI-TENANT - MODIFIED NET
(C) American Industrial Real Estate Association 1993
-11-
(C) by American Industrial Real Estate Association. All rights reserved. No part
of these words may be reproduced in any form without permission in writing.
<PAGE>
ADDENDUM TO THAT CERTAIN LEASE ("Lease") DATED MAY 14,1998,
BY AND BETWEEN ANCHOR ASSOCIATES, a California General Partnership ("Lessor"),
and FOILMARK, INC., a Delaware Corporation ("Lessee"),
FOR THE PROPERTY LOCATED AT 2150A ANCHOR COURT, NEWBURY PARK, THOUSAND OAKS, CA
91320
This addendum is attached to the above captioned Lease and is made a part
thereof. To the extent that anything in this Addendum conflicts with anything in
the aforesaid Lease, this Addendum shall control.
49. BASE RENT
Paragraph 1.5 of the Lease is amended by adding at the end thereof the
following:
49.1 Notwithstanding anything to the contrary herein contained, the
minimum rent payable by Lessee to Lessor per month shall be:
(a) The Base Rent payable for the period of March 1,1999 through February
29, 2000 shall be the sum of $6,547.00 per month.
(b) The Base Rent payable for the period of March 1, 2000 through February
28, 2001 shall be the sum of $6,874.00 per month.
(c) The Base Rent payable for the period of March 1, 2001 through February
28, 2002 shall be the sum of $7,218.00 per month.
(d) The Base Rent payable for the period of March 1, 2002 through February
28, 2003 shall be the sum of $7,579.00 per month.
(e) The Base Rent payable for the period of March 1, 2003 through February
29, 2004 shall be the sum of $7,958.00 per month.
49.2 All rent payable in terms of the Lease shall be paid by Lessee to
Lessor, without deduction, set off, prior notice or demand, in advance, on the
first day of each month of the term hereof.
49.3 All rent shall be payable in lawful money of the United States to
Lessor at the address stated herein or to such other persons or at such other
place as Lessor may designate in writing from time to time.
50. ANCHOR BUSINESS PARK
50.1 The term "Anchor Business Park" as used in the Lease shall mean that
real property described as:
"Tract No. 2963, as per the map thereof recorded in Book 79, Pages 61 and
62 of Maps, in the office of the County Recorder of Ventura County, California,
and Parcel Map No. 3395 as per the Map filed in Book 29, Pages 97 and 98 of
Parcel Maps in the office of said County Recorder."
50.2 The terms "Neighboring Premises or Properties", or "a group of
buildings owned by Lessor which are adjacent to the Premises", or "a group of
buildings controlled by Lessor" shall include all buildings within the area of
Anchor Business Park.
51. COMMON AREA OPERATING EXPENSES
Subparagraph 4.2(d) of the Lease is hereby amended by adding at the end
thereof the following:
Upon the expiration of the terms hereof, real property taxes will be
prorated equitably between Lessor and Lessee. In the event that the term expires
prior to the receipt of the tax bill for that year, then Lessee will pay to
Lessor an amount prorated in accordance with the prior year plus two (2%)
percent.
52. LANDSCAPED AREAS
52.1
(a) The term "Landscaped Areas" means all areas within the exterior
boundaries of Anchor Business Park or adjacent thereto, including the areas
within the Premises that are provided and designated by Lessor from lime to time
to be landscaped. The term landscape shall include, without limitation,
preparation of the soil, hydroseeding, planting of grass sod, shrubs, trees,
plants; etc. and the installation of irrigation sprinkler systems, control
devices, etc.
(b) The initial cost of landscaping the Landscaped Areas shall be borne by
the Lessor.
(c) The maintenance of all landscaping in the Landscaped Areas shall be
subject to the exclusive control and management of Lessor, or such other persons
or nominees as Lessor may designate or assign to exercise such management or
control. Lessor shall have the right to:
(i) Establish and enforce reasonable rules and regulations
applicable to all tenants in Anchor Business Park concerning the Landscaped
Areas and the maintenance, management and use of the Landscaped Areas.
(ii) Close temporarily any of the Landscaped Areas for maintenance
purposes.
(iii) From time to time enter into contract(s) with a landscape
maintenance firm or person(s) on such terms and conditions and for such period
of time as Lessor deems reasonable and proper both as to service and as to cost.
(d) Lessor and all persons designated by it will have full and unimpaired
access at all times to all Landscaped Areas within the Premises for all purposes
relating to landscaping or maintaining the landscaping thereon.
52.2 Lessee's Share of Landscape Maintenance Costs:
"Landscape Maintenance Costs" is defined as all sums expended by Lessor
for the maintenance of the landscaping in the Landscaped Areas and the sweeping
of the Paved Areas (as defined in Paragraph 54) and an amount equal to ten (10%)
percent of the total Landscaped Maintenance Costs payable to Lessor for
supervision and administration. Costs for maintenance of landscaping in
Landscaped Areas shall include, without limitation, costs of maintenance firms,
contractors and persons for maintaining landscaping in Landscaped Areas,
cleaning, sweeping and other janitorial services of the Landscaped Areas, Paved
Areas and Anchor Court, fertilizing, gardening, planting and re-landscaping,
repairing and/or replacing irrigation sprinkler systems, including valves,
sprinkler heads, pipes, control devices, all costs of utilities used in
connection with the landscaping of Landscaped Areas and sweeping of the Paved
Areas and Anchor Court, reasonable depreciation on machinery and equipment used
in connection with landscaping of Landscaped Areas, premiums on public liability
and property damage insurance and all other costs necessary in Lessor's judgment
for the maintenance of landscaping in Landscaped Areas.
Lessee shall pay to Lessor as additional rent an amount estimated by
Lessor to be Lessee's share of Landscape Maintenance Costs, on the first day of
each month, commencing on the date the term commences, or on the first day of
the month following the month the term commences if the term commences on a day
other than the first day of a month, as the case may be, and continuing during
the term. Lessee's proportionate share of Landscape Maintenance Costs shall be
determined by dividing the total number of square feet of the buildings on the
Premises by the sum of leasable square feet in all buildings which have been
completed in Anchor Business Park multiplied by the total monthly Landscape
Maintenance Costs. The term "Leasable Square Feet" as used herein shall be
deemed to mean the ground floor of the building(s) in Anchor Business Park with
measurements from outside of exterior walls to center line of demising
partitions and including all areas under entrance soffits. For the purpose of
this subparagraph, the building on the Premises is deemed to comprise an area of
8,843 square feet. Landscape Maintenance costs that cover a period not within
the term of this Lease shall be pro-rated. Lessor can adjust the monthly
Landscape Maintenance Costs at the end of each accounting period on the basis of
Lessor's reasonably anticipated costs for the following accounting period. An
accounting period is a period commencing September 1st and ending on August
31st, except that the first accounting period shall commence on the date the
term commences and the last accounting period shall end on the date the Lease
expires or terminates. Lessor shall furnish to Lessee a statement showing the
total Landscape Maintenance Costs for the accounting period, Lessee's share of
Landscape Maintenance Costs for the accounting period and the payment made by
Lessee with respect to each accounting period, within sixty (60) days after the
end of each accounting period. Each statement shall be prepared, signed and
certified to be correct by Lessor. If Lessee's share of Landscape Maintenance
Costs for the accounting period exceeds the payments made by Lessee, Lessee
shall pay to Lessor the deficiency within ten (10) days after receipt of the
statement. If Lessee's payments made during the accounting period exceed
Lessee's share of Landscape Maintenance Costs, Lessor shall pay Lessee the
excess at the time Lessor furnishes the statement to Lessee.
Page 1
<PAGE>
53. SIGNS AND WINDOW COVERINGS
Paragraph 34 is amended by adding the following:
Lessee shall not place or permit to be placed any sign on the exterior of
the building within the Premises or anywhere within the Premises without the
written consent of Lessor, which consent shall only be given where the proposed
sign complies with the specifications of size, design, color and material
designated by Lessor. The installation of any sign on the Premises by or for
Lessee shall be subject to the provisions of Paragraph 7 of the Lease.
Lessee shall not place or permit to be placed any metallic foil or other
covering upon the glass windows or doors of the building within the Premises.
54. OPEN AREAS AND RIGHTS OF INGRESS AND EGRESS
54.1
(a) The term "Open Area" as used herein shall mean all the land forming
part of the Premises other than that portion on which the building is
constructed, and the term "Paved Area", as used herein shall mean that portion
of the Open Area which is paved.
(b) Lessee shall at all times keep the Open Area in a neat, clean and tidy
condition, and shall not use Open Area for storing goods or any other items
whatsoever, nor shall Lessee erect thereon any walls, fences or any other
structures whatsoever. Lessee shall not place any item whatsoever on the
Landscaped Areas. The use by Lessee of the Paved Area shall be limited to
ingress and egress, parking of automobiles in accordance with the provisions of
Subparagraphs 54.2 and 54.3 herein, the placing of goods for immediate loading
and unloading in the loading areas as designated therefor and the depositing of
trash in receptacles to be provided by Lessee in the trash enclosures.
54.2 Notwithstanding anything to the contrary contained in the Lease,
Lessor reserves for itself and for such other person(s) or entities as Lessor
may designate including, but not limited to, its agents, servants, employees,
contractors, successors, assigns, Lessees and other tenants of Anchor Business
Park, the non-exclusive right of ingress, egress and passage over and upon all
Paved Areas for the purpose of permitting and facilitating access to buildings
and other premises in Anchor Business Park. Lessee shall at all times keep all
Paved Areas unobstructed for the purpose aforesaid.
54.3 Lessee shall, during the term of the Lease, but subject to the
limitations imposed on Lessee by the provisions of Subparagraphs 54.1 and 54.2
of this Addendum, have the exclusive right to use the twenty-two (22) parking
spaces, as allocated by Lessor, from time to time, in the Open Area, or
immediately adjacent thereto, for the purposes of parking compact and/or
standard sized automobiles in accordance with the allocation therefor. Lessee
hereby agrees not to occupy or permit its employees, customers, or invitees to
occupy or use any other parking spaces other than those allocated, nor to park
anywhere other than in the aforesaid allocated parking spaces. Lessee
acknowledges and agrees that said other parking spaces are reserved for Lessor
and for other person(s) or entities as Lessor may designate.
55. ACKNOWLEDGED SQUARE FOOTAGE
Lessee hereby acknowledges that it has carefully inspected the building on
the Premises forming the subject of the Lease and agrees that said building
comprises approximately 8,843 square feet. Should it ever be determined that the
building is larger or smaller than said square footage, neither party shall have
any right, claim or action against the other by reason of that fact.
56. EARTHQUAKE AND/OR FLOOD INSURANCE
Subparagraph 8,3(a) of the Lease is hereby amended by adding at the end
thereof the following:
In the event only that Lessor is the insuring party, and not withstanding
any other provision contained in the Lease and/or the Addendum, it is agreed
that
(a) Lessor shall, at its own option and in its sole discretion, be
entitled to obtain an insurance policy and/or policies, with respect to
Earthquake and/or Flood insurance, insuring for the full replacement cost of the
Premises or for a lower stop loss limit, and/or with a higher deductible than is
referred to this Subparagraph 8.3(a).
(b) Lessor shall, at its own option and in its sole discretion, be
entitled to refrain from obtaining an insurance policy or policies, with respect
to Earthquake and/or Flood insurance, for any period and/or periods during the
term of the Lease.
Executed at Sherman Oaks, CA
------------------------------------------
on 6/9/98
---------------------------------------------------
by LESSOR:
Anchor Associates, a California General Partnership
- -----------------------------------------------------
By: /s/ Jack Cooper
--------------------------------------------------
Name Printed: Jack Cooper
----------------------------------------
Title: General Partner
-----------------------------------------------
By
---------------------------------------------------
Name Printed:
----------------------------------------
Title:
-----------------------------------------------
Address: 15233 Ventura Boulevard, Suite 700
---------------------------------------------
Sherman Oaks, CA 91403
- -----------------------------------------------------
Tel. No. (818) 907-5593 Fax No. (818) 981-6341
---------------- ---------------------
Executed at Newburyport, MA
------------------------------------------
on May 28, 1998
---------------------------------------------------
by LESSEE:
Foilmark, Inc., a Delaware Corporation
- -----------------------------------------------------
By /s/ Philip Leibel
---------------------------------------------------
Name Printed: Phil Leibel
----------------------------------------
Title: CFO
-----------------------------------------------
By
---------------------------------------------------
Name Printed:
----------------------------------------
Title:
-----------------------------------------------
Address: 2150B Anchor Court
---------------------------------------------
Newbury Park, CA 91320
- -----------------------------------------------------
Tel. No. (805) 499-8896 Fax No. (805) 498-4894
---------------- ---------------------
Page 2
<PAGE>
EXHIBIT "A"
INDUSTRIAL CENTER
[GRAPHIC OMITTED]
SITE PLAN
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000914066
<NAME> FOILMARK, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 237,561
<SECURITIES> 0
<RECEIVABLES> 5,042,086
<ALLOWANCES> 146,000
<INVENTORY> 8,134,490
<CURRENT-ASSETS> 15,047,703
<PP&E> 18,232,464
<DEPRECIATION> 9,143,575
<TOTAL-ASSETS> 29,820,872
<CURRENT-LIABILITIES> 4,655,995
<BONDS> 0
0
0
<COMMON> 41,796
<OTHER-SE> 15,323,850
<TOTAL-LIABILITY-AND-EQUITY> 29,820,872
<SALES> 30,886,135
<TOTAL-REVENUES> 30,886,135
<CGS> 21,839,367
<TOTAL-COSTS> 29,704,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 726,265
<INCOME-PRETAX> 478,576
<INCOME-TAX> 121,834
<INCOME-CONTINUING> 356,742
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 356,742
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
