Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1997
-------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
-------------- -----------------
Commission file number 0-25246
-----------------------------------------
WINSLOEW FURNITURE, INC.
(Exact name of registrant as specified in its charter)
Florida 63-1127982
- ---------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
201 Cahaba Valley Parkway, Pelham, Alabama 35124
- ------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (205) 403-0206
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
------------------------ ----------------------
Common Stock,
$.01 par value per share Nasdaq National Market
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of shares of Common Stock held by non-affiliates of
the registrant as of February 27, 1998, was approximately $98,959,828 based on
a $19.00 closing sale price for the Common Stock quoted on the Nasdaq National
Market System on such date. For purposes of this computation, all executive
officers, directors, and 5% beneficial owners are, in fact, affiliates of the
registrant.
The number of shares of Common Stock, $.01 par value per share, of the
registrant outstanding as of February 27, 1998, was 7,542,258.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive Proxy Statement for the registrant's
1998 Annual Meeting of Shareholders, to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report, are incorporated into Part III hereof.
INDEX TO ITEMS
Part I Page
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 14
Item 3. Legal Proceedings................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders.............. 15
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ............................................. 16
Item 6. Selected Financial Data.......................................... 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 19
Item 8. Financial Statements and Supplementary Data...................... 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................. 42
Part III
Item 10. Directors and Executive Officers of the Registrant............... 42
Item 11. Executive Compensation........................................... 42
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................................42
Item 13. Certain Relationships and Related Transactions................... 42
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K......................................................... 43
Signatures................................................................ 46
2
PART I
ITEM 1. Business
GENERAL
WinsLoew Furniture, Inc. (the "Company" or "WinsLoew") designs,
manufactures and distributes casual furniture, contract seating and ready-to-
assemble ("RTA") furniture.
Casual Furniture. WinsLoew produces and distributes casual furniture for both
the residential and contract markets. WinsLoew's residential products are
constructed of extruded and tubular aluminum, wrought iron and cast aluminum.
WinsLoew markets its residential products through independent sales
representatives primarily to specialty patio stores, department stores and
furniture stores. WinsLoew's contract products are constructed of extruded,
tubular and cast aluminum, steel, wrought iron, wood and fiberglass. Contract
products are marketed primarily through an in-house sales force, primarily to
apartment developers and management companies, hospitality providers (hotel,
motel, restaurants, country clubs and resorts), and city and state
municipalities. During the third quarter of 1997, the Company disposed of
certain assets of its Lyon Shaw wrought iron furniture manufacturing business
in the casual furniture product line (See Note 3 of Notes to the Financial
Statements).
Contract Seating. WinsLoew assembles and distributes contract seating
products constructed of contemporary, traditional and transitional styles of
wood and metal. Products include upholstered chairs, sofas and love seats
offered in a variety of finish and fabric options. Products are designed for
use in the restaurant, lodging, office, healthcare facilities and retail
stores. These products are assembled pursuant to specific orders and are
distributed to a broad customer base which includes architectural design firms,
office furniture dealers, and restaurant and lodging chains through independent
sales organizations.
RTA Furniture. WinsLoew's RTA products consist of a promotionally priced
product line, upper priced ergonomically designed products and extensive line
of futons and related accessories. Futons (as used herein) consists of a
frame, mattress and cover which easily converts from a comfortable sofa to a
bed. WinsLoew designs, manufactures, and distributes RTA promotionally priced
"spindle" and "flatline" furniture designed for household use. Products
include coffee tables, end tables, wall units, desks, children's furniture and
rolling carts. Distribution is primarily through mass merchants and catalog
wholesalers. WinsLoew's upper priced ergonomically designed "space savers"
include computer desks, work stations and modular units. Marketing of these
products is through in-house and independent sales representatives to office
furniture wholesalers and catalog firms. Futons are manufactured in a variety
of styles and finishes, and are constructed of selected hardwood and pine. The
Company manufactures the futons and accessories, including coffee tables and
end tables. In addition, the Company imports a line of frames from Indonesia.
Futon products are distributed through specialty retailers, selected mass
merchants, and national accounts.
During 1997, the Company adopted a plan to dispose of its "RTA" operations and
recorded a pretax non-cash charge totaling $12.4 million in the fourth quarter
of 1997 relating to the disposal of the "RTA" operations (See Note 2 of Notes
to the Financial Statements for a summary of the charges). The Company plans
to sell two of the businesses and is in the process of liquidating the assets
related to the futon business.
3
PRODUCT LINES
WinsLoew has two principal product lines (Casual Furniture and Contract
Seating) that are produced or distributed in 4 manufacturing locations as
follows:
DIVISION AND LOCATION PRINCIPAL PRODUCTS PRINCIPAL CUSTOMERS
CASUAL FURNITURE:
Winston Residential casual Specialty patio stores,
Haleyville, Alabama furniture constructed department stores and
of aluminum furniture stores
Texacraft Contract casual Apartment developers
Houston, Texas furniture constructed and management
of aluminum, wrought companies, hospitality
iron, wood and fiberglass providers and manufactures
Winston International Imported residential Specialty patio stores,
Haleyville, Alabama casual furniture department stores and
constructed of cast furniture stores
aluminum and wrought iron
CONTRACT SEATING:
Loewenstein Contemporary, transitional Architectural design
Pompano Beach, Florida and traditional seating for firms, restaurant and
hospitality, office and lodging chains, office
other institutional uses furniture dealers and
retail store planners
Gregson Traditional office and Office furniture dealers
Liberty, North Carolina other institutional seating and lodging chains
The Company's third product line, RTA, was produced and distributed out
of three manufacturing facilities during 1997 as follows:
Southern Wood Promotional RTA furniture Mass merchandisers and
Sparta, Tennessee catalog wholesalers
Continental Ergonomically designed Catalog firms and office
Irwindale, California space savers for home and furniture wholesalers
office use
New West Futons, frames, covers, and Specialty retailers and
Cookeville, Tennessee related accessories selected mass
merchandisers
COMPETITIVE STRENGTHS
WinsLoew believes that it has the following competitive strengths.
Casual Furniture. Management attributes casual furniture's historical success
to its: (i) commitment to producing a quality product delivered "in time and on
time", (ii) emphasis on providing extensive customer service, (iii) cost-
efficient manufacturing operations, (iv) innovatively styled products and
merchandising programs, and (v) results-oriented management, team philosophy
and culture. Management believes that WinsLoew can continue the growth it has
experienced in the casual furniture line by capitalizing on its existing
distribution channels, manufacturing capabilities and reputation for quality
and customer service. Specifically, WinsLoew intends to grow in its existing
market through: (i) continued leadership in new products and merchandising
programs, (ii) expanding existing market penetration, (iii) broadening
distribution channels, (iv) developing off season products for its distribution
channel and other channels, (v) expanding the Winston International division's
product line.
4
Contract Seating. WinsLoew is committed to providing value to its contract
seating customers by offering innovative designs, a broad range of high quality
products at competitive prices and responsive customer service with quick and
timely delivery. WinsLoew ensures that its products provide both superior
structural integrity and aesthetic styling through its adherence to strict
manufacturing and quality control standards and through its long-standing and
frequently exclusive relationships with a number of leading Italian designers
and manufacturers. These suppliers have extensive experience in the design,
engineering and production of contemporary and transitional-styled chairs. The
suppliers use steam-bending of solid wood components, intricate joinery and
other sophisticated manufacturing techniques generally unavailable in the
United States. In addition, WinsLoew's electrostatically applied, ultraviolet
cured wood finishing system produces one of the most consistent, durable and
vibrant finishes in the industry. The system also increases manufacturing
efficiency and reduces waste and air emissions. WinsLoew's commitment to
providing high levels of customer service is also typified by its policies of
paying freight charges if a guaranteed shipping date is missed and, under its
"Quick Ship" program, guaranteeing shipment of a significant portion of its
product line within 10 working days from receipt of a customer's order.
WinsLoew offers a broad selection of wood, metal and upholstered chairs, sofas
and love seats designed for restaurant, lodging, office and other institutional
uses, with prices generally ranging from $150 to $550. WinsLoew's custom
design capabilities also allow it to modify styles, materials and production in
order to provide customers with products that meet particular specifications.
WinsLoew's strategy of offering a broad selection of product styles and price
ranges provides it with access to distribution channels serving a variety of
end users, including restaurants, hotels, healthcare facilities, retail store
planners, corporate offices, schools, sports facilities, airport lounges and
cruise lines.
RTA Furniture. WinsLoew's RTA furniture product line consists of three
products: (i) promotionally priced RTA products sold directly to mass
merchandisers and catalog wholesalers under the Southern Wood name, (ii) upper
priced ergonomically designed "space savers", consisting of modular computer
workstations, sold to catalog firms and office furniture wholesalers under the
MicroCentre name, and (iii) futons, frames, covers and accessories under the
New West name. Southern Wood's low cost structure is based on its use of
inexpensive raw materials, its relatively low labor rates and its use of
equipment to achieve cost savings. WinsLoew believes that its focused price
strategy will allow the Company to maintain or increase market share and
provide opportunities for product line extensions. WinsLoew believes
Continental increases its opportunities for growing furniture distribution
channels without incurring significant marketing and selling expenses. During
1997, the Company decided to discontinue the operation of its RTA product line
and currently has the Continental and Southern Wood businesses for sale.
Also during 1997, the Company discontinued the manufacturing and distribution
of futons and accessories and started the process of liquidating the assets of
this operation.
BUSINESS STRATEGY
Casual Furniture
The business strategy of the Casual Division emphasizes the following elements:
Expansion of Sales and Market Share. WinsLoew's growth objectives for the
casual furniture line are primarily focused on areas where WinsLoew can
capitalize on its existing distribution channels, manufacturing capabilities
and reputation for quality and customer service, including: (i) new product
introductions in WinsLoew's extruded and tubular aluminum and International
divisions, (ii) expansion into new geographic areas, particularly west of the
Rocky Mountains, and (iii) increased sales to commercial customers such as
hotels, restaurants, country clubs, interior designers and apartment and hotel
developers.
Provide Value to Customers. WinsLoew is committed to providing value to its
retailing customers by designing and manufacturing high quality, competitively
priced products and responding to its customers' needs for "in time and on
time" delivery. WinsLoew maintains a strong customer service orientation that
is typified by its PDQ shipping program, where WinsLoew either ships within 15
business days after credit approval or pays for the freight costs. Quick
delivery is particularly important to casual furniture retailers because of the
short selling season and the retailer's general desire to minimize inventory
levels. Another principal component of WinsLoew's marketing strategy is its
focus on special sales programs for customers. These programs also reduce the
effects of seasonality on WinsLoew's operations and minimize WinsLoew's
finished good inventory.
5
Commitment to Product and Industry Leadership. Management believes that the
high fashion style and variety of WinsLoew's casual furniture designs provide a
strong competitive advantage and WinsLoew therefore devotes significant
resources to new product development and introductions.
Enhanced Use of Manufacturing Capabilities. WinsLoew operates approximately
295,000 square feet of manufacturing space for casual furniture products and
produces most of such products from basic raw materials using strict quality
control measures. WinsLoew's vertical integration permits WinsLoew to: (i)
produce a variety of chairs, tables and other furniture products, (ii)
manufacture cushions and (iii) cut and assemble the fabric covers that are
combined with preassembled poles to produce outdoor umbrellas. WinsLoew also
maintains strict cost containment measures in order to ensure that its products
are manufactured in a cost-efficient manner.
Develop or Acquire Complementary Product Lines. WinsLoew continues to seek
opportunities to develop or acquire complementary product lines in order to
capitalize on its existing distribution channels, manufacturing capabilities
and reputation for quality and customer service.
Contract Seating
The business strategy of the contract seating divisions emphasizes the
following elements:
Historical Base Business. WinsLoew's base contract seating business has
historically been concentrated within the hospitality market. This market has
fluctuated with general economic cycles because many end users defer
expenditures for building new or refurbishing existing restaurant and lodging
facilities during economic downturns. Based upon its past experience, the
management believes that WinsLoew's core hospitality business will grow as
expenditures by the hospitality industry increase for new construction and
refurbishment of restaurants and lodging facilities.
Private Label Program. WinsLoew offers a "private label" program through which
contract seating products are marketed to nationally recognized designers and
manufacturers of office furniture systems. WinsLoew believes that its success
in generating private label business is primarily attributable to its proven
ability to produce a quality product on short lead time, its state-of-the-art
finishing capabilities, its competitive prices and the direct involvement of
its senior executives in private label marketing.
Develop or Acquire Complementary Product Lines. WinsLoew continues to seek
opportunities to develop or acquire complementary product lines in order to
capitalize on its existing distribution channels, manufacturing capabilities
and reputation for quality and customer service.
RTA Furniture
The business strategy of the RTA division emphasizes the following elements:
WinsLoew seeks to increase its promotional RTA product sales by marketing its
products to its core customer base and to broader channels of distribution
within the furniture industry, including national accounts and selected mass
merchants. The Company has increased its independent sales representative
force and prepared new sales literature. Continental Engineering is in the
process of increasing its product offering of ergonomically designed furniture,
strengthening its in-house sales force and making its products available
through broader channels of distribution. In each of these operations,
WinsLoew seeks to take advantage of its position as a low cost producer.
During 1997, the Company adopted a plan to dispose of its "RTA" operations and
recorded a pretax non-cash charge totaling $12.4 million in the fourth quarter
of 1997 relating to the disposal of the "RTA" operations (See Note 2 of Notes
to the Financial Statements for a summary of the charges). The Company plans
to sell two of the businesses and is in the process of liquidating the assets
related to the futon business.
6
PRODUCTS
WinsLoew designs, manufactures and distributes two principal product lines: (i)
casual furniture for both the residential and contract markets and (ii)
contract seating designed for restaurant, lodging, office or other general
institutional use. During 1997, the Company decided to discontinue its RTA
product line.
Casual Furniture
WinsLoew's casual furniture products for residential use consist principally of
medium to upper-medium priced indoor and outdoor furniture sold under three
brand names: "Winston" residential extruded and tubular aluminum furniture,
"Texacraft" contract casual furniture, and "Winston International" imports
casual furniture. WinsLoew currently manufactures and sells numerous style
collections that include traditional, European, and contemporary design
patterns. Within each style collection there are multiple products including
chairs, tables, chaise lounges and accessory pieces such as ottomans, cocktail
tables, end tables, tea carts and umbrellas. WinsLoew offers extruded and
tubular aluminum with glider action, adjustable positions and rocking and
swivel motions. WinsLoew's casual seating products feature cushions and vinyl
strapping in a variety of colors and patterns. All of WinsLoew's casual
furniture products feature a durable painted finish which is also offered in a
wide selection of colors. The suggested retail prices for a table and four
chairs currently range from approximately $600 to $1,400.
WinsLoew's casual contract products include chairs, chaise lounges, tables and
umbrellas constructed of extruded, tubular and cast aluminum, steel, wrought
iron, wood and fiberglass. WinsLoew's casual contract products include a
selection of restaurant and outdoor seating and site furnishings. Casual
contract products are marketed through Company and independent sales
representatives, primarily to apartment developers and management companies,
hospitality providers (hotel, motel, restaurants, country clubs, and resorts)
and city and state municipalities.
WinsLoew continually reviews and evaluates its casual furniture designs, and
annually adds and discontinues designs it deems appropriate. WinsLoew
identifies trends in shapes, colors and patterns through independent research,
contacts with WinsLoew's dealers and the occasional use of independent
designers. Management also solicits opinions from its manufacturer's
representatives, dealers and employees prior to final design selection.
WinsLoew has generally replaced or modified approximately one-third to one-half
of its casual furniture product lines annually. The costs of implementing
these annual changes have historically included certain: (i) research and
development costs; (ii) capital expenditures for tooling; and (iii) advertising
and catalog expenses. Shipments of WinsLoew's new designs generally begin in
September of each year.
Contract Seating
WinsLoew's contract seating products (other than the casual contract products
described above) include wood, metal and upholstered chairs, as well as
reception area love seats and sofas. WinsLoew's broad product line consists of
numerous distinct models of chairs in contemporary, traditional and
transitional styles. WinsLoew's general merchandising strategy for contract
seating is to provide innovative seating products that are practical,
comfortable, sturdy and moderately priced.
Wood frames are produced from a variety of wood species and are finished with
one of WinsLoew's numerous standard colors or can be finished to customer's
specification. WinsLoew's metal chairs are available in chrome or in a
selection of standard powder coat finishes. For upholstered products, the
customer may select from a number of catalog fabrics, vinyls and leathers or
may specify or supply its choice of materials. WinsLoew maintains an inventory
of unassembled chair components that enables it to respond quickly to large
quantity orders in a variety of finish and fabric combinations. See " ---
Manufacturing."
WinsLoew believes that an important element of its success in the contract
seating business is its long-standing and frequently exclusive relationships
with leading Italian design firms, as well as its proven ability to offer
innovative products that are sturdy, aesthetically appealing and scaled for the
United States market. This belief is based upon WinsLoew's extensive industry
experience and discussions with key customers, sales representatives and
competitors. WinsLoew continually reviews and reconsiders its contract
furniture designs, and annually adds and deletes designs as it deems
appropriate to address perceived marketing opportunities. WinsLoew generally
begins the design process by identifying marketing needs and conceptualizing
product ideas through regular meetings of its senior management team.
Reflecting its focus on both sales and manufacturing, WinsLoew also solicits
opinions with respect to trends in styles, colors and other design elements
from its sales representatives, customers, and employees prior to final design
selection. Preliminary sketches are provided to either WinsLoew's
manufacturing personnel or WinsLoew's European suppliers, who in turn engineer
the product's construction and produce one or more prototypes in preparation
for actual full-scale production. New products are generally introduced at
national or regional furniture markets. WinsLoew's custom design capabilities
also allow it to modify styles, materials and production in order to provide
customers with products that meet their particular needs.
7
RTA Furniture
WinsLoew's promotionally priced RTA furniture "spindle" products include
coffee tables, end tables, wall units, desks, chairs, children's furniture and
rolling carts. Promotionally priced furniture products also include "flatline"
products such as bookcases and wall units. RTA products also include
ergonomically designed "space savers", including modular desk and computer
workstations. WinsLoew's futon products consisted of futons (mattresses),
frames, covers and related accessories. Frames were constructed of hardwood
and pine, and came in a variety of sizes. Hardwood frames were finished in a
variety of stains, while pine frames were unfinished. Futons were constructed
of fabric shells stuffed with foam and cotton. Covers for futons were
available in a variety of fabrics. Accessories included ottomans, end tables
and cocktail tables. Frames were sold unassembled in a box containing all
components, hardware, and instructions necessary for assembly. In addition to
manufactured frames, the Company imported and distributed frames that accounted
for approximately one half of the frames sold.
RTA furniture products are sold unassembled in a box that contains all
components and hardware necessary for home-assembly. WinsLoew's merchandising
approach for RTA furniture products emphasizes products with a stable,
predictable demand, as well as self-service convenience. For example, the
lithographed product boxes include color pictures, a listing of product
features and assembly instructions that allow retailers to utilize available
floor space and shelf space efficiently.
MANUFACTURING
Casual Furniture
WinsLoew has manufacturing facilities for casual furniture products in
Haleyville, Alabama, and Houston, Texas. The facilities in Haleyville
manufacture extruded and tubular aluminum casual furniture and most related
accessories, including cushions and umbrellas. In the Houston facility, the
Company manufactures extruded and tubular aluminum, steel and wood furniture.
WinsLoew's goal at its facilities is to produce a high quality product at the
lowest possible manufacturing cost and deliver it in a timely manner to
dealers. WinsLoew's international products are manufactured in Mexico. See "--
- -Marketing and Sales."
Winston Division - Haleyville, Alabama. WinsLoew's aluminum furniture
manufacturing facility in Haleyville manufactures goods exclusively to order.
Products are normally shipped on the day completed, eliminating the need to
maintain finished goods inventory. WinsLoew provides timely delivery service
by typically shipping goods within three weeks after credit approval.
In the manufacturing process, extruded aluminum tubes are cut to size and
shaped or bent in specially designed machinery. The aluminum is then welded to
form a solid frame, and the frame is subjected to a grinding and buffing
process to eliminate any rough spots that may have been caused during welding.
After this process is completed, the frame is cleaned, painted in a state-of-
the-art powder coating system and heat cured. WinsLoew then adds vinyl
strapping, cushions, fabric slings, or other accessories to the finished frame,
as appropriate. The product is then packaged with umbrellas, tempered glass
and other accessories, as applicable, and shipped to the customer.
WinsLoew's Haleyville facilities were extensively refurbished and modernized in
late 1984 and significantly expanded in 1990 and 1993. WinsLoew believes that
its Haleyville facilities are some of the most modern in the casual aluminum
furniture industry, and that the efficiencies attributable to these plants are
a significant factor in WinsLoew's relatively low manufacturing costs.
8
WinsLoew's vertical integration provides additional manufacturing efficiencies.
WinsLoew manufactures cushions for its aluminum furniture in Haleyville, and,
in addition, cuts, sews and assembles the fabric covers that are combined with
pre-assembled poles to produce outdoor umbrellas.
WinsLoew believes that it manufactures the highest quality aluminum casual
furniture in its price range. The major frame components of the aluminum
furniture are welded, and not riveted or bolted, thereby increasing the
durability and enhancing the appearance of the aluminum product line. The
powder coated painting process results in an attractive and durable finish. To
ensure that only the highest quality products are shipped to customers,
WinsLoew's quality control department has established control check points
where the quality of 100% of its aluminum products is examined during the
manufacturing process. These processes allow WinsLoew to offer a two-year
frame and finish guarantee on all of its aluminum products for residential use.
Warranty expense to date has been negligible.
Texacraft Division - Houston, Texas. WinsLoew's Houston facility includes an
aluminum furniture manufacturing facility with processes essentially the same
as WinsLoew's aluminum line in Haleyville. Additionally, the Houston facility
manufactures steel and wood furniture and includes a fiberglass manufacturing
facility for tables, umbrellas, and accessories.
Contract Seating
WinsLoew currently utilizes approximately 226,000 square feet of manufacturing
space for contract seating production in facilities located in Florida and
North Carolina.
Loewenstein Division - Pompano Beach, Florida. This facility assembles and
finishes to customer order most of WinsLoew's contract seating products (other
than the casual contract products described above). Component parts are either
purchased from a variety of suppliers, including a number of European
manufacturers, or manufactured by WinsLoew's Gregson division. The principal
elements of wood chair assembly include: (i) frame glue-up, (ii) sanding, (iii)
seat assembly (in which upholstered seats are constructed from component
bottoms, foam padding and cloth coverings) and (iv) painting/lacquering. To
provide consistency and speed in this finishing process, WinsLoew utilizes a
state-of-the-art conveyorized paint line with electrostatic spray guns and a
three-dimensional ultraviolet drying system. For upholstered products, the
specified fabric cloth is stretched to the chair frame over foam padding.
Metal chairs are generally assembled from imported components. After rework
and leveling, chairs are cartoned to prevent damage in transportation. The
manufacturing process also includes a number of product inspections and other
quality control procedures.
Gregson Division - Liberty, North Carolina. This manufacturing facility is
vertically integrated and includes such operations as kiln-drying, cutting,
planing, gluing, veneering, sanding, routing, carving, shaping, assembling,
upholstering, and finishing. Based on WinsLoew's experience during the past
several years, WinsLoew believes that this manufacturing flexibility minimizes
the risks of relying on third-party suppliers for component parts and
frequently permits a faster response to customer needs. While styling is
continuously updated, the basic construction process does not change
significantly from year to year, which reduces the need for substantial
modifications to the production process.
RTA Furniture
Southern Wood Division - Sparta, Tennessee. This facility constructs RTA
furniture from high density particle board, dowels and wood scrap materials.
The particle board is available from various manufacturers. For "spindle"
furniture, the dowels and wood scrap materials are available from various
sources and are generally the by-product of other processes such as the
production of wooden tool handles and dimension stock. WinsLoew is generally
able to purchase these scrap materials at an attractive cost because the
primary alternative use for such materials is as a waste fuel source. A wood
grain pattern is imprinted on the particle board using a laminating process,
and these boards are then cut to the proper length and width, shaped and
completed with plastic molding. Spindles are produced by automated lathes,
sanded, stained and lacquered. Each piece of furniture is individually boxed
and includes board, spindles, bolts and assembly instructions. This business
is currently being held for sale.
9
Continental - Irwindale, California. This facility designs and manufactures
ergonomically designed "space savers", modular computer desks and workstations.
The particle board is laminated and then cut and drilled, if necessary, on
automated machinery. The board moves from station to station on a conveyor
system, which moves material through the facility. The individual pieces then
have the appropriate hardware attached, and then are boxed along with assembly
instructions. This business is currently being held for sale.
New West Futon Division - Sparta, Tennessee. During 1997, this facility
manufactured futons, chairs, tables and related accessories marketed under the
New West trademark. The futon unit consisted of three distinct components:
frame, mattress and cover. Each of these components were manufactured,
although WinsLoew purchased some items both domestically and overseas.
Dimension stock was then assembled as a frame and one of a variety of finishes
was applied to the frame. The mattress was produced with specialized equipment
and was usually filled with cotton. however, upgrades included polyurethane
foam and pocketed coil springs. Finally, covers, in a wide variety of fabric
options (including the customer's own materials), were cut and sewn to fit the
mattress. Each of these components were then boxed and sold separately or in
combination. As of November 21, 1997, this operation was closed down and its
assets are in the process of being liquidated.
Manufacturing Capacity
Management believes that the Company's manufacturing facilities in the casual
and contract seating product lines are currently operating, in the aggregate,
at approximately 75% of capacity, assuming a one-shift basis. Management
considers the Company's present manufacturing capacity to be sufficient for the
foreseeable future and believes that, by adding multiple shift operations, the
Company can significantly increase the total capacity of its facilities to meet
growing product demand with minimal additional capital expenditures. In
addition, the Company engages in an ongoing maintenance and upgrading program,
and considers its machinery and equipment to be in good condition and adequate
for the purposes for which they are currently used.
The Company plans to dispose of its futon division facilities in Tennessee.
MARKETING AND SALES
Casual Furniture
WinsLoew markets its residential casual furniture products throughout the
United States, Canada and the Caribbean. Substantially all of WinsLoew's
residential sales are currently made to customers located east of the Rocky
Mountains. WinsLoew's residential products are marketed to approximately 800
active customers, including specialty patio stores, full-line furniture
retailers, and department stores. WinsLoew also sells its contract casual
products to certain commercial end-users such as hotels, restaurants, country
clubs, exporters, interior designers and developers of apartments and motels.
Substantially all of WinsLoew's residential products are sold through
approximately 30 independent manufacturer's representatives. Each
representative: (i) is assigned a territory in which to promote, solicit and
sell WinsLoew's products, (ii) agrees to assist in the collection of
receivables and adjustment of any complaints with regard to his or her sales
and (iii) receives commissions based on the net sales made in his or her
territory. WinsLoew determines the prices at which its products will be sold
and may refuse to accept any orders submitted by a sales representative for
credit-worthiness or other reasons. WinsLoew's representatives may carry other
products which do not directly compete with WinsLoew's product lines. WinsLoew
has long-standing relationships with most of its representatives.
WinsLoew's marketing program assists its representatives in various ways,
including: (i) holds exhibitions at national and regional furniture shows and
leases a year-round showroom at the Merchandise Mart in Chicago, Illinois, (ii)
provides retailers with annual four-color catalogs of its products, sample
materials illustrating available colors and fabrics, point of sale materials
and special sales brochures, (iii) provides information directly to
representatives at annual sales meetings attended by senior management and
manufacturing personnel, (iv) maintains a customer service department which
ensures that WinsLoew promptly responds to the needs and orders of WinsLoew's
customers, (v) maintains regular contact with key retailers and (vi) conducts
ongoing surveys to determine dealer satisfaction. WinsLoew's casual contract
products are marketed nationally through a team of company and independent
sales representatives.
10
The Winston International division of WinsLoew was organized primarily for the
purpose of distributing casual furniture products that are not manufactured by
WinsLoew. Winston International's current product offerings include a line of
cast aluminum products. This product line is inventoried, distributed and
administered in Haleyville, Alabama.
Contract Seating
WinsLoew's hospitality and other institutional contract seating products are
sold primarily to architectural design firms, restaurant, lodging chains,
office furniture dealers and retail store planners. WinsLoew's office and
other institutional seating products are sold primarily to office furniture
dealers and lodging chains. Substantially all of WinsLoew's contract seating
products are sold through approximately 40 independent sales representative
organizations that employ approximately 100 sales associates. Each sales
representative: (i) promotes and sells WinsLoew's products in an assigned
territory, (ii) assists WinsLoew in responding to customer service request and
(iii) receives commissions based on the net sales made in his or her territory.
WinsLoew determines the prices at which its products will be sold, and may
refuse to accept any orders submitted by a sales representative for
creditworthiness or other reasons.
WinsLoew's marketing program assists its representatives in various ways,
including: (i) holds exhibitions at national shows, (ii) provides its
representatives and customers with four color catalogs of its products, (iii)
provides information to representatives at sales meetings and (iv) maintains a
customer service department that ensures WinsLoew promptly responds to the
needs and orders of customers.
RTA Furniture
WinsLoew's promotional RTA furniture products are sold primarily by outside
sales representatives. The Company distributes price lists and catalogs of its
products. Promotionally priced RTA products are sold primarily to mass
merchandisers, discounters and warehouse clubs.
Upper priced "space savers" are sold by a team of in-house and independent
representatives primarily to catalog and office furniture wholesalers. Product
catalogs, brochures and price lists are prepared by the Company as sales
material for its salespersons. Additionally the Company purchases "pages" in
catalogs issued by the wholesalers as a means of marketing its products to
retailers. The Company holds exhibitions at national shows and maintains a
customer service department to ensure WinsLoew promptly responds to the needs
and orders of customers.
BACKLOG
As of December 31, 1997, WinsLoew's backlog of orders was approximately $17.6
million, compared to $13.1 million at December 31, 1996. WinsLoew, in
accordance with industry practice, generally permits orders to be canceled
prior to shipment without penalty. Management does not consider backlog to be
predictive of future sales activity because of WinsLoew's short manufacturing
cycle and delivery time, and, especially in the case of casual furniture, the
seasonality of sales.
RAW MATERIALS AND FOREIGN SOURCING
WinsLoew manufactures most of its products to order from basic raw materials,
and, consequently, is able to avoid carrying large amounts of finished goods
inventory particularly in its casual and contract seating product lines.
WinsLoew also attempts to maintain minimum levels of raw material inventory.
WinsLoew's principal raw materials consist of extruded aluminum tubes, steel
rods, woven vinyl fabrics, paint/finishing materials, vinyl strapping, cushion
filler materials, cartons, glass table tops, component parts for contract
seating, particle board and other lumber products and hardware. Although
WinsLoew has no long-term supply contracts, it generally has a number of
sources for its raw materials and has not experienced any significant problems
in obtaining adequate supplies for its operations. Nevertheless, the purchase
of aluminum is, from time to time, highly competitive, and its price, as a
commodity, is subject to market conditions beyond WinsLoew's control. In
addition, fluctuations in lumber prices and the costs of other raw materials
have not historically had a material adverse effect on WinsLoew's results of
operations.
11
However, there can be no assurance that future price increases will not have a
material adverse effect on WinsLoew's financial condition and results of
operations. Management believes that WinsLoew's policy of maintaining several
sources for most supplies contributes to its ability to obtain competitive
pricing.
A significant portion of the Loewenstein raw materials consist of component
chair parts purchased from several Italian manufacturers. WinsLoew views its
suppliers as "partners" and works with such suppliers on an ongoing basis to
design and develop new products. WinsLoew believes that these cooperative
efforts, its long-standing relationships with these suppliers and its
experience in conducting on-site, quality control inspections provide it with
a competitive advantage over many other furniture manufacturers, including a
competitive purchasing advantage in times of product shortages. In addition,
in the case of Italian and European suppliers, WinsLoew generally contracts for
its purchases of such component parts in such manner as to minimize its
exposure to foreign currency fluctuations. Although WinsLoew has close working
relationships with its foreign suppliers, WinsLoew's future success may depend,
in part, on maintaining such or similar relationships. Given the special
nature of the manufacturing capabilities of these suppliers, in particular
certain wood-bending capabilities, and sources of specialized wood types, the
Loewenstein division could experience a disruption in their operations in the
event of any required replacement of such suppliers. There can also be no
assurance that situations beyond WinsLoew's control, including political
instability, significant and prolonged foreign currency fluctuations, economic
disruptions, the imposition of tariffs and import and export controls, changes
in government policies and other factors will not have a material adverse
effect on WinsLoew.
FURNITURE INDUSTRY AND COMPETITION
The furniture industry is cyclical and affected by changes in general economic
conditions, consumer confidence and discretionary income, interest rate levels,
and credit availability. Sales of casual furniture products are also affected
by weather conditions during the peak retail selling season and the resulting
impact on consumer purchases of outdoor furniture products.
The furniture industry is highly competitive and includes a large number of
manufacturers, none of which dominate the market. Certain of the companies
which compete directly with WinsLoew may have greater financial and other
resources than WinsLoew. Based on its extensive industry experience,
management believes that competition in casual furniture and contract seating
is generally a function of product design, construction quality, prompt
delivery, product availability, customer service and price. Management
similarly believes that competition in WinsLoew's promotional price niche of
the RTA furniture industry is limited, and is based primarily on prompt
delivery, product availability, customer service and price.
WinsLoew believes that it successfully competes in the furniture industry
primarily on the basis of its innovatively styled product offerings and
merchandising programs, the quality of its products, and WinsLoew's emphasis on
providing high levels of customer service. While sales of imported, foreign-
produced casual furniture have increased significantly in recent years,
WinsLoew's sales have not been adversely affected because such foreign products
are generally: (i) limited in design, styles and colors, (ii) of lesser
quality than WinsLoew's products, (iii) marketed in the lower-end price range
and (iv) not supported with competitive customer service and responsiveness to
customers' needs for quick delivery.
TRADEMARKS AND PATENTS
WinsLoew has registered the following trademarks with the United States Patent
and Trademark Office: Winston, Lyon-Shaw, Loewenstein/Oggo, From the Source,
Gregson, Southern Wood Products, and LeCasso. Management believes that
WinsLoew's trademark position is adequately protected in all markets in which
WinsLoew does business. WinsLoew also believes that its various trade names
are generally well recognized by dealers and distributors, and are associated
with a high level of quality and value.
WinsLoew holds several design and utility patents, and has applications pending
for issuance of other design and utility patents. Since WinsLoew believes that
it is an innovator of styles and designs, it is the Company's policy to apply
for design and utility patents for those designs which it believes may be of
significance to WinsLoew.
12
EMPLOYEES
At December 31, 1997, WinsLoew had approximately 797 full-time employees, of
whom 25 were employed in management, 125 in sales, general, and administrative
positions, and 647 in manufacturing, shipping, and warehouse positions.
The only employees subject to collective bargaining agreements are
approximately 144 of WinsLoew's hourly employees in Haleyville, Alabama, who
are represented by the Retail, Wholesale, and Department Store Union. The
labor agreement between WinsLoew and such union, which expires on July 31,
2001, provides that there shall be no strikes, slowdowns or lockouts. WinsLoew
considers its employee relations to be good.
ENVIRONMENTAL MATTERS
WinsLoew's management believes that WinsLoew complies in all material respects
with all applicable federal, state and local provisions relating to the
protection of the environment. The principal environmental regulations that
apply to WinsLoew govern air emissions, water quality and the storage and
disposition of solvents. Compliance with environmental protection laws and
regulations has not had a material adverse impact on WinsLoew's financial
condition or results of operations in the past and is not expected to have a
material adverse impact in the future.
On November 23, 1993, WinsLoew was named as a potentially responsible party by
the United States Environmental Protection Agency ("EPA") for cleanup at the
Carolawn Superfund Site in Ft. Lawn, Chester County, South Carolina. WinsLoew
denied it sent any waste to the site, nor is responsible in any way for its
cleanup. The EPA has produced documents showing that in 1972 (prior to the
acquisition of WinsLoew's former Lyon-Shaw division), Lyon-Shaw may have had
Southeastern Pollution Control, Inc. ("SEPCO") pick up waste for disposal at
another site, and suspects that SEPCO may have moved some waste from that site
to the Carolawn site, which it also operated. In 1987, WinsLoew purchased
certain assets of Lyon-Shaw from a seller which is still in existence. The
agreement did not provide for an assumption of this type of liability. Based
on the percentage of the Lyon-Shaw waste to the total waste, it would appear
that if WinsLoew did have any liability at the Carolawn Superfund Site, it
would not exceed $4,000. In January 1998, the EPA proposed complete and final
settlement at it relates to PRP where the PRP's responsibility is de mininis,
and Lyon Shaw fell into this group. The Company intends to accept this
settlement.
13
ITEM 2. Properties
The following table provides information with respect to each of the Company's
facilities:
________________________________________________________________________________
| | | |Approximate| | | |
| | | |Building |Approximate| | |
| | | |Area | Land Area | Owned| Lease |
| | | |(square) | Owned | or |Expiration|
| Location | Division | Primary Use | feet) | (acres) |Leased| Date |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Pelham, | | | | | | |
| AL | All |Headquarters | 11,500 | 1.8 | Owned| N/A |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Haleyville,| |Manufacturing| | | | |
| AL | Winston | and Offices | 155,000 | 17 | Owned| N/A |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Haleyville,| | | | | | |
| AL | Winston | Warehouse | 20,000 | 1 | Owned| N/A |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Haleyville,| | | | | | |
| AL | Winston |Sewing Plant | 30,000 | 1 | Owned| N/A |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Chicago, | Casual |Merchandise | | | | |
| IL | Division |Mart Showroom| 12,000 | N/A |Leased| 8/31/02 |
|-----------|----------|-------------|-----------|-----------|------|----------|
|Houston, | |Manufacturing| | | | |
| TX |Texacraft | and Offices | 89,500 | N/A |Leased| 4/15/05 |
|----------------------|-------------|-----------|-----------|------|----------|
|Pompano | |Manufacturing| | | | |
|Beach, FL |Loewenstein| and Offices | 100,000 | 13.8 | Owned| N/A |
|----------|-----------|-------------|-----------|-----------|------|----------|
|Pompano | | | | | | |
|Beach, FL |Loewenstein| Warehouse | 6,500 | N/A |Leased| 12/2/95 |
|----------|-----------|-------------|-----------|-----------|------|----------|
|Liberty, | |Manufacturing| | | | |
| NC |Gregson | and Offices | 126,000 | 9.5 | Owned| N/A |
|----------|-----------|-------------|-----------|-----------|------|----------|
|Sparta, |Southern | | | | | |
| TN | Wood |Manufacturing| 94,300 | 10.0 | Owned| N/A |
|----------|-----------|-------------|-----------|-----------|------|----------|
|Sparta/ | | |(three | | | |
|Cookeville| | |facilities)| | | |
| TN |New West |Manufacturing| 190,400 | 43.5 | Owned| N/A |
|----------------------|-------------|-----------|-----------|------|----------|
|Irwindale,| |Manufacturing| | | | |
| CA |Continental| and Offices | 91,655 | N/A |Leased| 6/30/02 |
|__________|___________|_____________|___________|___________|______|__________|
__________________________
For additional information with respect to the Company's lease
obligations, see Note 9 of Notes to the Company's Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Substantially all of the company's assets are currently pledged as collateral
for a credit facility. See Note 4 of Notes to the Company's Consolidated
Financial Statements included in this Annual Report on Form 10-K.
14
ITEM 3. Legal Proceedings
From time to time, the Company is subject to legal proceedings and
other claims arising in the ordinary course of its business. The Company
maintains insurance coverage against potential claims in an amount which it
believes to be adequate. Based primarily on discussions with counsel and
management familiar with the underlying disputes, the Company believes that it
is not presently a party to any litigation, the outcome of which would have a
material adverse effect on its business or operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
15
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock has been listed for quotation on the Nasdaq National
Market System under the symbol "WLFI" since January 1, 1995. The following
table sets forth, for the period indicated, the high and low sales prices per
share of Common Stock as reported by the Nasdaq National Market System:
High Low
1996
First Quarter.......... $6 $4 7/8
Second Quarter......... $6 $5
Third Quarter.......... $8 $5
Fourth Quarter......... $10 1/8 $6 7/8
1997
First Quarter.......... $11 7/8 $8 1/8
Second Quarter......... $11 $8 3/8
Third Quarter.......... $15 $10 15/16
Fourth Quarter......... $16 13/16 $13 5/16
As of February 27, 1998, there were approximately 117 holders of record of
Common Stock. The closing sale price for the Common Stock on February 27,
1998, was $19.
The Company has not declared nor paid any cash dividends on its Common Stock,
does not anticipate that any dividends will be declared nor paid in the
foreseeable future, and intends to retain earnings to finance the development
and expansion of the Company's operations. In addition, the Company's payment
of dividends is also restricted under the terms of its credit facilities (see
Note 4 of Notes to the Company's Consolidated Financial Statements).
16
Item 6. Selected Financial Data
The following selected financial data are derived from the Consolidated
Financial Statements of Winsloew included elsewhere herein. The following
data should be read in conjunction with WinsLoew's Consolidated Financial
Statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial
information included herein.
Years Ended December 31,
---------------------------------------------------
1997 1996 1995 1994 1993 (1)
---------------------------------------------------
(In thousands, except per share amounts)
Income Statement Data:
Net sales $114,749 $106,695 $ 95,443 $ 83,284 $77,789
Cost of sales 73,329 68,757 64,999 55,878 51,265
-------- -------- -------- -------- -------
Gross profit 41,420 37,938 30,444 27,406 26,524
Selling, general and
administrative expenses 20,548 20,082 17,719 14,731 14,263
Amortization 976 1,426 2,077 2,000 1,922
Non-recurring charges -- -- 917 1,814
-------- -------- -------- -------- -------
Operating income 19,896 16,430 10,648 9,758 8,525
Interest expense 2,296 3,083 3,841 2,795 3,136
-------- -------- -------- -------- -------
Income from continuing
operations before
income taxes and
extraordinary items 17,600 13,347 6,807 6,963 5,389
Provision for income taxes 6,686 4,822 2,739 3,068 2,172
-------- -------- -------- -------- -------
Income from continuing
operations before
extraordinary items 10,914 8,525 4,068 3,895 3,217
Income (loss) from
discontinued operations
net of taxes (471) (241) (7,519) 2,457 2,001
(Loss) from sale of
discontinued operations, (8,200) -- -- -- --
net of taxes
Extraordinary items -- -- (593) -- (1,223)
-------- -------- -------- -------- -------
Net income (loss) $2,243 $8,284 ($4,044) $6,352 $3,995
======== ======== ======== ======== =======
Basic earnings (loss) per share:
Income (loss) from continuing
operations before
extraordinary items $1.46 $0.98 $0.45 $0.40 $0.40
Income (loss) from
discontinued operations, (0.06) (0.03) (0.83) 0.26 0.25
net of taxes
(Loss) from sale of
discontinued operations, (1.10) -- -- -- --
net of taxes
Extraordinary items -- -- (0.07) -- (0.15)
-------- -------- -------- -------- ------
Net income (loss) per share $0.30 $0.95 ($0.45) $0.66 $0.50
======== ======== ======== ======== =====
Weighted average shares 7,484 8,724 9,029 9,655 8,075
======== ======== ======== ======== =======
17
Years Ended December 31,
---------------------------------------------------
1997 1996 1995 1994 1993(1)
---------------------------------------------------
(In thousands, except per share amounts)
Dilutive earnings (loss)
per share:
Income (loss) from
continuing operations
before extraordinary items $1.44 $0.98 $0.45 $0.40 $0.40
Income (loss) from
discontinued operations,
net of taxes (0.06) (0.03) (0.83) 0.26 0.25
Gain (loss) from sale of
discontinued operations,
net of taxes (1.08) -- -- -- --
-------- -------- -------- -------- -------
Net income (loss) per share $0.30 $0.95 ($0.45) $0.66 $0.50
======== ======== ======== ======== =======
Weighted average shares and
common share equivalents
outstanding 7,563 8,730 9,029 9,655 8,075
======== ======== ======== ======== =======
December 31,
---------------------------------------------------
1997 1996 1995 1994 1993(1)
---------------------------------------------------
(In thousands)
Balance Sheet Data:
Working capital $29,337 $40,102 $43,677 $51,957 $33,984
Total Assets 79,339 99,624 104,608 110,261 89,457
Long-term debt
(less current portion) 15,908 38,726 40,130 39,094 21,221
Total debt 16,423 40,681 41,941 40,893 24,160
Stockholders' equity 51,026 48,400 53,228 60,680 56,536
(1) Represents the combined results of Winston and Loewenstein, which are
the predecessor companies to WinsLoew.
18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
WinsLoew is comprised of companies engaged in the design,
manufacture and distribution of casual furniture and contract
seating furniture. WinsLoew's casual furniture products are
distributed through independent manufacturer's representatives and
are constructed of extruded and tubular aluminum and cast aluminum.
These products are distributed through fine patio stores,
department stores and full line furniture stores nationwide.
WinsLoew's contract seating products are distributed to a broad
customer base which includes architectural design firms and
restaurant and lodging chains.
During 1997 the Company adopted a plan to dispose of its RTA
operations. WinsLoew's RTA products include ergonomically-designed
computer workstations, which the Company denotes as "space savers",
promotionally-priced coffee and end tables, wall units and rolling
carts and an extensive line of futons, futon frames and related
accessories. Distribution of RTA furniture products is primarily
through mass merchandisers, catalogue wholesalers and specialty
retailers. As a result of this decision, the Company recorded a
pre-tax non-cash charge totaling $12.4 million in the fourth
quarter of 1997 relating to the disposal of the RTA operations.
The charge can be summarized as follows:
Write-off of goodwill in connection with
sale of assets $ 3,902,000
Reduction of inventory value 2,791,000
Reduction of property to net realizable
value 2,067,000
Reduction of accounts receivable value 1,390,000
Other liabilities / reserves 1,050,000
Accrual for losses through disposition 1,200,000
-----------
Total $12,400,000
===========
The Company plans to sell two of the businesses and is in the
process of liquidating the assets related to the futon business.
During 1995 the Company's Board of Director's adopted a plan to
redirect the marketing and operations of certain of the Company's
businesses. As a result of the changes to be implemented, the
Company recorded a charge of $7.1 million for restructuring. This
charge was the result of management's plan to make changes in the
product lines, management, marketing focus and operational strategy
in the Company's RTA product line. The plan included exiting
certain markets and products.
The table below summarizes the charges for restructuring recorded
in 1995:
Reduction in carrying value of
promotionally-priced seating subsidiary
held for sale $2,526,000
Reduction in carrying values of
manufacturing facilities held for sale
and other asset write-downs 848,000
Reduction in inventory values from
exiting certain futon products 3,372,000
Severance costs for certain former
management 390,000
-----------
Total $7,136,000
===========
19
Management's 1995 review also identified other operating and
financial issues related to ongoing operations of the Company,
which were not recorded as part of the charges for restructuring.
The review resulted in additional operating charges totaling $2.1
million (6.2% of net sales). These additional charges include $1.4
million for inventory which was considered excess, unusable or
obsolete and $650,000 for accounts receivable which were considered
uncollectable. These charges have been included in the net loss
from discontinued operations in 1995. The balance of the following
discussion focuses on the Company's continuing operations.
Results of Operations
The following table sets forth net sales, gross profit and gross
margin as a percent of net sales for the years ended December 31,
1997, 1996 and 1995 for each of the Company's product lines (in
thousands, except for percentages):
1997 1996 1995
---------------------- ---------------------- ----------------------
Net Gross Gross Net Gross Gross Net Gross Gross
Sales Profit Margin Sales Profit Margin Sales Profit Margin
------- ------- ------ ------- ------- ------ ------- ------- ------
Casual
furniture $56,363 $24,164 42.9% $58,066 $23,812 41.0% $55,758 $19,681 35.3%
Contract
seating 58,386 17,256 29.6% 48,629 14,126 29.0% 39,685 10,763 27.1%
--------- ------- --------- ------- -------- -------
Total $114,749 $41,420 36.1% $106,695 37,938 35.6% $95.443 $30,444 31.9%
========= ======= ========= ======= ======== =======
The following table sets forth certain information relating to the
Company's operations expressed as a percentage of the Company's net
sales:
For the Years Ended December 31,
1997 1996 1995
Gross profit 36.1% 35.6% 31.9%
Selling, general and
administrative expense 17.9% 18.8% 18.6%
Amortization 0.9% 1.3% 2.2%
Operating income 17.3% 15.4% 11.2%
Interest expense 2.0% 2.9% 4.0%
Provision for income taxes 5.8% 4.5% 2.9%
Income from continuing
operations before
extraordinary item 9.5% 8.0% 4.3%
(Loss) from discontinued
operations,
net of taxes (0.4%) (0.2%) (7.9%)
(Loss) from sale of
discontinued
operations, net of taxes (7.1%) --- ---
Extraordinary item --- --- (0.6%)
Net income (loss) 2.0% 7.8% (4.2%)
Comparison of Years Ended December 31, 1997 and 1996
Net Sales: WinsLoew's consolidated net sales for 1997 increased
$8.0 million or 7.5% to $114.7 million, compared to $106.7 million
in 1996. The casual product line sales increased by 7.6%, after
excluding sales for the Company's wrought iron business sold during
1997. The Company believes that due to its high quality and
innovative designs, existing retail customers have allocated more
floor space, requiring larger inventories of the Company's casual
aluminum furniture. The contract seating product line experienced
a sales increase of 20.1% due to growth in the core business and
increased demand from the lodging industry.
20
Gross Margin: Consolidated gross margin increased $3.5 million in
1997 to $41.4 million compared to $37.9 million in 1996. The casual
and contract seating product lines improved gross margins in 1997
due to greater operating efficiencies, increased sales volumes and
improved raw material costs.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased $466,000 in 1997, compared to
1996, due to commissions expense and other variable costs related
to the increased sales volume in 1997.
Amortization: Amortization expense decreased due to the intangible
assets that became fully amortized in 1996.
Operating Income: As a result of the above, WinsLoew recorded
operating income of $19.9 million (17.3% of net sales) in 1997,
compared to operating income of $16.4 million (15.4% of net sales)
in 1996.
Interest Expense: WinsLoew's interest expense decreased $787,000
in 1997, compared to 1996. The Company has reduced its debt by
$24.3 million from December 31, 1996.
Provision for Income Taxes: WinsLoew's effective tax rate from
continuing operations of 38.0% in 1997 and 36.1% in 1996 is greater
than the federal statutory rate due to the effect of state income
taxes and non-deductible goodwill amortization.
Comparison of Years Ended December 31, 1996 and 1995
Net Sales: The Company's consolidated net sales increased $11.3
million, or 11.8% to $106.7 million in 1996 from $95.4 million in
1995. Net sales increased in both product lines. Net sales
increased in the casual furniture product line 4.1%. The Company
believes that due to its high quality and innovative designs,
existing retail customers have allocated more floor space,
requiring larger inventories of the Company's casual aluminum
furniture. The contract seating product line experienced a sales
increase of 22.5% due to increased demand resulting from
construction in the lodging industry.
Gross Profit: The consolidated gross margin increased to 35.6% in
1996, compared to 31.9% in 1995. The casual and contract seating
product lines improved gross margins in 1996, due to greater
operating efficiencies and increased sales volumes. The casual
product line also experienced favorable raw material costs in 1996.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses increased by $2.4 million in 1996, compared
to 1995, due to increased commissions and other variable selling
costs related to the higher volume in 1996 and an increased
provision for doubtful accounts.
Amortization: Amortization expense decreased due to the intangible
assets that became fully amortized in 1996
Operating Income: As a result of the above, the Company's
operating income was $16.4 million (15.4% of net sales) in 1996,
compared to $10.6 million (11.2% of net sales) in 1995.
Interest Expense: The Company's net interest expense decreased by
$758,000 in 1996, compared to 1995. The Company had reduced its
debt by $10.7 million until December 31, 1996, when it purchased
$9.3 million of its common stock. This stock purchase resulted in
a net debt reduction in 1996 of $1.4 million. These reductions in
debt levels and the Company's increased profitability have led to
improved financial ratios and, in turn, allowed the Company to pay
lower spreads between the base rate and LIBOR and the rates which
the Company is obligated to pay its lenders. These lower spreads
decreased the Company's effective interest rate below those
incurred in 1995.
21
Income Tax Expense: WinsLoew's 1996 effective tax rate from
continuing operations of 36.1% and 40.2% in 1995 is greater than
the federal statutory rate due to the effect of state income taxes
and non-deductible goodwill amortization.
Extraordinary item: The Company incurred an extraordinary charge
of $593,000 (net of an income tax benefit of $360,000) related to
prepayment penalties and the write-off of unamortized deferred loan
costs associated with the retirement of the separate credit
facilities in the first quarter of 1995.
Seasonality and Quarterly Information
The furniture industry is cyclical and sensitive to changes in
general economic conditions, consumer confidence, and discretionary
income, interest rate levels and credit availability.
Sales of casual products are typically higher in the second quarter
and fourth quarters of each year, primarily as a result of the
following: (i) high retail demand for casual furniture in the
second quarter, preceding the summer months and (ii) the impact of
special sales programs on fourth quarter sales. The Company's
casual product sales can also be affected by weather conditions
during the peak retail selling season and the resulting impact on
consumer purchases of outdoor furniture products. During the third
quarter of 1997, the Company sold its Lyon Shaw wrought iron
division (See Note 3 of the Notes to the Financial Statements).
The following table presents the Company's unaudited quarterly data
for 1997 and 1996. Such operating results are not necessarily
indicative of results for future periods. WinsLoew believes that
all necessary and normal recurring adjustments have been included
in the amounts in order to present fairly and in accordance with
generally accepted accounting principles the selected quarterly
information when read in conjunction with WinsLoew's Consolidated
Financial Statements included elsewhere herein.
22
(In thousands, except per share amounts)
1997 Quarters First Second Third Fourth
-------- -------- -------- --------
Net sales $23,136 $37,524 $27,985 $26,104
Gross profit 7,353 14,511 9,864 9,692
Operating Income 2,667 8,047 4,432 4,750
Interest expense 857 645 590 204
Income from continuing
operations 1,093 4,565 2,350 2,906
(Loss) from discontinued
operations (275) (61) (68) (67)
(Loss) on sale of discontinued
operations -- -- -- (8,200)
-------- -------- -------- --------
Net income (loss) $ 818 $4,504 $2,282 ($5,361)
======== ======== ======== ========
Basic earnings per share:
Income from continuing
operations $0.15 $0.61 $0.31 $0.39
(Loss) from discontinued
operations (1) (0.04) (0.01) (0.01) (0.01)
(Loss) on sale of
discontinued
operations (1) -- -- -- (1.09)
-------- -------- -------- --------
Net income (loss) $0.11 $0.60 $0.30 ($0.71)
======== ======== ======== ========
Weighted average shares 7,443 7,456 7,508 7,524
======== ======== ======== ========
Diluted earnings per share:
Income from continuing
operations (1) $0.15 $0.61 $0.31 $0.38
(Loss) from discontinued
operations (1) (0.04) (0.01) (0.01) (0.01)
(Loss) on sale of
discontinued
operations (1) -- -- -- (1.07)
Net income (loss) (1) $0.11 $0.60 $0.30 ($0.70)
======== ======== ======== ========
Weighted average shares and
common share equivalents
outstanding 7,495 7,502 7,602 7,630
======== ======== ======== ========
1996 Quarters First Second Third Fourth
-------- -------- -------- --------
Net sales $21,021 $34,539 $25,110 $26,025
Gross profit 6,256 13,594 8,384 9,704
Operating Income 1,186 6,856 3,301 5,087
Interest expense 1,187 647 682 567
Income from continuing
operations 4 3,846 1,757 2,918
Income (loss) from
discontinued operations 86 (228) 363 (462)
-------- -------- -------- --------
Net income $ 90 $ 3,618 $ 2,120 $ 2,456
======== ======== ======== ========
Basic earnings per share:
Income from continuing
operations (1) $0.00 $0.43 $0.21 $0.35
Income (loss) from
discontinued
operations (1) 0.01 (0.03) 0.04 (0.06)
-------- -------- -------- --------
Net income $0.01 $0.40 $0.25 $0.29
======== ======== ======== ========
Weighted average shares 8,967 8,967 8,589 8,383
======== ======== ======== ========
Diluted earnings per share:
Income from continuing
operations (1) $0.00 $0.43 $0.21 $0.35
Income (loss) from
discontinued
operations (1) 0.01 (0.03) 0.04 (0.06)
-------- -------- -------- --------
Net income $0.01 $0.40 $0.25 $0.29
======== ======== ======== ========
Weighted average shares and
common share equivalents
outstanding 8,967 8,967 8,595 8,413
======== ======== ======== ========
(1) Quarter amounts do not add to annual figures due to rounding.
23
Liquidity and Capital Resources
The Company's short-term cash needs are primarily for working
capital to support its debt service, accounts receivable and
inventory requirements. The Company has historically financed its
short-term liquidity needs with internally generated funds and
revolving line of credit borrowings. At December 31, 1997 the
Company had $29.3 million of working capital and $18 million of
unused and available funds under its credit facilities.
The Company has a senior credit facility with a consortium of banks
and other institutional lenders. The facility, which matures in
February 2001 and is collateralized by substantially all of the
assets of the Company, consists of a revolving line of credit, term
loan and an acquisition line of credit. The working capital
revolving line of credit allows the Company to borrow funds up to a
certain percentage of eligible inventory and accounts receivable.
The $12.5 million acquisition line of credit can be used for
capital expenditures and purchases of the Company's common stock.
In June 1996, WinsLoew amended its senior credit facility to
provide the Company with a variable amount available under the
revolving line of credit (see Note 4 to the Consolidated Financial
Statements). Due to the seasonal nature of the casual furniture
product line, WinsLoew's cash requirements are usually greater in
the first quarter of each year. The June 1996 amendment allows the
amount available to fluctuate with the seasonal nature of the
Company's business. After the first quarter of each year, the
Company's cash requirements from its credit line decline. By use
of a variable amount of credit availability, the Company can avoid
the cost of an available but unused line of credit. At December
31, 1997, from an available maximum line of credit of $40 million,
WinsLoew has elected to set the amount available at $25 million.
In July 1996, WinsLoew amended its senior credit facility to allow
the Company to borrow under its line of credit to purchase shares
of the Company's common stock (see Note 5 to the Consolidated
Financial Statements). As of December 31, 1997, there was $2.1
million available for such repurchases.
Cash Flows From Operating Activities: Net cash provided by
operations increased to $22.6 million in 1997 primarily due to
improved profitability from continuing operations.
Cash Flows From Investing Activities: During 1997, the Company
spent $1.0 million on capital expenditures and received $2.1
million in proceeds related to the disposition of certain assets of
its wrought iron business.
At December 31, 1997, the Company had no material commitments for
capital expenditures.
Cash Flows From Financing Activities: The Company used the cash
generated by operations and from investing activities to repay
$24.3 million of debt during 1997.
Foreign Exchange Fluctuations and Effects of Inflation
WinsLoew purchases some raw materials from several Italian
suppliers. These purchases expose the Company to the effects of
fluctuations in the value of the U.S. dollar versus the Italian
lira. If the U.S. dollar declines in value versus the Italian
lira, the Company will pay more in U.S. dollars for these
purchases. To reduce its exposure to loss from such potential
foreign exchange fluctuations, the Company will occasionally enter
into foreign exchange forward contracts. These contracts allow the
Company to buy Italian lira at a predetermined exchange rate,
thereby transferring the risk of subsequent exchange rate
fluctuations to a third party. However, if the Company is unable
to continue such forward contract activities, and the Company's
inventories increase in connection with expanding sales activities,
a weakening of the U.S. dollar against the Italian lira could
result in reduced gross margins. The Company elected to hedge a
portion of its exposure to purchases made in 1997 by entering into
foreign currency forward contracts with a value of $2.2 million at
December 31, 1997. The Company did not incur significant gains or
losses from these foreign currency transactions.
24
Inflation has not had a significant impact on the Company in the
past three years, nor is it expected to have a significant impact
in the foreseeable future.
Year 2000
The Company began an assessment of Year 2000 issues on its computer
system in mid-1995 and began the process of updating hardware and
software at each of its facilities. The Company is completing the
software and hardware installation at the last facility which is
expected to be completed during the first half of 1998.
The Company has no plans to address these issues with its
discontinued operations as the expected date of disposition is
mid-1998.
The Company estimates the cost to complete the project for the 1995
to 1998 period at approximately $550,000 of which approximately
$310,000 was capitalized and approximately $150,000 was expensed
through December 1997. From an ongoing cost standpoint, the Year
2000 issues are not expected to have a significant impact on the
Company's financial position, results of operations or liquidity.
25
ITEM 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Ernst & Young LLP, Independent Auditors.................... 27
Consolidated Balance Sheets as of
December 31, 1997 and 1996................................... 28
Consolidated Statements of Income
For the Years Ended December 31, 1997, 1996, and 1995........ 29
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995......... 30
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996, and 1995........ 31
Notes to Consolidated Financial Statements........................... 32
26
REPORT OF INDEPENDENT AUDITORS
Stockholders of WinsLoew Furniture, Inc.
We have audited the accompanying consolidated balance sheets of WinsLoew
Furniture, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of WinsLoew
Furniture, Inc. and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Birmingham, Alabama
February 6, 1998
27
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands except per share amounts)
December 31,
--------------------------
1997 1996
---------- ----------
Assets
Cash and cash equivalents $ 707 $ 897
Accounts receivable, less allowances
for doubtful accounts of $2,702
and $1,531 at December 31, 1997
and 1996, respectively 21,124 22,851
Inventories 9,096 10,716
Prepaid expenses and deferred
income taxes 7,391 3,748
Net assets of discontinued
operations 2,057 12,711
-------- --------
Total current assets 40,375 50,923
Net assets of discontinued
operations 6,860 13,937
Property, plant and equipment, net 10,320 11,954
Goodwill, net 21,021 21,699
Other assets 763 1,111
-------- --------
$ 79,339 $ 99,624
======== ========
Liabilities and Stockholders' Equity
Current portion of long-term debt $ 515 $ 1,955
Accounts payable 3,187 3,926
Other accrued liabilities 7,336 4,940
-------- --------
Total current liabilities 11,038 10,821
Long-term debt, net of current portion 15,908 38,726
Deferred income taxes 1,367 1,677
-------- --------
Total liabilities 28,313 51,224
-------- --------
Commitments and contingencies (note 9)
Stockholders' equity:
Preferred stock, par value
$.01 per share, 5,000,000 shares
authorized, none issued -- --
Common stock; par value $.01 per
share, 20,000,000 shares
authorized, 7,481,783 and
8,967,112 shares issued and
outstanding at December 31, 1997
and 1996, respectively 75 75
Additional paid-in capital 24,926 24,543
Retained earnings 26,025 23,782
-------- --------
Total stockholders' equity 51,026 48,400
-------- --------
$ 79,339 $ 99,624
======== ========
See accompanying notes.
28
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
Year Ended December 31
-----------------------------------------
1997 1996 1995
------------ ---------- -------------
Net sales $114,749 $106,695 $ 95,443
Cost of sales 73,329 68,757 64,999
-------- -------- --------
Gross profit 41,420 37,938 30,444
Selling, general and
administrative expenses 20,548 20,082 17,719
Amortization 976 1,426 2,077
-------- -------- --------
Operating income 19,896 16,430 10,648
Interest expense 2,296 3,083 3,841
-------- -------- --------
Income (loss) before
income taxes and
extraordinary item 17,600 13,347 6,807
Provision for income taxes 6,686 4,822 2,739
-------- -------- --------
Income (loss) before
extraordinary item 10,914 8,525 4,068
(Loss)from discontinued
operations, net of taxes (471) (241) (7,519)
(Loss)from sale of discontinued
operations, net of taxes (8,200) -- --
Extraordinary item -- -- (593)
-------- -------- --------
Net income (loss) $2,243 $8,284 $(4,044)
======== ======== ========
Basic Earnings (loss) per share:
Income from continuing
operations before
extraordinary item $1.46 $0.98 $0.45
(Loss) from discontinued
operations, net of taxes (0.06) (0.03) (0.83)
(Loss) from sale of
discontinued operations, (1.10) -- --
net of taxes
Extraordinary item -- -- (0.07)
------- ------- --------
Net income (loss) $0.30 $0.95 ($0.45)
======== ======== ========
Weighted average number
of shares 7,484 8,724 9,029
======== ======== ========
Diluted earnings (loss) per share:
Income from continuing
operations before
extraordinary item $1.44 $0.98 $0.45
(Loss) from discontinued
operations, net of taxes (0.06) (0.03) (0.83)
(Loss) from sale of
discontinued operations, (1.08) -- --
net of taxes
Extraordinary item -- -- (0.07)
------- ------- --------
Net income (loss) $0.30 $0.95 ($0.45)
======== ======== ========
Weighted average number
of shares 7,563 8,730 9,029
======== ======== ========
See accompanying notes.
29
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
Common Stock Additional
------------------ Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------ ---------- -------- -------
Balance,
December 31, 1994 9,541,135 $95 $41,043 $19,542 $60,680
Repurchase and
cancellation
of stock (574,023) (5) (3,403) -- (3,408)
Net income -- -- -- (4,044) (4,044)
--------- ------ ---------- -------- -------
Balance,
December 31, 1995 8,967,112 90 37,640 15,498 53,228
Exercise of stock
options 25,100 -- 187 -- 187
Repurchase and
cancellation
of stock (576,925) (6) (3,958) -- (3,964)
Repurchase and
cancellation
stock from
affiliated company (933,504) (9) (9,326) -- (9,335)
Net Income -- -- -- 8,284 8,284
--------- ------ ---------- -------- -------
Balance,
December 31, 1996 7,481,783 $75 $24,543 $23,782 $48,400
Exercise of stock
options 94,725 1 872 -- 873
Repurchase and
cancellation
of stock (50,000) (1) (489) -- (490)
Net loss -- -- -- 2,243 2,243
--------- ------ ---------- -------- -------
Balance,
December 31, 1997 7,526,508 $75 $24,926 $26,025 $51,026
========= ====== ========== ======== =======
See accompanying notes.
30
WinsLoew Furniture, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31,
---------------------------------
1997 1996 1995
------- -------- -------
Cash flows from operating activities:
Net income (loss) $2,243 $8,284 ($4,044)
Adjustments to reconcile net
income to net cash provided
(used in) operating activities:
Depreciation and amortization 2,293 2,630 3,258
Provision for losses on accounts
receivable 11 1,699 240
Change in net assets held for sale 17,731 4,249 4,894
Write-off of loan costs related
to early retirement of debt -- -- 953
Changes in operating assets and
liabilities, net of effects
from acquisitions:
Accounts receivable 1,716 (1,731) (2,340)
Inventories 657 8 1,826
Prepaid expenses and
deferred income taxes (3,870) 64 (781)
Other assets 50 (144) (21)
Accounts payable (654) 2,022 (1,390)
Other accrued liabilities 2,700 (1,608) 2,501
Deferred income taxes (310) 690 (360)
-------- -------- --------
Total adjustments 20,324 7,879 8,780
-------- -------- --------
Net cash provided by
(used in) operating
activities 22,567 16,163 4,736
------- -------- --------
Cash flows from investing activities:
Capital expenditures, net of
disposals (1,001) (1,290) (1,649)
Proceeds from disposition of business 2,119 -- --
-------- -------- --------
Net cash provided by
(used in) investing
activities 1,118 (1,290) (1,649)
-------- -------- --------
Cash Flows from financing activities:
Net borrowings under revolving
credit agreements (19,872) (65) 329
Payments on long-term debt (4,386) (4,225) (1,861)
Proceeds from issuance of
common stock, net 873 187 --
Repurchase and cancellation of stock (490) (3,964) (3,408)
Repurchase and cancellation of stock
from affiliated company -- (9,335) --
Proceeds from issuance of long-term
debt -- 3,030 1,020
Increase in term loan upon refinancing -- -- 1,560
Loan costs -- -- (1,385)
-------- -------- --------
Net cash provided by
(used in) financing
activities (23,875) (14,372) (3,745)
-------- -------- --------
Net increase (decrease) in
cash and cash equivalents (190) 501 (658)
Cash and cash equivalents at
beginning of year 897 396 1,054
-------- -------- --------
Cash and cash equivalents at
end of period $707 $897 $1,054
======== ======== ========
Supplemental disclosures:
Interest paid $2,318 $3,296 $4,010
Income taxes paid $6,048 $3,937 $1,347
See accompanying notes.
31
WinsLoew Furniture, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of WinsLoew
Furniture, Inc. and its subsidiaries. All material intercompany
balances and transactions have been eliminated.
Business
WinsLoew is comprised of companies engaged in the design,
manufacture and distribution of casual furniture and contract
seating furniture. WinsLoew's casual furniture products are
distributed through independent manufacturer's representatives,
and are constructed of extruded and tubular aluminum, wrought
iron and cast aluminum. These products are distributed through
fine patio stores, department stores and full line furniture
stores nationwide. WinsLoew's contract seating products are
distributed to a customer base which includes architectural
design firms, and restaurant and lodging chains. The Company
performs periodic credit evaluations of its customers' financial
condition and determines if collateral is needed on a customer by
customer basis. The Company has one lodging customer that
accounted for 17%, 11% and 6% of revenues in the years ended
December 31, 1997, 1996 and 1995.
Cash and Cash Equivalents
The Company classifies as cash and cash equivalents all highly
liquid investments which have maturities at the date of purchase
of three months or less. The Company maintains its cash in bank
deposit accounts which, at times, may exceed the federally
insured limits. The Company has not experienced any losses in
such accounts.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined utilizing the first-in, first-out ("FIFO") and
weighted average methods.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company
provides for depreciation on a straight-line basis over the
following estimated useful lives: building and improvements, 8
to 40 years; manufacturing equipment, 2 to 10 years; office
furniture and equipment, 3 to 7 years; and vehicles, 3 to 5
years.
Goodwill
Goodwill is amortized on a straight-line basis over forty years
from the date of the respective acquisition. The carrying value
of goodwill is reviewed if the facts and circumstances suggest it
may be impaired. If the review, using undiscounted cash flows
over the remaining amortization period, indicates that the cost
of goodwill will not be recoverable, the Company's carrying value
will be reduced.
32
Deferred Costs (Other Assets)
Loan acquisition costs and related legal fees, included in other
assets, are deferred and amortized over the respective terms of
the related debt.
Income Taxes
Deferred income taxes are provided for temporary differences
between the basis of assets and liabilities for financial
reporting purposes and the related basis for income tax purposes
in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share. Statement 128 replaced
the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128
requirements.
The numerators for the earnings per share calculation are set
forth on the face of the accompanying income statement. The only
difference between the denominator for the basic and dilutive
calculations are the number of shares added to basic for the
dilutive effect of employee stock options.
Revenue Recognition
Sales are recorded at time of shipment from the Company's
facilities to customers.
Use of Estimates
The preparation of the consolidated financial statements requires
the use of estimates in the amounts reported. Actual results
could differ from those estimates.
Accounting for Stock-Based Compensation Plans
The Company follows the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and
related Interpretations to account for its stock option plan.
Under provisions of APB No. 25, no compensation expense has been
recognized for stock option grants.
Foreign Currency Forward Contracts
The Company has exposure to losses which may result from
settlement of certain raw materials purchases denominated in a
foreign currency. To reduce this exposure, the Company enters
into forward contracts to buy foreign currency. These forward
contracts are accounted for as hedges, therefore, gains and
losses from settlement of the forward contracts are used to
offset gains and losses from settlement of the liability for the
purchased raw materials. Gains and losses are recognized in the
same period in which gains or losses from the raw material
purchases are recognized. The Company is exposed to losses on
the forward contracts in the event it does not purchase the raw
materials, however, the Company does not anticipate this event.
At December 31, 1997 the Company had forward contracts to
purchase 3.8 billion lira for $2.2 million. There were no
significant deferred gains or losses and actual gains included in
cost of sales were $30,000, $15,000 and $178,000 for the years
ended December 31, 1997, 1996 and 1995.
Impact of Recently Issued Accounting Standard
33
Statement of Financial Accounting Standard No. 131, Disclosures
about Segment of an Enterprise and Related Information
establishes standards for the disclosure of information about
operating segments in financial statements. The standard will be
applicable to the Company's December 31, 1998 financial
statements. The Company has not yet determined whether the
Statement will result in any change in financial statement
disclosure, however, the Statement will have no effect on the
Company's consolidated financial position, results of operations
or liquidity.
2. Discontinued Operations
As of November 21, 1997, the Company's Board of Directors adopted
a plan to discontinue the Company's ready to assemble ("RTA")
operations. Of the three businesses comprising these operations,
two are being held for sale and one is in the process of being
liquidated. It is expected the plan will be completed by July
1998. As a result during the fourth quarter the Company recorded
a loss on the disposition of its RTA operations of $12,400,000,
or $8,200,000 after taxes, including a provision for estimated
losses prior to disposal, which is summarized below:
Write-off of goodwill in connection with sale of assets $ 3,902,000
Reduction of inventory value 2,791,000
Reduction of property to net realizable value 2,067,000
Reduction of accounts receivable value 1,390,000
Other liabilities / reserves 1,050,000
Accrual for losses through disposition 1,200,000
-----------
Total $12,400,000
===========
The operating results of the discontinued operations are
summarized as follows (dollars in thousands, except for per share
amounts):
For the year ended December 31,
-------------------------------
1997 1996 1995
Net sales $23,317 $37,284 $51,759
Income before taxes (779) (355) (9,973)
Net (loss) (471) (241) (7,519)
Net (loss) per share ($0.06) ($0.03) ($0.83)
During 1995, management reviewed the products, markets and
strategy of the combined operations of the Company. The review
culminated with decisions to redirect the marketing and
operations of certain of the Company's businesses. As a result of
the changes to be implemented, the Company recorded a charge of
$7.1 million for restructuring. This charge was the result of
management's plan to make changes in the product lines,
management, marketing focus and operational strategy in the
Company's RTA product line. The plan included exiting certain
markets and products.
In connection with the restructuring charge, the Company recorded
other adjustments in 1995, primarily to increase inventory
reserves and allowances for uncollectable accounts receivable.
These adjustments resulted in charges of $1.4 million to cost of
sales and $650,000 to selling, general and administrative
expenses. These have also been included above.
34
The net assets of the discontinued operations at December 31,
1997 and 1996 are as follows:
(In thousands) 1997 1996
------- --------
Current assets $5,711 $14,495
Current liabilities, including reserve
for estimated losses through
disposal date (3,654) (1,784)
------- --------
Net assets of discontinued
operations, current $2,057 $12,711
======= ========
Property, net 2,781 5,771
Goodwill, net 4,018 8,127
Other assets 61 39
------- --------
Net assets of discontinued
operations, non-current $6,860 $13,937
======= ========
As a result of the Board approval of the plan, the consolidated
financial statements of the Company have been restated to reflect
the results of operations and net assets of the RTA operations as
a discontinued operation in accordance with generally accepted
accounting principles.
3. Acquisition and Disposition
During the third quarter of 1997 the Company disposed of certain
assets of its wrought iron business in the casual furniture
product line. The sale generated proceeds of $2.1 million. This
business accounted for net sales of $5.7 million, $11.0 million
and $11.6 million in the years ended December 31, 1997, 1996, and
1995 respectively. The operating income of this business was not
material to consolidated operating income. During the third
quarter of 1997, the Company recorded approximately $230,000 of
costs associated with the sale in selling, general and
administrative expenses.
In March 1995, the Company purchased all of the stock of
Continental Engineering Group, Inc. for $7,345,000. Continental
is a manufacturer of ergonomically designed "space-savers"
(computer workstations, desks, chairs, modular systems and
accessories). The acquisition resulted in goodwill of
$4,248,000. Funds for the acquisition were provided under
WinsLoew's credit facility. The acquisition was accounted for
under the purchase method and, accordingly, the operating results
of Continental have been included in discontinued operations
since the date of acquisition.
4. Long-Term Debt
Long-term debt consisted of the following at December 31, 1997
and 1996:
(In thousands) 1997 1996
------- -------
Revolving line of credit $ 1,546 $21,418
Term loan 2,287 5,471
Acquisition line of credit 12,500 12,500
Other 90 1,292
------- -------
16,423 40,681
Less: current portion 515 1,955
------- -------
$15,908 $38,726
======= =======
35
Senior Credit Facilities
The Company's senior credit facility, as amended, provides for
$62.5 million which matures in February 2001, and is
collateralized by substantially all of the assets of the Company.
The facility consists of a working capital revolving line of
credit (maximum of $40 million), a term loan (originally $10
million) and an acquisition line of credit (maximum of $12.5
million). The working capital revolving line of credit allows
the Company to borrow funds up to a certain percentage of
eligible inventory and accounts receivable. The term loan
currently requires quarterly repayments of $190,000. The
acquisition line of credit converts to a term loan with principal
payments due in quarterly installments totaling 15% in 1998, 35%
in 1999 and 50% in 2000. Additionally, a payment equal to 50% of
cash flow, as defined, is required for each year within 90 days
of year-end. This is estimated to be $11.7 million for 1997 and
will be financed on the revolver. In June 1996, WinsLoew amended
its senior credit facility to provide the Company with a variable
amount available under the revolving line of credit. The
amendment reduced the amount available under its revolving line
of credit to $20 million effective each June 30. The Company
may, at its option, elect to increase the revolving line of
credit at each December 31 through the following June 30 to a
maximum of $40 million. As of December 31, 1997, WinsLoew elected
to increase the revolving line of credit to $25 million.
In July 1996, the Company amended its senior credit facility to
allow the Company to borrow up to $6.6 million under its line of
credit to purchase shares of the Company's common stock (see Note
5 below). Currently there is $2.1 million available for this
purpose.
The interest rates on the components of the senior credit
facility are either the base rate plus a spread, or the LIBOR
rate plus a spread, as elected by the Company. The spread is
determined by the leverage ratio, as defined, for the twelve
month period ending each quarter. At December 31, 1997, the
loans are priced at the base rate plus .25% (8.75% at December
31, 1997) and the LIBOR rate plus 1.25% (7.14% at December 31,
1997). In addition, WinsLoew pays an unused facility fee of
.375% per annum on a quarterly basis in arrears.
The agreement requires the Company to meet certain financial
ratios for leverage, interest coverage, tangible net worth and
includes other provisions generally common in such agreements
including restrictions on dividends, additional indebtedness and
capital expenditures. At December 31, 1997, the Company was in
compliance with its debt covenants. The carrying values of the
revolving line of credit, term loan and acquisition loan
approximate their fair value at December 31, 1997.
The Company incurred an extraordinary charge of $593,000 (net of
an income tax benefit of $360,000) related to prepayment
penalties and the write-off of unamortized deferred loan costs
associated with the retirement of the separate credit facilities
in 1995. In connection with the new senior credit facility, the
Company incurred loan costs and related fees of $1,385,000.
5. Capital Stock
During 1997, the Company retired 50,000 shares of common stock
purchased for $490,000. On January 23, 1998, the Board approved
a plan authorizing the repurchase of 1,000,000 shares of the
Company's stock in the open market at times and prices deemed
advantageous.
During 1996 and 1995, the Company's Board of Directors approved
plans to repurchase the Company's stock. During 1996, the
Company repurchased 576,925 shares of stock at a cost of
$3,964,000. Also during 1996, the Company retired 933,504 shares
of its common stock purchased from an affiliated company at $10
per share. During 1995, the Company retired 574,023 shares of
common stock for $3,408,000.
36
7. Income Taxes
The provision (benefit) for income taxes consisted of the
following:
(In thousands) 1997 1996 1995
------- ------- -------
Provision for taxes related to
continuing operations $6,686 $4,822 $2,739
(Benefit) for taxes related to
discontinued operations (223) (114) (2,454)
(Benefit) for taxes related to
loss on sale of discontinued
operations (4,200) -- --
(Benefit) related to
extraordinary item -- -- (360)
------- ------- -------
Total provision (benefit)
for taxes $2,263 $4,708 ($75)
======= ======= =======
For the Years Ended December 31,
--------------------------------
(In thousands) 1997 1996 1995
------ ------ -------
Federal:
Current $3,985 $4,478 $821
Deferred (1,936) (251) (945)
State:
Current 496 542 389
Deferred (282) (61) (340)
------- -------- --------
$2,263 $4,708 ($75)
At December 31, 1997 and 1996, deferred tax assets and
liabilities consisted of the following:
(In thousands) 1997 1996
Deferred tax assets:
Capitalized inventory costs $ 415 $ 461
Reserves and accruals 3,660 1,842
State net operating loss
carryforwards 344 301
------ ------
4,419 2,604
Less: valuation reserve -- (80)
------ -------
Deferred tax assets 4,419 2,524
Deferred tax liabilities:
Intangible asset basis difference (98) (247)
Excess of tax over book depreciation (1,194) (1,283)
Prepaid expenses (93) (135)
Other (75) (20)
------- -------
Deferred tax liabilities (1,460) (1,685)
------- -------
Deferred income taxes, net $2,959 $ 839
======= =======
Included in:
Other current assets $4,326 $2,516
Deferred income taxes (1,367) (1,677)
------- -------
$2,959 $ 839
======= =======
37
The following table summarizes the differences between the
federal income tax rate and the Company's effective income tax
rate for financial statement purposes:
For the Years Ended December 31,
1997 1996 1995
----- ------ -------
Federal income tax rate 34.0% 34.0% (34.0%)
State income taxes 4.7% 2.2% 3.5%
Goodwill amortization 9.3% 2.0% 35.4%
Other 2.2% (2.0%) 4.1%
----- ------ -------
Effective tax rate 50.2% 36.2% 9.0%
===== ====== =======
8. Related Party Transactions
In October 1994, WinsLoew entered into a ten-year agreement (the
"Investment Services Agreement") with Trivest, Inc. ("Trivest").
Trivest and the Company have certain common shareholders,
officers and directors. Pursuant to the Investment Services
Agreement, Trivest provides corporate finance, financial
relations, strategic and capital planning and other management
advice to the Company. The base compensation is $500,000,
subject to cost of living increases and increases for additional
businesses acquired. For 1997, 1996 and 1995, the amount
expensed was $628,000, $604,000 and $564,000, respectively.
Included in loan acquisition costs is $375,000 paid to Trivest in
1995 for negotiations on the Company's behalf for the senior
credit facility. In 1996, the Company retired 933,504 shares of
its common stock purchased from an affiliated company at $10 per
share (see Note 5 above).
9. Commitments and Contingencies
Leases
The Company leases certain office space, manufacturing facilities
and various items of equipment under operating leases. Some
leases for office and manufacturing space contain renewal options
and provisions for increases in minimum payments based on various
measures of inflation. Rental expense amounted to approximately
$763,000, $728,000, and $733,000 for the years ended December 31,
1997, 1996 and 1995, respectively. Operating lease agreements in
effect at December 31, 1997, have the following remaining minimum
payment obligations:
(In thousands)
1998 $ 744
1999 714
2000 718
2001 722
2002 466
2003 - 2006 1,069
Employment Agreements
The Company has employment agreements with certain employees.
The agreements provide for minimum salary levels and bonuses
based on a percentage of pre-tax operating income, as defined in
the agreements.
38
Employee Benefit Plans
The Company has an employee benefit plan established under the
provisions of Section 401(k) of the Internal Revenue Code. Full-
time employees who meet various eligibility requirements may
voluntarily participate in the plan. The plan provides for
voluntary employee contributions through salary reduction, as
well as discretionary employer contributions. No significant
Company contributions were made in the years 1997, 1996 and 1995.
Stock Option Plan
In 1994, the Company established a Stock Option Plan (the "Plan")
as a means to retain and motivate key employees and directors.
The Compensation Committee of the Board of Directors administers
and interprets the Plan and is authorized to grant options to all
eligible employees of the Company and non-employee directors.
The Plan provides for both incentive stock options and non-
qualified stock options. Options are granted under the Plan on
such terms and at such prices as determined by the Compensation
Committee, except that the per share exercise price of incentive
stock options cannot be less than the fair market value of the
Company's common stock on the date of grant. The Company has
reserved 1,500,000 shares of common stock for issuance upon
exercise of stock options. All options which have been granted
have a term of ten years and vest ratably over five years.
Pro forma net income and earnings per share have been determined
as if the Company had accounted for its employee stock options as
compensation expense based on their fair value. Fair value was
estimated at the date of grant using a Black-Scholes option
pricing model for 1997 and 1996 assuming a risk-free interest
rate of 6.45% for 1997 and 6.2% for 1996, a volatility factor for
the Company's common stock of .411 in 1997 and .532 in 1996 and a
weighted-average expected life of the options of six years. The
pro forma information is not likely to be representative of the
effects of options on pro forma net income in future years
because the Company is required to include only options granted
since 1994 in the pro forma information.
For the Years Ended December 31,
--------------------------------
1997 1996 1995
(In thousands) ------ ------ -------
Pro forma net income (loss) $2,068 $8,198 ($4,127)
====== ====== ========
Pro forma income (loss)
per share, diluted:
Income from continuing
operations $1.41 $0.97 $0.44
(Loss) from discontinued
operations, net of taxes (0.06) (0.03) (0.83)
(Loss) from sale of
discontinued operations,
net of taxes (1.08) -- --
Extraordinary item -- -- (0.07)
------ ------ -------
Net income (loss) $0.27 $0.94 ($0.46)
====== ====== =======
39
Information with respect to WinsLoew's Plan is as follows:
1997
----------------------------
Weighted
Average Exercise
Options Price 1996 1995
------- ---------------- -------- --------
Options
outstanding
at January 1 671,550 $ 8.34 738,450 525,575
Granted 250,000 $11.14 25,000 305,250
Exercised (94,725) $ 7.97 (25,100) --
Canceled (41,975) $ 9.99 (66,800) (92,375)
-------- --------- --------
Options
outstanding
at December 31 784,850 $ 9.19 671,550 738,450
======= ======== ========
Exercise prices
per share $5.88-$16.06 $5.88-$11.63 $5.88-$11.63
Options
exercisable
at December 31 407,100 $ 9.12 480,400 488,450
======= ======== ========
Options
available
for grant at
December 31 595,325 803,350 761,550
======= ======== ========
Information with regard to options outstanding and exercise price
at December 31 is as follows:
Options Exercisable
at December 31, 1997
--------------------
Weighted
Weighted Average
Average Options Outstanding Remaining Weighted
Exercise Exercise ------------------------ Life Average
Price Price 1997 1996 1995 at 12/31/97 Shares Price
- ----------- ----- ------- ------- ------- ----------- ------- --------
$5.88-$6.67 $6.19 291,850 356,250 411,150 7.0 160,250 $6.34
8.66 8.66 10,250 10,250 10,250 7.2 4,100 8.66
10.00-10.50 10.32 284,750 158,550 158,550 8.0 99,750 10.00
11.13-11.63 11.56 163,000 146,500 158,500 6.4 143,000 11.63
12.63 12.63 20,000 -- -- 9.6 -- --
16.06 16.06 15,000 -- -- 9.8 -- --
------- ------- ------- -------
Total 9.19 784,850 671,550 738,450 7.4 407,100 9.12
===== ======= ======= ======= === ======= ====
The estimated weighted average fair value of options granted in
1997 is $5.56 per option. The weighted average remaining
contractual life for options granted in 1997 is 9.4 years.
Litigation and Liability Claims
The Company is, from time to time, involved in routine litigation
including general liability and worker's compensation claims. It
is the opinion of management that sufficient insurance has been
purchased to cover current and potential general liability and
worker's compensation claims. None of such litigation in which
the Company is presently involved is believed to be material to
its liquidity, financial position or results of operations.
40
10. Supplemental Information
The following balance sheet captions are comprised of the items
specified below :
December 31,
-----------------
1997 1996
(In thousands) ------- -------
Inventories:
Raw materials $ 7,597 $ 7,569
Work in process 1,038 2,657
Finished goods 461 490
------- -------
$ 9,096 $10,716
======= =======
Property, plant and equipment:
Land $ 1,751 $ 1,751
Building and improvements 8,745 8,745
Manufacturing equipment 6,682 9,693
Office equipment 1,731 1,529
Construction in progress 67 19
Vehicles 107 128
------- -------
19,083 21,865
Accumulated depreciation (8,763) (9,911)
-------- --------
$10,320 $11,954
======== ========
Other accrued liabilities:
Compensation, commissions and
employee benefits $ 2,254 $ 2,397
Customer deposits 1,559 882
Income taxes 971 1,031
Interest 88 110
Other 2,464 520
-------- --------
$ 7,336 $ 4,940
======= ========
Depreciation expense for continuing operations was $1,317,000,
$1,204,000, and $1,181,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
Accumulated amortization at December 31, 1997 and 1996 related to
goodwill was $5,564,000 and $4,886,000, respectively.
Accumulated amortization at December 31, 1997 and 1996 related to
other intangible assets was $773,000 and $475,000, respectively.
41
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
No events nor occurrences required to be disclosed in this Item 9 have
occurred.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required in this Item 10 is incorporated by reference to the
registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 11. Executive Compensation
The information required in this Item 11 is incorporated by reference to the
registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required in this Item 11 is incorporated by reference to the
registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
ITEM 13. Certain Relationships and Related Transactions
The information required in this Item 11 is incorporated by reference to the
registrant's definitive Proxy Statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by this report.
42
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report:
(1) Financial Statements:
Reference is made to the index set forth on page 26 of this Annual Report on
Form 10-K
(2) Financial Statements Schedules:
The following consolidated financial statement schedule is filed herewith:
Sequential
Page Number
-----------
Schedule II -- Valuation and Qualifying Accounts 48
Any required information not included in the above-described schedule is
included in the consolidated financial statements and notes thereto contained
herein. All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are otherwise not applicable and
therefore have been omitted.
(3) Exhibits: (An asterisk to the left of an exhibit number denotes
a management contract or compensatory plan or arrangement required
to be filed as an exhibit to the Annual Report on Form 10-K)
Exhibit Description
2.1 Agreement and Plan of Merger, dated as of September 30, 1994,
by and among Registrant, Old Winston and Old Loewenstein (1)
3.1 Registrant's Articles of Incorporation (1)
3.2 Registrant's Bylaws (1)
*10.1 Registrant's 1994 Stock Option Plan, As Amended and Restated
Effective January 23, 1997(6)
10.2 Form of Indemnification agreement between the Registrant
and certain of its directors and executive officers, and
schedule of parties thereto (10.2) (2)
*10.3 Employment Agreements between the Registrant and each of Bobby
Tesney, R. Craig Watts, Stephen C. Hess, and Vincent A.
Tortorici, Jr.(10.3) (2)
*10.4 Investment Services Agreement, dated December 16, 1994, between
the Registrant and Trivest, Inc. (10.6) (2)
10.5 Agreement, dated August 1, 1996, between Winston and the Retail,
Wholesale, and Department Store Union, AFL-CIO (10.8) (1)
10.6 Lease, dated May 24, 1996, between LaSalle National Bank
and Winston (10.7) (6)
43
10.7 Business Lease, dated November 18, 1993, between Loewenstein
and Emanuel Vanzo (10.21) (2)
10.8 Lease Agreement by and between Teacher Insurance and Annuity
Association and Winston Furniture Company of Alabama, Inc.,
commencing December 15, 1995 (10.23) (4)
10.9 Lease Agreement, dated as of January 11, 1989, between W. Leslie
Pelio and Michael Haworth d/b/a Simworth, as amended (10.29) (2)
10.10 Standard Industrial Lease Milti-tenant, dated as of June 1997,
between The Mutual Life Insurance Company of New York and
Continental Engineering Group, Inc., d/b/a Microcenter (7)
10.11 Stock Purchase Agreement among WinsLoew Furniture, Inc.,
Continental Engineering Group, Inc., and certain
Shareholders, dated February 15, 1995 (10.31) (3)
10.12 Credit Agreement, dated February 2, 1995, among the Registrant,
its subsidiaries, and Heller Financial, Inc. (10.32) (3)
10.13 First Amendment to Credit Agreement, dated February 22, 1995,
among the Registrant, its subsidiaries, and Heller Financial,
Inc. (10.17) (4)
10.14 Second Amendment to Credit Agreement, dated May 8, 1995, among
the Registrant, its subsidiaries, and Heller Financial, Inc.
(10.18) (4)
10.15 Third Amendment to Credit Agreement, dated November 15, 1995,
among the Registrant, its subsidiaries, and Heller Financial,
Inc. (10.19) (4)
10.16 Fourth Amendment to Credit Agreement, dated November 20, 1995,
among the Registrant, its subsidiaries, and Heller Financial, Inc.
(10.20) (4)
10.17 Fifth Amendment to Credit Agreement, dated June 30, 1996 among the
registrants, its subsidiaries, and Heller Financial, Inc.
(10.21) (5)
10.18 Sixth Amendment to Credit Agreement, dated July 1, 1996, among the
registrants, its subsidiaries, and Heller Financial, Inc.
(10.22) (5)
10.19 Seventh Amendment to Credit Agreement, dated January 27, 1997,
among the registrants, its subsidiaries, and Heller Financial, Inc.
(10.20) (6)
*10.20 Registrant's Non-Qualified Supplemental Retirement Plan for Key
Employees (10.22) (6)
21.1 Registrant's Subsidiaries (7)
23.1 Consent of Ernst & Young LLP, Independent Auditors (7)
__________________________
(1) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's Registration Statement on Form S-4
(No. 33-85476).
(2) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994
(3) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's Report on Form 8-K filed
April 7, 1995.
44
(4) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995.
(5) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's Report on Form 10-Q for the
quarter ended June 28, 1996.
(6) Incorporated by reference to the exhibits, shown in parentheses
and filed with the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996.
(7) Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this report.
(c) Exhibits required by Item 601 of Regulation S-K
The index to exhibits that are listed in Item 14 (a) (3) of this
report and not incorporated by reference follows the "Signatures"
section hereof and is incorporated herein by reference.
(d) Financial Statements Schedules required by Regulation S-X
The financial statement schedules required by Regulation S-X which
are excluded from the Registrant's Annual Report to Shareholders
for the year ended December 31, 1997, by Rule 14a-3 (b)(1) are
included above. See Item 14(a)2 for index.
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WINSLOEW FURNITURE, INC.
Date: March 27, 1998 By: /s/ Bobby Tesney
---------------------
Bobby Tesney
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities, and on the dates indicated.
Signature Title Date
/s/ Bobby Tesney President, Chief Executive
- ----------------- Officer and Director March 27, 1998
Bobby Tesney (Principal Executive Officer)
/s/ Vincent A. Tortorici, Jr. Vice President and Chief
- ----------------------------- Financial Officer (Principal March 27, 1998
Vincent A. Tortorici, Jr. Financial and Accounting Officer)
/s/ Earl W. Powell Chairman of the Board March 27, 1998
- ------------------
Earl W. Powell
/s/ Phillip T. George, M.D. Director March 27, 1998
- ---------------------------
Phillip T. George, M.D.
/s/ William F. Kaczynski, Jr. Director March 27, 1998
- ----------------------------
William F. Kaczynski, Jr.
/s/ Peter W. Klein Director March 27, 1998
- ------------------
Peter W. Klein
/s/ M. Miller Gorrie Director March 27, 1998
- ---------------------
M. Miller Gorrie
/s/ James S. Smith Director March 27, 1998
- ------------------
James S. Smith
/s/ Henry C. Cheek Director March 27, 1998
- ------------------
Henry C. Cheek
46
/s/ William H. Allen, Jr. Director March 27, 1998
- -------------------------
William H. Allen, Jr.
/s/ Sherwood M. Weiser Director March 27, 1998
- ----------------------
Sherwood M. Weiser
47
SCHEDULE II - VALUATION OF QUALIFYING ACCOUNTS
WINSLOEW FURNITURE, INC.
DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
| COL. A COL. B | COL. C | COL. D | COL. E | COL. F |
- ------------------------------------------------------------------------------------------------------------------------
| Balance at | Additions | | |
| Beginning | Charged to | Charged to | | Balance at |
| Description of Period | Costs and Expense | Other Accounts | Deductions | End of Period |
- ------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995
Allowance for doubtful accounts $ 430,000 $ 240,000 -- ($ 212,000)(1) $ 458,000
========== ========== ======= =============== ==========
Year ended December 31, 1996
Allowance for doubtful accounts $ 458,000 $1,699,000 -- ($ 125,000)(1) $2,032,000
========== ========== ======= =============== ==========
Year ended December 31, 1997
Allowance for doubtful accounts $2,032,000 $ 11,000 -- ($1,255,000)(1) $ 788,000
========== ========== ======= =============== ==========
Year ended December 31, 1996
Allowance for excess and
obsolete inventory $ 142,000 $ 438,000 -- ($ 131,000)(2) $ 449,000
========== ========== ======= =============== ==========
Year ended December 31, 1997
Allowance for excess and
obsolete inventory $ 449,000 $1,075,000 -- ($1,189,000)(2) $ 335,000
========== ========== ======= =============== ==========
(1) Uncollectible accounts receivable written-off.
(2) Excess and obsolete inventory written-off.
48
EXHIBIT 10.10
STANDARD INDUSTRIAL LEASE-MULTI-TENANT
1. Basic Provisions (the "Basic Provisions").
I .1 Parties: This Lease (the "Lease"), dated for
reference purposes only June _, 1997, is made by and between
THE MUTUAL LIPE INSURANCE COMPANY OP NEW YORK, a New York
corporation ("Landlord), and CONTINENTAL ENGINEERING GROUP,
INC., California corporation, dba "MicroCentre" ("Tenant).
1.2 Premises: That certain real property, including all
improvements therein or to be provided by Landlord under the
terms of this Lease, commonly known as 530J N. Irwindale
Avenue, and consisting of approximately 91,655 square feet
of rentable area located in Irwindale, California, as
depicted on Exhibit A hereto (the "Premises"). (See
Paragraph 2 for further provisions.) The Premises are a
portion of a building consisting of approximately 148,953
square feet of rental area, herein referred to as the
"Building." The Premises, the Building, the Common Areas (as
defined in Paragraph 2.3 below), and the land upon which the
same are located, along with all other buildings and
improvements thereon, are herein collectively referred to as
the "Industrial Center," as more particularly depicted on
the site plan attached hereto as Exhibit B.
1.3 Term: five (5) years and two (2) months (the
Original Terms) commencing on May 1, 1997 ("Commencement
Date"), and ending June 30, 2002 (the Expiration Date), as
the same may be adjusted pursuant to Paragraph 3 below.
1.4 Base Rent: $29,329.60 per month (the "Base Rent")
($0.32 per rental square foot per month), payable on the 1st
day of each month commencing on the Commencement Date. (See
Paragraph 4 for further provisions.) See Addendum
Paragraph C.
1.5 Base Rent Paid Upon Execution: None.
1.6 Deposits: $21,857.00 (the "Security Deposit"), and
$0.00 (the "Cleaning Deposits). (See Paragraph 5 for further
provisions.) See Addendum Paragraph D.
1.7 Permitted Use: Manufacturing and distribution of
computer workstations, furniture and related items, and for
sales and general office administration in connection
therewith. (See Paragraph 6 for further provisions.)
1.8 -Real Estate Brokers: The following real estate brokers
(collectively, the "Broker") and brokerage relationships
exist in this transaction and are consented to by the
parties (check applicable boxes): N/A
__Landlord exclusively ("Landlord's Broker"); _ both
Landlord and Tenant, and __ Tenant exclusively (tenants
Broker). (See Paragraph 15 for further provisions.)
1.9 Guarantor. The obligations of the Tenant under
this Lease are to be guaranteed by N/A
(Guarantor") pursuant to a Guaranty of Obligations of
Tenant pursuant to Lease in the form attached hereto as
Exhibit E. (See paragraph 37 for funkier provisions.)
1.10 Addenda. Attached hereto is an Addendum,
consisting of Paragraphs A. through E., and Exhibits A
through E, all of which constitute a part of this Lease.
2. Premises, Parking and Common Areas. See
Addendum Paragraph A.
2.1 Premises. Landlord hereby leases to Tenant and
Tenant leases from Landlord the Premises for the
term, at the rental, and upon all of the conditions
set forth herein. Unless otherwise provided herein,
any statement of square footage set forth in this
Lease, or that may have been used in calculating
rental, is an approximation which Landlord may
adjust from time to time in accordance with the
standard method for measuring floor area in
comparable premises established by the Building
Owners and Managers Association International
("BOMA"). Upon any such remeasurement, Landlord
shall notify Tenant of the new square footage of the
Premises and the Base Rent, which change in Base
Rent shall be effective as of the date of Landlord's
notice.
2.2 Vehicle Parking. Tenant shall be entitled to
Tenant's prorate share of vehicle parking spaces for the
Building, unreserved and unassigned, on those portions of
the Common Areas designated by Landlord for parking. Tenant
shall not use more parking spaces than said number. Said
parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up
trucks, herein called "Permitted Size Vehicles." Vehicles
other than Permitted Size Vehicles are herein referred to as
"Oversized Vehicles."
2.2.1 Tenant shall not permit or allow any vehicles
that belong to or are controlled by Tenant or Tenant's
employees, suppliers, shippers, customers, or invitees to be
loaded, unloaded, or parked in areas other than those
designated by Landlord for such activities.
2.2.2 If Tenant permits or allows any of the prohibited
activities described in Paragraph 2.2 of this Lease, then
Landlord 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 Tenant, which cost shall be immediately payable upon
demand by Landlord.
2.3 Common Areas-Definition. The term "Common Areas" is
defined as all areas and facilities outside the Premises and
within the exterior boundary line of the Industrial Center
that are provided and designated by the Landlord from time
to time for the general non-exclusive use of Landlord,
Tenant and of other tenants of the Industrial Center and
their respective employees, suppliers, shippers, customers
and invitees, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.4 Common Areas - Tenant's Rights. Landlord hereby
grants to Tenant, for the benefit of Tenant and its
employees, suppliers, shippers, customers and invitees,
during the term of this Lease, the non-exclusive right to
use, in common with others entitled to such use, the Common
Areas as they exist from time to time, subject to any
rights, powers, and privileges reserved by Landlord 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 Landlord or Landlord's
designated agent, which consent may be revoked at any time.
In the event that any unauthorized storage shall occur then
Landlord 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 Tenant, which
cost shall be immediately payable upon demand by Landlord.
2.5 Common Areas-Rules and Regulations. Landlord or such
other person(s) as Landlord may appoint shall have
the exclusive
I
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. Tenant agrees to abide by and conform to all such
rules and regulations, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and
conform. Landlord shall not be responsible to Tenant for the
non-compliance with said rules and regulations by other
tenants of the Industrial Center.
2.6 Common Areas-Changes. Landlord shall have the right, in
Landlord's sole discretion, from time to time:
(a) To make changes to the Common Areas, including,
without limitation, changes in the location, size, shape and
number of driveways, entrances, parking spaces, parking
areas, loading and unloading areas, ingress, egress,
direction of traffic, landscaped areas and walkways;
provided, however, that permanent: changes made by Landlord
(other than as n may be required by law) shall not
materially interfere with Tenant's use of the Premises for
the permitted Use;
(b) To close temporarily any of the Common Areas for
maintenance purposes, so long as reasonable access to the
Premises
remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the common areas while engaged in making
additional improvements, repairs or alterations to the
industrial Center, or any portion thereof;
(f) To do and perform such other acts and make such
other changes in, to or with respect to the Common Areas and
Industrial Center as Landlord may, in the exercise of sound
business judgment, deem to be appropriate.
3. Term. 1' See
Addendum Paragraph B.
3.1 Term. The Commencement Date, the Expiration Date
and the Original Term of this Lease are as
specified in Paragraph 1.3.
3.2 Delay in Possession. Notwithstanding said
Commencement Date, if for any reason Landlord cannot deliver
possession of the Premises to Tenant on said date, Landlord
shall not be subject to any liability therefor, nor shall
such failure affect the validity of this Lease or the
obligations of Tenant hereunder or extend the term hereof,
but in such case, Tenant shall not be obligated to pay rent
or perform any other obligation of Tenant under the terms of
this Lease, except as may be otherwise provided in this
Lease, until possession of the Premises is tendered to
Tenant.
3.3 Early Possession. If Tenant occupies the Premises
prior to said Commencement Date, such occupancy shall be
subject to all provisions of this Lease, such occupancy
shall not advance the Expiration Date, and Tenant shall pay
rent for such period at the initial monthly rates set forth
below.
4. Rent. See
Addendum Paragraph C.
4.1 Base Rent. Commencing on the Commencement Date,
Tenant shall pay to Landlord Base Rent for the Premises, in
advance on the first day of each month during the Term,
without any offset or deduction. Rent for any period during
the term hereof which is for less than one month shall be a
pro rata portion of the Base Rent. Rent shall be payable in
lawful money of the United States to Landlord at the address
stated herein or to such other persons or at such other
places as Landlord may designate in writing.
4.2 Additional Rent; Rent. As used in this Lease, the
term "rent" shall mean Base Rent and additional rent, and
the term additional rent" shall mean personal property taxes
and all other amounts payable by Tenant to Landlord pursuant
to this Lease other than Base Rent. Where no other time is
stated herein for payment, payment of any amount due from
Tenant to Landlord hereunder shall be made within ten (10)
days after Tenant's receipt of Landlord's invoice or
statement therefor.
5. Deposits. See
Addendum Paragraph D.
Tenant shall deposit with Landlord upon execution
hereof the Deposits set forth in Paragraph 1.6. The Security
Deposit shall be held as security for Tenant's faithful
performance of Tenant's obligations hereunder. If Tenant
fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this
Lease, Landlord may use, apply or retain all or any portion
of the Security Deposit for the payment of any rent or other
charge in default or for the payment of any other sum to
which Landlord may become obligated by reason of Tenant's
default, or to compensate Landlord for any loss or damage
which Landlord may suffer thereby. If Landlord so uses or
applies all or any portion of the Security Deposit, Tenant
shall within ten (10) days are written demand therefor
deposit cash with Landlord in an amount sufficient to
restore said deposit to the full amount then required of
Tenant. If the monthly rent shall, from time to time,
increase during the term of this Lease, Tenant shall, at the
time of such increase, deposit with Landlord additional
money as an additional security deposit so that the total
amount of the Security Deposit held by Landlord 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 1.4. Landlord shall not be
required to keep any Deposit separate from its general
accounts. If Tenant performs all of Tenant's obligations
hereunder, the Security Deposit (only), or so much thereof
as has not therefore been applied by Landlord, shall be
returned, without payment of interest or other increment for
its use, to Tenant (or, at Landlord's option, to the last
assignee, if any, of Tenant's interest hereunder) at the
expiration of the term hereof, and after Tenant has vacated
the Premises. If Tenant fails to surrender the Premises to
Landlord in the condition required hereunder, including
without limitation the provisions of Paragraph 7.2(c) below,
Landlord shall be entitled to have the Premises cleaned and
repaired to restore them to the condition so required, and
may retain the cost of such cleaning and repairing from the
Cleaning Deposit. No trust relationship is created herein
between Landlord and Tenant with respect to any Deposit.
6. Use. See
Addendum Paragraph E.
6.1 Use. The Premises shal1 be used and occupied only
for the purpose set forth in Paragraph 1.7 and for no other
purpose. Tenant shall not use or permit the use of the
Premises in a manner that creates waste or a nuisance, or
that disturbs owners and/or occupants of, or causes damage
to, neighboring premises or properties.
6.2 Compliance with Covenants, Conditions and Building
Restrictions.
(a) If and to the extent that the improvements on the
Premises do not comply with any applicable covenant or
restriction of record or applicable building code,
regulation or ordinance in effect on the Commencement Date
(other than those which apply because of the nature of
Tenant or its business or the use to which Tenant will put
the Premises or to any alterations or Utility installations
(as defined in Paragraph 7.3(a)) made or to be made by
Tenant) then Landlord shall, except as otherwise provided in
this Lease, promptly after receipt of written notice from
Tenant setting forth with specificity the nature and extent
of such non-compliance given within thirty (30) days after
the Commencement Date, rectify the same at Landlord's
expense. If Tenant does not give Landlord written notice of
a non-compliance within thirty (30) days following the
Commencement Date, correction of that non-compliance shall
be the obligation of Tenant at Tenant's sole cost and
expense.
(b) Except as provided in Paragraph 6.2(a) Tenant
shall, at Tenant's expense, promptly comply with all
applicable statutes, ordinances, rules, regulations, orders,
covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in
effect or which may thereafter come into effect, whether or
not they reflect a change in policy from that now existing,
during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by
Tenant of the Premises and of the Common Areas. Tenant shall
not use or permit the use of the Premises or the Common
Areas in any manner that will tend to create waste or a
nuisance or shall tend to disturb other occupants of the
Industrial Center.
6.3 Condition of Premises. See Addendum
Paragraph B.
(a) Landlord shall deliver the Premises to Tenant clean
and free of debris on the Commencement Date (unless Tenant
is already in possession thereof). If the plumbing, fire
sprinkler system, lighting, air conditioning, heating, or
loading doors, of any, in the Premises as of the
Commencement Date, other than those constructed by Tenant,
shall not be in good operating condition on the Commencement
Date, Landlord shall, except as otherwise provided in this
Lease, promptly after receipt of written notice from Tenant
setting forth with specificity the nature and extent of such
noncompliance and given within fifteen (1S) days after the
Commencement Date, rectify same at Landlord's expense. If
Tenant does not give Landlord written notice of a non-
compliance within fifteen (1 S) days after the Commencement
Date, correction of that noncompliance shall be the
obligation of Tenant at Tenant's sole cost and expense.
(b) except as otherwise provided in subparagraph (a)
above or exhibit C to this Lease, Tenant hereby accepts the
Premises in their condition existing as of the Lease
Commencement Date or the date that Tenant takes possession
of the Premises, whichever is earlier, subject to all
applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use
of the Premises, and any covenants or restrictions of record
and accepts this Lease subject thereto and to al1 matters
disclosed thereby and by any exhibits attached hereto.
Tenant acknowledges that neither Landlord nor Landlord's
agent has made any representation or warranty as to the
condition of the Premises, or the present or future
suitability of the Premises, the Building or the Industrial
Center for the conduct of Tenant's business.
6.4 Hazardous Materials.
(a) Tenant covenants and agrees that it shall not cause
or permit any Hazardous Material (as defined below) to be
brought upon, kept, or used in or about the Premises by
Tenant or Tenant's agents, employees, contractors, invitees
or any other party for whom Tenant is responsible (tenant's
Agents). The foregoing covenant shall not extend to
materials typically found or used in general office
applications so long as (I) such materials and any equipment
which generates such materials are maintained only in such
quantities as are reasonably necessary for Tenant's
operations in the Premises, (ii) such materials are used
strictly in accordance with the manufacturers' instructions
therefor, (iii) such materials are not disposed of in or
about the Premises in a manner which would constitute a
release or discharge thereof, and (iv) all such materials
and any equipment which generates such materials are removed
from the Premises by Tenant upon the expiration or earlier
termination of this Lease. Any use, storage, generation,
disposal, release or discharge by Tenant of Hazardous
Materials in or about the Premises as is permitted hereunder
shall be carried out in compliance with all applicable
federal, state and local laws, ordinances, rules and
regulations. Moreover, no hazardous waste resulting from any
operations by Tenant shall be stored or maintained by Tenant
in or about the Premises for more than ninety (90) days
prior to removal by Tenant. Tenant shall, annually within
thirty (30) days after Tenant's receipt of Landlord's
written request therefor, provide to Landlord a written list
identifying any Hazardous Materials then maintained by
Tenant in the Premises, the use of each such Hazardous
Material and the approximate quantity of each such Hazardous
Material so maintained by tenant, together with written
certification by Tenant stating, in material, that neither
Tenant nor any person for whom tenant is responsible has
released or discharged any Hazardous Materials in or about
the Premises.
(b) In the event that Tenant proposes to conduct any
use or to operate any equipment which will or may utilize or
generate a Hazardous Material other than as specified in
subparagraph (a) above, tenant shall first in writing submit
such use or equipment to Landlord for approval. No approval
by Landlord shall relieve tenant of any obligation of Tenant
pursuant to this Paragraph 6.4, including the removal and
cleanup and indemnification obligations imposed upon tenant
by this Paragraph 6.4. Tenant shall, within five (5) days
after receipt thereof, furnish to Landlord copies of all
notices or other communications received by tenant with
respect to any actual or agreed release or discharge of any
Hazardous Material in or about the Premises and shall,
whether or not Tenant receives any such notice or
communication, notify Landlord in writing of any discharge
or release of Hazardous Material by Tenant or anyone for
whom Tenant is responsible in or about the Premises. In the
event that Tenant is required to maintain any Hazardous
Materials license or permit in connection with any use
conducted by Tenant or any equipment operated by Tenant in
the Premises, copies of each such license or permit, each
renewal or revocation thereof and any communication relating
to suspension, renewal or revocation thereof Shall be
furnished to Landlord within five (5) days after receipt
thereof by Tenant. Compliance by tenant with the two
immediately preceding sentences shall not relieve Tenant of
any other obligation of tenant pursuant to this Paragraph
6.4.
(c) Upon any violation of the foregoing covenants, Tenant
shall be obligated, at Tenant's sole cost, to clean-up and
remove from the Premises all Hazardous Materials introduced
into the Premises by Tenant or any person or entity for whom
tenant is responsible. Such clean-up and removal shall
include all testing and investigation required by any
governmental authorities having jurisdiction and preparation
and implementation of any remedial action plan required by
any governmental authorities having jurisdiction. AH such
clean-up and removal activities of Tenant shall, in each
instance, be conducted to the satisfaction of Landlord and
all governmental authorities having jurisdiction. Landlord's
right of entry pursuant to Paragraph 32 shall include the
right to enter and inspect the Premises for violations of
tenant's covenants herein.
(d) Tenant shall indemnify, defend and hold harmless
Landlord, its partners, and its and their successors,
assigns, partners, officers, employees, agents, lenders and
attorneys from and against any and all claims, liabilities,
losses, actions, costs and expenses (including attorneys'
fees and costs of defense) incurred by such indemnified
persons, or any of them, as the result of (i) the
introduction into or about the Premises by Tenant or anyone
for whom tenant is responsible of any Hazardous Materials,
(ii) the usage, storage, maintenance, generation,
disposition or disposal by Tenant or anyone for whom Tenant
is responsible of Hazardous Materials in or about the
Premises, (iii)) the discharge or release in or about the
Premises by Tenant or anyone for whom Tenant is responsible
of any Hazardous Materials, (iv) any injury to or death of
persons or damage to or destruction of property resulting
from the use, introduction, maintenance, storage,
generation, disposal, disposition, release or discharge by
Tenant or anyone for whom Tenant is responsible of Hazardous
Materials in or about the Premises, and (v) any failure of
tenant or anyone for whom Tenant is responsible to observe
the foregoing covenants of this Paragraph 6.4.
(e) Upon any violation of the foregoing covenants,
Landlord shall be entitled to exercise all remedies
available to a landlord against a defaulting tenant,
including, but not limited to, those set forth in Paragraph
13.2. Without limiting the generality of the foregoing,
tenant expressly agrees that upon any such violation
Landlord may, at its option, (i) immediately terminate this
Lease or (iii) continue this Lease in effect until
compliance by Tenant with its clean-up and removal covenant
notwithstanding any earlier expiration date of the term of
this Lease. No action by Landlord hereunder shall impair the
obligations of tenant pursuant to this Paragraph 6.4.
(f) As used in this Paragraph 6.4, "Hazardous
Materials" is used in its broadest sense and shall include
any petroleum based products, pesticides, paints and
solvents, polychlorinated biphenyl, lead, cyanide, DDT,
acids, ammonium compounds and other chemical products and
any material or material defined or designated as hazardous
or toxic, or other similar term, by any federal, state or
local environmental statute, regulation, or ordinance
affecting the Premises presently in effect or that may be
promulgated in the future, as such statutes, regulations and
ordinances may be amended from time to time, including, but
not limited to, the following statutes: (i) Resource
Conservation and Recovery AS of 1976, 42 U.S.C. * 6901 et
seq., (iii) Comprehensive Environmental Response,
Compensation, and Liability AS of 1980, 42 U.S.C. * 9601 CT
seq., (iii) Clean Air Act, 42 U.S.C. * 7401-7626, (iv)
Water pollution Control Act (Clean Water Act of 1977), 33
U.S.C. * 1251 CT seq., (v) Insecticide, Fungicide, and
Rodenticide Act (Pesticide Act of 1987), 7 U.S.C. * 135 et
seq., (vi) Toxic Materials Control Act, 15 U.S.C. * 2601 ct
seq., (vii) Safe Drinking Water Act, 42 U.S.C. * 300(f) ct
seq., (viii) National Environmental Policy Act (NEPA) 42
U.S.C. * 4321 et seq., (ix) Refuse Act of lA99, 33 U.S.C. *
407 et seq., and (x) California Health and Safety Code *
25316 ct seq.
(g) By its signature to this Lease, tenant confirms
that it has conducted its own examination of the Premises
and the Industrial Center with respect to Hazardous
Materials and accepts the same "AS IS" and with no Hazardous
Materials present thereon. Tenant acknowledges that
incorporation of any material containing asbestos into the
Premises is absolutely prohibited. Tenant agrees, represents
and warrants that it Shall not incorporate or permit or
suffer to be incorporated, knowingly or unknowingly, any
material containing asbestos into the Premises.
6.5 Tenant's Compliance with Law. Tenant Shall not use
the Premises in any way (or permit or suffer anything to be
done in or about the same) which Will conflict with any law,
statute, ordinance or governmental rule or regulation or any
covenant, condition or restriction (whether or not of public
record) affecting the Premises, now in force or which may
hereafter be enacted or promulgated, including, the
provisions of any city or county zoning codes regulating the
use thereof. Tenant shall, at its sole cost and expense,
promptly comply with (i) all laws, statutes, ordinances and
governmental rules and regulations, now in force or which
may hereafter be in force, applicable to Tenant or its use
of or business or operations in the Premises, including
without limitation Prop. 65, if applicable, (ii) all
requirements, and other covenants, conditions and
restrictions, now in force or which may hereafter be in
force, which affect the Premises, and (iii) all
requirements, now in force or which may hereafter be in
force, of any board of free underwriters or other similar
body now or hereafter constituted relating to or affecting
the condition, use or occupancy of the Premises
(collectively, "Applicable Laws "). The judgment of any
court of competent jurisdiction or the admission by tenant
in any action against tenant, whether Landlord be a party
thereto or not, that Tenant has violated any law, statute,
ordinance, governmental rule or regulation or any
requirement, covenant, condition or restriction shall be
conclusive of the fact as between Landlord and Tenant. It is
expressly understood and agreed that, subject to performance
by Landlord of the work described in the Work Letter, if
any, attached as an exhibit hereto, Tenant is accepting the
Premises "AS Is, in its present state and condition, without
any representations or warranties from Landlord of any kind
whatsoever, either express or implied, with respect to the
Premises, including compliance of the Premises with The
Americans With Disabilities Act, Title 24 and the rules and
regulations promulgated thereunder, as amended from time to
time (Collectively, the "Agent). Except as otherwise
provided for in the Work Lenore, ff. Tenant's use of the
Premises or operations therein cause Landlord to incur any
obligation under the ADA, as reassemble determined by
Landlord, then Tenant Shall reimburse Landlord for
Landlord's costs and expenses in connection therewith. If
Tenant's initial use of the Premises is nor a place of
public accommodation" within the meaning of the ADA, then
Tenant may not thereafter change the use of the Premises to
cause the Premises to become a "place of public
accommodation." In the event that tenant desires or is
required hereby to make alteration, improvements, additions
or Utility installations (as defined in Paragraph 7.3(a)
below) to the Premises in order to satisfy its obligation
under the ADA, then all such alteration, improvements,
additions or Utility Installations shall be subject to
Paragraph 7.3 below, and shall be performed at Tenant's sole
cost and expense. Tenant shall be responsible for insuring
that the Premises and Tenant's use thereof and operation
therein fully and completely comply with the ADA.
6.6 Inspection; Compliance. Landlord and Landlord's
lender(s) 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
tenant with this Lease and all Applicable Laws (as defined
in Paragraph 6.5), and to employ experts and/or consultants
in connection therewith and/or to advise Landlord with
respect to Tenant's activities, including, but not limited
to, the installation, operation, use, monitoring,
maintenance or removal of any Hazardous Material or storage
tank 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, violation of
Applicable Law or a contamination, caused or materially
contributed to by tenant, is found to exist or 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 which case Tenant
shall upon request reimburse Landlord's lender, as the case
may be, for the costs and expense of such inspections with
interest at the rate set forth in Paragraph 13.5(a) below
accruing from and after such cost or expire was incurred by
Landlord or Landlord's lender through the date of payment in
full thereof.
7. Maintenance, Repairs, Alterations and Common Area
Services.
7.1 Landlord's Obligations. Subject to the provision of
Paragraphs 6 (Use), 7.2 (Tenant's Obligations) and 9 (Damage
or Destruction) and except for damage caused by any
negligent or intentional act or omission of Tenant, Tenant's
employees, suppliers, shippers, customers, or invitees, in
which event Tenant shall repair the damage, Landlord, at
Landlord's expense, shall keep in good condition and repair
the foundation, exterior walls, structural condition of
interior bearing walls, the heating, ventilating and air
conditioning system outside the Premises but serving the
Premises, and roof of the Premises, as well as the parking
lots, walkways, driveways, landscaping, fences, signs and
utility installation of the Common Areas and all parts
thereof. Landlord shall not, however, be obligated to paint
the exterior or interior surface of exterior walls, nor
shall landlord be required to maintain, repair or replace
windows, doors or plate glass of the Premises. Landlord
shall have no obligation to make repairs under this
Paragraph 7.1 until a reasonable time after receipt of
written notice from Tenant of the need for such repairs.
tenant expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Tenant the
right to make repairs at Landlord's expire or to terminate
this Lease because of Landlord's failure to keep the
Premises in good order, condition and repair. Landlord shall
not be liable for damages or loss of any kind or mature by
reason of Landlord's failure to furnish any Common Area
services when such failure is caused by accident, breakage,
repairs, strikes, lockout, or other labor disturbances or
disputes of any character, or by any other cause beyond the
reasonable control of Landlord.
7.2 Tenant's Obligations.
(a) Subject to the provisions of Paragraphs 6 (Use),
7.1 (Landlord's Obligations), and 9 (Damage or Destruction),
Tenant, at Tenant's expense, shall keep in good order,
condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the
means of repairing the same are reasonably or readily
accessible to tenant) including, without limiting the
generality of the foregoing, all plumbing, electrical and
lighting facilities and equipment within the Premises,
fixtures, interior walls and interior surfaces of exterior
walls, ceilings, windows, doors, plate glass and skylights
located within the Premises.
(b) If Tenant fails to perform Tenant's obligations
under this Paragraph 7.2 or under any other paragraph of
this Lease, Landlord may enter upon the Premises after prior
written notice to Tenant (except in the case of emergency
dept., a situation involving a threat of property damage or
personal injury), in which case no notice shall be
required)), perform such obligations on Tenant's behalf and
put the Premises in good order, condition and repair, and
the cost thereof together with interest thereon from and
after Landlord incurs the same at the maximum rate then
allowable by law shall be due and payable as additional rent
to Landlord together with Tenant's next Base Rent
installment.
(c) On the last day of the term hereof, or on any
sooner termination, tenant shall surrender the Premises to
Landlord in the same condition as received, ordinary wear
and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary
wear and tear if the same could have been prevented by good
maintenance practices. Tenant shall repair any damage to the
Premises occasioned by the installation or removal of
tenant's trade fixtures, alterations, furnishings and
equipment. Notwithstanding anything to the contrary
otherwise stated in this Lease, subject to Landlord's right
to require Tenant to remove the same pursuant to Paragraph
7.3(a) below, Tenant shall leave all Utility Installations"
(as defined in such Paragraph 7.3(a)) on the Premises in
good operating condition.
7.3 Alterations and Additions.
(a) Tenant Shall not, without Landlord's prior written
consent, make any alteration, improvements, additions, or
Utility Installation in, on or about the Premises, or the
Industrial Center. except for interior, nonstructural
alterations to the Premises, consistent in All respects with
the initial tenant improvements made in the Premises, not
exceeding S2,500 in cumulative costs during the term of the
Lease. In any event, whether or not in excess of $2,500 in
cumulative cost, Tenant shall make no change or alteration
to the exterior (or visible from the exterior) of the
Premises, the Building or the Industrial Center without
Landlord's prior written consent. As used in this Paragraph
7.3, the term "Utility installation" shall mean carpeting,
window coverings, air lines, telephone, data and other
cabling, power panels, electrical distribution systems,
lighting fixtures, space heaters, air condition, plumbing
and fencing. Landlord may require that tenant remove any or
all of said alterations, improvements, additions or Utility
installations, regardless of when installed and whether at
Tenant's or Landlord's expense, at the expiration of the
term, and restore the Premises and the Industrial Center to
their prior condition. Landlord may require Tenant to
provide Landlord, at Tenant's sole cost and expose, a lien
and completion bond in an amount equal to one and one-half
times the estimated cost of such improvements, to insure
Landlord against any liability for mechanic's and
materialmen's liens and to insure completion of the work.
Should Tenant make any alterations, improvements, addition
or Utility installations without the prior approval of
Landlord, Landlord may, at any time during the term of this
Lease, require that Tenant remove any or all of the same.
(b) Any alteration, improvement, addition or Utility
installations in or about the Premises or the Industrial
Center that tenant shall desire to make and which requires
the comment of the Landlord shall be presented to Landlord
in written form, with proposed detailed plan and the name of
the contractor Tenant proposes to perform the same. If
Landlord shall give its consent, the consent shall be deemed
conditioned upon Tenant acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy
thereof to Landlord prior to the commencement of the work
and the compliance by tenant of all conditions of said
permit in a prompt and expeditious manner.
(c) Tenant shall pay, when due, all claims for labor or
materials furnished or agreed to have been furnished to or
for Tenant at or for use in the Premises, which claims are
or may be secured by any mechanics' or materialmen's lien
against the Premises, or the Industrial Center, or any
interest therein. Tenant shall give Landlord not less than
twenty (20) days' notice prior to the commencement of any
work in the Premises, and Land lord shall have the right to
post notices of non-responsibility in or on the Premises or
the Building as provided by law. If Tenant Shall, in good
faith, contest the validity of any such lien, claim or
demand, then Tenant shall, at its sole expense defend itself
and Landlord against the same and Shall pay and satisfy any
such adverse judgment that may be rendered thereon before
the enforcement thereof against the Landlord or the Premises
or the Industrial Center, upon the condition that Tenant
Shall furnish to Landlord a surety bond satisfactory to
Landlord in an amount equal to such contested lien claim or
demand indemnifying Landlord against liability for the same
and holding the Premises and the Industrial Center free from
the effect of such lien or claim. In addition, Landlord may
require Tenant to pay Landlord's attorneys' fees and costs
in participating in such action if Land lord shall decide it
is to Landlord's best interest to do so.
(d) All alterations, improvements, additions and
Utility installations (whether or not such Utility
installations constitute trade fixtures of Tenant), which
may be made on the Premises shall be the property of
Landlord and shall remain upon and be surrendered with the
Premises at the expiration of the Lease term, unless
Landlord requires their removal pursuant to Paragraph
7.3(a). Notwithstanding the provision of this Paragraph
7.3(d), Tenant's machinery and equipment, other than Utility
Installations and other than that which is affixed to the
Premises so that it cannot be removed without damage to the
Premises, shall remain the property of Tenant and may be
removed by Tenant subject to the provisions of Paragraph
7.2.
(e) Tenant Shall surrender the Premises by the end of
the last day of the Term or any earlier termination date,
with All of the improvements, parts and surfaces thereof
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 Tenant performing All of its
obligations under this Lease. Except as otherwise agreed or
specified in writing by Landlord, the Premises, as
surrendered, Shall include the Utility Installations. The
obligation of Tenant Shall include the repair of any damage
occasioned by the Installation, maintenance or removal of
Tenant's trade fixtures, furnishings, equipment, and
alterations and/or Utility Installation, as Well as the
removal of any storage tank Installed by or for Tenant, and
the removal, replacement, or redemption of any soil,
material or groundwater contaminated by Tenant, all as may
then be required by Applicable Law and/or good practice.
Tenant's trade fixtures shall remain the property of tenant
and shall be removed by Tenant subject to its obligation to
repair and restore the Premises per this Lease.
7.4 Utility Additions. Landlord reserves the right to
install new or additional utility facilities throughout the
Building and the Common Areas for the benefit of Landlord or
Tenant, or any other tenant of the Industrial Center,
including, but not by way of limitation, such utilities as
plumbing, electrical systems, security systems,
communication systems, and fire protection and detection
systems, so long as such installation do not unreasonably
interfere with Tenant's use of the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance-Tenant. Tenant Shall, at
Tenant's expense, obtain and keep in force during the term
of this Lease a policy of combined single limit bodily
injury and property damage insurance insuring Tenant and
Landlord against any liability arising out of the use,
occupancy or maintenance of the Premises and the Industrial
Center. Such insurance Shall be on an occurrence basis with
single limit coverage in an amount not less than
S1,000,000.00 per occurrence. The policy Shall insure
performance by Tenant of the indemnity Provision of this
Paragraph 8. The limits of said insurance shall not,
however, limit the liability of Tenant hereunder nor relieve
Tenant of any obligation hereunder. Any insurance to be
carried by Tenant Shall be primary to and not contributory
with any similar insurance carried by Landlord, whose
insurance Shall be excess insurance only. Tenant Shall carry
workers' compensation insurance in the amount required by
law, and such other coverage (whether property, liability or
other) as Landlord Shall deem necessary or desirable from
time to time.
8.2 Property Insurance - Tenant. Subject to the
requirements of Paragraph 8.5, Tenant at its cost Shall
either by separate policy or, with comment of Landlord, by
endorsement to a policy already carried, maintain insurance
coverage on all of Tenant's personal property, tenant owned
alteration and Utility installations in, on, or about the
Premises with full replacement cost coverage with a
deductible of not to exceed S5,000 per occurrence. The
proceeds from any such insurance shall be used by Tenant for
the replacement of personal property or the restoration of
tenant owned alterations and Utility installations. tenant
shall, from time to time upon Landlord's request, provide
Landlord with written evidence that such insurance is in
force.
8.3 Property Insurance. Landlord shall obtain and keep
in force during the term of this Lease a policy or policies
of insurance covering loss or damage to the Industrial
Center improvements, but not Tenant's personal property,
fixtures, equipment or tenant improvements, in an amount not
less than eighty percent (80 %) of the full replacement
value thereof, as the same may exist from time to time,
providing protection against all perils included within the
classification of fire, extended coverage, vandalism,
malicious mischief, nood (in the event same is required by a
lender having a lien on the Premises), special extended
perils (at risk", as such term is used in the insurance
industry), plate glass insurance and such other insurance as
Land lord deems advisable.
8.4 Payment of Premium Increase.
(a) tenant shall pay the entirety of any increase in
the property insurance premium for the Industrial Center
over what it was immediately prior to the commencement of
the Term of this Lease ff. the increase is specified by
Landlord's insurance carrier as being caused by the nature
of Tenant's occupancy or any act or omission of Tenant.
(b) If the Premises are part of a larger building, or
ff. the Premises are part of a group of buildings owned by
Landlord which are adjacent to the Premises, then Tenant
shall pay for any increase in the premiums for the property
insurance of such building or buildings ff. said increase is
caused by Tenant's acts, omissions, use or occupancy of the
Premises.
8.5 Insurance Policies. Insurance required hereunder
Shall be in companies holding a General Policyholders
Rating" of at least A or such other rating as may be
required by a lender having a lien on the Premises, as set
forth in the most current issue of Best's Insurance Guide..
Tenant Shall not do or permit to be done anything which
Shall invalidate the insurance policies carried by Land
lord. Tenant Shall deliver to Landlord copies of liability
and property insurance policies required under Paragraphs
8.1 and 8.2 or certificates evidencing the existence and
amounts of such insurance within seven (7) days after the
Commencement Date. No such policy shall be cancelable or
subject to reduction of coverage or other modification
except after thirty (30) days' prior written notice to
Landlord. tenant shall, at least thirty (30) days prior to
the expiration of such policies, and without the requirement
of further notice, furnish Landlord with renewals or
"binders" thereof.
8.6 Waiver of Subrogation. tenant and Landlord each
hereby release and relieve the other, and waive their entire
right of recovery against the other, for loss or damage
arising out of or incident to the perils insured against
under policies of property insurance carried hereunder (or
required to be insured against under property insurance
hereunder, whether or not such insurance required hereunder
is actually obtained and/or maintained) which perils occur
in, on or about the Premises, whether due to the negligence
of Land lord or Tenant or their agents, employees,
contractors and/or invitees. Tenant and Land lord shall,
upon obtaining the policies of insurance required hereunder,
give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this
Lease.
8.7 Indemnity. tenant shall indemnify and hold harmless
Landlord and its agents, Landlord's master or ground lessor,
partners and lenders from and against any and all claims,
loss of rents and/or damages, losses, costs, liens,
judgments, penalties, permits, causes of action, attorneys'
and consultant's fees, expenses and/or liabilities arising
out of, involving, or dealing with tenant's use of the
Premises or the Industrial Center, or from the conduct of
tenant's business or from any activity, work or things done,
permitted or suffered by tenant in or about the Premises or
elsewhere and shall further indemnify and hold harmless such
indemnified parties from and against any and all claims
arising from any breach or default in the performance of any
obligation on tenant's part to be performed under the terms
of this Lease, or arising from any act or omission of
Tenant, or any of Tenant's agents, contractors, employees or
invitees, and from and against All costs, attorneys' fees,
expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon, and in
case any action or proceedings be brought against any such
indemnified any by reason of any such claim, Tenant upon
notice from Land lord shall defend the same at tenant's
expense by counsel reasonably satisfactory to Land lord and
Landlord shall cooperate with Tenant in such defense. 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 Land lord) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or
proceeding be brought against Landlord by reason of any of
the foregoing matters, Tenant upon notice from Landlord
shall defend the same at Tenant's expense by counsel
reasonably satisfactory to Land lord and Landlord shall
cooperate with Tenant in such defense. Landlord need not
have first paid any such claim in order to be so
indemnified. Tenant, as a material pan of the consideration
to Landlord, hereby assumes all risk of damage to property
of tenant or injury to persons, in, upon or about the
Industrial Center arising from any cause and Tenant hereby
waives all claims in respect thereof against Landlord.
8.8 Exemption of Landlord from Liabilities. Tenant
hereby agrees that Landlord shall not be liable for injury
to Tenant's business or any loss of income therefrom or for
damage to the goods, wares, merchandise or other property of
Tenant, Tenant's employees, invitees, customers, or any
other person in or about the Premises or the Industrial
Center, nor Shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents or contractors,
whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the
Premises or upon other portions of the Industrial Center, or
from other sources or places and regardless of whether the
cause of such damage or injury or the means of repairing the
same is inaccessible to Tenant. Landlord shall not be liable
for any damages arising from any act or neglect of any other
tenant, occupant or user of the Industrial Center, nor from
the failure of Land lord to enforce the provisions of any
other lease of the Industrial Center. Notwithstanding
Landlord's negligence, willful misconduct or breach of this
Lease, Landlord shall under no circumstances be liable for
consequential damages, or for injury to Tenant's business or
for any loss of income or profit therefrom.
8.9 Limitation of Liability. Tenant agrees that. in the
event Tenant shall! have any claim against landlord under
this T ease 2~.S'-g out of the subject manner of this Lease,
Tenant's sole recourse shall be against the Landlord's
interest in the Industrial Center for the satisfaction of
any claim, judgment or decree requiring the payment of money
by Landlord as a result of a breach hereof or otherwise in
connection with this Lease, and no other property or assets
of Land lord, its successors or assigns, shall be subject to
the levy, execution or other enforcement procedure for the
satisfaction of any such claim, judgment, injunction or
decree. In addition, in no event shall Landlord be liable
for any consequential damages. Tenant funkier hereby waives
any and all right to assess any claim against or obtain any
damages from, for any reason whatsoever, the directors,
officers and partners of Landlord, including all injuries,
damages or losses to tenant's property, real and personal,
whether known, unknown, foreseen, unforeseen, patent or
latent, which tenant may have against Landlord or its
directors, officers or partners. Tenant understands and
acknowledges the significance and consequence of such
specific waiver.
9. Damage or Destruction.
9.1 Definitions.
(a) Premises Partial Damage Shall mean if the Premises
are damaged or destroyed to the extent that the cost of
repair is less than fifty percent (50%) of the then
replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the
Premises are damaged or destroyed to the extent that the
cost of repair is fifty percent (SO 9G) or more of the then
replacement cost of the Premises.
(c) "Premises Building Partial Damage" Shall mean if
the Building of which the Premises are a pan is damaged or
destroyed to the tenant that the cost to repair is less than
fifty percent (50%) of the then replacement cost of the
Building.
(d) "Premises Building Total Destruction" shall mean
if the Building of which the Premises are a pan is damaged
or destroyed to the extent that the cost to repair is
twenty-five percent (25 %) or more of the then replacement
cost of the Building.
(e) "Industrial Center Buildings " shall mean all of the
buildings on the Industrial Center site depicted on Exhibit
B hereto.
(f) "Industrial Center Buildings Total Destruction"
shall mean if the Industrial Center Buildings are damaged or
destroyed to the extent that the cost of repair is twenty-
five percent (25%) or more of the then replacement cost of
the Industrial Center Buildings.
(g) "Insured Loss ~ Shall mean damage or destruction
which was caused by an event required to be covered by the
insurance described in Paragraph 8, or for which insurance
coverage is otherwise available. The fact that an Insured
Loss has a deductible amount Shall not make the loss an
uninsured loss.
(h) "Replacement Cost" Shall mean the amount of money
necessary to be spent in order to repair or rebuild the
damaged area to the condition that existed immediately prior
to the damage occurring excluding All improvements made by
tenants.
9.2 Premises Partial Damage; Premises Building Partial
Damage.
(a) Insured Loss: Subject to the provisions of
Paragraphs 9.4 and 9.5, if at any time during the term of
this Lease there is damage which is an Insured Loss and
which falls into the classification of either Premises
Partial Damage or Premises Building Partial Damage, then
Land lord shall, at Landlord's expense, repair such damage
to the Premises, but not Tenant's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this
Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of
Paragraphs 9.4 and 9.5, ff. at any time during the term of
this Lease there is damage which is not an Insured Loss and
which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by
a negligent or willful act of Tenant (in which event tenant
shall make the repairs at tenant's expense), which damage
prevents Tenant from using the Premises, Land lord may at
Landlord's option either (i) repair such damage as soon as
reasonably possible at Landlord's expense, in which event
this Lease shall continue in full force and effect, or (iii)
give written notice to Tenant within sixty (60) days after
the date of the occurrence of such damage of Landlord's
intention to cancel and terminate this Lease as of the date
of the occurrence of such damage. In the event Landlord
elects to give such notice of Landlord's intention to cancel
and terminate this Lease, Tenant shall have the right within
ten (10) days after the receipt of such notice to give
written notice to Landlord of Tenant's intention to repair
such damage at Tenant's expense, without reimbursement from
Land lord, in which event this Lease Shall continue in Full
force and effect, and Tenant Shall proceed to make such
repairs as soon as reasonably possible. If Tenant does not
give such notice within such ten (10) day period this Lease
Shall be canceled and terminated as of the date of the
occurrence of such damage.
9.3 Premises Total Destruction; Premises Building Total
Destruction; Industrial Center Buildings Total Destruction.
(a) Subject to the provisions of Paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is
damage, whether or not it is an Insured Loss, and which
falls into the classifications of either (i) Premises Total
Destructio4 or (u) Premises Building Total Destructio4 or
(iii) Industrial Center Buildings Total Destruction, then
Landlord may at Landlord's option either (i) repair such
damage or destructio4 but not Tenant's fixtures, equipment
or tenant improvements, as soon as reasonably possible at
Landlord's expense, and this Lease shall continue in full
force and effect, or (u) give written notice to Tenant
within sixty (60) days after the date of occurrence of such
damage of Landlord's intention to cancel and terminate this
Lease, in which case this Lease shall be canceled and
terminated as of the date of the occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to Paragraph 9.4(b), if at any time during
the last twelve (12) months of the term of this Lease there
is substantial damage, whether or not an Insured Loss, which
falls within the classification of Premises Partial Damage
or Premises Building Panial Damage, Landlord may at
Landlord's option cancel and terminate this Lease as of the
date of occurrence of such damage by giving written notice
to Tenant of Landlord's election to do so within sixty (60)
days after the date of occurrence of such damage.
(b) Notwithstanding Paragraph 9.4(a), in the event that
tenant has an option to extend or renew this Lease, and as
of the occurrence of the damage the time within which said
option may be exercised has not yet expired, Tenant shall
exercise such option, if it is to be exercised at all, no
later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises
Panial Damage, during the last twelve (12) months of the
term of this Lease. If Tenant duly exercises such option
during said twenty (20) day period, Landlord shall, at
Landlord's expense, repair such damage, but not Tenant's
fixtures, equipment or tenant improvements, as soon as
reasonably possible and this Lease shall' continue in Full
force and effect. If tenant fails to exercise such option
during said twenty (20) day period, then Landlord may at
Landlord's option terminate and cancel this Lease as of the
expiration of said twenty (20) day period by giving written
notice to tenant of Landlord's election to do so within
thirty (30) days after the expiration of said twenty (20)
day period, notwithstanding any term or provision in the
grant of option to the contrary.
9.5 Abatement of Rent; Tenant's Remedies. In the event
Landlord repairs or restores the Premises pursuant to the
provisions of this Paragraph 9, the Base Rent payable
hereunder for the period during which such damage, repair or
restoration continues shall be abated in proportion to the
degree to which tenant's use of the Premises is impaired to
the extent that Landlord is reimbursed therefor by proceeds
of rental interruption insurance, if any, carried by
Landlord or Tenant. Except for abatement of Base Rent, if
any, Tenant shall have no claim against Landlord for any
damage suffered by reason of any such damage, destruction,
repair or restoration.
9.6 Termination-Advance Payments. Upon termination of
this Lease pursuant to this Paragraph 9, an equitable
adjustment shall be made concerning advance rent and any
advance payments made by Tenant to Landlord. Landlord shall,
in addition, so long as tenant is not in default hereunder,
return to Tenant so much of Tenant's security deposit as has
not therefore been applied by Landlord.
9.7 Waiver. Landlord and Tenant waive the provisions
of any statute which relate to termination of leases when
leased property is destroyed and agree that such event shall
be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 (a) Landlord shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises.
Notwithstanding the foregoing, Tenant shall pay to Landlord
upon demand therefor the entirety of any increase in Real
Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Tenant or at
Tenant's request.
10.2 Definition of "Real Property Taxes". 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, persoM1 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 Landlord in the Premises or in the real property
of which the Premises are a part, Landlord's right of rent
or other income therefrom, and/or Landlord's business of
leasing the Premises, or otherwise imposed on Landlord as an
owner of real property in lieu of or in addition to real
property taxes. 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 Premises 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.
10.3 Personal Property Taxes.
(a) Tenant shall pay prior to delinquency all taxes
assessed against and levied upon trade fixtures,
furnishings, equipment and all other personal property of
Tenant contained in the Premises or elsewhere. When
possible, Tenant shall cause said trade fixtures,
furnishings, equipment and all other personal property to be
assessed and billed separately from the real property of
Landlord.
(b) If any of Tenant's said personal property shall be
assessed with Landlord's real property, Tenant shall pay to
Landlord the taxes attributable to Tenant within ten (10)
days after receipt of a written statement setting forth the
taxes applicable to Tenant's property.
11. Utilities. Tenant shall pay for all water, gas, heat,
light, power, telephone and other utilities and services
supplied to the Premises, together with any Taxes thereon,
including hook-up charges and/or penalties. If any such
services are not separately metered to the Premises, Tenant
shall pay a reasonable proportion to be determined by
Landlord of all charges jointly metered with other premises
in the Building.
12.1 Landlord's Consent Required.
(a) Tenant shall not, directly or indirectly,
voluntarily or by operation of law, sell, assign, encumber,
pledge or otherwise transfer or hypothecate all or any part
of the Premises or Tenant's leasehold estate hereunder
(collectively "Assignment.), or permit the Premises to be
occupied by anyone other than Tenant or sublet the Premises
(Sublease") or any opinion thereof without Landlord's prior
written consent being had and obtained in each instance,
subject to the terms and conditions contained in this
Paragraph.
(b) If Tenant desires at any time to enter into an
Assignment of this Lease or a Sublease of the Premises or
any opinion thereof, Tenant shall request, in writing, at
least sixty (60) days prior to the effective date of the
Assignment or Sublease, Landlord
Assignment or Sublease, and shall provide Landlord with the
following information:
(i) The name of the proposed assignee, subtenant or
occupant;
(ii) The nature of the proposed assignee's, subtenant's or
occupant's business to be carried on in the Premises;
(iii) The terms and provisions of the proposed Assignment or
Sublease and a copy of such documents; and
(iv)Such financial information concerning the proposed
assignee, subtenant or occupant which Landlord shall have
requested following its receipt of Tenant's request for
consent.
(c) At any time within thirty (30) days after Landlord's
receipt of the notice specified above, Landlord may by
written notice to Tenant elect either to (I) consent to the
proposed Assignment or Sublease, (ii) refuse to consent to
the proposed Assignment or Sublease, or (iii) terminate this
Lease in full with respect to an Assignment or terminate in
pan with respect to a Sublease and enter into a lease
directly with the proposed assignee or subtenant. Landlord
and Tenant agree (by way of example and without limitation)
that Landlord shall be entitled to take into account any
fact or factor which Landlord reasonably deems relevant to
such decision, including, but not necessarily limited to,
the following, all of which are agreed to be reasonable
factors for Landlord's consideration
01) The financial strength of the proposed assignee or
subtenant (which shall be at least equal to that of Tenant
as of the date of execution of this Lease), including the
adequacy of its working capital to pay all expenses
anticipated in connection with any remodeling of the
Premises.
(ii) The experience of the proposed assignee or subtenant
with respect to businesses of the type and size which such
assignee or subtenant proposes to conduct in the Premises.
(iii) The quality and nature of the business and/or services
to be conducted in or from the Premises by the proposed
assignee or subtenant and in any other locations which it
has.
(iv) Violation of exclusive use rights previously granted by
Landlord to other tenants of the Building or Industrial
Center.
(v) The effect of the type of services and business which
the proposed assignee or subtenant proposes to conduct in
the Premises upon the tenant mix in the Building or in the
opinion of the Industrial Center which contains the
Premises, including duplication of services offered by
surrounding tenants and compatibility of the services and
business which such assignee or subtenant proposes to
conduct in or offer from the Premises with business and
services conducted by surrounding tenants in the Industrial
Center.
(vi) The quality of the appearance of the Premises resulting
from any remodeling or renovation to be conducted by the
proposed assignee or subtenant, and the compatibility of
such quality with that of other premises in the Building.
(vii) Whether there then exists any default by Tenant
pursuant to this Lease or any nonpayment or nonperformance
by Tenant under this Lease which, with the passage of time
and/or the giving of notice, would constitute a default
under this Lease.
(viii) Any fact or factor upon which Landlord reasonably
concludes that the business to be conducted by such assignee
or subtenant will not be a financial success in the
Premises.
Moreover, Landlord shall be entitled to be reasonably
satisfied that each and every covenant, condition or
obligation imposed upon Tenant by this Lease and each and
every right, remedy or benefit afforded Landlord by this
Lease is not impaired or diminished by such Assignment or
Sublease. In no event shall there be any substantial change
in the use of the Premises in connection with any Assignment
or Sublease except as expressly approved in writing by
Landlord in advance. Landlord and Tenant acknowledge that
the express standards and provisions set forth in this Lease
dealing with Assignment and Sublease have been freely
negotiated and are reasonable at the date hereof taking into
account Tenant's proposed use of the Premises and the nature
and quality of the Premises. No withholding of consent by
Landlord in accordance with the foregoing shall give rise to
any claim by Tenant or any proposed assignee or subtenant or
entitle Tenant to terminate this Lease or to any abatement
of rent. Approval of any Assignment of Tenant's interest
shall, whether or not expressly so stated, be conditioned
upon such assignee assuming in writing all obligations of
Tenant hereunder by a written instrument satisfactory to
Landlord.
(d) If Landlord consents to the Sublease or Assignment
within said shiny (30) day period, Tenant may enter into
such Assignment or Sublease of the Premises or opinion
thereof, but only upon the terms and conditions set in the
notice furnished by Tenant to Landlord pursuant to Paragraph
(b) above; provided, however, that in connection with such
Assignment or Sublease, as a condition to Landlord's
consent, Tenant shall pay to Landlord one hundred percent
(100%) of the excess, if any, of (i) in the case of an
Assignment, the rental and other payment obligations of the
proposed assignee under the terms of the proposed Assignment
over the rental and other payment obligations of Tenant
under the terms of this Lease, or (ii) in the case of a
Sublease, the amount proposed to be paid by the subtenant
over the proportionate amount of rental and other payment
obligations required to be paid by Tenant to Landlord under
the terms of this as applicable to the opinion of the
Premises so subleased.
(e) No consent by Landlord to any Assignment or Sublease by
Tenant shall relieve Tenant of any obligation to be
performed by Tenant under this Lease, whether arising before
or after the Assignment or Sublease. The consent by Landlord
to any Assignment or Sublease shall not relieve Tenant of
the obligation to obtain Landlord's express written consent
to any other Assignment or Sublease. Any Assignment or
Sublease that is not in compliance with this paragraph shall
be void and, at the option of Landlord, shall constitute a
material default by Tenant under this Lease. The acceptance
of rent by Landlord or payment to Landlord of any other
monetary obligation by a proposed assignee or sublessee
shall not constitute the consent by Landlord to such
Assignment or Sublease. Tenant shall promptly provide to
Landlord a copy of the fully executed Sublease or
Assignment.
(f) Any sale or other transfer, including transfer by
consolidation, merger or reorganization, of twenty-five
percent (25 %) or more of the voting stock of Tenant, if
Tenant is a corporation, or any sale or other transfer of
twenty0lve percent (25%) or more of the partnership interest
in Tenant if Tenant is a partnership, shall be an Assignment
for purposes of this paragraph. As used m this paragraph
three term "Tenant" shall also mean any entity that has
guaranteed Tenant's obligation under this Lease, and the
prohibition hereof shall be applicable to any sales or
transfers of stock or partnership interests of said
guarantor.
(g) Each assignee, subtenant or other transferee, other than
Landlord, shall assume, as provided in this paragraph all
obligations of Tenant under this Lease and shall be and
remain liable jointly and severally with Tenant for the
payment of rent and all other monetary obligations
hereunder, and for the performance of all the terms,
covenants, conditions and agreements herein contained on
Tenant's part to be performed for the term of the Lease;
provided, however, that the assignee, subtenant, or other
transferee shall be liable to landlord for rent only in the
amount set forth in the Assignment or Sublease. No
Assignment shall be binding on Landlord unless the assignee
or Tenant shall deliver to Landlord a counterpart of the
Assignment and an instrument in recordable form that
contains a covenant of assumption by the assignee
satisfactory in material and form to Landlord, consistent
with the requirements of this paragraph but the failure or
refusal of the assignee to execute such instrument of
assumption shall not release or discharge the assignee from
its liability as set forth above.
(h) If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, 11 U.S.C.
Section 101 ct seq., (the Bankruptcy Code"), any and all
monies or other consideration payable or otherwise to be
delivered in connection with such Assignment shall be paid
or delivered to Landlord, shall be and remain the exclusive
property of Landlord and shall not constitute property of
Tenant or of the estate of Tenant within the meaning of the
Bankruptcy Code. Any and all monies or other considerations
constituting Landlord's property under the preceding
sentence not paid or delivered to Landlord shall be held in
trust for the benefit of Landlord and be promptly paid or
delivered to Landlord.
(i) Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code, shall be
deemed, without further act or deed, to have assumed all of
the obligations arising under this Lease on and after the
date of such Assignment. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming
such assumption.
(j) Tenant shall pay Landlord's expenses and attorneys' fees
incurred in processing an Assignment or Sublease, but in no
event less than Five Hundred Dollars (S500.00) for each such
proposed transfer to cover the legal review and processing
expenses of Landlord, whether or not Landlord shall grant
its consent to such proposed transfers.
(k) All options to extend, renew or expand, if any,
contained in this Lease are personal to Tenant. Consent by
Landlord to any Assignment or subletting shall not include
consent to the Assignment or transfer of any such rights
with respect to the Premises or any special privileges or
extra services granted to Tenant by this Lease, or any
addendum or amendment hereto or letter of agreement. AH such
options, rights, privileges and extra services shall
terminate upon such Assignment or subletting unless Landlord
specifically grants in writing such options, rights,
privileges and extra services to such assignee or subtenant.
Similarly, any allowance, abatement or monetary concession
provided to Tenant as an inducement to execute this Lease is
personal to Tenant and shall be amortized (on a straight
line basis) over the term of this Lease. Upon any Assignment
or subletting, the then unamortized portion thereof shall be
paid by Tenant to Landlord in cash on or before the
effective date of such Assignment or subletting.
12.2 Additional Terms and Conditions Applicable to
Subletting. Regardless of Landlord's consent, the following
terms and conditions shall apply to any subletting by Tenant
of all or any part of the Premises and shall be included in
subleases:
(a) Tenant hereby assigns and transfers to Landlord all of
Tenant's interest in all rentals and income arising from any
Sublease heretofore or hereafter made by Tenant, and
Landlord may correct such rent and income and apply same
toward Tenant's obligations under this Lease; provided,
however, that until a default shall occur in the performance
of Tenant's obligations under this Lease, Tenant may
receive, correct and enjoy the rents accruing under such
Sublease. Landlord shall not, by reason of this or any other
Assignment of such Sublease to Landlord nor by reason of the
correction of the rents from a subtenant, be deemed liable
to the subtenant for any failure of Tenant to perform and
comply with any of Tenant's obligations to such subtenant
under such Sublease. Tenant hereby irrevocably authorizes
and directs any such subtenant, upon receipt of a written
notice from Landlord stating that a default exists in the
performance of Tenant's obligations under this Lease, to pay
to Landlord the rents due and to become due under the
Sublease. Tenant agrees that such subtenant shall have the
right to rely upon any such statement and request from
Landlord, and that such subtenant shall pay such rents to
Landlord without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice
from or claim from Tenant to the contrary. Tenant shall have
no right or claim against such subtenant or landlord for any
such rents so paid by said subtenant to Landlord.
(b) Any subtenant shall, by reason of entering into a
Sublease under this Lease, be deemed, for the benefit of
Landlord, to have assumed and agreed to conform and comply
with each and every obligation herein to be performed by
tenant other than such obligations as are contrary to or
inconsistent with provisions contained in a Sublease to
which Landlord has expressly consented in writing.
(c) If Tenant's obligations under this Lease have been
guaranteed by third parties, then a Sublease, and Landlord's
consent thereto, Shall not be effective unless said
guarantors give their written consent to such Sublease and
the terms thereof.
(d) Landlord may consent to subsequent subletting and
Assignments of the Sublease or any amendments or
modifications thereto without notifying Tenant or anyone
else liable on the Lease or Sublease and without obtaining
their consent and such action shall not relieve such persons
from liability.
(e) In the event of any default under this Lease, Landlord
may proceed directly against tenant, any guarantors or any
one else responsible for the performance of this Lease,
including the subtenant, without first exhausting Landlord's
remedies against any other person or entity responsible
therefor to Landlord, or any security held by Landlord or
tenant.
(f) In the event tenant shall default in the performance of
its obligations under this Lease, Landlord, at its option
and without any obligation to do so, may require any
subtenant to attorn to Landlord, in which event Landlord
shall undertake the obligations of Tenant under such
Sublease from the time of the exercise of said option to the
termination of such Sublease; provided, however, Landlord
shall not be liable for any prepaid rents or security
deposit paid by such subtenant to Tenant or for any other
prior defaults of Tenant under such Sublease.
(g) Each and every consent required of Tenant under a
Sublease Shall also require the consent of Landlord.
(h) Landlord's written consent to any subletting of the
Premises by tenant shall not constitute an acknowledgment
that no default then exists under this Lease of the
obligations to be performed by tenant nor shall such consent
be deemed a waiver of any then existing default, except as
may be otherwise stated by Landlord at the time.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the
following events shall constitute a material default of this
Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant.
(b) The failure by Tenant to make any payment of rent or any
other payment required to be made by Tenant hereunder, as
and when due, where such failure Shall continue for a period
of three (3) days after the same is due and payable.
(c) Except as otherwise provided in this Lease, the failure
by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or
performed by Tenant, other than described in Paragraph (b)
above, where such failure shall continue for a period of ten
(10) days after written notice thereof from Landlord to
tenant; provided, however, that if the nature of Tenant's
noncompliance is such that more than ten (10) days are
reasonably required for its cure, then tenant shall not be
deemed to be in default if tenant commenced such cure within
said ten (10) day period and thereafter diligently
prosecutes such cure to completion within thirty (30) days.
To the extent permitted by law, such ten (10) day notice
shall constitute the sole and exclusive notice required to
be given to Tenant under applicable unlawful detained
statutes.
(d) (i) The making by Tenant of any general arrangement or
general assignment for the benefit of creditors; (ie) tenant
becomes a "debtor" as defined in I 1 U.S.C. *101 or any
successor statute thereto (unless, in the case of a petition
filed against Tenant, the same is dismissed within sixty
(60) days); (ie) the appointment of a trustee or receiver to
take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within
thirty (30) days; or (iv) the enactment, execution or other
judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this
Lease, where such seizure is not discharged within thirty
(30) days. In the event that any provision of this Paragraph
13.1 (d) is contrary to any Applicable Law, such provision
shall be of no force or effect.
(e) The discovery by Landlord that any financial statement
given to Landlord by Tenant, any assignee of tenant, any
subtenant of Tenant, an successor in interest of tenant or
any guarantor of Tenant's obligation hereunder, was
materially false.
(f) If the performance of Tenant's obligations under this
Lease is guaranteed: (i) the death of a guarantor, (ie) the
termination of a guarantor's liability with respect to this
Lease other than in accordance with the terms of such
guaranty, (ie) 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 anticipatory breach basis, and
tenant's failure, within sixty (60) days following written
notice by or on behalf of Landlord to tenant of any such
event, to provide Landlord with written alternative
assurance or security, which, when coupled with the then
existing resources of Tenant, equals or exceeds the combined
financial resources of tenant and the guarantors that
existed at the time of execution of this Lease.
13.2 Remedies. In the event of any such material default by
Tenant, Landlord may at any time there after, with or
without notice or demand and without limiting Landlord in
the exercise of any right or remedy which Landlord may have
by reason of such default:
(a) Terminate Tenant's right to possession of the Premises
by any lawful means, in which case this Lease and the term
hereof Shall terminate and Tenant Shall immediately
surrender possession of the Premises to Landlord. In such
event Landlord Shall be entitled to recover from Tenant: (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 tenant proves could have been reasonably avoided; (ie)
the worth at the time of award of the amount by which the
unpaid rent for tile balance of the term after the time of
award exceeds the amount of such rental loss that the tenant
proves could be reasonably avoided; and (IV) any other
amount necessary to compensate Landlord for all the
detriment proximately caused by the Tenant's failure to
perform its obligations under. this Lease or which in the
ordinary course of things would be likely to result
therefrom, which amount the parties hereby agree shall
include, without limitation, unamortized tenant improvements
constructed or paid for by Landlord, unamortized broker's
commissions paid by Landlord to any Broker, Inducement
Provision (as defend in Paragraph 13.3 below), the cost of
recovering possession of the Premises, expenses of
reletting, including necessary renovation and alteration of
the Premises and reasonable attorneys' fees. The worth at
the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank
of San Francisco at the time of award plus one percent (1%).
Efforts by Landlord to mitigate damages caused by Tenant's
default or breach of this Lease shall not waive Landlord's
right to recover damages under this paragraph. If
termination of this Lease caused by Tenant's default or
breach of this Lease shall not waive Landlord's right to
recover damages under this paragraph. If Termination of this
Lease is obtained through the provisional remedy of unlawful
detained, Landlord shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable
therein, or Landlord may reserve therein the right to
recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required
under subparagraphs 13.1 (b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit,
as the case may be, given to Tenant under any statute
authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1(b), (c) or (d). In
such case, the applicable grace period under subparagraphs
13.1(b), (c) or (d) and under the unlawful detained statute
shall run concurrently after the one such statutory notice,
and the failure of Tenant to cure the default within the
greater of the two such grace periods shall constitute both
an unlawful detained and a breach of this Lease entitling
Landlord to the remedies provided for in this Lease and/or
by said statute.
(b) Maintain Tenant's right to possession in which case this
Lease Shall continue in effect whether or not Tenant Shall
have vacated or abandoned the Premises. In such event
Landlord Shall be entitled to enforce All of Landlord's
rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder. Acts of
maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Landlord's
interest under the Lease or Landlord's withholding of
consent to an Assignment or Subletting pursuant to the terms
and conditions of Paragraph 12 above, shall not constitute a
termination of the tenant's right to possession.
(c) The foregoing provisions of clause (2) shall apply even
though Tenant has breached the Lease and abandoned the
Premises, in which case Landlord shall have the right to re-
enter the Premises with or without process of law, to eject
therefrom all parties in possession thereof, and, without
terminating this Lease, at any time and from time to time,
but without obligation to do so, to relet the Premises and
the improvements located therein or any part or parts of any
thereof for the account of Tenant, or otherwise, on such
conditions as Landlord in its discretion may deem proper,
with the right to make alterations and repairs to the
Premises in connection therewith, and to receive and chock
the rents therefor, and apply the same (i) first to the
payment of such costs and expenses as Landlord may have
paid, assumed or incurred: (A) in recovering possession of
the Premises and said improvements, including attorneys'
fees, and costs; (B) expenses for placing the Premises and
said improvements in good order and condition, for
decorating and preparing the Premises for reletting; (C) for
making any alterations, repairs, changes or additions to the
Premises that may be necessary or convenient; and (D) all
other costs and expenses, including leasing and subleasing
commissions, and charges paid, assumed or incurred by
Landlord in or upon reletting the Premises and said
improvements, or in fulfillment of the covenants of Tenant
under this Lease; (iii) then to the payment of Monthly
Rental, tenant's Proportionate Share of Common Operating
Costs, and other monetary obligations due and unpaid
hereunder; and (iii) any balance shall be held by Landlord
and applied in payment of future amounts as the same may
become due and payable hereunder. Any such reletting may be
for the remainder of the term of this Lease or for a longer
or shorter period. Landlord may execute any lease or
sublease made pursuant to the terms of this subparagraph
either in its own name or in the name of Tenant as its
agent, as Landlord may see fit. The tenant(s) or
subtenant(s) thereunder shall be under no obligation
whatsoever with regard to the application by Landlord of any
rent collected by Landlord from such tenant or subtenant to
any and all sums due and owing or which may become due and
owing under the provisions of this Lease, nor shall Tenant
have any right or authority whatever to collect any rent
whatever from such tenant(s) or subtenant(s). If tenant has
been credited with any rent received by such reletting and
such rent shall not be promptly paid to Landlord by the
tenant(s) or subtenant(s), or if such rentals received from
reletting during any month are less than those to be paid
during that month by Tenant hereunder, Tenant shall pay any
such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. tenant shall also pay to
Landlord as soon as ascertained, any costs and expenses
incurred by Landlord in such reletting or in making such
alterations and repairs not covered by the rentals received
from such reletting. For all purposes set forth in this
subsection, Landlord is hereby irrevocably appointed as
agent for Tenant. No taking of possession of the Premises by
Landlord shall be construed as Landlord's acceptance of a
surrender of the Premises by Tenant or an election of
Landlord's pan to terminate this Lease unless written notice
of such intention is given to Tenant. Notwithstanding any
such subletting without termination, Landlord may at any
time thereafter elect to terminate this Lease for such
previous breach. Election by Landlord to proceed pursuant to
this clause (3) shall be made upon written notice to tenant
and shall be deemed an election of the remedy described in
California Civil Code Section 1951 .4(providing that a
lessor of real property may continue a lease in effect after
a lessee's breach or abandonment and recover rent as it
becomes due, if the lessee has the right to sublet or
assign, subject only to reasonable limitations). If Landlord
elects to pursue such remedy, unless Landlord relets the
Premises, Tenant shall have the right to sublet the Premises
and to assign its interest in this Lease, subject to all of
the standards and conditions set forth in Paragraph 12.
Landlord may elect to terminate the prosecution of such
remedy at any time by written notice to Tenant, and the
right of tenant to sublet or assign shall terminate upon
receipt by tenant of such notice.
(d) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state
wherein the Premises are located. Unpaid installments of
rent and other unpaid monetary obligations of tenant under
the terms of this Lease shall bear interest from the date
due at the maximum rate then allowable by law.
(e) The expiration or termination of this Lease and/or the
termination of Tenant's right to possession shall not
relieve Tenant from liability under any indemnity provisions
of this Lease as to manners occurring or accruing during the
term hereof or by reason of Tenant's occupancy of the
Premises.
13.3 Default by Landlord. Landlord shall not be in default
unless Landlord fails to perform obligations required of
Landlord within a reasonable time after written notice by
Tenant to Landlord and to the holder of any first mortgage
or deed of trust covering the Premises whose Name and
address shall have therefore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform
such obligation.
13.4 Inducement Recapture In Event of Breach. Any agreement
by Landlord for free or abated rent or other charges
applicable to the Premises, or for the giving or paying by
Landlord to or for Tenant of any cash or other bonus,
inducement or consideration for Tenant's entering into this
Lease, all of which concessions are hereinafter referred to
as "Inducement Provisions ", shall be deemed conditioned
upon tenant's full and faithful performance of all of the
terms, covenants, and conditions of this Lease to be
performed or observed by tenant during the term hereof as
the same may be extended. Upon the occurrence of a breach of
this Lease by tenant, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no
funkier force or effect, and any rent, other charge, bonus,
inducement or consideration therefore abated, given or paid
by Landlord under such an Inducement Provision shall be
immediately due and payable by Tenant to Landlord, and
recoverable by Landlord as additional rent due under this
Lease, notwithstanding any subsequent cure of said breach by
Tenant. The acceptance by Landlord of rent or the ere of the
breach which initiated the operation of this paragraph shall
not be deemed a wavier by Landlord of the provisions of this
paragraph unless specifically so stated in writing by
Landlord at the time of such acceptance.
13.5 Late Payments and Deliveries.
(a) Any amount due from Tenant to Landlord hereunder which
is not paid to Landlord when due shall bear interest at the
maximum rate of interest which Landlord is then permitted to
charge by the applicable usury law, accruing from the date
due until the same is fully paid. Payment of such interest
shall not excuse or cure any default by Tenant pursuant to
this Lease. Such rate shall remain in effect after the
occurrence of any breach or default hereunder by Tenant to
and until payment of the entire amount due.
(b) TENANT ACKNOWLEDGES THAT THE LATE PAYMENT BYTENANTTO
LANDLORD OP RENT, TENANT'S SHARE OP OPERATING EXPENSES AND
OTHER SUMS DUE HEREUNDER AND THE FAILURE TO DELIVER ON TIME
REPORTS AND OTHER ITEMS REQUIRED TO BE DELIVERED WILL CAUSE
LANDLORD TO INCUR COSTS NOT CONTEMPLATED BY THIS LEASE, THE
EXACT AMOUNT OF WHICH WILL BE EXTREMELYDIPPICULT TO
ASCBRTAIN. SUCH COSTS MAY INCLUDE, BUT ARE NOT LIMITED TO,
ADMINISTRATIVE, PROCESSING AND ACCOUNTING CHARGES, AND LATE
CHARGES WHICH MAY BB IMPOSED ON LANDLORD BY THE TERMS OF ANY
ENCUMBRANCE COVERING THE PRBMISES. ACCORDINGLY, IF ANY SUM
DUE FROM TENANT, ANY REPORT OR OTHER ITEM FROM TENANT
HEREUNDER SHALL NOT BE RECEIVED BY LANDLORD OR LANDLORD'S
DESIGNEE WITHIN PIVE (5) DAYS APTER THB DATE DUE, TENANT
SHALL PAY TO LANDLORD, IN ADDITION TO ANY INTEREST ON
DELINQUENT AMOUNTS PROVIDED ABOVE, A LATE CHARGE EQUAL TO
THE GREATER OP TEN PERCENT (10%) OP THE DELINQUENT AMOUNT
(IP APPLICABLE) OR $200.00, AS LIQUIDATED DAMAGES PER
OCCURRENCE. THE PARTIES AGREE THAT SUCH LATE CHARGE
REPRESBNTS A PAIR AND REASONABLE ESTIMATE OP THE COST
LANDLORD WILL INCUR BY REASON OP LATE PAYMENT OR LATE
DELIVERY BY TENANT. ACCEPTANCE OP SUCH LATE CHARGE SHALL NOT
CONSTITUTE A WAIVER OP TENANT'S DEPAULT WITH RESPECT TO SUCH
OVERDUE AMOUNT OR OTHER ITEM, NOR PREVENT LANDLORD PROM
EXERCISING ANY OTHER RIGHTS AND REMEDIES GRANTED HEREUNDER
OR BY LAW TO LANDLORD.
Landlord's Initials Tenant's Initials
13.5.1 If Tenant shall, during any six (6) month period, be
more than ten (10) days delinquent in the payment of any
rent or other amount payable by Tenant hereunder on three
(3) or more then, notwithstanding anything herein to the
contrary, Landlord may, by written notice to Tenant, elect
to require Tenant to pay all Base Rent, Tenant's Share of
Operating Expenses and additional rent payable hereunder
quarterly in advance. Such right of Landlord shall be in
addition to and not in lieu of any other right or remedy
available to Landlord hereunder or at law on account of
Tenant's default hereunder.
14. Condemnation. If the Premises or any portion thereof or
the Industrial Center are taken under the power of eminent
domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation", this
Lease shall terminate as to the part so taken as of the date
the condemning authority takes title or possession,
whichever first occurs. It more than twenty percent (20%) of
the floor area of the Premises is taken by condemnation and
such taking materially and adversely affects Tenant's
ability to conduct business in the Premises, Tenant may, at
Tenant's option, to be exercised in writing only within ten
(10) days after Landlord shall have given Tenant 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 Tenant
does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the
rent shall be reduced in the proportion that the floor area
of the Premises taken bears to the total floor area of the
Premises. No reduction of rent shall occur if the only area
taken is that which does not have the Premises located
thereon. Any award for the taking of all or any pan 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 Landlord, whether such award shall be made as
compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided,
however, that Tenant shall be entitled to any award it may
obtain in separate proceedings with the condemned for loss
of or damage to Tenant's trade flusters and removable
personal property. In the event that this Lease is not
terminated by reason of such condemnation, Landlord shall to
the extent of severance damages received by Landlord in
connection with such condemnation repair any damage to the
Premises caused by such condemnation except to the extent
that Tenant has been reimbursed therefor by the condemning
authority. Tenant shall pay any amount in excess of such
severance damages required to complete such repair.
15. Broker's Fee. Upon execution of this Lease by both
parties, Landlord shall pay to the Broker a fee as set forth
in a separate agreement between Landlord and said Broker.
Tenant represents and warrants to Landlord that it has had
no dealings with any person, firm, broker or finder (other
than the Broker, if any, named in Paragraph 1.8) in
connection with the negotiation of this Lease and/or the
consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than
said named Brokers is entitled to any commission or finder's
fee in connection with said transaction. Tenant hereby
agrees to indemnify, protect, defend and hold Landlord
harmless from and against liability for compensation or
charges which may be claimed by any such unnamed broker,
finder or other similar party by reason of any dealings or
actions of Tenant, including any costs, expenses, attorneys'
fees reasonably incurred with respect thereto.
16. Estoppel Certificate. Tenant shall within ten (10) days
after written notice from Landlord execute, acknowledge and
deliver to Landlord a statement in writing in form similar
to the then most current "Tenancy Statement" form published
by the American Industrial Real Estate Association, pies
such additional information, confirmation and/or statements
as may be reasonably requested by Landlord. Tenant's failure
to deliver such statement within such time shall be
conclusive upon Tenant (a) that this Lease is in full force
and effect, without modification except as may be
represented by Landlord, (b) that there are no uncured
defaults in Landlord's performance, (c) that not more than
one month's Base Rent has been paid in advance, and (d) that
any other statements of fact regarding Tenant or this Lease
included by Landlord in the statement are correct. Tenant
shall be liable for all loss, cost or expense resulting from
the failure of any sale or funding of any loan caused by any
material misstatement contained in any Tenancy Statement
supplied by Tenant. Tenant irrevocably appoints Landlord as
attorney-in-fact for Tenant with full power and authority to
execute and deliver in the name of Tenant any Tenancy
Statement if Tenant fails to deliver the same within such
ten (10) day period, and such statement, as signed by
Landlord, shall be binding on Tenant.
17. Landlord's Liability. The term "Landlord" as used herein
shall mean only the owner or owners, at the time in
question, of the fee title or a tenant's interest in a
ground lease of the Industrial Center, and except as
expressly provided in Paragraph 15, in the event of any
transfer of such title or interest, Landlord herein named
(and in case of any subsequent transfers then the grantor)
shall be relieved from and after the date of such transfer
of all liability as respects Landlord's obligations
thereafter to be performed, provided that any funds in the
hands of Landlord or the then grantor at the time of such
transfer, in which Tenant has an interest, shall be
delivered to the grantee. The obligations contained in this
Lease to be performed by Landlord shall, subject as
aforesaid, be binding on Landlord's successors and assigns,
only during their respective periods of ownership.
18. Severability. The invalidity of any provision of this
Lease as determined by a court of competent jurisdiction
shall in no way affect the validity of any other provision
hereof.
19. Headings. The paragraph captions contained in This
Lease are for convenience only and shall not be considered
in the construction or interpretation of any provision
hereof.
20. Time of Essence; Force Majeure. Time is of the essence
with respect to the performance of all obligations to be
performed or observed by the parties under this Lease.
Notwithstanding the foregoing, in the event that a part-y is
delayed in performing any obligation of such party pursuant
to This Lease by any cause beyond the reasonable control of
such party, the time period for performing such obligation
shall be extended by a period of .time equal! to the period
~ of the delay. for the ,purpose of this paragraph, a cause
shall be beyond the reasonable control of a party when such
cause would affect any person similarly situated (such as a
power outage, labor strike, governmental or other third
party delay or truckers' strike) but shall not be beyond the
reasonable control of a party when peculiar to such party
(such as financial inability). This paragraph shall not
apply to any obligation to pay money, but shall operate to
delay the Commenced (but not the Expiration) Date in the
event (only) of a delay affecting Landlord.
21. Counterparts. This Lease may be executed in several
counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
22. Incorporation of Prior Agreements; Amendments. This
Lease contains all agreements of the parties with respect to
any manner mentioned herein. No prior or contemporaneous
agreement or understanding pertaining to any such manner
shall be effective. This Lease may be modified in writing
only, signed by the parties in interest at the time of the
modification. Except as otherwise stated in this Lease,
Tenant hereby acknowledges that neither the real estate
Broker listed in Paragraph 15 hereof nor any cooperating
broker on this transaction nor the Landlord or any employee
or agents of any of said persons has made any oral or
written warranties or representations to Tenant relative to
the condition or use by Tenant of the Premises or the
Industrial Center and Tenant acknowledges that Tenant
assumes all responsibility regarding the Occupational Safety
Health Act, the legal use and adaptability of the Premises
and the compliance thereof with all Applicable Laws and
regulations in effect during the term of this Lease except
as otherwise specifically stated in this Lease.
23. Notices.
23.1 Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery or
by certified mail, and if given personally or by mail, shall
be deemed sufficiently given if addressed to Tenant or to
Landlord at the address noted below the signature of the
respective parties, as the case may be. Either party may by
notice to the other specify a different address for notice
purposes except that upon Tenant's taking possession of the
Premises, the Premises shall constitute Tenant's address for
notice purposes. A copy of all notices required or permitted
to be given to Landlord hereunder shall be concurrently
transmitted to such party or parties at such addresses as
Landlord may from time to time hereafter designate by notice
to Tenant.
23.2 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 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 confirmation of receipt of the transmission
thereof, provided a copy is also delivered via delivery
service or mail.
24. Waivers. No waiver by Landlord or any provision hereof
shall be deemed a waiver of any other provision hereof or of
any subsequent breach by Tenant of the same or any other
provision. Landlord's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act by
Tenant. The acceptance of rent hereunder by Landlord shall
not be a waiver of any preceding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay
the particular rent so accepted, regardless of Landlord's
knowledge of such preceding breach at the time of acceptance
of such rent.
25. Recording. Either Landlord or Tenant shall, upon
request of the other, execute, acknowledge and deliver to
the other a form memorandum of this Lease for recording
purposes.
26. Holding Over. If Tenant or anyone claiming under Tenant
shall remain in possession of the Premises or any pan
thereof after expiration of the Lease term or earlier
termination thereof without any agreement in writing between
Landlord and Tenant with respect thereto, Tenant shall (a)
occupy upon all of the terms and conditions of this Lease
except that the monthly Base Rent due from Tenant shall be
equal to the greater of two hundred percent (200%) of the
monthly Base Rent in effect at the end of the term or the
then fair market rental value of the Premises, (b) pay all
damages sustained by Landlord by reason of such retention,
and (c) indemnify, defend, and hold Landlord harmless from
and against any loss or liability resulting from such
holding over. If Landlord so notifies Tenant in writing,
such holding over shall constitute a renewal of this Lease
for a one year term; otherwise Landlord's acceptance of rent
shall create only a month-to-month tenancy, in either case
upon the terms set forth in this paragraph. Any such month-
to-month tenancy shall be terminable at the end of any
calendar month by either party by written notice to the
other party given not less than ten (10) days prior to the
end of such month. Nothing contained in this paragraph shall
be deemed or construed to waive Landlord's right of reentry
or any other right of Landlord hereunder or at law.
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. Each provision of this Lease
performable by Tenant shall be deemed both a covenant and a
condition.
29. Binding Effect; Choice of Law. Subject to any provisions
hereof restricting Assignment or subletting by Tenant and
subject to the provisions of Paragraph 17, this Lease shall
bind the parties, their personal representatives, successors
and assigns. This Lease shall be governed by the laws of the
state where the Industrial Center is located and any
litigation concerning this Lease between the parties hereto
shall be initiated in the county in which the Industrial
Center is located.
30. Subordination; Attornment; Non-Disturbance.
(a) This Lease, and any Option granted hereby, at Landlord's
opinion, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or
hereafter placed upon the Industrial Center and to any and
all advances made on the security thereof and to all
renewals, modifications, consolidations, replacements and
extensions thereof. Notwithstanding such subordination,
Tenant's right to quiet possession of the Premises shall not
be disturbed it Tenant is not in default and so long as
Tenant shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. Tenant agrees that the
lenders holding any such security device shall have no duty,
liability or obligation to perform any of the obligations of
Landlord under this Lease, but that in the event of
Landlord's default with respect to any such obligation,
Tenant will give any lender whose name and address have been
furnished Tenant in writing for such purpose notice of
Landlord's default and allow such lender thirty (30) days
following receipt of such notice for the cure of said
default before invoking any remedies Tenant may have by
reason thereof. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted
hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to
Tenant, this Lease and such Options shall be deemed prior to
such mortgage, deed of trust or ground lease, whether this
Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the
date of recording thereof.
(b) Tenant 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 landlord or with
respect to events occurring prior to acquisition of
ownership, (ii) be subject to any offsets or defenses which
Tenant might have against any prior landlord, or (iii) be
bound by prepayment of more than one month's rent. Tenant
agrees to execute any documents required to effectuate an
attornrnent, a subordination or to make this Lease or any
Option granted herein prior to the lien of any mortgage,
deed of trust or ground lease, as the case may be. Tenant's
failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Tenant
hereunder without further notice to Tenant or, at Landlord's
option, Landlord shall execute such documents on behalf of
Tenant as Tenant's attorney-in-fact. Tenant does hereby
make, constitute and irrevocably appoint Landlord as
Tenant's attorney-in-fact and in Tenant's name, place and
stead, to execute such documents in accordance with this
Paragraph 30(b).
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 deemed) 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. Landlord
shall be entitled to attorneys' fees, costs and expenses
incurred in the preparation and service of notices of
default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in
connection with ..such default or resulting breach.
32. Landlord's Access. Landlord and Landlord's agents shall
have the right to enter the Premises at reasonable times for
the purpose of inspecting the same, showing the same to
prospective purchasers, lenders, or tenants, and making such
alterations, repairs, improvements or additions to the
Premises or to the Industrial Center as Landlord may deem
necessary or desirable. Landlord may at any time place on or
about the Premises or the Building any ordinary for Sale"
signs and Landlord may at any time during the last one
hundred twenty (120) days of the term hereof place on or
about the Premises any ordinary "for Lease" signs. All
activities of Landlord pursuant to this paragraph shall be
without abatement of rent, nor shall Landlord have any
liability to Tenant for the same.
33. Auctions. Tenant shall not conduct, nor permit to be
conducted, either voluntarily or involuntarily, any auction
upon the Premises or the Common Areas without first having
obtained Landlord's prior written consent. Notwithstanding
anything to the contrary in this Lease, Landlord shall not
be obligated to exercise any standard of reasonableness in
determining whether to grant such consent.
34. Signs. Tenant shall not place any sign upon the Premises
or the Industrial Center without Landlord's prior written
consent. Under no circumstances shall Tenant place a sign on
any roof of the Industrial Center. The installation of any
sign on the Premises by or for tenant shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility
Installations, Trade Fixtures and Alterations). Unless
otherwise expressly agreed herein, Landlord reserves all
rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising
signs on the Premises, including the roof, as do not
unreasonably interfere with the conduct of Tenant's
business.
35. Merger. the voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof, or a
termination by Landlord, shall not work a merger, and shall,
at the option of Landlord, terminate all or any existing
subtenancies or may, at the option of Landlord, operate as
an Assignment to Landlord of any or all of such
subtenancies.
36. Consents. Landlord's actual reasonable costs and expense
(including, but not limited to, architects', attorneys',
engineers' or other consultants' fees) incurred in the
consideration of, or response to, a request by Tenant for
any Landlord comment pertaining to this Lease or the
Premises, including, but not limited to, consents to an
Assignment, a subletting or the presence or use of Hazardous
Material, practice or storage tank, shall be paid by Tenant
to Landlord upon receipt of an invoice and supporting
documentation therefor. Subject to Paragraph 12.2(e)
(applicable to Assignment or subletting), Landlord may, as a
condition to considering any such request by Tenant, require
that Tenant deposit with Landlord an amount of money (in
addition to the Security Deposit held under Paragraph 5)
reasonably calculated by Landlord to represent the cost
Landlord will incur in considering and responding to
Tenant's request. Except as otherwise provided, any unused
portion of said deposit shall be refunded to Tenant without
interest. Landlord's consent to any act, Assignment of this
Lease or subletting of the Premises by Tenant shall not
constitute an acknowledgment that no default or breach by
Tenant 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
Landlord at the time of such consent.
37. Guarantor. In the event that there is a Guarantor of
this Lease, said Guarantor shall have the same obligations
as Tenant under this Lease. Without limiting the generality
of the foregoing, it shall constitute a default of the
Tenant under this Lease if any Guarantor fails or refuses,
upon reasonable request by Landlord 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 including in the case of a corporate
Guarantor, a certified copy of a resolution of its board of
directors authorizing the mailing 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 Landlord, (c) a Tenancy Statement, or (d)
written confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon Tenant paying the rent for the
Premises and observing and performing all of the covenants,
conditions and provisions on Tenant's part to be observed
and performed hereunder, Tenant shall have quiet possession
of the Premises for the entire term hereof subject to all of
the provisions of this Lease.
39. Options.
39.1 Definition. As used in this paragraph the word "Option"
has the following meaning: (1) the right or option to extend
the term of this Lease or to renew this Lease or to extend
or renew any lease that Tenant has on other property of
Landlord; (2) the option or right of first refusal to lease
the Premises or the right of first offer to lease the
Premises or the right of first refusal to lease other space
within the Industrial Center or other property of Landlord
or the right of first offer to lease other space within the
Industrial Center or other property of Landlord; (3) the
right or option to purchase the Premises or the Industrial
Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first
offer to purchase the Premises or the Industrial Center, or
the right or option to purchase other property of Landlord,
or the right of first refusal to purchase other property of
Landlord or the right of first offer to purchase other
property of Landlord.
39.2 Options Personal. Each Option granted to Tenant in this
Lease is personal to the original Tenant and may be
exercised only by the original Tenant while occupying the
Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any
portion thereof, and may not be exercised or be assigned,
voluntarily or involuntarily, by or to any person or entity
other than Tenant. The Options, if any, herein granted to
Tenant are not assignable separate and apart from this
Lease, nor may any Option be separated from this Lease in
any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Tenant has any
multiple options to extend or renew this Lease a later
option cannot be exercised unless the prior option to extend
or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Tenant shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the
contrary, (i) during the time commencing from the date
Landlord gives to Tenant a notice of default pursuant to
Paragraph 13. l(b) or 13. l(c) and continuing until the
noncompliance alleged in said notice of default is cured, or
(ii) during the period of time commencing on the date after
a monetary obligation to Landlord is due from Tenant and
unpaid (without any necessity for notice thereof to Tenant)
and continuing until the obligation is paid, or (iii) at
anytime after an event of default described in Paragraphs
13.1(a). 13.1(d), or 13.1(e) (without any necessity of
Landlord to give notice of such defualt to Tenant), or (iv)
in the event that Landlord has given to Tenant three or more
notices of default under Paragraph 13.1(b) or Paragraph
13.1(c), whether or not the defaults are cured, during the
twelve (12) month period of time immediately prior to the
time that Tenant attempts to exercise the subject Option.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of
Tenant's inability to exercise an Option because of the
provisions of Paragraph 39.4(a).
(c) All rights of Tenant under the provisions of an Option
shall terminate and be of no further force or effect,
notwithstanding Tenant's due and timely exercise of the
Option, if after such exercise and during the term of this
Lease, ~I) Tenant fails to pay to Landlord a monetary
obligation of Tenant for a period of thirty (30) days after
such obligation becomes due (without any necessity of
Landlord to give notice thereof to Tenant), or (ii)) Tenant
fails to commence to cure a default specified in Paragraph
13.1(c) within thirty (30) days after the date that T
Landlord gives notice to Tenant of such default and/or
Tenant fails thereafter to diligently prosecute said cure to
completion, or (iii) Tenant commits a default described in
Paragraphs 13.1 (a), 13.1 (d) or 13. l(e) (without any
necessity of Landlord to give notice of such default to
Tenant), or (iv) Landlord gives to Tenant three or more
notices of default under Paragraph 13.1(b), or Paragraph
13.1(c), whether or not the defaults are cured.
40. Multiple Buildings. If the Premises are part of a group
of buildings controlled by Landlord, Tenant agrees that it
will abide by, keep and observe all reasonable rules and
regulations which Landlord 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 such other buildings and
their invitees, and that Tenant will pay its fair share of
common expenses incurred in connection therewith. The
initial rules and regulations are as set forth in Exhibit D
hereto.
41. Security Measures. Tenant hereby acknowledges that
Landlord shall have no obligation whatsoever to provide
guard service or other security measures for the benefit of
the Premises or the Industrial Center, Tenant assumes all
responsibility for the protection of Tenant, its agents, and
invitees and the property of Tenant and of Tenant's agents
and invitees from acts of third parties. Nothing herein
contained shall prevent Landlord, at Landlord's sole option,
from providing security protection for the Industrial Center
or any part thereof.
42. Easements. Landlord reserves to itself the right, from
time to time, to grant such easements, rights and
dedications that Landlord deems necessary or desirable, and
to cause the recordation of parcel maps and restrictions, so
long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of
the Premises by Tenant. Tenant shall sign any of the
aforementioned documents upon request of Landlord and
failure to do so shall constitute a material default of this
Lease by Tenant without the need for further notice to
Tenant. 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. It Tenant is a corporation, trust, or general
or limited partnership, each individual executing this Lease
on behalf of such entity represents and warrants that he or
she is duly authorized to execute and deliver this Lease on
behalf of said entity. If Tenant is a corporation, trust or
partnership, Tenant shall, concurrently with the execution
of this Lease, deliver to Landlord evidence of such
authority satisfactory to Landlord. 45. Conflict. Any
conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
46. Offer. Preparation of this Lease by Landlord or
Landlord's agent and submission of same to Tenant shall not
be deemed an of(offer to lease. This Lease shall become
binding upon Landlord and Tenant only when fully executed by
Landlord and Tenant.
47. Amendments. This Lease may be modified only in writing,
signed by the panics in interest at the time of the
modification. The parties shall amend this Lease from time
to time to reflect any adjustments that arc made to the Base
Rent or other rent payable under this Lease. As long as they
do not materially increase Tenant's obligations hereunder,
Tenant 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 arc a pan.
48. Nondisclosure of Lease Terms. Landlord and Tenant agree
that the terms of this Lease are confidential and constitute
proprietary information of the panics hereto. Disclosure of
the terms hereof could adversely affect the ability of
Landlord to negotiate with other tenants of the Industrial
Center. Each of the panics hereto agrees that such party,
and its respective partners, officers, directors, employees,
agents and attorneys, shall not disclose the terms and
conditions of this Lease to any other person without the
prior written consent of the other party hereto except
pursuant to an order of a court of competent jurisdiction.
Provided, however, that Landlord may disclose the terms
hereof to any lender now or hereafter having a lien on
Landlord's interest in the Industrial Center, or any portion
thereof, and either party may disclose the terms hereof to
its respective independent accountants who review its
respective financial statements or prepare its respective
tax returns, to any prospective transferee of all or any
portions of their respective interests hereunder (including
a prospective sublessee or assignee of Tenant), to any
lender or prospective lender to such party, to any
governmental entity, agency or person to whom disclosure is
required by applicable law, regulation or duty of diligent
inquiry and in connection with any action brought to enforce
the terms of this Lease, on account of the breach or alleged
breach hereof or to seek a judicial determination of the
rights and obligations of the panics hereunder.
49. Addendum. Attached hereto is an addendum or addenda
containing paragraphs A through E which constitute a
pan of this Lease.
LANDLORD AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS
LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY
EXECUTION OP THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY
CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME
THIS LEASE IS EXECUTED, THE TERMS OP THIS LEASE ARE
COMMERCIALLY REASONABLE AND EPFECTUATE THE INTENT AND
PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY
FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
LANDLORD OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EPPECT, OR TAX CONSEQUENCES OP THIS LEASE
OR THE TRANSACTION RELATING THERETO. THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease as of the date
last set forth below.
Landlord
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK, a New York
corporation .
By /s/ William J. Swackhamer
William J. Swackhamer
Real Estate/Vice President/
Executed on 8/15/97
ADDRESS FOR NOTICES AND RENT
19712 MacArthur Boulevard, Suite 200
Irvine, California 92612
Attention Vice President Real Estate Investment
Tenant
CONTINENTAL ENGINEERING GROUP, INC., a CALIFORNIA
corporation dba MicroCentre
By /s/ Frederick W. Lee III
Executed on 8/12/97
ADDRESS FOR NOTICES AND RENT
5300 N. Irwindale Avenue
Irwindale, California 91706
ADDENDUM TO LEASE BETWEENTHE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK, AS LANDLORD, AND CONTINENTAL ENGINEERING GROUP,
INC.,AS TENANT, DATED JUNE_, 1997
This Addendum is attached to and forms a part of that
certain Standard Industrial Lease Mutual-Tenant of even date
herewith by and between THE MUTUAL LIFE INSURANCE COMPANY OF
NEW YORK as landlord and CONTINENTAL ENGINEERING GROUP,
INC., as Tenant. In the event of any conflict between the
provisions of the Lease and the Provisions of the Addendum,
this Addendum shall control.
A. Right of First Offer
Tenant shall have a one-time right of first offer to lease
5304 N. Irwindale Ave., which is in the Building and
consists of approximately 37,436 square feet of rentable
area (collectively, the Expansion Space") from Landlord if,
after the Commencement Date and during the Original Term of
this Lease, such space becomes available and Landlord is
interested in marketing all or a portion of such space.
Tenant acknowledges that the Expansion Space is currently
occupied by another tenant. At such time as the Expansion
Space becomes available and Landlord becomes interested in
leasing any portion of the Expansion Space (including all),
Landlord shall notify Tenant in writing of the Base Rent
(which shall be 100% of fair market value rental) and on the
other terms and conditions on which Landlord would be
willing to lease such portion of the Expansion Space
(including all). Tenant shall, within three (3) days
following its receipt of Landlord's notice, indicate in
writing its intention to add to the Premises the entire
portion of the Expansion Space (including all) so offered by
Landlord on the terms specified in Landlord's notice. Any
failure by Tenant to respond to Landlord's notice within
such three (3) day period, or any notice by Tenant
specifying Tenant's acceptance of the Expansion Space on
terms other than those set forth in Landlord's notice or of
only a portion of the Expansion Space so offered by
Landlord, shall cause Tenant's rights under this paragraph
A. to terminate with respect to the Expansion Space so
offered, and Landlord shall thereafter be free to lease the
Expansion Space so offered to another party at any rate and
on any terms Landlord chooses.
If Tenant is entitled to and gives notice to Landlord within
such three (3) days of its desire to add the offered
Expansion Space to the Premises, the Expansion Space so
offered shall be delivered by Landlord to Tenant on the
terms set forth in Landlord's notice, and shall otherwise be
added to the Premises on the same terms and conditions set
forth in this Lease with respect to the Premises to the
extent not inconsistent with the terms and conditions
specified in Landlord's notice (except that the provisions
of Exhibit C of the Lease shall not apply unless clearly
specified to the contrary in Landlord's notice).
Notwithstanding anything to the contrary contained in this
paragraph A., Landlord shall be required to offer any
portion of the Expansion Space (including all) to Tenant,
and Tenant shall be entitled to exercise its rights
hereunder with respect thereto, only if, at the time of such
offer and exercise, respectively, Tenant is not in default
under any of the terms, conditions, provisions or covenants
of this Lease, and there has not then occurred an event
which, with notice and/or lapse of time, would constitute
such a default. Moreover, in no event shall Tenant have the
right of first opportunity with respect to any Expansion
Space (1) which is, as of the date of this Lease, subject to
another tenant's rights, including without limitation rights
of renewal, first opportunity, offer or refusal, which prior
right is exercised by such other tenant, (2) which becomes
available during the last three (3) years of the Original
Term or (3) with respect to any Expansion Space which is or
becomes the subject of a renewal lease with the existing
tenant or occupant as of the date of expiration of the
existing lease therefor.
B. Old Lease and Possession of Premises
The Lease to which this Addendum is attached and of which it
forms a part is a replacement for that certain lease dated
December 13, 1991 by and between Birtcher Campbell Reliance-
MIP Ltd., a California Limited Partnership ("former
Landlord"), Landlord's predecessor in interest, and Tenant
(the "Old Lease"). It is agreed and acknowledged that (i)
Tenant is currently in possession of the Premises, (ii)
Tenant will remain in possession of the Premises pursuant to
this Lease, ((iii)) the Old Lease expires, by its terms,
January 31, 1998, 0lv) there is nothing required of Landlord
to put Tenant in possession of the Premises or any portion
thereof, and Landlord shall have no responsibility, as to
either performance of payment of costs, for any work
necessary or desired by Tenant to be performed in the
Premises, except as set forth in Exhibit C hereto, (v)
Tenant wil1 remain in possession of the Premises pursuant to
the Old Lease until 11:59 p.m. on the day before the
Commencement Date (the "Termination Date"), (vi) the Old
Lease will terminate with respect to the Premises on the
Termination Date and (vii) from and after the Commencement
Date, Tenant shall occupy the Premises pursuant to this
Lease.
Notwithstanding the termination of the Old Lease, the
following obligations of the parties thereunder shall be
preserved:
(1) Landlord shall remain responsible for and shall hold
harmless Tenant from and against any and all claims, costs,
expenses, losses, damages, actions and causes of action for
which Landlord is responsible under the Old Lease and which
accrue on or before the Termination Date.
(2) Tenant shall remain responsible for and shall defend,
indemnify and hold harmless Landlord from and against any
and all claims, costs, losses, expenses, damages, actions
and causes of action arising from, pertaining to or
connected with the Premises and/or Tenant's occupancy
thereof, for which the Tenant is responsible under the Old
Lease and which accrue on or before the Termination Date.
(3) Tenant shall remain liable for the costs of all
utilities used on or at the Premises through the Termination
Date accrued and unpaid, whether or not then billed, as of
the Termination Date until full payment thereof by Tenant.
(4) Tenant shall remain responsible for any taxes of the
type required to be paid by Tenant under the Old Lease and
assessed against the Premises and the personal property
located therein or thereon with a lien date prior to the
Commencement Date, irrespective of the date of the billing
therefor.
(5) Tenant shall remain obligated to Landlord for all
"Monthly Rental" and other rent payable to Landlord by
Tenant pursuant to the Old Lease with respect to the
Premises and accrued and unpaid (whether or not invoiced)
through the Termination Date until complete payment of the
same; provided, however, that the foregoing shall not apply
to and Landlord and Tenant hereby agree that there shall be
no adjustment of Common Operating Costs for the 1996 and
1997 calendar years, regardless of whether any such
adjustment would result in an amount due from Landlord to
Tenant or from Tenant to Landlord. In the event that any
additional rent item with respect to the Premises is payable
under the Old Lease on a basis different than under this
Lease, Landlord's adjustment shall reflect the basis used
under the Old Lease through the Termination Date and the
basis used under this Lease for the period subsequent to the
Termination Date.
(6) Failure of Tenant to perform its obligations under this
Addendum section A. shall be deemed a default by Tenant
pursuant to this Lease (after any applicable grace period as
set forth in Paragraph 13.1), entitling Landlord to exercise
all remedies available to a landlord against a defaulting
tenant, including, but not limited to, those provided in
Paragraph 13.2 of the Lease.
C. Base Rent
Notwithstanding anything to the contrary in the Lease,
monthly Base Rent shall be as set forth in Exhibit E to this
Lease.
D. Security Deposit
Landlord and Tenant acknowledge and agree that the Security
Deposit described in Paragraph 1.6 above is currently on
deposit with Landlord pursuant to the Old Lease, and shall
remain on deposit with Landlord pursuant to this Lease to
secure the full and faithful performance by Tenant of its
obligations pursuant to this Lease in accordance with
Paragraph 5 of the Lease.
E. Irwindale Redevelopment Plan
(1) Tenant acknowledges that the Industrial Center is
subject to: (a) that certain Disposition and Development
Agreement dated June 28, 1985 (the "DDA"), between the
Irwindale Community Redevelopment Agency and Birtcher
Campbell Properties, recorded on March 13, 1986, as
Instrument No. 86-320883 in the Official Records (the
"Official Records) of Los Angeles County, California; and
(b) the Redevelopment Plan adopted by the Irwindale
Community Redevelopment Agency (the "Redevelopment
Plan). Tenant has had an opportunity to review a copy of the
DDA and the Redevelopment Plan.
(2) With respect to the DDA and this Redevelopment Plan,
Tenant agrees to the following:
(a) Tenant acknowledges that pursuant to the Redevelopment
Plan, the Industrial Center's designated zoning is "M-2.
(Heavy Manufacturing). Tenant represents that Tenant shall
only use the Premises consistent with the foregoing zoning
and the terms and conditions of the Redevelopment Plan;
provided, however, the foregoing shall not be interpreted
to permit any use other than as expressly provided by
paragraph 6 of the Lease.
(b) Tenant shall not discriminate upon the basis of race,
sex, color, creed, marital status, religion, national origin
or ancestry in the sublease, rental or transfer, or in the
use, occupancy, tenure, or enjoyment of the Premises, or any
pan thereof, nor shall Tenant or any person claiming under
or through Tenant establish or permit any such practice or
practices of discrimination or segregation with reference to
the selection, location, number, use or occupancy of
tenants, lessees, subtenants, sublessees, or vendees of the
Premises, or any part thereof.
(c) Tenant shall comply with Health and Safety Code Section
33436.
EXHIBIT C
WORK LETTER
Tenant acknowledges and agrees that only minor (in terms of
time and amount) modifications to the Premises are required
for tenant's occupancy thereof. Accordingly, promptly upon
execution hereof, Landlord shall make available to Tenant,
to enable tenant to repaint, recarpet or refloor, and
remodel offices in, the Premises with Building standard
materials selected by tenant, up to the sum of Twelve
Thousand Five Hundred No/lOOths Dollars (S12,500.00) (the
"Allowance); provided, however, that improvements and
alterations made by tenant pursuant to the foregoing shall
be subject to Section 7.3 of the Lease and provided further
that the Allowance shall be available to Tenant for such
work only if and to the extent that tenant submits to
Landlord, on or before December 31, 1997, documentary
evidence satisfactory to Landlord as to the amount and scope
of such work and evidencing that such work is completed.
Moreover, in the event Tenant utilizes the services of its
employees in connection with such work, tenant will provide
to Landlord evidence of insurance covering such activities
in the Premises by tenant and its employees in form and
substance satisfactory to Landlord, and Landlord shall make
available from the Allowance no more than Five Thousand
Dollars (55,000.00) to reimburse tenant for reasonable labor
charges paid to such employees in connection with such work.
In no event shall Landlord be required to pay the Allowance
or any portion thereof to Tenant at any time when Tenant is
in breach or default under the Lease. Subject to the
foregoing, tenant accepts the Premises "AS IS. n Any other
work necessary or desirable for Tenant's use of the Premises
shall be Tenant's sole responsibility, both as to
performance and payment of costs.
EXHIBIT D
RULES AND REGULATIONS
The following Rules and Regulations shall be in effect
for the Premises. Landlord reserves the right to adopt
reasonable modifications and additions hereto. In the case
of any conflict between those regulations and the Lease, the
Lease shall be controlling. Landlord shall have the right to
waive one or more rules for the benefit of a particular
tenant in Landlord's reasonable discretion.
1. Except with the prior written consent of Landlord,
tenant shall not conduct any retail sales in or from the
Premises, or any business other than that specifically
provided for in the Lease.
2. Landlord reserves the right to prohibit personal goods
and services vendors from access to the Premises except
upon such reasonable terms and conditions, including, but
not limited to, the payment of a reasonable fee and
provision for insurance coverage, as are related to the
safety, care and cleanliness of the Premises, the
preservation of good order thereon, and the relief of any
financial or other burden on Landlord occasioned by the
presence of such vendors or the sale by them of personal
goods or services to Tenant or its employees. If reasonably
necessary for the accomplishment of these purposes, Landlord
may exclude a particular vendor entirely or limit the number
of vendors who may be present at any one time in the
Premises. The term "personal goods or services vendors'
means persons who periodically enter the Premises for the
purpose of selling goods or services to Tenant other than
goods or services which are used by Tenant only for the
purpose of conducting its business on the Premises.
"Personal goods or services" include, but are not
limited to, drinking water and other beverages, food,
barbering services and shoe shining services.
3. The sidewalks, driveways and other areas of common
access within the Premises shall not be obstructed by
Tenant or used by it for any purpose other than for ingress
to and egress from the Premises. Neither tenant nor its
employees or contractors Shall go upon the roof of the
Premises without the prior written consent of Landlord.
4. The toilet rooms, water and wash closets and other
water apparatus Shall not be used for any purpose other than
that for which they were constructed, and no foreign
substance of any kind whatsoever Shall be thrown therein,
and the expense of any breakage, stoppage or damage
resulting from the violation of these rules shall be borne
by Tenant.
5. No sign, advertisement or notice visible from the
exterior of the Premises shall be inscribed, painted or
affixed by tenant on any part of the Premises without the
prior written consent of Landlord. If Landlord shall have
given such consent at any time, whether before or after the
execution of this Lease, such consent shall in no way
operate as a waiver or release of any of the provision
hereof or of this Lease, and shall be deemed to relate only
to the particular sign, advertisement or notice so consented
to by Landlord and shall not be construed as dispensing with
the necessity of obtaining the specific written consent of
Landlord with respect to each and every such sign,
advertisement or notice other than the particular sign,
advertisement or notice, as the case may be, so consented to
by Landlord.
6. In order to maintain the outward professional
appearance of the Premises, all window coverings to be
installed at the Premises shall be subject to Landlord's
prior approval. If Landlord by a notice in writing to
tenant, shall object to any curtain, blind, shade or screen
attached to, or hung in, or used in connection with, any
window or door of the Premises, such use of such curtain,
blind, shade or screen shall be forthwith discontinued by
tenant. No awnings shall be permitted on any part of the
Premises; provided, however, that the foregoing shall not
apply to the existing awning located outside the Premises.
7. Tenant shall not do or permit anything to be done in
the Premises, or bring or keep anything therein, which shall
in any way increase the rate of fire insurance on the
Premises, or on the property kept therein, or conflict with
the regulations of the Fire Department or the fire laws, or
with any insurance policy upon the Premises, or any part
thereof, or with any rules and ordinances established by the
Board of Health or other governmental authority.
8. Tenant shall not sweep or throw or permit to be swept
or thrown from the Premises any dirt or other substance into
any common areas, and Tenant shall not use, keep or permit
to be used or kept any foul or noxious gas or substance in
the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to
Landlord by reason of noise, odors and/or vibrations, nor
shall any animals, birds or firearms be kept in or about the
Premises.
9. No cooking shall be done or permitted by Tenant on the
Premises, nor shall the Premises be used for lodging.
10. Tenant shall not use or keep in the Premises any
kerosene, gasoline, or inflammable fluid or any other
illumminating material, or use any method of heating other
than that supplied by Landlord.
11. Tenant, upon the termination of its tenancy, shall
deliver to Landlord all keys of offices, rooms and toilet
rooms which shall have been furnished tenant or which Tenant
shall have had made and, in the event of loss of any of the
keys so furnished, shall pay Landlord therefor.
12. Tenant shall see that the windows and doors of the
Premises are closed and securely locked before leaving the
Premises and shall exercise care and caution that all water
faucets or water apparatus are entirely shut off before
Tenant or Tenant's employees leave the Premises, and that
all electricity, gas or air shall likewise be carefully shut
off, so as to prevent waste or damage, and for any default
or carelessness Tenant shall make good all injuries
sustained by Landlord.
13. Tenant shall not erect any aerial or antenna on the
roof or exterior walls of the Premises without Landlord's
prior written consent.
Exhibit E
RENT Schedule
Monthly
Base Rent
Rate (per
sq ft of Monthly
rentable Base rent Monthly Base
Months space) Waiver Rent Payable
- ------ ----------- ---------- ------------
1-2 $0.32 $29,329.60 $ 0.00
3-8 $0.32 $ 0.00 $29,329.60
9-20 $0.34 $ 0.00 $31,162.70
21-32 $0.35 $ 0.00 $32,079.25
33-44 $0.365 $ 0.00 $33,454.08
45-56 $0.38 $ 0.00 $34,828.90
57-62 $0.395 $ 0.00 $36,203.73
Landlord hereby conditionally excuses tenant from the
payment of Base Rent during the months and in the amounts
designated as "Monthly Base Rent Waiver as specified above,
provided that tenant shall pay all other charges under this
Lease from and after the Commencement Date and provided
further that Tenant shall not be in default in its
obligations under this Lease. Should Tenant at any time
during the Original Term be in default under the Lease and
not cure such default within the cure periods provided in
the Lease, then the total sum of such Base Rent so
conditionally excused shall become immediately due and
payable by tenant to Landlord. If at the date of expiration
of the Original Term, Tenant has not so defaulted, Landlord
shall waive any payment of all such Base Rent so
conditionally excused.
FIRST AMENDMENT TO LEASE
(THIS FIRST ADMENTMENT TO LEASE ( the Amendment) is made as
of the _ day of August, 1997, by and between The MUI UAL UFE
INSURANCE COMPANY OF NEW YORK, a NEW York corporation
(LANDLORD.). and CONTINENTAL ENGINEERD4G GROUP. INC.,
California corporation (tenant.), with respect to the
following:
RECITALS
A. Landlord is the Landlord and Tenant pursuant to
that certain written Standard Industrial Lease Multi-Tenant
dated as of June _, 1997 (the 'Lease'). The Lease covers
certain premises commonly known as 5300 N. Irwindale Avenue
(the Premises ) which are a portion of building' located in
Irwindale, California (the Building), which Building is part
of a project commonly known as Civic Commerce Center (the
Industrial Center) located at 16021-16031 E. Arrow Highway,
Irwindale, California.
n. Tenant and Landlord desire to amend certain
provisions of the Lease on the terms and conditions set
forth in this Amendment.
AGREEMENT
NOW, THEREFORE, IN CONSIDERATION OF the foregoing
Recitals and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged,
Landlord and Tenant hereby agree as follows:
1. Capitalized Terms Capitalized terms used herein and not
otherwise defined shall have the meanings given to such
terms in the Lease.
2. Premises and/or Premises Building Partial Damage:
Uninsured Loss: In the event of an Uninsured Loss giving
rise to an option in favor of Landlord pursuant to Paragraph
9.2(b) of the Lease, as a result of which landlord estimates
that the damage would take more than one hundred eighty
(180) days to repair, which estimate, if in excess of one
hundred eighty (180) days, shall be delivered to tenant as
soon as practicable, and in any event within sixty (60)
days, after the occurrence of the damage Tenant shall have
the right. so long as Tenant is not in default and Tenant's
negligent or willful act did not cause the damage, to
terminate the Lease by written notice to Landlord given, if
at all, within ten (10) days after the occurrence of the
damage In the event Tenant fails or is not entitled to give
such notice or if Landlord's estimate is one hundred eighty
(180) days or less, then Tenant's option shall lapse and
have no further force or effect.
3. Late Payments and Deliveries: The amount "TEN PERCENT
(10%) appearing in Paragraph 13.5 (b) is hereby amended to
be "SIX PERCENT (6%)
4. Holding Over. The phrase "two hundred percent (200%) "
appearing in Paragraph 26 of the Lease is hereby amended to
be "one hundred fifty percent (150%).
5. Lease in Effect. Landlord and Tenant acknowledge and
agree that the Lease, except as amended by this Amendment,
remains unmodified and in full force and effect in
accordance with its terms.
6. Entire Agreement This Amendment embodies the entire
understanding between Landlord and Tenant with respect to
the subject matter hereof and can be changed only by an
instrument in writing executed by both Landlord and Tenant..
7. Conflict of Terms. In the event that there is any
conflict or inconsistency between the terms and conditions
of the Lease and those of this Amendment, the terms and
conditions of this Amendment shall control and govern the
rights and obligations of the parties.
IN WITNESS WHEREOF, the undersigned have entered into
this Amendment to be effective as of the date above written.
LANDLORD: TENANT:
THE MUTUAL LIFE INSURANCE CONTINENTAL
COMPANY OF NEW YORK, a New York
Corporation.
By:___________________________
Title:___________________________
EXHIBIT 21.1
List of Registrant's Subsidiaries
Name of Subsidiary State of Incorporation
- --------------------------------------------- -----------------------
Winston Furniture Company of Alabama, Inc. Alabama
Loewenstein, Inc. Florida
Continential Engineering Group, Inc. California
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-87352) pertaining to the WinsLoew Furniture, Inc. 1994 Stock
Option Plan of WinsLoew Furniture, Inc. of our report dated February 6, 1998,
with respect to the consolidated financial statements of WinsLoew Furniture,
Inc. and Subsidiaries included in the Annual Report (Form 10-K) for the year
ended December 31, 1997.
Our audits also included the financial statement schedule of WinsLoew
Furniture, Inc. listed in Item 14(a). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young, LLP
Birmingham, Alabama
March 25, 1998