-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wl1V/3rMpqJNwodBTPvWp5WaC4ayrfDJvicc4km5FLX2PtDxo740IXmtzGY3ve/t WQM/F9NxETFt4S5ZUmLe6w== 0000950152-96-006926.txt : 19961231 0000950152-96-006926.hdr.sgml : 19961231 ACCESSION NUMBER: 0000950152-96-006926 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961227 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH O METER PRODUCTS INC /DE CENTRAL INDEX KEY: 0000883327 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 363635286 STATE OF INCORPORATION: DE FISCAL YEAR END: 1002 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19912 FILM NUMBER: 96687053 BUSINESS ADDRESS: STREET 1: 24700 MILES ROAD CITY: BEDFORD HEIGHTS STATE: OH ZIP: 44146 BUSINESS PHONE: 2164644000 MAIL ADDRESS: STREET 1: 24700 MILES ROAD CITY: BEDFORD STATE: OH ZIP: 44146 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTH O METER INC CENTRAL INDEX KEY: 0000925252 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 363330781 STATE OF INCORPORATION: DE FISCAL YEAR END: 1002 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 033-80000-01 FILM NUMBER: 96687054 BUSINESS ADDRESS: STREET 1: 24700 MILES ROAD CITY: BEDFORD HEIGHTS STATE: OH ZIP: 44146 BUSINESS PHONE: 2164644000 MAIL ADDRESS: STREET 1: 24700 MILES RD CITY: BEDFORD HIGHTS STATE: OH ZIP: 44146 10-K 1 HEALTH-O-METER PRODUCTS, INC. & INC. 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 29, 1996 ----------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from Not Applicable to Not Applicable ----------------------- ---------------------- Commission file number 0-19912 -------------------------------------------------------- HEALTH O METER PRODUCTS, INC. (Exact name of Registrant as specified in its charter) Delaware 36-3635286 - ---------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 24700 Miles Road, Bedford Heights, Ohio 44146 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216)464-4000 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock held by non-affiliates of the Registrant as of December 6, 1996 was approximately $23,785,769, computed on the basis of the last reported sale price per share ($6.25) of such stock on the NASDAQ National Market. For purposes of this information, shares of Common Stock which were owned beneficially by executive officers, Directors and persons who may be deemed to own 10% or more of the outstanding Common Stock were deemed to be held by affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares of the Registrant's Common Stock outstanding as of December 6, 1996 was 9,080,534. Documents Incorporated by Reference: Form 10-K Reference Documents - ------------------- --------- Part III (Items 10, 11, 12 and 13) Portions of the Registrant's Definitive Proxy Statement to be used in connection with its Annual Meeting of Stockholders to be held on March 6, 1997. Except as otherwise stated, the information contained in this Form 10-K is as of September 29, 1996 2 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 29, 1996 ----------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from Not Applicable to Not Applicable --------------------- ----------------------- Commission file number 33-80000 --------------------------------------------------------- HEALTH O METER, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 36-3330781 - --------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 24700 Miles Road, Bedford Heights, Ohio 44146 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216)464-4000 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The Registrant is a wholly-owned subsidiary of Health o meter Products, Inc. Accordingly, none of its equity securities are owned by non-affiliates. The Registrant meets the conditions set forth in General Instruction J (1) (a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format permitted thereunder. Except as otherwise stated, the information contained in this Form 10-K is as of September 29, 1996. 3 PART I ------ ITEM 1. BUSINESS GENERAL - ------- Health o meter Products, Inc. (the "Company"), through its wholly-owned subsidiary, Health o meter, Inc. ("Health o meter"), designs, manufactures, markets and distributes a comprehensive line of consumer and professional products. The Company's consumer products, marketed under the Mr. Coffee(R) and Health o meter(R) brand names include automatic drip coffeemakers, teamakers, filters, water filtration products, accessories and other kitchen countertop appliances, as well as analog (mechanical) and digital (electronic) bath, kitchen and diet scales and therapeutic devices. Professional products include the Pelouze(R) and Health o meter(R) brands of office, food service and medical scales and timers. The Company attributes its leading market position to its strong brand name recognition, distribution in major domestic high volume retail outlets, marketing and sales promotion efforts, electronic data interchange (EDI) capabilities, merchandise flow systems and established relationships with its retail customers. The Company, founded in 1919, is one of the oldest and largest domestic manufacturers of scales for home and medical use, based upon both dollar volume and unit sales. The Company's operations are organized into two divisions: the Consumer Products Division and the Professional Products Division. The Consumer Products Division offers its products through direct sales and independent manufacturers' representatives to distributors and major retail outlets, including mass merchants, national hardware chains, drugstore chains, catalogue showrooms, warehouse clubs, retail grocery chains, specialty stores, department stores and various mail order companies. The division promotes its products primarily through national television advertising, magazine advertising, cooperative advertising with retailers and consumer promotions. The development and introduction of new products are key to the continued success of the Company. The Company continually introduces new products in its core coffeemaker and scale businesses. In 1995, an entirely new product category, hot teamakers, was introduced. In 1996, the Company introduced the Health o meter(R) Water by Culligan(R) line of water filter pitchers, along with replacement cartridges manufactured by Culligan Water Technologies, Inc. The Professional Products Division offers a variety of scales for hospitals, physicians, nursing homes, clinics and home healthcare as well as a line of business and home office scales consisting of postal, UPS/parcel post and general utility models. Professional products are promoted through a combination of new product brochures, trade advertising, catalogues, trade shows and customized displays. The Professional Products Division markets -2- 4 its products through direct sales and independent manufacturers' representatives to distributors, dealers, office mega-stores, mail order companies and major buying groups. In November 1992, the Company purchased certain operating assets of Pelouze Scale Co. ("Pelouze") for cash plus the assumption of certain operating liabilities. Pelouze develops, manufactures and sells digital and mechanical postal scales, food service scales and other related products. From 1980 to 1989, the Company manufactured office scales for Pelouze on a private-label basis. In May 1994, the Company purchased certain operating assets of McShirley Products, Inc., a manufacturer and distributor of therapeutic devices, for $400,000 in cash. In August 1994, the Company acquired all of the outstanding shares of common stock of Mr. Coffee, inc. (the "Acquisition"). Mr. Coffee, inc. ("Mr. Coffee") has been the leading producer of automatic drip coffeemakers in the United States since 1975. In addition, Mr. Coffee offers an extensive line of teamakers, filters, replacement decanters, accessories and other kitchen countertop appliances. The aggregate purchase price in connection with the Acquisition was approximately $133.5 million. The Acquisition was financed through a combination of senior and subordinated indebtedness and a common stock rights offering to existing shareholders. See Notes 8 and 9 to Consolidated Financial Statements contained herein. On September 21, 1994, the Board of Directors of the Company determined to change its fiscal year from one ending on December 31 in each year to a 52-53 week fiscal year ending on the Sunday closest to the last day of the month of September in each year. The Company's results of operations for fiscal 1994 reflect the inclusion of Mr. Coffee's operating results for the period subsequent to August 17, 1994. Consequently, product line information for 1994 is not comparable to 1996 and 1995 and is, therefore, not presented. CONSUMER PRODUCTS DIVISION - -------------------------- COFFEEMAKERS ------------ The Company produces and markets an extensive line of Mr. Coffee(R) brand automatic drip coffeemakers and espresso/cappuccino makers which are sold at retail prices ranging from approximately $14 to $129. Sales of automatic drip coffeemakers accounted for approximately 40% of the Company's net sales in 1996, compared with approximately 43% in 1995. The Company offers several lines of coffeemakers including the Accel(R) line, the SR/JR line, the AD line, the BL line and the TR line. Each line offers a combination of features on several models of either 4-cup, 10-cup or 12-cup capacity designed to help retailers differentiate their product offerings from other retailers. Some of the most popular features are "Pause 'n Serve", which permits the decanter to be removed to pour a cup of coffee during the brewing cycle, digital timer, swing-out brew basket and automatic shut-off. -3- 5 The Company also produces and markets specialty coffeemakers at the higher end of the retail price range, including an under-the-cabinet coffeemaker and a variety of steam Espresso/Cappuccino makers. The Company has an upscale line of coffeemakers and accessories marketed under the brand name Details(TM) by Mr. Coffee(R). This line of premium priced products is designed to increase distribution and market share by offering further product differentiation. During 1996, the Company introduced an Elite version of the Accel coffeemaker with several unique features: audio indicators for brewing and cleaning cycles, variable warming plate temperature and 10 karat gold accents on both the decanter and coffeemaker. ICED TEAMAKERS -------------- The Iced Tea Pot(TM), introduced in 1989, brews two quarts of iced tea or iced coffee in less than 10 minutes. Since 1989, the Company has expanded this category by introducing several iced teamaker models. During 1996, the Company introduced its newest iced teamaker model, the TM5, which makes 2 1/2 quarts of iced tea using a unique pour through design which saves counter space. Sales of The Iced Tea Pot(TM) accounted for approximately 9% of the Company's net sales in 1996, compared with approximately 10% in 1995. HOT TEAMAKERS ------------- In September 1995, the Company introduced Mrs. Tea(TM) by Mr. Coffee(R) automatic hot teamaker, which makes 30 ounces of fresh brewed hot tea in about eight minutes and features a ceramic tea pot and a steeping lever to regulate steeping time. During 1996, Mrs. Tea(TM) for Two by Mr. Coffee(R) automatic hot teamaker was introduced, featuring a 15 ounce ceramic tea pot. In addition, a hot teamaker model with a digital timer was introduced in 1996. FILTERS ------- Mr. Coffee(R) is the leading brand of basket-type coffee filters in the United States. The Company produces and sells a wide variety of paper coffee filters, including basket, fluted, cone, disc and wrap-around filters for the household market. REPLACEMENT DECANTERS AND ACCESSORIES ------------------------------------- The Company assembles and markets a variety of replacement decanters which are designed to fit competing brands of coffeemakers as well as Mr. Coffee(R) products. The Company also markets replacement pitchers for all versions of The Iced Tea Pot(TM), as well as replacement ceramic teapots for the Mrs. Tea(TM) automatic hot teamaker. Accessory products marketed by the Company include: mug and decanter warmers which are activated by the placement of the mug or decanter on the unit's warming surface; the Mr. Coffee(R) Coffee Mill; and permanent gold-toned filters which fit most 4 cup and 10-12 cup basket and cone filter coffeemakers. -4- 6 OTHER KITCHEN APPLIANCES AND WATER FILTRATION --------------------------------------------- The Company offers several other kitchen appliances including the Food Dehydrator by Mr. Coffee(R), which appeals to consumers who are interested in "healthy foods" and in preparing nutritional snacks. In addition, the Company offers The Breadmaker by Mr. Coffee(R), which is a fully automated breadmaking machine with an extra large two pound capacity. In May 1996, the Company entered into a strategic agreement with Culligan Water Technologies, Inc. As a result of this relationship, the Company introduced in 1996 the Health o meter(R) Water By Culligan(R) line of water filter pitcher models, along with replacement cartridges, which reduce the level of chlorine, lead, copper and other substances in drinking water. CONSUMER SCALES --------------- The Company manufactures a comprehensive line of Health o meter(R) brand analog (mechanical) and digital (electronic) floor scales, waist-high and eye-level scales. Analog scales are available with either rotating dial or speedometer readouts while digital scales utilize LED and LCD displays between 0.6 inches and 1.5 inches in size. In general, scale accuracy is a function of the weighing mechanisms employed. Health o meter offers mechanical analog, electronic digital strain gauge and various types of professional quality mechanisms, which are marketed as "good", "better", "best" or "ultimate" quality alternatives at the point of sale. Other product features which differentiate Health o meter's scales include color, texture, size and dial features. The Company's consumer scales are sold at retail prices ranging from $10 to $200. In 1989, the Company introduced its Big Foot(R) professional quality floor scale product line for home use. The Big Foot(R) product line, currently consisting of various analog or digital models, has become the most successful new scale line introduced in the Company's history and continues to be a major source of revenue. The Company is currently producing the second generation Big Foot(R) scale which retains the same high quality mechanism and offers design improvements over the original models. The Big Foot(R) scales are sold at retail prices ranging from $35 to $100. Sales of Consumer scales accounted for approximately 17% of the Company's net sales in 1996, compared with approximately 16% in 1995. -5- 7 NEW CONSUMER PRODUCTS --------------------- The Company believes that the strong Mr. Coffee(R) and Health o meter(R) brand name recognition, coupled with the Company's distribution, marketing and sales promotion efforts, and established relationships with its retail customers, assist the Company in introducing new products. During fiscal 1997, the Company plans to introduce at least three new Mr. Coffee(R) products as well as an array of products which represent modifications and/or enhancements of existing Mr. Coffee(R) products. Planned new products for 1997 include the Mr. Coffee(R) Thermal Gourmet(TM) coffeemaker, which brews coffee directly into a thermal carafe; the Mr. Coffee(R) Speedbrew(TM) coffeemaker, featuring a restaurant-style displacement brewing system; and the Mr. Coffee(R) Commuter(TM) coffeemaker, which brews coffee directly into an insulated travel mug. During 1996, the Company introduced three new lithium powered electronic scale models featuring either 3 or 4 digit displays. One of these models features a large 1.5 inch LCD display along with a larger platform. Also introduced in 1996 was the Health o meter(R) Precious Metals(TM) specialty scale line, which features a polished brass or chrome platform with fashion accent mats. All consumer products and production tools are designed by or under the direction of the Company's engineers, product managers, draftsmen and laboratory technicians. The Company also tests its prototypes, designs its own packaging and conducts market research. The Company employs independent engineers and designers on an as needed basis. The Company devotes considerable attention to the design and appearance of its consumer products, as well as their packaging, in order to enhance their appeal to consumers and to promote differentiation of its products from other brands on retailers' shelves. The Company conducts research and development on an ongoing basis in recognition of the importance of new product development and the need to provide innovative products and features to its customers. A combination of market research and feedback from key retailers is used to identify market trends and changing consumer preferences. This information provides the basis for new product development. In virtually all cases the Company engages outside design firms to assist in creating new products and modifying existing products to incorporate features and styling that the Company anticipates consumers will purchase. Substantially all products produced by the Company involve, to some degree, the service of such firms. The Company believes that the strength of the Health o meter(R) brand name combined with its market research allows it to introduce a whole range of new products associated with health and wellness. During 1996, the Company introduced products in four therapeutic categories: Hot and Cold Packs, Electric Heating Pads, Hands Free(TM) Therapy massage heating pads, and Focus Zone(TM) cushion massage pads. Retail prices range from $10 for the Hot and Cold Mini Wrap to $130 for the Focus Zone(TM) Full Body Massager with heat. The Company anticipates growth in this category and plans on introducing additional therapeutic devices in fiscal 1997. -6- 8 PROFESSIONAL PRODUCTS DIVISION - ------------------------------ MEDICAL SCALES -------------- The Company's reputation for quality and its brand name recognition have been based on its participation in the medical scale market for over 75 years. Products sold as professional products include analog (mechanical) and digital (electronic) scales for a full range of medical uses, including traditional balance beam scales, pediatric scales, wheelchair ramp scales, chair and sling scales for non-ambulatory patients, and home healthcare scales. The suggested end user prices for the Company's traditional medical products range from $80 to $1,100. The Company has developed several variations of its traditional balance beam scale to complement the original product design. Additionally, the Pro Series(TM) and Pro Plus Series(TM) product lines were developed by the Company to address specialized markets and applications, and generally command higher sales prices than Health o meter's other medical products. The Company's Pro Series(TM) of scales consists of physician, pediatric and chair scales which, in some models, feature advanced electronics (for example, laser trimmed load cells) for greater accuracy. The Pro Series(TM) scales' end-user prices range from $350 to $1,100. The Company's Pro Plus Series(TM) line of scales consists of hydraulic sling scales, neonatal pediatric scales and ramp scales for weighing wheelchair patients. The Pro Plus Series(TM) scales range in price from $1,100 to $3,100 and are used primarily by hospitals and nursing homes. The Company recently introduced a portable wheelchair ramp scale, a new balance beam scale which features an innovative measuring rod and extended warranty, as well as an entirely new line of weighing instruments for veterinary care. OFFICE SCALES ------------- Since 1990, the Company has manufactured and marketed a full line of letter and parcel scales under the Health o meter(R) brand name. The Pelouze acquisition in November 1992 added another respected brand name in addition to significantly broadening the Company's office products and food service business. As a result, shortly after the Pelouze acquisition, the Company began marketing its office and food service products exclusively under the Pelouze(R) brand name. The Company's office products include mechanical and digital scales designed for small, commercial establishments, home offices and departments within larger companies that process a small to medium volume of letters and packages daily. The suggested retail prices -7- 9 range from $6 to $995. Under the Pelouze brand name, the Company has a commanding share of the office scale market. During fiscal 1997, the the Company plans to launch a new 6 lb. capacity rate calculating scale which will have the ability to compare the cost of sending mail through the major carriers. FOOD SCALES ----------- The Company's Pelouze food service group offers mechanical and digital portion control scales, thermometers and timers for commercial and non-commercial applications. End-user prices range from $6 for thermometers to $895 for digital legal-for-trade scales. Pelouze Food service products are specified for use by some of the leading national chain restaurants in America. Pelouze food service introduced a new 2 pound capacity digital scale at the American Dietetic Association trade show in 1996. This innovative scale addresses the growing need for precision food service tools to control quality and food cost. COMMERCIAL COFFEE BREWERS ------------------------- The Company has also leveraged its brand name with an entrance into the commercial coffee brewer market. This product line is presently being marketed through membership clubs and office mega-stores. Core products in the commercial line include a Two-Station Stainless Steel Brewer, a 24-cup Automatic Drip Coffeemaker, several models of 4-cup and 12-cup coffeemakers as well as a line of complimentary accessories. All commercial models contain unique features designed to serve this industry, including grounded power cords and automatic shut off. PRODUCT WARRANTIES - ------------------ Mr. Coffee(R) products are generally sold with a limited one-year warranty. The Health o meter(R) Water By Culligan(R) line features a 30 day money-back guarantee. Pursuant to the terms of its warranty arrangements with independent service centers, in cases of defects in material or workmanship, the Company agrees to repair or replace the defective product without charge. Approximately 190 independent appliance service centers throughout the United States and Canada are authorized to repair Mr. Coffee(R) products under such warranties. Health o meter(R) consumer scale warranties range from limited one-year warranties to lifetime warranties. Pelouze(R) digital scales, thermometers and timers are warranted for one year from the date of purchase against defects in materials or workmanship. Therapeutic devices are sold with a limited two-year warranty. Health o meter(R) physician and certain professional scales as well as Pelouze(R) mechanical scales are sold with a lifetime limited warranty. Costs for product returns under warranties estimated to be incurred are charged against revenues at the time of sale based on experience factors. The reserve for product returns under warranties on the Company's balance sheet at September 29, 1996 was $6.2 million, which the Company believes is adequate. -8- 10 CUSTOMERS AND MARKETING - ----------------------- CONSUMER PRODUCTS ----------------- The Company emphasizes the Mr. Coffee(R) and Health o meter(R) brand names, principally through a variety of advertising and promotional channels, including national television advertising, cooperative advertising, national magazine advertising, consumer rebates, trade publication advertising and tie-in promotions. To complement its emphasis on the Mr. Coffee(R) and Health o meter(R) brand names, the Company concentrates on maintaining a strong distribution system for its products by engaging a network of experienced independent manufacturers' representatives, food brokers and premium and military representatives. The Company's sales management personnel are responsible for direct sales to key accounts, supervising the activities of its independent manufacturers' representatives, as well as consulting and assisting customers in planning sales strategy, including customized point-of-sale merchandising, cooperative advertising programs and product mix designed to reach a specific retailer's customer base. Customized sales programs have been instrumental in the Company's penetration of the consumer scale market. The Company distributes and sells its consumer products through direct sales and independent manufacturers' representatives and various mail order catalogue companies, primarily to distributors and major retail outlets, including mass merchants, national chains, national hardware chains, drugstore chains, catalogue showrooms, warehouse clubs, retail grocery chains, specialty stores, department stores and various mail order catalogue companies. While the Company does not have long-term contracts with any of its customers, it has been doing business with its five largest customers continously for over 10 years. Wal-Mart Stores, Inc. and Kmart Corporation accounted for approximately 23% and 13% respectively, of the Company's net sales in 1996. The variety of models the Company produces and distributes permits competing retailers to stock different models of Mr. Coffee(R) and Health o meter(R) products. The Company offers tie-in promotions in which Mr. Coffee(R) products are sold in packages with free Mr. Coffee(R) accessories or with related products, such as tea bags, coffee and coffee beans from other manufacturers. The Company typically enters into specific marketing programs of three to six months in duration with its major customers covering such matters as product mix, pricing and advertising assistance. In recent years, certain retailers have required stock adjustments in which the Company accepts the return of unsold merchandise in exchange for placing a new product with the retailer. Stock adjustments were not significant in 1996. -9- 11 PROFESSIONAL PRODUCTS --------------------- The Company supports its retail office products customers with coordinated packaging and promotional materials, including displays customized to fit the respective customer's marketing plans. The Company markets its office products through independent manufacturers' representatives, distributors such as United Stationers and S.P. Richards, superstores such as Staples/Office Depot and OfficeMax and mail order catalogue companies such as Quill, Viking and Reliable. Pelouze food service products are sold by independent manufacturers' representatives to dealers, distributors such as SYSCO, Edward Don, U.S. Food service, and major buying groups, who in turn sell to restaurants, healthcare providers, hotels, cafeterias, colleges and schools. The Company promotes its medical scale products through new product brochures, trade advertising, catalogues and trade shows. The Company markets its medical products through independent manufacturers' representatives, primarily to medical dealers such as General Medical, ABCO Dealers, Baxter and Owens and Minor. Medical dealers sell the Company's medical products to physicians, nursing homes, free standing clinics, home healthcare customers, and hospitals. In addition to the domestic market, the Company currently distributes medical products internationally. The Company also sells its coffeemaker products to hotels for use in providing in-room coffee service and to other commercial customers. In order to more fully develop its commercial business, the Company has a joint venture with S & D Coffee, Inc., a leading regional coffee company whereby each joint venture partner owns 50 % of Mr. Coffee Concepts, Inc. ("MCCI"). MCCI is engaged in the business of selling commercial coffeemakers and accessories principally to office mega-stores, hotels and small businesses in the United States and Canada. SEASONALITY - ----------- Historically, Mr. Coffee(R) brand products have achieved their highest sales during the months preceding the December gift-giving season. A significant percentage of Mr. Coffee(R) products are given as gifts and, therefore, sell at larger volumes during the holiday season. Additionally, the time surrounding Mother's Day has typically been a period of somewhat higher sales. During fiscal 1996 and 1995, net sales for the fourth calendar quarters ended December 31, 1995 and January 1, 1995, were approximately 34% of the Company's annual net sales. Although seasonality is not as material in the consumer scale market, sales during the fourth calendar quarter have historically been slightly higher than the other three quarters. Customers' order patterns vary from year to year, largely because of differences in consumer acceptance of product lines, product availability, marketing strategies, retailers' inventory levels and differences in overall economic conditions. -10- 12 PRODUCTION - ---------- MR. COFFEE(R) APPLIANCES ------------------------ Mr. Coffee(R) appliance production is comprised of three categories: assembled, procured domestically and procured internationally. The Company believes it has a balanced combination of domestic and offshore production capability which is flexible enough to handle the large, seasonal swings in production. In 1994, due to the introduction of several coffeemaker models initially produced overseas plus the addition of the full line of foreign sourced espresso/cappuccino makers, domestic appliance production decreased to approximately 40% of Mr. Coffee(R) brand appliance units. This percentage increased to approximately 50% in 1995 for two reasons. First, several new domestically produced products were introduced in 1995 to supplant existing foreign sourced products. Second, to meet demand for several existing products, domestic production began in 1995 for items that had previously only been sourced offshore. In 1996, increased domestic production of the recently introduced TR line of coffeemakers along with reduced volumes of certain imported coffeemaker models resulted in approximately 52% of its Mr. Coffee(R) brand appliance units being produced and assembled domestically. Domestic procurement and production enables the Company to react quickly to meet the just-in-time requirements of its retailers. Products manufactured at the Company's facilities in Bedford Heights, Ohio are assembled from parts produced by both domestic and foreign component contract manufacturers. Additionally, the Company outsources a portion of its domestic assembly and sub-assembly operations to several subcontractors in northeast Ohio. Offshore production includes products that are produced, assembled and packed in ready-to-sell condition in the People's Republic of China, Hong Kong and Taiwan using design engineering and tooling which are the property of the Company. Additionally, the Company has purchased limited quantities of several different products from offshore sources that were produced using design engineering and tooling which are the property of the supplier. Offshore production is governed by written contracts with manufacturers pursuant to which the Company submits purchase orders. The Company does not have any other agreements with manufacturers obligating it to purchase any specified quantities of products over a period of time. The Company believes that alternative sources of supply could be developed if any foreign supplier of kitchen countertop appliances should cease to be an available source. However, the loss of a supplier could, in the short-term, adversely affect the Company's business until alternative supply arrangements were secured. Mr. Coffee(R) basket-type paper coffee filters are currently produced at the Company's facilities in Bedford Heights, Ohio. Paper used in filter production and paperboard used in connection with packaging are purchased annually from various domestic and Canadian suppliers pursuant to competitive bidding. Cone-type coffee filters, which account for approximately 18% of filter sales volume, are purchased from a vendor in Canada. Mr. Coffee(R) replacement decanters are assembled at the Company's facilities in Bedford Heights, Ohio as well as at a subcontractor in northeast Ohio. The glass vessel portions -11- 13 of the decanters are supplied by various companies located in the United States. The Company believes that the multiple sources existing for its glass decanters reduce the risk of shortages. A majority of the raw materials used in appliance production are commodities, such as plastic, paper, paperboard and electrical components, which are available from numerous suppliers. The Company purchases the components used in the domestic assembly of Mr. Coffee(R) appliances from contract manufacturers. The Company has a primary source for timers which are used in approximately 34% of its coffeemaker units. The Company is continuing the process of setting up a second source for these items, but does not believe that it is dependent on any single source for any other significant portion of its raw material or component purchases. The Company believes that it has good relationships with its suppliers and has not experienced any raw material or component shortages. In order to improve its ability to provide products on a timely basis, the Company will continue to increase its use of outside sources for detail engineering and production of its appliance products. The Company believes that increased utilization of outside vendors to manufacture products to its specifications will enable it to reduce the level of its investment in capital equipment and inventory as well as provide needed flexibility in manufacturing and surge capacity. HEALTH O METER(R) CONSUMER AND PROFESSIONAL SCALES -------------------------------------------------- Most of the Company's consumer and professional scale products are manufactured at The Company's facility in Bridgeview, Illinois. The Company's Bridgeview plant, built in 1972, was designed specifically to manufacture scales. Most domestic manufacturing activity, from the initial shearing and stamping of steel to painting and assembling the finished product, is performed at the Bridgeview plant. During 1996, the Company closed its Waukegan, Illinois facility to reduce manufacturing overhead and transferred its scale assembly operations to its Bridgeview facility. The Company's manufacturing process is designed to provide flexibility in the production of scales. The Bridgeview plant has multiple production lines which enable the Company to produce large or small quantities of products or change production runs depending on customer demand. In addition, workers are cross-trained to perform various jobs on the production line in order to enhance production response time. Certain medical scales are produced by domestic subcontractors. The Company maintains an extensive tooling inventory that enables it to react quickly to shifts in production requirements. Continuous upgrading and modernization of the Company's tooling over the past five years has resulted in significantly improved production efficiency and cost reductions. The Company's production capacity has increased steadily and management believes that production capacity is adequate to meet production requirements in the foreseeable future. In addition to its domestic operations, the Company has contracts with suppliers headquartered in Taiwan, Hong Kong, Germany and Hungary for the purchase of some finished scales and therapeutic devices as well as certain component parts used in the assembly of certain -12- 14 of the Company's products. During 1996, approximately 38% of the Company's consumer and professional scale net sales were comprised of finished products manufactured by foreign suppliers to the Company's specifications, usually using tooling owned by or committed exclusively to the Company. The majority of these finished products and component parts are manufactured at facilities located in the People's Republic of China. The Company believes that alternative sources of supply could be developed if any foreign supplier of finished scales, electronic boards or other raw materials or finished goods should cease to be an available source. However, the loss of a supplier could, in the short-term, adversely affect the Company's business until alternative supply arrangements were secured. The Company does not have long term purchase contracts with manufacturers and component parts suppliers and operates principally on a purchase order basis. The Company purchases raw materials from a number of suppliers, including several steel distributors. The Company's plant in Bridgeview is located within one of the largest steel markets in the country and, therefore, the Company has ready access to many steel suppliers. Packaging materials, including cartons, are purchased from vendors in the Chicago area. Although most electronic components are purchased from vendors based in Taiwan and Hong Kong, the Company is presently developing domestic sources of electronic parts. The existing vendors produce component parts based on the Company specifications with respect to function and design. Pricing and delivery are negotiated based upon the Company's estimated requirements for a twelve-month period. Management believes that alternate sources of supply are available for substantially all raw materials, component parts and finished goods. The Company believes that it currently has an adequate supply of raw materials and component parts to meet its manufacturing requirements and that the loss of any one of its suppliers would not have a long-term material adverse effect on the Company. However as noted above, the loss of a supplier could, in the short-term, adversely affect the Company's business until alternative supply arrangements were secured. Because of the overseas location of certain manufacturers and component part suppliers, the Company may be subject to potential production delays due to the lack of availability of components resulting from factors such as political unrest or import restrictions. The Company believes that it has good relationships with its suppliers and has not experienced any significant raw material or component shortages to date. BACKLOG ------- The Company ships products to customers only after receipt of a bona-fide purchase order. Backlog as of any particular date is not significant to the Company as orders are typically received within 30 days of the customer's requested shipment date. The Company has not experienced any significant order cancellations or delivery rescheduling. -13- 15 TRADEMARKS AND PATENTS ---------------------- The Company holds trademarks and patents registered in the United States and in other countries for various products, processes and designs. The Company has a number of foreign and domestic trademarks, including the Mr. Coffee(R) name and logo as well as Health o meter(R), Pelouze(R) and other names and logos used in connection with the sale of its products. The Company considers the Mr. Coffee(R) and Health o meter(R) trademarks to be critical to its business. No challenges to its rights to these trademarks have arisen and the Company has no reason to believe that any such challenges will arise in the future. United States trademarks issued prior to November 1989 generally expire 20 years after the date of registration, unless renewed. United States trademarks issued subsequent to that date generally expire 10 years after the date of registration, unless renewed. Trademarks may be renewed for an unlimited number of 10 year periods subsequent to the original expiration date, upon the showing of use. Although the duration of foreign trademarks vary, such trademarks are also generally renewable. The Company has design and utility patents on several of its scales, coffeemakers and The Iced Tea Pot(TM), while several patents are pending on the Mrs. Tea(TM) by Mr. Coffee(R) automatic hot teamaker and other products. The Company believes that none of its product lines is dependent upon any single patent or group of patents and that patents are not material to its business as a whole. The Company's American utility patents issued prior to June 8, 1995 generally have a duration of 17 years from the date of issue, while patents based on applications filed after that date have a duration of 20 years from the date of filing. The expiration dates for its existing patents range through November 2014. COMPETITION ----------- All product categories in which the Company participates are extremely competitive. Competition is based upon price, quality, brand name recognition and design innovation, as well as marketing and distribution strategies. The Company competes with established companies, several of which are more diversified and have substantially greater resources. The Company's most significant competitors in the automatic drip coffeemaker industry are Hamilton Beach<>Proctor-Silex, Black & Decker, and Braun. Other competitors include Krups, Bunn, Regal, West Bend, Melitta and control labels from White-Westingtonhouse, Magic Chef, Swift, Betty Crocker, Faberware and Chef Mate. Melitta is the Company's principal competitor in the branded coffee filter business. A few other manufacturers offer products that compete with The Iced Tea Pot(TM). Competition in the iced teamaker business is based primarily on price. During September 1995, The Company introduced Mrs. Tea(TM) by Mr. Coffee(R) automatic hot teamaker. Cuisinart and Gemco have introduced hot teamakers in 1996 to compete with the Mrs. Tea(TM) automatic hot teamaker. -14- 16 The Company participates in the broader kitchen appliance market with the Food Dehydrator by Mr. Coffee(R), introduced in 1993, and the Breadmaker by Mr. Coffee(R), introduced in 1994. Competitors in the kitchen countertop appliance market include a number of large manufacturers such as Hamilton Beach<>Proctor-Silex, West Bend, Black & Decker and Sunbeam-Oster, as well as numerous smaller manufacturers. In 1996, the Company introduced the Health o meter(R) Water By Culligan(R) line of water filter pitchers. Competitors in the water filter pitcher market include Brita and PUR. The principal negative factors affecting Mr. Coffee(R) appliances competitive position are the maturity of the coffeemaker and kitchen countertop appliance industries, which makes significant sales gains more difficult and requires significant expenditures for new products in order to increase revenues, and intense price competition from other manufacturers. Competition for purchases of consumer scales comes primarily from Sunbeam-Oster (which includes the Counselor and Borg brands) and Metro Corporation. The Company believes that the Health o meter(R) brand name recognition and established reputation in the medical scale market have enabled the Company to successfully establish itself in the mid- to high-end consumer scale market. The Company believes that the most important positive factors in its competitive position are its brand name recognition among consumers and its presence in major retail outlets. Over the past several years, the Company has made significant investments in retail-link technology and merchandise flow systems to enhance both its ability to serve and, in turn, its presence at, major retail outlets. The Company's medical products compete domestically primarily with Detecto, a subsidiary of Cardinal Scale Mfg. Co., and Scaletronix, Inc. The Company's major competitor in the international medical scale market is SECA Corporation, a German manufacturer. The Company's office products compete with those of Sunbeam-Oster and Micro General. Pelouze had been the Company's major competitor in the office products market prior to its acquisition by the Company in November 1992. The Company now markets office products as well as food service products exclusively under the Pelouze(R) brand name. Health o meter food service products compete with those of Edlund, Detecto, Accuweigh, Cooper and Taylor. EMPLOYEES - --------- The Company operates two major production facilities, one in Bedford Heights, Ohio, which produces Mr. Coffee(R) appliances, and the other in Bridgeview, Illinois, which produces consumer and professional scales. Historically, the number of employees at the Bedford Heights, Ohio facility has fluctuated during the year to meet the demands of the peak selling seasons. Hourly employees at the Bedford Heights, Ohio production facility are represented by the International Allied -15- 17 Employees Union, Local 473 of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America under a collective bargaining agreement which expires on April 17, 1999. The Company's hourly employees at its Bridgeview, Illinois production facility are represented by the Industrial Workers Union, Local No. 8 of the Laborers International Union of North America, AFL-CIO under a collective bargaining agreement which expires on November 13, 1997. As of September 29, 1996, the total number of employees of the Company was 920. The Company considers relations with its employees to be satisfactory. GOVERNMENTAL REGULATION - ----------------------- The Company's facilities are subject to numerous federal, state and local laws and regulations designed to protect the environment from waste emissions and from hazardous substances. The Company is also subject to the Federal Occupational Safety and Health Act and other laws and regulations affecting the safety and health of employees in the production areas of its facilities. The Company is not a party to any investigation or litigation by the Environmental Protection Agency under the Comprehensive Environmental Response Compensation and Liability Act of 1980 for clean-up costs associated with any waste sites. The Company believes that it is in compliance in all material respects with applicable environmental and occupational safety regulations. INSURANCE - --------- The Company purchases occurrence based product liability insurance in excess of self-insured retention on all Mr. Coffee(R) appliance products. The Company is responsible for the first $1.5 million of any individual claim and up to $5 million in the aggregate for all claims in any one year plus legal fees, and accrues the actuarially estimated cost of such self-insurance on an annual basis. Product liability costs for Health o meter(R) and Pelouze(R) products are not significant. The Company believes that, based upon its historical liability experience, the amount of insurance it carries is adequate. The Company maintains a reserve on its balance sheet for its self-insured retention. The amount of such reserve was $4.5 million as of September 29, 1996. ITEM 2. PROPERTIES The Company's corporate headquarters and the Mr. Coffee(R) appliance production facility and warehouse are located in an approximately 295,000 square foot facility in Bedford Heights, Ohio pursuant to a lease with the founders of Mr. Coffee, inc. which expires in July 1997. The Company also leases 106,000 square feet of warehousing and distribution space in Bedford Heights, Ohio pursuant to a lease which expires in July 1997. In October 1996, the Company entered into a fifteen year lease commencing August 1, 1997 for a new 458,000 square foot corporate headquarters and appliance assembly, manufacturing and distribution facility to be -16- 18 built in Glenwillow, Ohio. This facility will replace the Company's current facilities in Bedford Heights, Ohio. The Company's scale manufacturing facility is located in Bridgeview, Illinois. The facility, which the Company owns, contains approximately 160,000 square feet of space. The Company leases several warehouse facilities in the Chicago area from time to time as business conditions warrant. During 1996, the Company transferred scale assembly operations at its leased 68,000 square foot facility in Waukegan, Illinois to its Bridgeview facility. The Company considers its facilities suitable and adequate for the purposes for which they are used. The Company believes that its facilities have sufficient capacity to support its current and anticipated production and storage needs. Further, greater utilization of outside vendors to manufacture and assemble products lessens the potential need for additional capacity. ITEM 3. LEGAL PROCEEDINGS On July 22, 1992, Mr. Coffee, inc. filed a complaint in the United States District Court for the Northern District of Ohio against the Corporate Automation Group ("CAG"). This action arose out of an agreement entered into in 1991 between Mr. Coffee, inc. and CAG under which CAG was to provide goods and services in connection with the installation of a management information system at Mr. Coffee, inc. CAG had filed a claim against Mr. Coffee, inc. alleging breaches by Mr. Coffee, inc. of various alleged express and implied contracts and seeking damages in excess of $5.5 million. The parties have settled this dispute and both the complaint and the counterclaim have been dismissed. The amount of the settlement will not have a material impact on the Company's financial condition. On May 27, 1994, Mr. Coffee, inc. was served with a complaint in the case captioned Miriam Brown v. Mr. Coffee, inc., et. al. (Civil Action No. 13531), in the Delaware Court of Chancery, New Castle County. The complaint names Mr. Coffee, inc., a former major shareholder of Mr. Coffee, inc. and each member of the Board of Directors of Mr. Coffee, inc. prior to the Acquisition as defendants in a purported class action lawsuit. The complaint alleged that the Director defendants breached their fiduciary duties as Directors of Mr. Coffee, inc. by, among other things, alleged efforts to entrench themselves in office and prevent Mr. Coffee, inc.'s public stockholders from maximizing the value of their holdings, engaging in plans and schemes unlawfully to thwart offers and proposals from third parties, and approving and or causing the major shareholder to agree to vote in favor of the merger with the Company. The plaintiff originally sought to enjoin the merger and to obtain an order requiring the Director defendants to fulfill their fiduciary duties by exploring third party interest and obtaining the highest offer obtainable for the public stockholders. The plaintiff also seeks unspecified compensatory damages and costs and disbursements in connection with the action, including attorneys' and experts' fees, and such other and further relief as the court deems just and proper. In October 1996, the plaintiffs filed a Second Amended Complaint containing the above claims, but focusing on allegations that the Director defendants failed to engage in a process designed to maximize the value of Mr. Coffee, inc. for its shareholders. The Company has filed a Motion to Dismiss the Second Amended Complaint. No briefing schedule has been established as yet for -17- 19 this Motion. Discovery commenced with the filing of this lawsuit. However, no discovery activity by any party has taken place during the 1995 and 1996 fiscal years or through the time of filing this document. Other than the filing of the Second Amended Complaint, plaintiffs have not taken further action in prosecution of this lawsuit. The Company believes that the plaintiff's allegations are without merit and intends to contest vigorously the allegations in the Second Amended Complaint. Management believes that the ultimate outcome of such matters will not have a material adverse effect upon the operations or financial position of the Company. The Company is a party to various other claims and items of litigation incident to its normal business. Liability in the event of a final adverse termination of any of these matters, in the opinion of the Company, will not, individually or in the aggregate, have a material adverse effect on the financial position or results of operations of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT* The executive officers are elected each year and serve at the pleasure of the Board of Directors. The following is a list of the executive officers of the Company.
Name Age Position ---- --- -------- Peter C. McC. Howell 47 Chairman and Chief Executive Officer S. Donald McCullough 53 President and Chief Operating Officer Steven M. Billick 40 Senior Vice President, Treasurer and Chief Financial Officer John D. Lange 50 Senior Vice President, Marketing - Consumer Products Timothy J. McGinnity 45 Senior Vice President, Sales - Consumer Products *The information under this Item 4A is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
PETER C. McC. HOWELL. Mr. Howell has served as Chairman of the Board, Chief Executive Officer and a Director of the Company and Health o meter since August 1994. He served as President and Chief Executive Officer of Mr. Coffee, a manufacturer of consumer appliances acquired by the Company in August, 1994, from 1989 to the date of the acquisition. Mr. Howell served as Mr. Coffee's Chief Operating Officer from April 1989 to September 1989 and as Vice President, Treasurer and Chief Financial Officer from October 1988 to April 1989. Mr. Howell is also a Director of Libbey, Inc. which designs, manufactures and markets brand name, machine made glass, beverageware and tableware. -18- 20 S. DONALD McCULLOUGH has served as President and Chief Operating Officer of the Company and Health o meter since April 1994. Prior to his employment with the Company, Mr. McCullough served in various positions with GTE Corporation. From January 1991 to January 1993, Mr. McCullough was Vice President-General Manager of GTE (Sylvania), European Lighting Division; from 1986 to 1990, he served as Vice President-General Manager of the Automotive/Miniature Lighting Division; from 1982 to 1986, he served as Vice President-Controller of Lighting Products Group; and from 1980 to 1982, he served as Vice President-Controller of Lighting Products International. STEVEN M. BILLICK has served as Senior Vice President, Treasurer and Chief Financial Officer of the Company and Health o meter since June 1996. From July 1991 to June 1996, he was Vice President and Controller of NACCO Industries, Inc., a publicly traded holding company. Prior to July 1991, Mr. Billick was a Partner with the international public accounting firm of Deloitte & Touche, LLP. JOHN D. LANGE has served as Senior Vice President, Marketing - Consumer Products of Health o meter since March 1995. From 1994 to March 1995, Mr. Lange was Vice President, Sales & Marketing for Enpac, Inc., a manufacturer and distributor of hazardous waste containment products and a subsidiary of the Essef Corporation. From 1982 through 1994, Mr. Lange served in a variety of positions, most recently as Vice President, Marketing of the Specialty Products Division for Rubbermaid, Inc., a producer of plastic products for the consumer, institutional, office products, agricultural and industrial markets. TIMOTHY J. McGINNITY has served as Senior Vice President, Sales - Consumer Products of Health o meter since September 1994. From August 1991 to August 1994, Mr. McGinnity served as Vice President - Sales of Mr. Coffee. From October 1985 to June 1991, Mr. McGinnity served as Vice President-Sales, Grocery Division of Mr. Coffee. -19- 21 PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the NASDAQ National Market under the symbol "SCAL". The following table sets forth the range of high and low bid prices for each quarter of the two most recent fiscal years as reported by NASDAQ.
High Low ---- --- Year Ended October 1, 1995 - -------------------------- First Quarter . . . . . . . . . . . . . . . . . . . . $ 5-3/8 $ 3 Second Quarter. . . . . . . . . . . . . . . . . . . . 4-1/2 3-3/8 Third Quarter . . . . . . . . . . . . . . . . . . . . 4-1/4 3-3/8 Fourth Quarter. . . . . . . . . . . . . . . . . . . . 4-3/4 3-5/8 High Low ---- --- Year Ended September 29, 1996 - ----------------------------- First Quarter . . . . . . . . . . . . . . . . . . . . $ 5-1/8 $ 3-3/8 Second Quarter. . . . . . . . . . . . . . . . . . . . 5-3/8 3-5/8 Third Quarter . . . . . . . . . . . . . . . . . . . . 6-7/8 4-3/4 Fourth Quarter. . . . . . . . . . . . . . . . . . . . 6-3/8 5
As of December 6, 1996 there were approximately 138 holders of record of the Common Stock of the Company. The Company has paid no dividends on the Common Stock and it is the Company's present intention to reinvest earnings internally to finance the expansion of its business. Health o meter does not have any class of publicly traded equity securities outstanding. -20- 22 ITEM 6. SELECTED FINANCIAL DATA (Amounts in thousands, except per share data)
Year Ended Nine-Months ---------------------------- Ended September 29 October 1 October 2 Year Ended December 31 ------------ ----------- ----------- --------------------------- 1996 1995 1994 1993 1992 ------------ ----------- ----------- ----------- ---------- STATEMENT OF OPERATIONS DATA Net sales $ 282,977 267,887 69,451 67,605 52,879 Cost of goods sold 192,706 184,911 53,159 46,099 36,738 Selling, general, and administrative expenses 59,635 56,642 18,394 16,209 13,713 Amortization of intangible assets 4,000 3,961 815 619 424 Work force reductions and asset write-downs -- -- 5,367 -- -- Other charges -- -- -- -- 157 Operating income (loss) 26,636 22,373 (8,284) 4,678 1,847 Interest expense 19,134 19,354 3,889 956 1,559 Other income (357) (195) (18) -- -- Income (loss) before income taxes 7,859 3,214 (12,155) 3,722 288 Income tax provision (benefit) 4,900 2,502 (4,110) 1,534 (519) Net income (loss) 2,959 712 (8,045) 2,188 807 Net income (loss) per share $ 0.33 .08 (1.31) .40 .16 Weighted average shares outstanding 9,073 9,071 6,134 5,528 5,012 BALANCE SHEET DATA Working capital $ 60,614 53,285 38,970 20,130 19,649 Total assets 273,490 275,135 277,968 62,194 56,373 Long-term debt 170,531 172,858 167,635 13,000 15,100 Stockholders' equity $ 49,007 46,017 45,305 34,360 32,172
-21- 23 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW On August 17, 1994, the Company acquired all of the issued and outstanding shares of common stock of Mr. Coffee, inc. ("Mr. Coffee"), by means of a merger of a wholly-owned subsidiary of the Company with and into Mr. Coffee (the "Acquisition"). Subsequently, Mr. Coffee was merged into the Company's Health o meter, Inc. subsidiary. The aggregate purchase price in connection with the Acquisition was approximately $133.5 million. The Company's operations are conducted through two divisions. These divisions are the Consumer Products Division and the Professional Products Division. Mr. Coffee historically realized significantly greater annual sales and had a much larger asset base than the Company. During fiscal 1993 (the last full fiscal year prior to the Acquisition), Mr. Coffee had net sales of approximately $175 million and, at December 26, 1993, it had total assets of approximately $118 million. The Acquisition was accounted for as a purchase, and the Company's results of operations for fiscal 1994 reflect the inclusion of Mr. Coffee's results of operations for the period subsequent to August 17, 1994. On a pro forma basis, giving effect to the Acquisition as if it had occurred at the beginning of fiscal 1994, the Company's net sales would have been $160.7 million and its net loss would have been $9.6 million in the nine-month fiscal period. On September 21, 1994, the Board of Directors of the Company determined to change the Company's fiscal year from one ending on December 31 in each year to a 52-53 week fiscal year ending on the Sunday closest to the last day of the month of September in each year. As a result of the change in the Company's fiscal year, the results of operations for fiscal 1994 are not directly comparable with those of prior years or of fiscal 1995. In particular, fiscal 1994 results do not reflect results of operations for the last calendar quarter of the fiscal year, during which the Company and Mr. Coffee have historically achieved their highest net sales. During the four fiscal years prior to the acquisition, the Company's fourth quarter net sales have represented an average of approximately 29% of annual net sales. During the same period, Mr. Coffee's fourth quarter net sales have represented an average of approximately 34% of its annual net sales. Set forth below is a discussion of the principal factors which affected the Company's results of operations during each of the three most recent fiscal periods, and an analysis of the Company's liquidity and capital resources. This discussion should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto included elsewhere in this report. -22- 24 RESULTS OF OPERATIONS Fiscal Year ended September 29, 1996 Compared with Fiscal Year ended October 1, 1995 Net Sales. Net sales for fiscal 1996 increased approximately 5.6% to $283.0 million, compared with $267.9 million for fiscal 1995. Net sales of the Consumer Products Division increased approximately 7.5% to $247.3 million in fiscal 1996, compared with $230.0 million in fiscal 1995. The increase in net sales of the Consumer products Division was due primarily to sales of the recently introduced automatic hot teamaker, Mrs. Tea(TM). Consumer Products Division sales were also favorably impacted by higher sales of consumer scales attributable to increased distribution of electronic strain gauge scales at certain mass merchandisers. New distribution of filters also favorably impacted fiscal 1996 sales. These sales increases were partially offset by a decline in coffeemaker and iced teamaker sales reflecting an overall small appliance industry sales decline and lower retail activity resulting from severe winter weather conditions experienced in the second quarter of fiscal 1996. Therapeutic device sales declined in fiscal 1996 as the Company introduced four new therapeutic product categories in late fiscal 1996 to replace the less profitable Shiatsu double hand massager. Net sales of the Professional Products Division declined approximately 5.7% to $35.7 million, primarily because fiscal 1995 sales had been favorable impacted by the U.S. Postal rate increase in January 1995, which generated incremental sales of postal scale dials, electronic rate chips and postal scales to accommodate the new rates. The Professional Products sales decline was partially offset in fiscal 1996 by improved sales of analog medical and consumer bath scales to foreign customers. Overall sales to the Company's top five customers during fiscal 1996 accounted for approximately 52% of net sales, compared with approximately 50% of net sales in fiscal 1995. Due to the continuing consolidation of major retailers, the Company believes that its dependence on sales to its largest customers, all major retailers, will continue. Gross Profit. The Company's gross profit in fiscal 1996 was $90.3 million, or approximately 31.9% of net sales, compared with $83.0 million, or approximately 31.0% of net sales in fiscal 1995. The addition of new higher margin products to the sales mix, as well as improvements in operating efficiency during 1996 contributed to the overall gross profit improvement. The Consumer Products Division's gross profit increased from approximately 30.0% of net sales for fiscal 1995 to approximately 31.4% of net sales for fiscal 1996. The Consumer Products Division's gross profit percentage reflects the favorable impact from sales of the recently introduced automatic hot teamaker, Mrs. Tea(TM), as well as lower costs for key raw material such as paper, certain imported appliances and packaging material. Historically, gross margins on individual product lines have been greatest near the point of introduction and gradually decreasing as the product matures and becomes subject to pricing pressure. For this -23- 25 reason, the Company continues its efforts to introduce new products and to reduce the cost of existing products as a means of protecting margins. The Professional Products Division's gross profit declined from approximately 36.7% of net sales for fiscal 1995 to approximately 35.1% of net sales for fiscal 1996. The gross profit of the Professional Products Division was favorably impacted during fiscal 1995 by the U.S. Postal rate increase in January 1995 which was not repeated in 1996. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") for fiscal 1996 totaled $59.6 million, compared with $56.6 million for fiscal 1995. For both fiscal 1996 and 1995, SG&A approximated 21.1% of net sales. The overall increase in SG&A is attributable to higher national advertising expenditures to support the marketing of new products, such as Mrs. Tea(TM), and proportionately higher variable selling costs related to increased sales. Higher bad debt expense, as a result of bankruptcy and liquidation filings by certain customers, also contributed to the increase in SG&A. Amortization of Intangible Assets. The amortization of intangible assets of $4.0 million, or $0.44 per share, relates primarily to intangible assets associated with the Acquisition in August 1994. Interest Expense. Interest expense for fiscal 1996 was approximately $19.1 million, compared with $19.4 million for fiscal 1995. The decrease in interest expense is attributable to slightly lower overall interest rates during fiscal 1996, compared with fiscal 1995. Income Taxes. Income tax expense of $4.9 million is based upon the income before income taxes adjusted principally for non-deductible amortization expense. The Company's effective tax rate for 1996 was approximately 62.3%, compared with approximately 77.8% for 1995. Expenses not deductible for tax purposes, primarily the amortization of intangible assets associated with the Acquisition, resulted in an effective tax rate significantly higher than the statutory tax rate in both years. The higher level of pretax income in 1996 relative to 1995 reduced the effect of these non-deductible expenses resulting in a lower effective tax rate in 1996. Net Income. Based on the foregoing, the Company achieved net income of $3.0 million in fiscal 1996, compared with net income of $0.7 million in fiscal 1995. Fiscal Year ended October 1, 1995 Compared with Nine-Month Period ended October 2, 1994 Net Sales. Net sales for fiscal 1995 increased approximately 285.7% to $267.9 million, compared with $69.5 million for the nine months included in fiscal 1994. Net sales of Mr. Coffee(R) brand products contributed in excess of 80% of the sales increase, as only six weeks of these sales were consolidated with those of the Company in 1994. The balance of the increase is largely a result of comparing a full year in 1995 with only nine months of operations in 1994. -24- 26 Overall sales to the Company's top five customers during fiscal 1995 accounted for approximately 50% of net sales, versus approximately 38% in fiscal 1994. The increased share of the Company's net sales made to its top five customers is attributable to the impact of a full year of sales of Mr. Coffee(R) brand products as well as increased volume to these customers as a whole. Gross Profit. The Company's gross profit in fiscal 1995 was $83.0 million, or approximately 31.0% of net sales, compared with $16.3 million, or approximately 23.5% of net sales in fiscal 1994. The gross profit percentage in fiscal 1994 was depressed primarily as a result of the impact of an increase in the Company's provision for product returns, and certain changes in accounting estimates and additional accruals. Without giving effect to these charges, the Company's overall gross profit margin would have been approximately 26% in fiscal 1994. Gross profit dollars increased over the prior fiscal year primarily due to the impact of the gross profit earned on Mr. Coffee(R) brand products sales for a full year in fiscal 1995 compared with six weeks in fiscal 1994 as well as the gross profit earned on a full year of sales for the Company in fiscal 1995 versus nine months in fiscal 1994. During fiscal 1995, gross profit percentages returned to historical levels. The improvement in the Company's gross profit percentage was accomplished despite cost increases in key raw materials such as steel, paperboard and resin, all of which are used in a majority of the Company's products. The increase in raw material costs was somewhat mitigated not only by the achievement of certain operating efficiencies, but also by price increases on many of the Company's products. There continues to be intense pressure on retail prices and there is no guarantee that the Company will be able to achieve price increases from its customers in the future. The Consumer Products Divison's gross margin also was favorably impacted by an improved product mix which included a larger percentage of higher margin products and cost savings achieved by sourcing a greater percentage of scales from foreign manufacturers. The Professional Products Division's gross margin improved because of an increase in office product sales as a result of the January 1995 postal rate increase. Gross margins on replacement rate dials and electronic rate chips related to the postal rate increase are higher than the Professional Products Division's historical rates. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") for fiscal 1995 totaled $56.6 million, compared with $18.4 million for fiscal 1994. The increase in magnitude of SG&A is principally due to having incurred a full twelve months' expense versus only nine months of SG&A for Health o meter(R) and Pelouze(R) brand product sales and six weeks of SG&A for Mr. Coffee(R) brand product sales during fiscal 1994. As a percentage of net sales, SG&A declined from approximately 26.5% in 1994 to approximately 21.1% in the current year. This decline is primarily attributable to fixed selling, general and administrative costs being spread over a much larger net sales amount as well as efficiencies gained during the year from the elimination of duplicate functions through integration of the accounting and information systems and the legal and administrative functions. Amortization of Intangible Assets. The increase in amortization to $4.0 million from $0.8 million results from a full year's amortization of the excess of cost over fair value of net assets acquired associated with the Acquisition in August 1994. -25- 27 Interest Expense. Interest expense for fiscal 1995 was approximately $19.4 million, compared with $3.9 million for fiscal 1994. The large increase in interest expense is attributable to a full year's impact of the increase in the Company's indebtedness resulting from the additional long term debt incurred to finance the Acquisition and other related costs as well as increases in both the prime interest rate and LIBOR rate used as a basis for the rate charged on the Company's floating rate debt. Income Taxes. Income tax expense of $2.5 million is based upon the income before income taxes adjusted principally for non-deductible amortization expense. Net Income. Based on the foregoing, the Company achieved net income of $0.7 million in fiscal 1995 versus a net loss of $8.0 million in the previous fiscal period. LIQUIDITY AND CAPITAL RESOURCES The Company's primary source of liquidity are cash generated by operating activities and borrowings under a Credit Agreement among Health o meter and a group of Banks represented by Banque Nationale de Paris, New York Branch ("BNP") as agent and as issuer of letters of credit (the "Bank Credit Agreement") entered into in connection with the Acquisition. Cash flow activity for fiscal 1996 and 1995 is presented in the consolidated statement of cash flows. During fiscal 1996, the Company generated approximately $5.9 million in cash flow from its operating activities. Net income plus non-cash charges generated approximately $14.7 million, while changes in working capital components required approximately $8.8 million. The increase in accounts receivable, which required approximately $3.8 million, is primarily attributable to seasonally higher sales and sales of the recently introduced automatic hot teamaker, Mrs. Tea(TM). An increase in inventory primarily attributable to the need to respond to retailers' seasonal demands for products, required approximately $2.1 million. The Company's business is somewhat seasonal, with a large portion of its sales and earnings generated in the fourth calendar of the year. During fiscal 1996 and 1995, the Company generated approximately 34% of its annual net sales during the fiscal quarters ended December 31, 1995 and January 1, 1995. The Company's aggregate capital expenditures during fiscal 1996 were approximately $4.4 million, and primarily reflect expenditures for new product tooling, production equipment and a computerized design system to streamline the Company's new product development cycle. During fiscal 1997, the Company anticipates making capital expenditures of approximately $9.6 million primarily for new product tooling, information systems and production equipment. Management plans to fund these capital expenditures with available cash, cash flow from operations and, if necessary, borrowings under the revolving credit facility provided under the Bank Credit Agreement. -26- 28 Indebtedness incurred in connection with the Acquisition has significantly increased the Company's cash requirements and imposes various restrictions on its operations. The Acquisition and related transactions were financed with approximately $98 million in borrowings under the Bank Credit Agreement, approximately $70 million in proceeds from a unit offering of 13% senior subordinated notes due in 2002 (the "Notes") and warrants to purchase shares of Common Stock at a price of $6.25 per share, and approximately $17.2 million in net proceeds received from the exercise of certain transferable rights to purchase 3,543,433 shares of Common Stock issued to the stockholders of the Company. Financing provided under the Bank Credit Agreement consisted of a $75.0 million term loan facility, which was fully drawn at the closing of the Acquisition, and a $50.0 million revolving credit facility (which also provides for a $18.0 million letter of credit sub-facility), under which approximately $22.5 million was drawn in connection with the Acquisition. Effective June 30, 1995, the Bank Credit Agreement was amended, increasing the revolving credit facility to $60.0 million. Borrowings under the Term Loan and the Revolving Credit Facility bear interest at a rate equal to BNP's Base Rate (as defined) plus 1.0% per annum or BNP's Eurodollar Rate (as defined and adjusted for reserves) plus 2.5% per annum, in either case as selected by Health o meter. Health o meter's obligations under the Bank Credit Agreement are secured by substantially all of Health o meter's assets and a pledge of all of its issued and outstanding common stock. Health o meter's obligations under the Bank Credit Agreement are also guaranteed by the Company. The Term Loan is subject to amortization on a quarterly basis in aggregate annual amounts of $6.0 million, $8.75 million, $17.5 million, $15.0 million, and $19.0 million during fiscal 1997 through fiscal 2001, respectively. Health o meter is required to make prepayments on the Term Loan and Revolving Credit Facility with a percentage of Excess Cash Flow (as defined) and 100% of the proceeds from certain asset sales, issuances of debt and equity securities and extraordinary items outside the ordinary course of business. The required term loan repayment for fiscal 1997 is $1.0 million, which is included in the current portion of long-term debt. Health o meter may also make optional prepayments, in full or in part, on the Term Loan. Health o meter is subject to certain customary affirmative and negative covenants contained in the Bank Credit Agreement. These include, without limitation, covenants that restrict, subject to certain exceptions, incurrence of additional indebtedness, mergers, consolidations or asset sales, changes in the nature of the business, granting of liens to secure any other indebtedness and transactions with affiliates. In addition, the Bank Credit Agreement requires that the Company maintain certain specified financial ratios, including minimum interest and fixed charge coverage ratios, maximum leverage ratio, minimum net worth levels and ceilings on leverage and capital expenditures. In order to reflect the impact of the seasonality of the Company's business on its financial condition, relevant covenants in the Bank Credit Agreement are set on a rolling twelve month basis. At September 29, 1996, the Company was in compliance with such covenants. Borrowing availability under the Bank Credit Agreement at September 29, 1996 was $14.0 million after considering outstanding letters of credit of $2.7 million, actual borrowings of $41.6 million, and sufficiency of collateral. -27- 29 The Notes are general obligations of Health o meter and bear interest at the rate of 13% per annum. The interest on the Notes is payable semi-annually, in arrears, commencing on February 15, 1995. Principal of the Notes is payable on the maturity date, August 15, 2002. Health o meter's payment obligations under the Notes are unconditionally guaranteed by the Company. The Notes and the Company's guaranty are subordinated to the prior payment of all of the Company's senior debt (which includes amounts outstanding under the Bank Credit Agreement). The Indenture governing the Notes contains customary provisions restricting mergers, consolidations or sales of assets, issuances of preferred stock or the incurrence of additional indebtedness, payment of dividends, creation of liens and transactions with affiliates. Provided that certain financial tests are met, the Indenture does not limit the amount of additional indebtedness that Health o meter and its subsidiaries may incur. The Notes are generally not redeemable at the option of the Company until August 15, 1999. Subject to certain conditions, at any time through August 17, 1997, up to 35% of the initial principal amount of the Notes originally issued may be redeemed with the net proceeds of one or more public offerings of equity securities of the Company or Health o meter at a redemption price of 110% of the principal amount thereof, together with accrued and unpaid interest. Under certain limited circumstances, Health o meter may be required to use a portion of the proceeds from asset sales to make an offer to purchase a portion of the Notes, at a price of 101% of the principal amount thereof, together with accrued and unpaid interest. In addition, in the event of a change in control of Health o meter (generally defined to mean any transaction or series of transactions which results in persons other than the Thomas H. Lee Company, its affiliates and certain related entities acquiring beneficial ownership of more than 50% of the total voting power of the Company on a fully diluted basis), each holder will have the right to require Health o meter to repurchase its Notes at a price of 101% of the principal amount thereof, together with accrued and unpaid interest thereon. Except for the foregoing circumstances, Health o meter is not required to make mandatory redemption or sinking fund payments with respect to the Notes. The Bank Credit Agreement currently prohibits Health o meter from purchasing any Notes prior to the expiration thereof and also provides that certain change in control events with respect to Health o meter would constitute a default thereunder. The Company is a holding company with no independent operations and has no material assets other than its ownership of all of the outstanding stock of Health o meter. Therefore, the Company is dependent on the receipt of dividends and other distributions from Health o meter and the proceeds from the sale of its capital stock (to the extent that such proceeds are not required to be used to prepay outstanding indebtedness) to fund any obligations that the Company incurs. The Bank Credit Agreement prohibits, and the Indenture restricts, the payment of dividends to the Company by Health o meter. Based upon current levels of operations, anticipated sales growth and plans for expansion, Management believes that the Company's cash flow from operations (including favorable cost savings estimated to be achieved in the future), combined with borrowings available under the Bank Credit Agreement, will be sufficient to enable the Company to meet all -28- 30 of its cash operating requirements over both the short term and the longer term, including scheduled interest and principal payments, capital expenditures and working capital needs. This expectation is predicated upon continued growth in revenues in the Company's core businesses consistent with historical experience, achievement of operating cash flow margins consistent with historical experience, and the absence of significant increases in interest rates. INFLATION Increases in interest rates, the costs of materials and labor, and Federal, state and local tax rates can significantly affect the Company's operations. Management believes that the current practices of maintaining adequate operating margins through a combination of new product introductions, product differentiation, cost reduction, outsourcing, manufacturing and overhead expense control and careful management of working capital are its most effective tools for coping with inflation. NEW ACCOUNTING PRONOUNCEMENTS During 1995, the Financial Accounting Standards Board issued two pronouncements, neither of which the Company has adopted, which are effective for financial statements for years beginning after December 15, 1995. The Company has considered the requirements of Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and has determined that it will not require recognition of any impairment losses. The Company has also determined to remain within the accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly the implementation of Statement No. 123, Accounting for Stock-Based Compensation will result in additional disclosures without any impact on the statements of operations or financial condition. -29- 31 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following pages contain the Financial Statements and Supplementary Data as specified for by Item 8 of Part II of Form 10-K. -30- 32 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Health o meter Products, Inc.: We have audited the consolidated financial statements of Health o meter Products, Inc. and subsidiary as of September 29, 1996 and October 1, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended September 29, 1996 and October 1, 1995, and for the nine-month period ended October 2, 1994. In connection with our audit of the consolidated financial statements, we also audited the schedules as listed in the accompanying index for the years ended September 29, 1996 and October 1, 1995. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Health o meter Products, Inc. and subsidiary as of September 29, 1996 and October 1, 1995, and the results of their operations and their cash flows for the years ended September 29, 1996 and October 1, 1995, and for the nine-month period ended October 2, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Cleveland, Ohio December 3, 1996 F-1 33 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Consolidated Balance Sheets September 29, 1996 and October 1, 1995 (amounts in thousands, except per share data)
Assets 1996 1995 ------ ---- ---- Current assets Cash $ 736 835 Trade accounts receivable, less allowance for doubtful accounts and discounts of $2,592 in 1996 and $1,813 in 1995 57,960 54,151 Inventories 43,626 41,787 Deferred income taxes 5,206 5,108 Other current assets 1,479 2,035 --------- --------- Total current assets 109,007 103,916 Property, plant and equipment, net 18,522 20,157 Other assets Excess of cost over fair value of net assets acquired, net 139,830 144,084 Deferred financing costs, net 4,579 5,437 Other 1,552 1,541 --------- --------- Total other assets 145,961 151,062 --------- --------- Total assets $ 273,490 275,135 ========= ========= Liabilities and Stockholders' Equity ------------------------------------ Current liabilities Current portion of long-term debt $ 6,000 5,000 Accounts payable 22,851 25,803 Accrued liabilities 19,542 19,828 --------- --------- Total current liabilities 48,393 50,631 Long-term debt 170,531 172,858 Product liability 3,516 3,621 Other 2,043 2,008 --------- --------- Total liabilities 224,483 229,118 Stockholders' equity Common stock, par value $.01 per share; authorized 20,000 shares; issued and outstanding 9,080 shares at September 29, 1996 and 9,071 shares at October 1, 1995 91 91 Paid-in capital 51,772 51,741 Warrants 1,773 1,773 Accumulated deficit (4,629) (7,588) --------- --------- Total stockholders' equity 49,007 46,017 --------- --------- Total liabilities and stockholders' equity $ 273,490 275,135 ========= =========
See accompanying notes to consolidated financial statements. F-2 34 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Consolidated Statements of Operations Years ended September 29, 1996 and October 1, 1995, and the nine-month period ended October 2, 1994 (amounts in thousands, except per share data)
1996 1995 1994 ---- ---- ---- Net sales $ 282,977 267,887 69,451 Operating costs and expenses Cost of goods sold 192,706 184,911 53,159 Selling, general, and administrative expenses 59,635 56,642 18,394 Amortization of intangible assets 4,000 3,961 815 Work force reductions and asset writedowns -- -- 5,367 --------- --------- --------- Total operating costs and expenses 256,341 245,514 77,735 --------- --------- --------- Operating income (loss) 26,636 22,373 (8,284) Interest expense 19,134 19,354 3,889 Other income (357) (195) (18) --------- --------- --------- Income (loss) before income taxes 7,859 3,214 (12,155) Income tax expense (benefit) 4,900 2,502 (4,110) --------- --------- --------- Net income (loss) $ 2,959 712 (8,045) ========= ========= ========= Net income (loss) per share $ .33 .08 (1.31) ========= ========= ========= Weighted average shares outstanding 9,073 9,071 6,134 ========= ========= =========
See accompanying notes to consolidated financial statements. F-3 35 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity Years ended September 29, 1996 and October 1, 1995, and the nine-month period ended October 2, 1994 (amounts in thousands)
Common Stock ---------------------- Shares Paid-In Accumulated Issued Dollars Capital Warrants Deficit ------- ------- ------- -------- ----------- Balance at December 31, 1993 5,528 $ 55 34,560 -- (255) Net loss -- -- -- -- (8,045) Issuance of common stock pursuant to exercise of stock rights 3,543 36 17,181 -- -- Issuance of warrants in conjunction with the issuance of debt -- -- -- 1,773 -- ------ ------ ------ ------ ------ Balance at October 2, 1994 9,071 91 51,741 1,773 (8,300) Net income -- -- -- -- 712 ------ ------ ------ ------ ------ Balance at October 1, 1995 9,071 91 51,741 1,773 (7,588) Net income -- -- -- -- 2,959 Issuance of common stock pursuant to exercise of stock options 9 -- 31 -- -- ------ ------ ------ ------ ------ Balance at September 29, 1996 9,080 $ 91 51,772 1,773 (4,629) ====== ====== ====== ====== ======
See accompanying notes to consolidated financial statements. F-4 36 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended September 29, 1996 and October 1, 1995, and the nine-month period ended October 2, 1994 (amounts in thousands)
1996 1995 1994 ---- ---- ---- Cash flows from operating activities Net income (loss) $ 2,959 712 (8,045) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation and amortization of plant and equipment 6,011 5,108 2,311 Loss on asset write-offs and disposals 63 119 4,046 Amortization of intangible assets 4,000 3,961 815 Amortization of deferred financing costs 858 823 117 Deferred tax expense (benefit) 522 2,362 (3,991) Accretion of debt discount 223 223 18 Changes in Trade accounts receivable (3,809) (12,479) (3,363) Inventories (2,085) 2,813 (12,115) Other assets 482 3,198 (1,863) Accounts payable (2,952) (7,306) 8,091 Accrued liabilities (286) 60 264 Noncurrent liabilities (127) (492) 362 -------- -------- -------- Net cash provided by (used in) operating activities 5,859 (898) (13,353) -------- -------- -------- Cash flows from investing activities Capital expenditures (4,439) (4,636) (3,962) Payments for patents -- -- (106) Purchase of Mr. Coffee, inc., net of cash acquired -- -- (127,434) -------- -------- -------- Net cash used in investing activities (4,439) (4,636) (131,502) -------- -------- -------- Cash flows from financing activities Proceeds from revolving credit facilities 76,700 80,600 47,400 Repayments of revolving credit facilities (74,500) (70,600) (31,000) Repayment of long-term debt (3,750) (5,000) -- Proceeds from issuance of warrants -- -- 1,773 Proceeds from term note -- -- 75,000 Proceeds from issuance of Senior Subordinated Notes -- -- 68,217 Repayment of long-term debt acquired -- -- (26,746) Proceeds from issuance of common stock 31 -- 17,217 Payment of financing fees -- (315) (6,114) -------- -------- -------- Net cash provided by (used in) financing activities (1,519) 4,685 145,747 -------- -------- -------- Increase (decrease) in cash (99) (849) 892 Cash at beginning of the period 835 1,684 792 -------- -------- -------- Cash at end of the period $ 736 835 1,684 ======== ======== ======== Supplemental disclosures of cash flow information Cash paid during the period for Interest $ 18,092 18,820 774 Income taxes 3,490 280 153
See accompanying notes to consolidated financial statements. F-5 37 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements September 29, 1996 and October 1, 1995 (amounts in thousands, except per share data) (1) Summary of Significant Accounting Policies ------------------------------------------ (a) Description of Business ----------------------- Health o meter Products, Inc. (the Company) is a holding company which, through its wholly owned subsidiary, Health o meter, Inc. (Health o meter), designs, manufactures, markets, and distributes a comprehensive line of consumer and professional products. The Company's consumer products, marketed under the Mr. Coffee(R) and Health o meter(R) brand names include automatic drip coffeemakers, iced teamakers, hot teamakers, filters, water filtration products, accessories, and other kitchen countertop appliances as well as bath, kitchen, and diet scales and therapeutic devices. Professional products include the Pelouze(R) and Health o meter(R) brands of office, food service, and medical scales and timers. (b) Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions are eliminated in consolidation. (c) Fiscal Year ----------- During 1994, the Company changed its fiscal year from one ending on December 31 in each year to a 52-53 week fiscal year ending on the Sunday closest to the last day of September in each year. Accordingly, the 1994 fiscal period consisted of the nine-month period ended October 2, 1994, whereas the 1996 and 1995 fiscal periods consist of a full year's operations. (d) Revenue Recognition ------------------- The Company recognizes revenue from product sales upon shipment to the customer. Costs or losses estimated to be incurred in connection with product returns and warranties are charged against revenues at the time of sale, based upon consideration of historical experience and information available from customers. (e) Inventories ----------- Inventories are stated at the lower of cost or market. Inventories of the Mr. Coffee Division, accounted for under the last-in, first-out (LIFO) method, represent 62 percent and 64 percent of the inventories in 1996 and 1995, respectively. For the remaining inventories, cost is determined using the first-in, first-out (FIFO) method. (Continued) F-6 38 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) (f) Property, Plant and Equipment ----------------------------- Property, plant and equipment are stated at cost. The Company calculates depreciation using the straight-line method over the estimated useful lives of the respective assets. (g) Excess of Cost over Fair Value of Net Assets Acquired ----------------------------------------------------- The Company's excess of cost over the fair value of net assets acquired primarily represents the value of its brand names, created by advertising and product performance over many years, and is being amortized on the straight-line basis over a 40-year period. The Company assesses the recoverability of this intangible asset by determining whether the brand name dominance in terms of market share and the national distribution secured can generate sufficient revenues, growth, and cash flow to recover the intangible asset balance over its remaining life. Accumulated amortization amounted to $11,258 and $7,258 at September 29, 1996 and October 1, 1995, respectively. (h) Deferred Financing and Stock Issuance Costs ------------------------------------------- Financing costs related to the issuance of debt are capitalized and amortized over the term of the debt. Accumulated amortization of financing costs amounted to $1,750 and $892 at September 29, 1996 and October 1, 1995, respectively. Issuance costs related to the sale of common stock reduce paid-in capital. (i) Income Taxes ------------ The Company accounts for income taxes under the asset and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the tax rates in effect at the end of the period. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the new tax rate is enacted. (j) Cooperative Advertising Costs ----------------------------- The Company adopted AICPA Statement of Position 93-7, Reporting on Advertising Costs, in the last quarter of fiscal 1994, which requires that the Company expense reimbursements of customers' advertising costs at the time the related revenues are recognized. Under the Company's previous accounting method, such costs were recognized at the time the advertising was placed by the customer. (k) Product Liability Costs ----------------------- Costs estimated to be incurred with respect to product liability claims are accrued based upon actuarially determined estimates derived from experience factors. The current portion represents product liability costs estimated to be paid within one year. (Continued) F-7 39 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) (l) Earnings (Loss) per Common Share -------------------------------- Earnings per common share are calculated by dividing net income by the weighted average of outstanding common stock and common stock equivalents using the treasury stock method, except when the effect of common stock equivalents would be antidilutive or when dilution is less than 3 percent. Net loss per common share is based on the weighted average of outstanding common shares. (m) Use of Estimates ---------------- Generally accepted accounting principles require management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the period in preparing these financial statements. Actual results could differ from those estimates. (n) Reclassifications ----------------- Certain reclassifications were made to the Company's prior period financial statements to conform to the 1996 presentation. (2) Acquisition of Mr. Coffee, inc. ------------------------------ On August 17, 1994, Health o meter acquired all of the issued and outstanding common stock of Mr. Coffee, inc. (Mr. Coffee) in a business combination treated for financial reporting purposes as a purchase. Mr. Coffee's results of operations have been included in the Company's consolidated financial statements from the acquisition date. (3) Change in Method of Accounting for Advertising Costs ---------------------------------------------------- During the last quarter of fiscal 1994 the Company elected to apply the provisions of AICPA Statement of Position 93-7, Reporting on Advertising Costs. The effect of the change was $430, which reduced net income for the nine months ended October 2, 1994 by $258 or approximately $.04 per share. Also, during the last quarter of fiscal 1994 new management determined that the benefit period for certain types of advertising and marketing materials was short lived and that customer and marketing display materials carried little residual value. Accordingly, such costs amounting to $775 ($465 on an after-tax basis, or approximately $.06 per share) were written off as net realizable value adjustments and are included with asset writedowns in the consolidated statement of operations. The Company has elected to follow the policy of expensing such costs as they are incurred. Advertising expense was $20,087 and $18,458 for the years ended September 29, 1996 and October 2, 1995, respectively, and was $4,201 for the nine-month period ended October 2, 1994, including $1,205 for the items noted above. (Continued) F-8 40 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) (4) Changes in Accounting Estimates ------------------------------- During the final quarter of 1994, new management revised the Company's calculation for estimating product returns under warranties as a result of reviewing the Company's warranty and return experience in recent periods. The revised calculation reduced net income by $942 or approximately $.13 per share. During this quarter the Company also revised its assessment of current product lives and shortened the amortization period for certain costs related to packaging and product modifications from five to three years, reducing net income by $226 or approximately $.03 per share. Other changes in estimates for slow moving and refurbished inventories, accounts receivable, and workers' compensation liabilities reduced net income by $549 in the aggregate or approximately $.08 per share. (5) Inventories ----------- The components of inventories are as follows:
1996 1995 ---- ---- Inventories at FIFO cost Raw materials and purchased parts $ 13,446 13,389 Finished goods 29,591 28,220 -------- ------ 43,037 41,609 Excess of LIFO cost over FIFO 589 178 -------- ------ Inventories $ 43,626 41,787 ======== ======
Work-in-process inventories are not significant and are included with raw materials. (6) Property, Plant and Equipment -----------------------------
Property, plant and equipment are as follows: 1996 1995 ---- ---- Land, buildings, and building improvements $ 6,108 5,954 Machinery and equipment 7,862 7,167 Tools, dies, and patterns 21,657 18,919 Furniture and fixtures 4,192 2,857 Leasehold improvements 413 430 Construction in progress 1,018 1,579 ----------- ------- 41,250 36,906 Accumulated depreciation (22,728) (16,749) ----------- ------ Property, plant and equipment, net $ 18,522 20,157 =========== ======
(Continued) F-9 41 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) (7) Accrued Liabilities -------------------
The components of accrued liabilities are as follows: 1996 1995 ---- ---- Product returns under warranties $ 6,200 5,665 Advertising and promotional costs 4,866 5,555 Accrued compensation 1,945 2,030 Interest 1,364 1,471 Product liability 965 965 Other 4,202 4,142 ------ ------ Accrued liabilities $ 19,542 19,828 ====== ======
(8) Long-Term Debt --------------
Debt is summarized as follows: 1996 1995 ---- ---- Revolving Credit Facility dated August 17, 1994, bearing interest at prime plus 1% or the London Interbank Offered Rate (LIBOR) plus 2.5% (weighted average interest rate was 8.33% at September 29, 1996); due August 15, 2001; secured by substantially all of Health o meter's assets and a pledge of all its issued and outstanding common stock; Health o meter's obligations under the Bank Credit Agreement are also guaranteed by the Company. $ 41,600 39,400 Term Note dated August 17, 1994, bearing interest at prime plus 1% or LIBOR plus 2.5% (weighted average interest rate was 8.27% at September 29, 1996); due August 15, 2001; principal payable on a quarterly basis in aggregate 12-month amounts of $6,000, $8,750, $17,500, $15,000, and $19,000 during fiscal 1997 through fiscal 2001; secured by substantially all of Health o meter's assets and a pledge of all its issued and outstanding common stock; Health o meter's obligations under the Bank Credit Agreement are also guaranteed by the Company. 66,250 70,000 Senior Subordinated Notes, net of unamortized discount of $1,319 and $1,542 at September 29, 1996 and October 1, 1995, respectively, bearing interest at 13%, payable semiannually; due August 15, 2002. 68,681 68,458 ------- ------- 176,531 177,858 Current portion of long-term debt (6,000) (5,000) ------- ------- Long-term debt $ 170,531 172,858 ======= =======
(Continued) F-10 42 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) Bank Credit Agreement --------------------- On August 17, 1994, in conjunction with the acquisition of Mr. Coffee, Health o meter entered into a Bank Credit Agreement (the Agreement) with a bank group. This Agreement replaced Health o meter's existing credit agreement and provided a new $50,000 Revolving Credit Facility (including an $18,000 letter of credit subfacility) and a $75,000 Term Note. Effective June 30, 1995, the Agreement was amended, increasing the Revolving Credit Facility to $60,000 subject to collateral availability. The Revolving Credit Facility includes a charge of 0.5 percent on the unused line and 2.5 percent for letter of credit guarantees. Health o meter is required to make prepayments on the Term Note and Revolving Credit Facility with a percentage of Excess Cash Flow, as defined, and 100 percent of the proceeds from certain asset sales, issuances of debt and equity securities, and extraordinary items outside the ordinary course of business. The required prepayment for fiscal 1997 is $1,000 and is included in the current portion of long-term debt. Health o meter may also make optional prepayments, in full or in part, on the Term Note, subject to certain limitations. Borrowing availability based on sufficiency of collateral at September 29, 1996 was $13,962 after giving effect to outstanding letters of credit of $2,747 and actual borrowings of $41,600. Health o meter is subject to certain customary affirmative and negative covenants contained in the Agreement. These include, without limitation, covenants that restrict, subject to certain exceptions, incurrence of additional indebtedness; mergers, consolidations, or asset sales; changes in the nature of the business; granting of liens to secure any other indebtedness; and transactions with affiliates. In addition, the Agreement requires that the Company maintain certain specified financial ratios, including minimum interest and fixed charge coverage ratios, maximum leverage ratios, minimum net worth levels, and ceilings on leverage and capital expenditures. At September 29, 1996, the Company was in compliance with such covenants. Senior Subordinated Notes ------------------------- The Senior Subordinated Notes (the Notes) are general obligations of Health o meter arising in connection with the acquisition of Mr. Coffee. Health o meter's payment obligations under the Notes are unconditionally guaranteed by the Company. The Notes and the Company's guaranty are subordinated to the prior payment of the Company's amounts outstanding under the Agreement. The Indenture governing the Notes contains customary provisions restricting mergers, consolidations, or sales of assets; issuances of preferred stock or the incurrence of additional indebtedness; payment of dividends; creation of liens; and transactions with affiliates. Provided that certain financial tests are met, the Indenture does not limit the amount of additional indebtedness that Health o meter and its subsidiaries may incur. (Continued) F-11 43 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) The Notes are generally not redeemable at the option of the Company until August 15, 1999. Subject to certain conditions, at any time through August 17, 1997, up to 35 percent of the initial principal amount of the Notes originally issued may be redeemed with the net proceeds of one or more public offerings of equity securities of the Company or Health o meter at a redemption price of 110 percent of the principal amount thereof, together with accrued and unpaid interest. Under certain limited circumstances, Health o meter may be required to use a portion of the proceeds from asset sales to make an offer to purchase a portion of the Notes, at a price of 101 percent of the principal amount thereof, together with accrued and unpaid interest. In addition, in the event of a change in control of Health o meter, each holder will have the right to require Health o meter to repurchase its Notes at a price of 101 percent of the principal amount thereof, together with accrued and unpaid interest thereon. Except for the foregoing circumstances, Health o meter is not required to make mandatory redemption or sinking fund payments with respect to the Notes. The Agreement currently prohibits Health o meter from purchasing any Notes prior to the expiration thereof and also provides that certain change in control events with respect to Health o meter would constitute a default thereunder. (9) Warrants -------- The Company, in conjunction with the issuance of the Notes, issued 70,000 warrants. Each warrant entitles the holder thereof to purchase 10.96 shares of common stock at $6.25 per share, subject to adjustment under certain circumstances. The warrants expire on August 15, 2002. (10) Income Taxes ------------ Income tax expense (benefit) for the years ended September 29, 1996 and October 1, 1995, respectively, and the nine-month period ended October 2, 1994 consisted of:
1996 1995 1994 ---- ---- ---- Current Federal $ 4,052 100 (119) State 326 40 - Deferred 522 2,362 (3,991) ----- ----- ----- $ 4,900 2,502 (4,110) ===== ===== =====
(Continued) F-12 44 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) The principal items accounting for the difference in taxes on income computed at the U.S. statutory rate and as recorded for the years ended September 29, 1996 and October 1, 1995, respectively, and the nine-month period ended October 2, 1994 are as follows:
1996 1995 1994 ---- ---- ---- Tax expense (benefit) at statutory rate of 35% $ 2,751 1,125 (4,255) State taxes, net of federal benefit 558 176 (300) Goodwill amortization 1,302 1,255 193 Other 289 (54) 252 ----- ----- ----- $ 4,900 2,502 (4,110) ===== ===== =====
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at September 29, 1996 and October 1, 1995 are as follows:
1996 1995 ---- ---- Deferred tax assets Compensation and vacation $ 340 595 Loss and credit carryforwards - 539 Warranties and sales reserves 2,897 3,141 Advertising 683 - Product liability 1,746 1,861 Market lease 219 530 Bad debts 456 409 Other 741 1,206 ----- ----- Total gross deferred tax assets 7,082 8,281 Deferred tax liabilities Prepaid insurance and other (505) (341) Depreciation and amortization (1,928) (2,769) ----- ----- Total gross deferred tax liabilities (2,433) (3,110) ----- ----- Net deferred tax asset $ 4,649 5,171 ===== =====
The realization of the Company's net deferred tax asset is dependent on the generation of future taxable income. Management believes that it is more likely than not that the Company will generate sufficient future taxable income to fully utilize the established net asset. Accordingly, no valuation allowance for the net deferred tax asset has been provided. (Continued) F-13 45 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) The significant components of deferred income tax expense (benefit) for the years ended September 29, 1996 and October 1, 1995, respectively, and the nine-month period ended October 2, 1994 are as follows:
1996 1995 1994 ---- ---- ---- Deferred tax expense (benefit) (exclusive of the effects of other components listed below) $ 522 2,362 (9,106) Charge in lieu of taxes resulting from initial recognition of acquired tax benefits that are allocated to reduce excess of cost over fair value of net assets acquired related to the acquired entity -- -- 5,115 ------ ------ ------ $ 522 2,362 (3,991) ====== ====== ======
(11) Lease Commitments ----------------- The Company leases various buildings and equipment under leases expiring at various dates. At September 29, 1996, minimum rental commitments under noncancelable leases are as follows:
Fiscal Year Ending ------------------ 1997 $ 1,178 1998 1,612 1999 1,554 2000 1,540 2001 1,534 Thereafter 19,427 ------ $ 26,845 ======
Rental expense amounted to approximately $1,438, $1,447, and $310 for the years ended September 29, 1996 and October 1, 1995, and the nine-month period ended October 2, 1994, respectively. (12) Contingencies ------------- The Company is involved in various claims and items of litigation. Management believes that the ultimate outcome of such matters will not have a material adverse effect upon the operations or financial position of the Company. (Continued) F-14 46 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) (13) Stock Incentive Plans --------------------- 1992 Incentive Stock Option Plan -------------------------------- In February 1992, the Company adopted a new incentive stock plan (1992 Plan). The 1992 Plan provides that incentive stock options and nonqualified stock options may be granted to such officers and key employees as the administrators of the 1992 Plan may select. The 1992 Plan is administered by a committee of the board of directors which selects the participants and determines (i) the type of options; (ii) the vesting schedule of options; (iii) the exercise price (which may not be less than fair market value on the date of grant); and (iv) the duration of the options (which cannot exceed 10 years). A total of 220,000 shares of common stock have been reserved for issuance under the 1992 Plan. No options may be granted under the 1992 Plan after December 31, 2001. 1994 Nonqualified Stock Option Grant ------------------------------------ In August 1994, the Company granted an executive officer of the Company 362,353 nonqualified stock options at an exercise price of $2.61 per share in exchange for canceled options of Mr. Coffee. The difference between the aggregate exercise price of such new options and the fair value of the Company's stock was equal to the option spread for the canceled Mr. Coffee options. The options are exercisable immediately, but may not be exercised more than one year after termination or death while in the employ of the Company or more than 10 years from date of grant. 1995 Stock Option and Incentive Plan ------------------------------------ In April 1995, the Company adopted a new stock option and incentive plan (1995 Plan). The 1995 Plan provides authority for the grant of stock options and stock appreciation rights to directors, employees, and consultants by the Compensation Committee (Committee) of the board of directors. The total number of shares of common stock that may be subject to awards granted under the 1995 Plan is equal to 750,000 shares of common stock, subject to certain adjustments. The Committee selects the participants and determines (i) the type of option; (ii) the vesting schedule of options; (iii) the exercise price; and (iv) the duration of the options. No options may be granted under the 1995 Plan after April 27, 2005. (Continued) F-15 47 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data)
Under Option ---------------------------------- Number Exercise of Shares Price Range --------- --------------- 1994 - Outstanding at January 1, 1994 75,000 $6.00 - $14.50 Granted 427,353 $2.61 - $ 5.25 Canceled - Exercised - ------- Outstanding at October 2, 1994 502,353 $2.61 - $14.50 ======= Exercisable 381,103 $2.61 - $14.50 ======= 1995 - Outstanding at October 3, 1994 502,353 $2.61 - $14.50 Granted 377,000 $3.44 - $ 5.38 Canceled (65,500) $5.50 - $13.63 Exercised - ------- Outstanding at October 1, 1995 813,853 $2.61 - $14.50 ======= Exercisable 376,353 $2.61 - $14.50 ======= 1996 - Outstanding at October 2, 1995 813,853 $2.61 - $14.50 Granted 211,000 $5.38 - $ 6.31 Canceled (95,875) $3.44 - $14.50 Exercised (9,125) $3.44 - $ 3.69 ------- Outstanding at September 29, 1996 919,853 $2.61 - $14.50 ======= Exercisable 415,978 $2.61 - $14.50 =======
(Continued) F-16 48 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) (14) Unaudited Quarterly Financial Data ----------------------------------
Quarter ----------------------------------------------- First Second Third Fourth ---------- ------ ------ ------- Year ended September 29, 1996 Net sales $ 97,407 56,275 59,339 69,956 Gross profit 30,544 17,737 19,011 22,979 Interest expense 5,097 4,717 4,637 4,683 Net income (loss) 1,977 10 (218) 1,190 Primary and fully diluted earnings (loss) per share .22 - (.02) .13 Weighted average shares outstanding 9,071 9,071 9,071 9,078 Year ended October 1, 1995 Net sales $ 90,628 56,656 54,939 65,664 Gross profit 26,807 17,610 16,287 22,272 Interest expense 4,847 4,820 4,772 4,915 Net income (loss) 912 (153) (724) 677 Primary and fully diluted earnings (loss) per share .10 (.02) (.08) .07 Weighted average shares outstanding 9,071 9,071 9,071 9,071
During the fourth quarter of fiscal 1995, the Company recorded certain favorable adjustments to inventories in the amount of approximately $1,200 for overabsorbed overhead previously charged against cost of sales, and $837 for reductions to product liability as a result of new actuarial information. The effect of these adjustments was to increase gross profit by $2,037 and to increase fourth quarter net income by approximately $1,201 or $.13 per share. (15) Business and Credit Concentrations ---------------------------------- The Company distributes and sells its products through major retail outlets, including discounters/mass merchants, catalog showrooms, department stores, warehouse clubs, specialty stores, mail order catalog companies, and national hardware, drugstore, and retail grocery chains. Approximately 36 percent of the Company's revenues in the year ended September 29, 1996 were from two customers, accounting for 23 percent and 13 percent of total revenues. Approximately 33 percent of the Company's revenues in the year ended October 1, 1995 were from two customers, accounting for 23 percent and 10 percent of total revenues. During the nine-month period ended October 2, 1994, approximately 13 percent of the Company's revenues were from one customer. (Continued) F-17 49 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data) (16) Related Party Transactions -------------------------- Health o meter pays a management fee to a related party for certain administrative and professional services performed by the related party. Amounts paid to this related party for management fees, including reimbursed expenses, were $263, $305, and $16 for the years ended September 29, 1996 and October 1, 1995, and the nine-month period ended October 2, 1994, respectively. During 1994, the Company paid this related party $1,093 in conjunction with the acquisition of Mr. Coffee. (17) Financial Instruments --------------------- Management has determined that at September 29, 1996 and October 1, 1995, the fair value of financial instruments included in the balance sheets approximated their carrying values. With respect to cash, receivables, payables, and accrued liabilities, this determination was based on the short maturity of the instruments. With respect to debt, the assessment was based on management's judgment as to currently available rates on debt with similar maturities. (18) Condensed Consolidated Financial Information -------------------------------------------- Condensed consolidated financial information for Health o meter, Inc. at September 29, 1996 and October 1, 1995, and for the years ended September 29, 1996 and October 1, 1995, and the nine-month period ended October 2, 1994 is as follows:
September 29, October 1, 1996 1995 ------------- ----------- Current assets $ 109,007 103,916 Noncurrent assets 164,483 171,219 ------- ------- Total assets $ 273,490 275,135 ======= ======= Current liabilities $ 48,393 50,631 Noncurrent liabilities 176,090 178,487 Intercompany payables 47,658 47,627 ------- ------- Total liabilities 272,141 276,745 Stockholder's equity Common stock - $.01 par value; 1,000,000 shares authorized and outstanding 10 10 Paid-in capital 2,811 2,811 Accumulated deficit (1,472) (4,431) ------- ------- Total stockholder's equity 1,349 (1,610) ------- ------- Total liabilities and stockholder's equity $ 273,490 275,135 ======= =======
(Continued) F-18 50 HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (amounts in thousands, except per share data)
Year Ended Nine-Month ------------------------------ Period Ended September 29, October 1, October 2, 1996 1995 1994 ------------- ------------ ------------- Net sales $ 282,977 267,887 69,451 Gross profit 90,271 82,976 16,292 Net income (loss) 2,959 712 (8,045)
F-19 51 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 as to the Directors of the Company is incorporated herein by reference to the information set forth under the caption "Election of Directors" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 6, 1997, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. Information required by this Item 10 as to the executive officers of the Company is included as Item 4A of Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to Item 401(b) of Regulation S-K. Information required by Item 405 of Regulation S-K is incorporated by reference to the information set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on March 6, 1997. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated by reference to the information set forth under the caption "Compensation of Directors and Executive Officers" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 6, 1997, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated by reference to the information set forth under the caption "Stock Ownership of Principal Holders and Management" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 6, 1997, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. -31- 52 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is incorporated by reference to the information set forth under the caption "Certain Transactions" in the Company's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 6, 1997, since such Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company's fiscal year pursuant to Regulation 14A. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON REPORT 8-K (a)(1) Financial Statements -------------------- The following Financial Statements of the Registrant are included in Part II, Item 8:
Page ---- Independent Auditors' Report - KPMG Peat Marwick LLP ...................... F-1 Consolidated Balance Sheets September 29, 1996 and October 1, 1995 ........................................................ F-2 Consolidated Statements of Operations Years Ended September 29, 1996 and October 1, 1995 and Nine-Month Period Ended October 2, 1994 ................................ F-3 Consolidated Statements of Stockholders' Equity Years Ended September 29, 1996 and October 1, 1995 and Nine-Month Period Ended October 2, 1994................................. F-4 Consolidated Statements of Cash Flows Years Ended September 29, 1996 and October 1, 1995 and Nine-Month Period Ended October 2, 1994 ................................ F-5 Notes to Consolidated Financial Statements................................. F-6
-32- 53 (a)(2) Financial Statement Schedules ----------------------------- The following Financial Statement Schedules of the Registrant are included in Item 14 hereof. Page ---- Schedule I - Condensed Financial Information of Registrant 37 Schedule II - Valuation and Qualifying Accounts 39 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (a)(3) Exhibits -------- Reference is made to the Exhibit Index set forth herein beginning at page 39. (b) Report on Form 8-K ------------------ No reports on Form 8-K were filed by the Company during the fiscal quarter ended September 29, 1996. -33- 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized at Cleveland, Ohio this 26th day of December, 1996. HEALTH O METER PRODUCTS, INC. HEALTH O METER, INC. By: /s/ Peter C. McC. Howell --------------------------------------- Peter C. McC. Howell Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on December 26, 1996. /s/ Peter C. McC. Howell /s/ Thomas H. Lee - ------------------------- -------------------------------- Peter C. McC. Howell Thomas H. Lee, Director Chairman, Chief Executive Officer and Director (Principal Executive Officer) /s/ William P. Carmichael -------------------------------- William P. Carmichael, Director /s/ David A. Jones -------------------------------- David A. Jones, Director /s/ Steven M. Billick /s/ Robert W. Miller - ---------------------- -------------------------------- Steven M. Billick Robert W. Miller, Director Senior Vice President, Treasurer and Chief Financial Officer (Principal /s/ Scott A. Schoen Accounting and Financial Officer) -------------------------------- Scott A. Schoen, Director /s/ Thomas R. Shepherd -------------------------------- Thomas R. Shepherd, Director /s/ Lawrence Zalusky -------------------------------- Lawrence Zalusky, Director /s/ Frank E. Vaughn -------------------------------- Frank E. Vaughn, Director -34- 55 The following pages contain the Financial Statement Schedules as specified by Item 14(a)(2) of Part IV of Form 10-K. The report of KPMG Peat Marwick LLP thereon as of September 29, 1996 and October 1, 1995 and for the years ended September 29, 1996 and October 1, 1995 and the nine-month period ended October 2, 1994, appears at page F-1 of this Form 10-K. -35- 56 Schedule I Health o meter Products, Inc. and Subsidiary Condensed Financial Information of the Registrant Condensed Statements of Operations and Cash Flows Years ended September 29, 1996 and October 1, 1995, and the nine-month period ended October 2, 1994 (dollars in thousands)
1996 1995 1994 ------- ------- ------- STATEMENTS OF OPERATIONS Equity in net income (loss) of subsidiary $ 2,959 712 (8,045) ------- ------- ------- Net income (loss) $ 2,959 712 (8,045) ======= ======= ======= STATEMENTS OF CASH FLOWS Cash flows from operating activities Net income (loss) $ 2,959 712 (8,045) Adjustments to reconcile net income (loss) to net cash used in operating activities Intercompany receivables (31) -- (18,990) Equity in net (income) loss of subsidiary (2,959) (712) 8,045 Change in working capital -- -- -- ------- ------- ------- Net cash used in operating activities (31) -- (18,990) ------- ------- ------- Cash flow from financing activities Proceeds from issuance of warrants -- -- 1,773 Proceeds from issuance of common stock 31 -- 17,217 ------- ------- ------- Net cash provided by financing activities 31 -- 18,990 ------- ------- ------- Increase (decrease) in cash -- -- -- Cash at the beginning of the period -- -- -- ------- ------- ------- Cash at the end of the period $ -- -- -- ======= ======= =======
-36- 57 Schedule I Health o meter Products, Inc. and Subsidiary Condensed Financial Information of the Registrant Condensed Balance Sheets September 29, 1996 and October 1, 1995 (dollars in thousands, except per share amounts)
1996 1995 -------- --------- ASSETS Investment in subsidiary $ 1,349 (1,610) Intercompany receivable 47,658 47,627 -------- -------- Total assets $ 49,007 46,017 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Stockholders' equity Common stock - par value $.01 per share; authorized 20,000,000 shares; issued and outstanding 9,080,534 shares at September 29, 1996 and 9,071,409 shares at October 1, 1995 $ 91 91 Paid-in capital 51,772 51,741 Warrants 1,773 1,773 Retained deficit (4,629) (7,588) -------- -------- Total stockholders' equity 49,007 46,017 -------- -------- Total liabilities and stockholders' equity $ 49,007 46,017 ======== ========
-37- 58 Schedule II HEALTH O METER PRODUCTS, INC. AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
Balance Balance at at End Beginning of of Period Additions Deductions Period --------- --------- ---------- --------- Allowance for Doubtful Accounts and Discounts Nine-month period ended October 2, 1994 $ 61 1,938 * 66 1,933 Year ended October 1, 1995 1,933 268 388 1,813 Year ended September 29, 1996 1,813 923 144 2,592 * Includes $1,478 in reserves for doubtful accounts and discounts from the acquisition of Mr. Coffee, inc.
-38- 59 Exhibit Index -------------
Sequential Exhibit Number Description of Document Page - -------------- ----------------------- ---- 3.1 Amended and Restated Certificate of Incorporation of the Company (A) 3.2 Certificate of Incorporation of Health o meter, as amended (B) 3.3 Amended and Restated By-laws of the Company, as amended (A) 3.4 By-laws of Health o meter (B) 3.5 Certificate of Amendment to Amended and Restated Certificate of (J) Incorporation of the Company 4.1 Indenture dated August 17, 1994 pursuant to which Health o meter's (C) 13% Senior Subordinated Notes due 2002 have been issued 4.2 13% Senior Subordinated Note due 2002 (C) 4.3 Warrant Agreement dated August 17, 1994 (C) 10.1 Second Amended 1992 Stock Incentive Plan of the Company* (B) 10.2 Employment Agreement among the Company, Health o meter and Peter C. (A) McC. Howell* 10.3 Form of Non-Qualified Stock Option Agreement between the Company (A) and Peter C. McC. Howell* 10.4 Amended and Restated Employment and Non-Competition Agreement among (B) the Company, Health o meter and Lawrence Zalusky, dated as of June 28, 1994* 10.5 Amended and Restated Employment Agreement between the Company and S. Donald McCullough dated July 1, 1996* (Portions of this exhibit have been omitted pursuant to a request for confidential treatment) 10.6 Employment Agreement between the Company and Richard C. Adamany (K) dated March 31, 1995* 10.7 Employment Agreement between the Company and Timothy J. McGinnity (K) dated March 31, 1995* 10.8 Employment Agreement between the Company and John D. Lange dated (L) March 20, 1995* 10.9 Employment Agreement between the Company and Steven M. Billick dated June 10, 1996* 10.10 Second Amended and Restated Stockholders Agreement among the (A) Company and certain of its stockholders 10.11 Credit Agreement dated August 17, 1994 among Health o (C) meter, Banque (C) National de Paris, New York Branch and the lenders named therein
-39- 60 10.12 Amended and Restated Management Agreement among the THL Co., Health (A) o meter and the Company 10.13 Letter Agreement between Health o meter and JLP Media, Inc. dated (D) January 31, 1992 10.14 Agreement for Purchase and Sale of Assets dated November 11, 1992 (G) among Pelouze, Health o meter and PSC Acquisition Co. 10.15 Agreement and Plan of Merger dated as of May 24, 1994 among the (B) Company, Health o meter, Java Acquisition Corporation and Mr. Coffee, inc. 10.16 1994-1999 Labor Agreement between Mr. Coffee and Industrial and (H) Allied Employees Local Union No. 73. 10.17 1995 Stock Option and Incentive Plan of the Company* (I) 10.18 Lease Agreement dated October 15, 1996, between Duke Realty Limited Partnership and the Company 10.19 Agreement between Health o meter, Inc. and Manufacturing, Production and Service Workers Union, Local No. 24, AFL-CIO, November 14, 1994 through November 13, 1997 21.1 Subsidiaries of the Company (H) 23.1 Consent of KPMG Peat Marwick LLP 27.1 Financial Data Schedule - -------------------------- (A) Incorporated herein by reference to the appropriate exhibit to the Company's registration statement on Form S-1 (Reg. No. 33-80124). (B) Incorporated herein by reference to the appropriate exhibit to the Company's and Health o meter's registration statement on Form S-1 (Reg. No. 33-80000). (C) Incorporated herein by reference to the appropriate exhibit to the Company's current report on Form 8-K dated August 17, 1994. (D) Incorporated herein by reference to the appropriate exhibit to the Company's registration statement on Form S-1 (Reg. No. 33-45202). (E) Incorporated herein by reference to the appropriate exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1992. (F) Incorporated herein by reference to the appropriate exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1993. (G) Incorporated herein by reference to the appropriate exhibit to the Company's current report on Form 8-K dated December 12, 1992. (H) Incorporated herein by reference to the appropriate exhibit to the Company's annual report on Form 10-K for the period ended October 2, 1994. (I) Incorporated herein by reference to the appropriate exhibit to the Company's Proxy Statement in connection with the Annual Meeting of Stockholders held on April 27, 1995.
-40- 61 (J) Incorporated herein by reference to the appropriate exhibit to the Company's current report on Form 10-Q for the period ended April 2, 1995. (K) Incorporated herein by reference to the appropriate exhibit to the Company's current report on Form 10-Q for the period ended July 2, 1995. (L) Incorporated herein by reference to the appropriate exhibit to the Company's current report on Form 10-Q for the period ended June 30, 1996. * Management contract or compensatory plan or arrangement. -41- EX-10.5 2 EXHIBIT 10.5 1 Exhibit 10.5 ------------ 2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT ----------------------------------------- THIS AGREEMENT (the "Agreement") made as of the 1st day of July, 1996 by and between Health o meter Products, Inc., a Delaware corporation ("Health o meter" or the "Company") and S. DONALD McCULLOUGH, an individual currently residing at 2699 Wadsworth Road, Shaker Heights, Ohio 44122 ("McCullough" or the "Employee"). WHEREAS, Health o meter and McCullough are parties to an Employment Agreement dated as of April 4, 1994 (the "Employment Agreement") setting forth the terms and conditions under which McCullough is employed by the Company and upon which the Company compensates McCullough; and WHEREAS, in connection with the Employment Agreement, the Company and the Employee also entered into an Incentive Stock Option Agreement dated as of May 5, 1994 (the "Incentive Stock Option Agreement") and a Non-Qualified Stock Option Agreement dated as of April 27, 1995 (the "Non-Qualified Stock Option Agreement"); and WHEREAS, the parties desire to amend and restate the Employment Agreement by entering into this Amended and Restated Employment Agreement; NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: ARTICLE I --------- EFFECTIVE TIME -------------- 1.1 EFFECTIVE TIME. This Agreement shall become effective as of July 1, 1996 (the "Effective Time") and the Employment Agreement dated April 4, 1994 shall thereupon terminate and be of no further force or effect. ARTICLE II ---------- EMPLOYMENT ---------- 2.1 EMPLOYMENT. The Company hereby employs McCullough and McCullough hereby agrees to serve the Company on the terms and conditions set forth herein. McCullough shall hold the offices of President and Chief Operating Officer of the Company. *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 3 ARTICLE III ----------- TERM ---- 3.1 TERM. The term of employment of McCullough by the Company pursuant to this Agreement shall commence at the Effective Time and end on January 2, 1999 and shall be renewed automatically for successive two (2) year periods thereafter unless terminated as hereinafter provided, and unless either party gives the other notice of its intent not to renew this Agreement, which notice must be given at least ninety (90) days prior to the expiration of the initial term or any extension thereof. Notwithstanding the foregoing, the provisions of Section 5.5 hereof shall not be deemed to be included in or otherwise form a part of the terms of any renewal of this Agreement, and the Company shall be under no obligation to enter into any arrangements similar to those set forth in Section 5.5 in connection with any such renewal. ARTICLE IV ---------- DUTIES OF EMPLOYMENT -------------------- 4.1 DUTIES. Subject to the authority of the Board, McCullough shall have the status and powers as are customarily associated with, and shall perform such duties and functions as the Board shall from time to time determine and as are customarily assigned to, the President and Chief Operating Officer of a corporation. McCullough shall devote his full time and effort to the business and affairs of the Company; provided, however, that McCullough shall be entitled to serve on the Board of Directors of not more than two other companies which do not manufacture, market, sell or otherwise deal in products or services which are competitive with those manufactured, marketed or sold by the Company, and provided, further, that McCullough shall be entitled to serve on the governing body of any not-for-profit, charitable, trade or community organization. McCullough further agrees to serve, if elected or appointed thereto, as a director of the Company's subsidiaries and affiliated entities (if any) and in one or more executive offices of any of the Company's subsidiaries and affiliated entities (if any), provided that McCullough is indemnified for serving in any and all such capacities on the basis no less favorable than is currently provided by the Company's Certificate of Incorporation or By-laws. ARTICLE V --------- COMPENSATION AND RELATED MATTERS -------------------------------- 5.1 SALARY. As compensation for the employment services to be rendered by McCullough hereunder, the Company shall pay to McCullough a salary at a rate of Two Hundred Seventeen Thousand One Hundred Dollars ($217,100) per annum, payable at such *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 2 4 intervals as may be consistent with the Company's payroll policies, subject to increase by the Compensation Committee of the Board in its sole discretion. The Company and McCullough agree that McCullough's salary shall be reviewed by the Compensation Committee of the Board of Directors from time to time. Compensation of McCullough by salary payments shall not be deemed exclusive and shall not prevent McCullough from participating in any other compensation or benefit plan of the Company. The salary payments (including any increased salary payments) hereunder shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay McCullough's salary hereunder. 5.2 EXPENSES. During the term of McCullough's employment hereunder, McCullough shall be entitled to reimbursement of expenses in accordance with the Company's standard practices and policies, including without limitation, a leased automobile of his choice and reasonable country club expenses incurred for business purposes and shall be reimbursed for reasonable expenses incurred in relocating his principal residence (including any brokerage fee and loss of home equity): (a) to the Cleveland metropolitan area and; (b) when and if the Company's principal executive offices are relocated. Any expenses reimbursed by the Company under this Section 5.2 in respect of (i) reasonable country club expenses and (ii) relocations of McCullough's principal residence shall be reimbursed on a tax-grossed up basis. 5.3 OTHER BENEFITS. (a) CONTINUED PARTICIPATION. McCullough shall be entitled to participate in all of the Company's employee benefit plans in effect at the Effective Time and any other plans made available by the Company in the future to its executives and key management employees. (b) PRO-RATION. Nothing paid to McCullough under any plan presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to McCullough pursuant to Section 5.1 of this Article. Any payments or benefits payable to McCullough hereunder in respect of any calendar year during which McCullough is employed by the Company for less than the entire such year shall, unless otherwise provided in the applicable plan or arrangement, be pro-rated in accordance with the number of days in such calendar year during which he is so employed. 5.4 ANNUAL PERFORMANCE BONUS. In addition to the annual salary set forth in Section 5.1 of this Article, the Company agrees to establish a bonus plan for executive officers under which McCullough, during the term of this Agreement, will be *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 3 5 entitled to participate, commensurate with his position and salary. The amount of any annual bonus payable to McCullough shall be determined under such plan. 5.5 STOCK OPTIONS. In addition to the annual salary and bonuses set forth in this Article V, the Employee shall be entitled to: (a) The Company will grant the Employee a non- qualified stock option, within the meaning of Section 422 of the Internal Revenue Code (the "1996 Option"), to purchase 90,500 shares of Common Stock of the Company at $5.375 per share. The 1996 Option will be subject to the terms and conditions set forth below and to the other terms and conditions set forth in a Non-Qualified Stock Option Agreement relating thereto attached as Exhibit A to this Agreement. The 1996 Option shall be exercisable as of the date hereof with respect to 22,625 Common Shares, as a result of the Company's achievement of EBITDA of * (as against an EBITDA target of * ) for its fiscal year ended in 1995. The remaining shares under the 1996 Option will vest and become exercisable on the dates and in the amounts set forth below only if the EBITDA targets set forth below are achieved; PROVIDED, HOWEVER, that if the Company's EBITDA for any of the fiscal years set forth above equals at least 90%, but less than 100%, of the EBITDA target applicable to such fiscal year, one-half of the shares scheduled to vest and become exercisable under the terms of the 1996 Option on December 31st of such year shall vest and become exercisable on such date. For purposes hereof, the term "EBITDA" for any year will mean consolidated earnings before interest, taxes, depreciation and amortization, determined in accordance with generally accepted accounting principles, consistently applied.
Number of Shares Fiscal Year Shares Vest on EBITDA Exercisable Ending In December 31, (in thousands) Entity ----------- --------- ------------ -------------- ------ 22,625 1996 1996 * Health o meter Products, Inc. (consolidated) 22,625 1997 1997 * Health o meter Products, Inc. (consolidated) 22,625 1998 1998 * Health o meter Products, Inc. (consolidated)
(b) Subject to the provisions of Section 5.5(c), if the value of the shares exercisable under the 1996 Option, the 55,000 shares subject to the Incentive Stock Option Agreement and the 45,000 shares subject to the Non-Qualified Stock Option Agreement dated April 27, 1995, as amended as of the date hereof *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 4 6 (collectively, the "Options") on December 31, 1998, including those shares disposed of (if any) is less than One Million Dollars ($1,000,000) (the "Formula Amount") on that date, the Company will pay the Employee, in cash, the amount by which the Formula Amount exceeds the value of the Options, including those shares disposed of prior to December 31, 1998. For purposes of this Article V, value shall mean, (a) for the shares exercisable under the Options, or for shares issued under the Options but not sold, the Fair Market Value of the Company's Common Stock on December 31, 1998, less the option exercise price, and (b) for any shares issued under the Options and sold before December 31, 1998, the actual sales price, less the option exercise price. For purposes of this Article V, the term Fair Market Value shall mean, if the Common Stock is listed on a national securities exchange, the NASDAQ Stock Market or another automated interdealer quotation system providing last sale reporting, the mean between the highest and the lowest sale price of the Common Stock on such date, or, if no sales have occurred on such date, on the most recent preceding day on which there are sale prices for the Common Stock. If the Common Stock is not listed on such an exchange, the NASDAQ Stock Market or such other system, then the term Fair Market Value shall mean the mean between the bid and ask prices for the Common Stock on the principal quotation system in which it is then included on such date. If the Common Stock is not publicly traded or such quotations are not otherwise available, then Fair Market Value shall be determined through a procedure reasonably acceptable to the Company and the Employee. (c) To the extent that the Company's cumulative EBITDA for the fiscal years ending in 1995, 1996, 1997 and 1998 (the "Cumulative EBITDA") does not equal or exceed * (the "Targeted Cumulative EBITDA"), then the Formula Amount payable to Employee shall be determined in accordance with the procedures set forth in the following sentence; provided, however, that the Company shall have no obligation to make any payments to the employee under the terms of this Section 5.5 if Cumulative EBITDA is less than * (the "Minimum Cumulative EBITDA"). In the event that the Cumulative EBITDA is greater than the Minimum Cumulative EBITDA but less than Targeted Cumulative EBITDA, the Formula Amount shall be determined by multiplying (i) the difference between the Cumulative EBITDA and the Minimum Cumulative EBITDA by (ii) a fraction, the numerator of which is 1,000,000 and the denominator of which is the difference between the Targeted Cumulative EBITDA and the Minimum Cumulative EBITDA. (d) If the Employee's employment is terminated without cause (as defined in Section 6.1 hereof) prior to the end of the fiscal year ending in 1998, then, for purposes of determining the amount, if any, payable to Employee under this Section 5.5, the Formula Amount shall be determined by: (i) multiplying $1,000,000 by a fraction, the numerator of which is the Company's cumulative EBITDA from the beginning of the fiscal year ending in 1995 *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 5 7 through the end of the most recent fiscal year completed prior to the date of termination of Employee's employment, and the denominator of which is the sum of the annual EBITDA targets set forth in Section 5.5(a) for each of the fiscal years completed prior to the date of the termination of Employee's employment (the "Interim Targeted Cumulative EBITDA"); (ii) multiplying the result of the calculation set forth in clause (i) by a fraction, the numerator of which is the number of full fiscal years (beginning with the fiscal year ending in 1995) completed prior to the date of the termination of the Employee's employment and the denominator of which is four; and (iii) subtracting the result of the calculation set forth in clause (ii) from the value of the Options on the date of termination (such value to be determined in accordance with the procedures set forth in Section 5.5(a)). Notwithstanding the foregoing, the Company shall have no obligation to make any payment to the Employee under this Section 5.5 in connection with the termination of the Employee's employment if the Company's actual cumulative EBITDA for fiscal years completed prior to the date of such termination does not equal or exceed 80% of the Interim Targeted Cumulative EBITDA for such years. (e) If the Employee's employment is terminated without cause (as defined in Section 6.1 hereof) subsequent to the end of the fiscal year ending in 1998, the Company's obligation, if any, to pay to the Employee the Formula Amount shall be determined in accordance with the provisions of Section 5.5(a) through 5.5(c) hereof, and the termination of the Employee's employment without cause subsequent to the end of the fiscal year ending in 1998 shall not have any effect on the Employee's rights or the Company's obligations with respect thereto. ARTICLE VI ---------- TERMINATION ----------- 6.1 DEFINITIONS. (a) For purposes of this Article, "termination for cause" shall mean any termination of the Employee's employment resulting from: (i) Employee's engaging in fraud, misappropriation of funds, embezzlement or like conduct committed against the Company; (ii) Employee's conviction of a felony; or (iii) Employee's material violation of any provision of this Agreement which has not been cured within thirty (30) days after written notice setting forth such material violation and also setting forth the actions that Employee shall be required to take to cure such material violation has been given by the Company to Employee. (b) The Company may terminate Employee's employment *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 6 8 hereunder at any time without cause. Notwithstanding any other provisions of this Agreement to the contrary and for purposes of this Article, any termination of Employee's employment resulting from: (i) Employee's death; (ii) Employee's inability to perform the essential functions of his job with or without reasonable accommodation; (iii) Employee's resignation following a Change in Control; (iv) Employee's resignation following the failure by the Company to obtain the agreement referred to in the first sentence of Section 7.1 below; or (v) Employee's resignation following a material diminution in the nature or scope of Employee's responsibilities, duties, powers or authority as set forth under this Agreement, shall be deemed to be a termination by the Company without cause. A "Change in Control" shall be deemed to have occurred if any person, or any two or more persons acting as a group, and all affiliates of such person or persons, who prior to such time owned less than five percent (5%) of the then outstanding common stock of the company, acquires such additional shares of the Company's common stock in one or more transactions, or series of transactions, such that following such transaction or transactions, such person or group and affiliates beneficially own fifty percent (50%) or more of the Company's outstanding common stock. 6.2 RESIGNATION; TERMINATION FOR CAUSE. If Employee resigns from his positions with the Company (other than as set forth in Section 6.1(b)(iii), (iv) or (v)) or his employment shall be terminated by the Company for cause, the Company shall pay Employee his full salary through the date of resignation or termination at the rate then in effect and the Company shall have no further obligations to Employee under this Agreement. 6.3 TERMINATION WITHOUT CAUSE. If the Company terminates Employee's employment hereunder without cause, or if the Company fails to renew the term of this Agreement, then: (a) the Company shall pay Employee (i) his full salary through the date of termination, at the annual rate then in effect and (ii) an amount in lieu of the annual performance bonus for the year in which such date of termination occurs equal to 50% of the amount of such bonus paid to the Employee with respect to the last fiscal year completed prior to the date of termination; (b) in lieu of any further salary payments to Employee for periods subsequent to the date of termination, the Company shall continue to pay to Employee: (i) his salary at the annual rate in effect immediately prior to such termination for the eighteen (18) month period following such termination (the "Salary Continuation Period"); and (ii) an amount in lieu of an annual performance bonus, which amount shall be determined by multiplying the full amount of any performance bonus earned by Employee in the fiscal year immediately preceding the fiscal year in which the termination of employment occurred by the number 1.5, *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 7 9 with payment to be made over an eighteen (18) month period, in equal periodic installments consistent with the Company's payroll policies; (c) in addition, all stock options, stock appreciation rights, restricted stock, other rights to acquire stock and other similar rights or benefits previously granted to Employee but not yet vested, shall vest immediately prior to such termination; (d) the Company shall pay Employee the amount, if any, determined in accordance with Section 5.5(d) within sixty (60) days after the Company terminates Employee's Employment without cause; and (e) payment of the foregoing by the Company shall constitute complete satisfaction and remedy with respect to termination of Employee's employment by the Company without cause. 6.4 CONTINUED BENEFITS. Unless Employee is terminated by the Company for cause, or Employee shall resign from his positions with the Company (other than as set forth in Section 6.1(b)(iii), (iv) or (v)), the Company shall maintain in full force and effect, at the Company's costs and expense and for the continued benefit of Employee during the Salary Continuation Period, all employee benefit plans and programs (other than (a) the Company's stock option plans, as to which the rights and obligations of the parties shall be governed exclusively by the terms of any option agreements entered into by the Company and Employee; and (b) those benefit plans and programs exclusively available to Employee pursuant to the provisions of this Agreement, all of which shall be governed by the other terms hereof), in which Employee was entitled to participate immediately prior to the date of termination; PROVIDED, that Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event Employee's participation in any such plan or program is barred, the Company shall arrange to provide Employee with benefits substantially similar to those which Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is barred. It is specifically agreed that under the terms of this Section 6.4, during the Salary Continuation Period, Employee shall be entitled (subject to the terms of the relevant plans) to: (x) participate in the Company's Flexible Spending Account Plan, (y) contribute to and receive matching contributions from the Company in accordance with the terms of the Company's Section 401(k) Plan and Trust in an amount equal to that provided to Employee immediately prior to the date of termination, and (z) the leased automobile of his choice as set forth in Section 5.2. 6.5 NO DUTY TO MITIGATE. Employee shall not be required to mitigate the amount of any payment provided for in *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 8 10 this Article by seeking other employment or otherwise and the Company will not be entitled to set off against amounts payable to Employee pursuant to this Agreement any amounts earned by Employee from other employment during the remaining term of Salary Continuation Period. ARTICLE VII ----------- SUCCESSORS, BINDING AGREEMENT ----------------------------- 7.1 SUCCESSORS. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to McCullough, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of a material provision of this Agreement and shall entitle McCullough to exercise in his discretion any and all rights arising from such a breach as provided in this Agreement. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 7.1 or which otherwise becomes bound by all terms and provisions of this Agreement by operation of law. 7.2 BINDING AGREEMENT. This Agreement and all rights of McCullough hereunder shall inure to the benefit of and be enforceable by McCullough's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If McCullough should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to McCullough's devisee, legatee, designee or, if there is no such designee, to McCullough's estate. This Agreement and all rights of the Company hereunder shall enure to the benefit of and be enforceable by the Company's successors and assigns. ARTICLE VIII ------------ REPRESENTATIONS AND AGREEMENTS OF MCCULLOUGH -------------------------------------------- 8.1 ABILITY TO PERFORM. McCullough represents and warrants that he is free to enter into this Agreement and to *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 9 11 perform the duties required hereunder, and that there are no employment contracts or understandings, restrictive covenants or other restrictions, whether written or oral, preventing the performance of his duties hereunder. 8.2 COOPERATION. McCullough agrees to submit to a medical examination and to cooperate and supply such other information and documents as may be required by any insurance company in connection with the Company's obtaining life insurance on the life of McCullough, and any other type of insurance or fringe benefit as the Company shall determine from time to time to obtain. ARTICLE IX ---------- RESTRICTIVE COVENANTS --------------------- 9.1 NON-COMPETITION. McCullough agrees that during the Non-Competitive Period (as defined below), McCullough shall not, directly or indirectly, as owner, partner, joint venturer, stockholder, employee, broker, agent, principal, trustee, corporate officer, director, licensor or in any capacity whatsoever, engage in, become financially interested in, be employed by, render any consultation or business advice with respect to, or have any connection with, any business engaged in manufacturing, assembly, marketing or sales of coffeemakers, teamakers, filters, scales, massagers or any other product then being manufactured, assembled, marketed or sold by the Company, or then being developed by the Company with the expectation of sale by the Company within 90 days, in any geographic area where, at the time of the termination of his employment hereunder, the business of the Company was being conducted in any material respect; provided, however, that McCullough may own any securities of any corporation which is engaged in such business and is (i) publicly owned and traded but in an amount not to exceed at any one time five percent (5%) of any class of stock or securities of such corporation or (ii) a non-public start-up company engaged in a business which is unrelated to the businesses then engaged in by the Company. The term "NonCompetitive Period" shall mean the period commencing on the Date of Termination and ending on the date which is (i) twelve (12) months later, in the event of termination by the Company without cause, or (ii) eighteen (18) months later, in the event of termination by McCullough of his employment hereunder (other than as set forth in Section 6.1(b)(iii), (iv) or (v)) or termination by the Company for cause before the end of this Agreement. 9.2 NO HIRING. During the Non-Competitive Period, McCullough will not knowingly (i) hire or attempt to hire any employee of the Company or of any of the Company's subsidiaries or affiliated entities (if any); (ii) assist in such hiring by any *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 10 12 other person; or (iii) encourage any such employee to terminate his employment with the Company or any of such subsidiaries or affiliated entities. 9.3 SEVERABILITY. If any portion of the restrictions set forth in this Article IX should, for any reason whatsoever, be declared invalid by a court of competent jurisdiction, the validity or enforceability of the remainder of such restrictions shall not thereby be adversely affected. 9.4 REASONABLENESS. McCullough agrees that the territorial and time limitations set forth in this Article IX are reasonable and properly required for the adequate protection of the business of the Company. In the event any such territorial or time limitation is deemed to be unreasonable by a court of competent jurisdiction, McCullough agrees to the reduction of the territorial or time limitation to the area or period which such court shall have deemed reasonable. ARTICLE X --------- NON-DISCLOSURE OF CONFIDENTIAL INFORMATION ------------------------------------------ 10.1 NON-DISCLOSURE. McCullough shall not, during the term of this Agreement and at any time thereafter, directly or indirectly, disclose or permit to be known outside of the scope of his duties to the Company, to any person, firm or corporation, any confidential information acquired by him during the course of, or as an incident to, his employment relating to the Company. It shall not be outside the scope of McCullough's duties to the Company to disclose confidential information to the Company's directors, officers, employees, advisors, attorneys, accountants, lenders, financial institutions or investors. Such confidential information shall be limited to proprietary technology, market data, formulae, customer and supplier lists, non-public financial and operating information and data, and any other documents embodying such confidential information to the extent that such data and information relate specifically to the Company. Such restrictions apply only to the reproduction or use of the specific written documents of the Company relating to the above-described categories and not to any knowledge (including but not limited to knowledge gained from such confidential information) based on McCullough's experience during his employment with the Company or otherwise. 10.2 RETURN OF DOCUMENTS. Upon termination of McCullough's employment with the Company, all documents, records, reports, writings and other similar documents containing confidential information, including copies thereof, then in McCullough's possession or control shall be returned and left with the Company. *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 11 13 ARTICLE XI ---------- EQUITABLE RELIEF ---------------- 11.1 RIGHT TO INJUNCTION. McCullough recognizes that the services to be rendered by him hereunder are of a special, unique, unusual, extraordinary and intellectual character, involving skill of the highest order and giving them peculiar value, the loss of which cannot be adequately compensated for in damages. In the event of a breach of this Agreement by McCullough, the Company shall be entitled to injunctive relief or any other legal or equitable remedies. McCullough agrees that the Company may recover by appropriate action the amount of the actual damages caused the company by any failure, refusal or neglect of McCullough to perform his agreements, representations and warranties herein contained. The remedies provided in this Agreement shall be deemed cumulative and the exercise of one shall not preclude the exercise of any other remedy, at law or in equity, for the same event or any other event. ARTICLE XII ----------- MISCELLANEOUS ------------- 12.1 INDEMNIFICATION; INSURANCE. The Company will indemnify McCullough to the maximum extent permitted by law (including advancing expenses where appropriate) with respect to actions taken by him as an officer or director of the Company, any of its subsidiaries, or any affiliated entity of the company or any of its subsidiaries. The Company will also maintain in effect during McCullough's employment hereunder directors and officer liability insurance, to the extent the same can be obtained on commercially reasonable terms. If permitted by the terms of the policy providing such insurance, McCullough will remain insured under such policy until the first to occur of (i) termination of such policy (other than termination by the Company), or (ii) the fifth anniversary of the termination of McCullough's employment with the Company. 12.2 ARBITRATION. Should any dispute arise between the parties concerning the performance of this Agreement, the parties agree to mediation and, if not resolved through such mediation within thirty (30) days, final and binding arbitration in the city in which the principal executive offices of the Company are located at the time such dispute arises in accordance with the rules of the American Arbitration Association, subject to Article XI in the case of alleged breach of Articles IX or X. The decision rendered in any arbitration proceedings shall be in writing and shall set forth the basis therefor. The *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 12 14 parties shall abide by the award rendered in the arbitration proceedings, and such award may be entered as a final, non-appealable judgment, and may be enforced and executed upon, in any court having jurisdiction over the party against whom enforcement of such award is sought. Each of the parties agrees (in connection with any action brought to enforce the arbitration provisions of this paragraph) not to assert in any such action, any claim that it is not subject to the personal jurisdiction of such court, that the action is brought in an inconvenient forum, that the venue of the action is improper or that such mediation or arbitration may not be enforced by such courts. Each party agrees that service of process may be made upon it by any method authorized by the laws of the state in which arbitration is to be conducted in accordance with this Section 12.2. 12.3 NOTICE. for the purposes of this Agreement, notices, demands and all other communications provided for in the Agreement shall be in writing, shall be deemed to have been duly given when delivered or unless otherwise specified mailed by U.S. registered mail, return receipt requested, postage prepaid, addressed as follows: If the McCullough: S. Donald McCullough 2699 Wadsworth Road Shaker Heights, OH 44122 If to the Company: Health o meter Products, Inc. 24700 Miles Road Bedford Heights, Ohio 44146 With a copy to: Calfee, Halter & Griswold 1400 McDonald Investment Center 800 Superior Avenue Cleveland, Ohio 44114 Attn: Thomas F. McKee, Esq. or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12.4 AMENDMENT OR ALTERATION. No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by both of the parties hereto. 12.5 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Ohio. 12.6 SEVERABILITY. The holding of any provision of this Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 13 15 this Agreement, which shall remain in full force and effect. 12.7 WAIVER OF BREACH. No waiver of or failure to enforce any provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision of this Agreement, nor shall such waiver or failure to enforce constitute a continuing waiver. 12.8 ASSIGNMENT. This Agreement may not be transferred or assigned by either party without the prior written consent of the other party. 12.9 FURTHER ASSURANCES. The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Agreement. 12.10 HEADINGS. The section headings appearing in this Agreement are for purposes of each reference and shall not be considered a part of this Agreement or in any way modify, amend or affect its provisions. *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 14 16 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. HEALTH O METER PRODUCTS, INC. By: /s/ Peter C. McC. Howell -------------------------------- Peter C. McC. Howell, Chairman and Chief Executive Officer /s/ S. Donald McCullough ----------------------------- S. Donald McCullough *Confidential information has been omitted and filed separately with the Securities and Exchange Commission. 15 EX-10.9 3 EXHIBIT 10.9 1 Exhibit 10.9 ------------ 2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, made and entered into as of the 10th day of June, 1996 by and between STEVEN M. BILLICK ("Employee") and HEALTH O METER PRODUCTS, INC., a Delaware corporation (the "Company"). W I T N E S S E T H ------------------- WHEREAS, the Company desires to retain the services of the Employee as its Senior Vice President, Treasurer and Chief Financial Officer; and WHEREAS, the Company and the Employee deem it necessary and appropriate to enter into an agreement setting forth the terms and conditions of the Employee's employment with the Company. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the Employee and the Company agree as follows: ARTICLE I EFFECTIVE TIME Section 1.00. EFFECTIVE TIME. This Agreement shall become effective as of June 10, 1996 (the "Effective Time"). ARTICLE II EMPLOYMENT Section 2.01. EMPLOYMENT. The Company hereby employs the Employee and the Employee hereby agrees to serve the Company on the terms and conditions set forth herein. Employee shall initially hold the offices of Senior Vice President, Treasurer and Chief Financial Officer of the Company. Section 2.02. AT WILL STATUS. Employee specifically acknowledges and agrees that his employment with the Company is "at will," and may be terminated by him or the Company at any time with or without cause. 1 3 ARTICLE III DUTIES OF EMPLOYMENT Section 3.00. DUTIES. Subject to the authority of the Board, Employee shall have the status and powers as are customarily associated with, and shall perform such duties and functions as the Board shall from time to time determine and as are customarily assigned to, the Senior Vice President, Treasurer and Chief Financial Officer of a corporation. Employee shall devote his full time and effort to the business and affairs of the Company. Employee further agrees to serve, if elected or appointed thereto, as a director of the Company's subsidiaries and affiliated entities (if any) and in one or more executive offices of any of the Company's subsidiaries and affiliated entities (if any); provided that the indemnity provisions of Section 11.01 of this agreement shall apply to Employee's service in any such capacity. ARTICLE IV COMPENSATION AND RELATED MATTERS Section 4.01. SALARY. As compensation for the employment services to be rendered by Employee hereunder, the Company shall pay to Employee a salary at an initial rate of One Hundred Seventy-five thousand ($175,000) Dollars per annum, payable at such intervals as may be consistent with the Company's payroll policies, subject to increase or decrease by the Compensation Committee of the Board in its sole discretion. Compensation of Employee by salary payments shall not be deemed exclusive and shall not prevent Employee from participating in any other compensation or benefit plan of the Company. The salary payments (including any increased salary payments) hereunder shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay Employee's salary hereunder. Section 4.02. EXPENSES. During the term of Employee's employment hereunder, Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Employee in performing the services hereunder, including, but not limited to, all expenses for travel and living expenses while away from home on business or at the request of and in the service of the Company, its subsidiaries or affiliated entities; provided that such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company. Employee shall also be provided an automobile allowance from the Company, in such amount as is determined appropriate by the Board of Directors of the Company from time to time. 2 4 Section 4.03 CONTINUED PARTICIPATION. Employee shall be entitled to participate in all of the Company's employee benefit plans in effect from time to time and made available by the Company to its executives and key management employees, including the Company's life and long-term disability insurance plans, medical and dental plans and 401 (k) Plan. Section 4.04. ANNUAL PERFORMANCE BONUS. In addition to the Employee's salary, the Employee will be entitled to participate during the period of his employment in any bonus plan established by the Board of Directors from time to time that contemplates participation by the executive officers of the Company. The amount of any annual bonus payable to Employee shall be determined under such plan; notwithstanding the foregoing, unless the Employee is terminated for cause or resigns prior to the end of the 1996 fiscal year, the Employee shall be entitled to receive a cash bonus with respect to such year in an amount equal to not less than $14,583, whether or not the Employee would be entitled to receive a Bonus under the terms of such plan. Section 4.05 SPECIAL BONUS. The Employee will receive a cash bonus in the amount of $7,500 at the Effective Time; PROVIDED, that if the Employee resigns from his position with the Company prior to the first anniversary of the Effective Time, such bonus shall be promptly repaid to the Company. Section 4.06 STOCK OPTIONS. On June 10, 1996, Employee will receive the following: (a) Non-qualified stock options to purchase 25,000 shares of the Company's Common Stock under the Company's 1995 Stock Option and Incentive Plan. Such options shall be exercisable at market price on June 10, 1996, or at $5.375, whichever is higher, and will vest in 25% increments on an annual basis, commencing on the first anniversary of the date of grant; and (b) Non-qualified performance-based stock options to purchase 15,000 share of the Company's Common Stock stock options under the Company's 1995 Stock Option and Incentive Plan. Such options shalls be exercisable at market price on June 10, 1996, or $5.375, whichever is higher, and will vest in 20% increments a year beginning in fiscal 1996, conditioned upon the Company's achievement of stated EBITDA objectives. The options set forth in this Paragraph will expire 10 years from the date of grant, or earlier in the event of termination of the Employee's employment, with the Company and will be subject to the other terms and conditions set forth in the forms of Option Agreement relating thereto attached as Exhibit A to this Agreement. 3 5 ARTICLE V SEVERANCE ARRANGEMENTS Section 5.01 DEFINITIONS. (a) For purposes of this Article, "termination for cause" shall mean any termination of the Employee's employment resulting from: (i) Employee's engaging in fraud, misappropriation of funds, embezzlement or like conduct committed against the Company; (ii) Employee's conviction of a felony; or (iii) Employee's material violation of any provision of this Agreement which has not been cured within thirty (30) days after written notice setting forth such material violation and also setting forth the actions that Employee shall be required to take to cure such material violation has been given by the Company to Employee. (b) The Company may terminate Employee's employment hereunder at any time without cause. Notwithstanding any other provisions of this Agreement to the contrary and for purposes of this Article, any termination of Employee's employment resulting from: (i) Employee's death or (ii) Employee's inability to perform the essential functions of his job with or without reasonable accommodation, shall be deemed to be a termination by the Company without cause. Section 5.02 RESIGNATION; TERMINATION FOR CAUSE. If Employee resigns from his positions with the Company or his employment shall be terminated by the Company for cause, the Company shall pay Employee his full salary through the date of resignation or termination at the rate then in effect and the Company shall have no further obligations to Employee under this Agreement. Section 5.03 TERMINATION WITHOUT CAUSE. If the Company terminates Employee's employment hereunder without cause, then: (a) the Company shall pay Employee his full salary through the date of termination, at the annual rate then in effect; (b) in lieu of any further salary payments to Employee for periods subsequent to the date of termination, the Company shall continue to pay to Employee his salary at the annual rate in effect immediately prior to such termination until the earlier to occur of (i) the date that Employee obtains a position with another employer providing for the payment of an annual base salary at a rate substantially equivalent to that provided herein or (ii) the expiration of the twelve (12) month period following such termination (the "Salary Continuation Period"), in equal periodic installments consistent with the Company's payroll policies; and 4 6 (c) payment of the foregoing by the Company shall constitute complete satisfaction and remedy with respect to termination of Employee's employment by the Company without cause. Section 5.04 CONTINUED BENEFITS. Unless Employee is terminated by the Company for cause, or Employee shall resign from his positions with the Company, the Company shall maintain in full force and effect, for the continued benefit of Employee during the Salary Continuation Period, coverage under all medical and dental insurance plans and programs in which Employee participated prior to termination at the same cost to Employee as that applicable to other employees participating in such plans during such period; PROVIDED, that Employee's continued participation is possible under the general terms and provisions of such plans and programs. In the event Employee's participation in any such plan or program is barred, the Company shall arrange to provide Employee with benefits substantially similar to those which Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is barred. ARTICLE VI BINDING AGREEMENT Section 6.00 BINDING AGREEMENT. This Agreement and all rights of Employee hereunder shall inure to the benefit of and be enforceable by Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee's devisee, legatee, designee or, if there is no such designee, to Employee's estate. This Agreement and all rights of the Company hereunder shall inure to the benefit of and be enforceable by the Company's successors and assigns. ARTICLE VII REPRESENTATIONS AND AGREEMENTS OF EMPLOYEE Section 7.01 ABILITY TO PERFORM. Employee represents and warrants that he is free to enter into this Agreement and to perform the duties required hereunder, and that there are no employment contracts or understandings, restrictive covenants or other restrictions, whether written or oral, preventing the performance of his duties hereunder. Section 7.02 COOPERATION. Employee agrees to submit to a medical examination and to cooperate and supply such other information and documents as may be required by any insurance company in connection with the Company's obtaining life insurance on the life of Employee, and any other type of insurance or fringe benefit as the Company shall determine from time to time to obtain. 5 7 ARTICLE VIII RESTRICTIVE COVENANTS Section 8.01 NON-COMPETITION. Employee agrees that during the Non-Competitive Period (as defined below), Employee shall not, directly or indirectly, as owner, partner, joint venturer, stockholder, employee, broker, agent, principal, trustee, corporate officer, director, licensor or in any capacity whatsoever, engage in, become financially interested in, be employed by, render any consultation or business advice with respect to, or have any connection with, any business engaged in manufacturing, assembly, marketing or sales of coffeemakers, teamakers, filters, scales, massagers or any other product then being manufactured, assembled, marketed or sold by the Company, or then being developed by the Company with the expectation of sale by the Company within 90 days, in any geographic area where, at the time of termination of his employment hereunder, the business of the Company was being conducted in any material respect; provided, however, that Employee may own any securities of any corporation which is engaged in such business and is publicly owned and traded but in an amount not to exceed at any one time five percent (5%) of any class of stock or securities of such corporation. The term "Non-Competitive Period" shall mean the period commencing on the date of his termination or resignation and ending on the date which is (i) twelve (12) months later, in the event of termination by the Company without cause, or (ii) eighteen (18) months later, in the event of termination by Employee of his employment hereunder, or termination by the Company for cause. Section 8.02 NO HIRING. During the Non-Competitive Period, Employee will not knowingly (i) hire or attempt to hire any employee of the Company or of any of the Company's subsidiaries or affiliated entities (if any); (ii) assist in such hiring by any other person; or (iii) encourage any such employee to terminate his employment with the Company or any of such subsidiaries or affiliated entities. Section 8.03 SEVERABILITY. If any portion of the restrictions set forth in this Article VIII should, for any reason whatsoever, be declared invalid by a court of competent jurisdiction, the validity or enforceability of the remainder of such restrictions shall not thereby be adversely affected. Section 8.04 REASONABLENESS. Employee agrees that the territorial and time limitations set forth in this Article VIII are reasonable and properly required for the adequate protection of the business of the Company. In the event any such territorial or time limitation is deemed to be unreasonable by a court of competent jurisdiction, Employee agrees to the reduction of the territorial or time limitation to the area or period which such court shall have deemed reasonable. 6 8 ARTICLE IX NON-DISCLOSURE OF CONFIDENTIAL INFORMATION Section 9.01 NON-DISCLOSURE. Employee shall not, during the term of this Agreement and at any time thereafter, directly or indirectly, disclose or permit to be known outside of the scope of his duties to the Company, to any person, firm or corporation, any confidential information acquired by him during the course of, or as an incident to, his employment relating to the Company. It shall not be outside the scope of Employee's duties to the Company to disclose confidential information to the Company's directors, officers, employees, advisors, attorneys, accountants, lenders, financial institutions or investors. Such confidential information shall be limited to proprietary technology, market data, formulae, customer and supplier lists, non-public financial and operating information and data, and any other documents embodying such confidential information to the extent that such data and information relate specifically to the Company. Such restrictions apply only to the reproduction or use of the specific written documents of the Company relating to the above-described categories and not to any knowledge (including but not limited to knowledge gained from such confidential information) based on Employee's experience during his employment with the Company or otherwise. Section 9.02 RETURN OF DOCUMENTS. Upon termination of Employee's employment with the Company, all documents, records, reports, writings and other similar documents containing confidential information, including copies thereof, then in Employee's possession or control shall be returned and left with the Company. ARTICLE X EQUITABLE RELIEF Section 10.00 RIGHT TO INJUNCTION. Employee recognizes that the services to be rendered by him hereunder are of a special, unique, unusual, extraordinary and intellectual character, involving skill of the highest order and giving them peculiar value, the loss of which cannot be adequately compensated for in damages. In the event of a breach of this Agreement by Employee, the Company shall be entitled to injunctive relief or any other legal or equitable remedies. Employee agrees that the Company may recover by appropriate action the amount of the actual damages caused the Company by any failure, refusal or neglect of Employee to perform his agreements, representations and warranties herein contained. The remedies provided in this Agreement shall be deemed cumulative and the exercise of one shall not preclude the exercise of any other remedy, at law or in equity, for the same event or any other event. 7 9 ARTICLE XI MISCELLANEOUS Section 11.01 INDEMNIFICATION; INSURANCE. The Company will indemnify Employee to the maximum extent permitted by law (including advancing expenses where appropriate) with respect to actions taken by him as an officer or director of the Company, any of its subsidiaries, or any affiliated entity of the Company or any of its subsidiaries. The Company's obligation to provide indemnification shall survive termination of employment. The Company will also maintain in effect during Employee's employment hereunder directors and officer liability insurance, to the extent the same can be obtained on commercially reasonable terms. If permitted by the terms of the policy providing such insurance, Employee will remain insured under such policy until the first to occur of (i) termination of such policy (other than termination by the Company), or (ii) the fifth anniversary of termination of Employee's employment with the Company. Section 11.02 ARBITRATION. Should any dispute arise between the parties concerning the performance of this Agreement, the parties agree to mediation and, if not resolved through such mediation within thirty (30) days, final and binding arbitration in Cleveland, Ohio in accordance with the rules of the American Arbitration Association, subject to Article X in the case of alleged breach of Articles VIII or IX. The decision rendered in any arbitration proceedings shall be in writing and shall set forth the basis therefor. The parties shall abide by the award rendered in the arbitration proceedings, and such award may be entered as a final, non-appealable judgment, and may be enforced and executed upon, in any court having jurisdiction over the party against whom enforcement of such award is sought. Each of the parties agrees (in connection with any action brought to enforce the arbitration provisions of this paragraph) not to assert in any such action, any claim that it is not subject to the personal jurisdiction of such court, that the action is brought in an inconvenient forum, that the venue of the action is improper or that such mediation or arbitration may not be enforced by such courts. Each party agrees that service of process may be made upon it by any method authorized by the laws of the state in which arbitration is to be conducted in accordance with this Section 11.02. Section 11.03 NOTICE. For the purposes of this Agreement, notices, demands and all other communications provided for in the Agreement shall be in writing, shall be deemed to have been duly given when delivered or unless otherwise specified mailed by U.S. registered mail, return receipt requested, postage prepaid, addressed as follows: If to Employee: Steven M. Billick 17281 Buckthorn Drive Chagrin Falls, OH 44023 If to the Company: Health o meter Products, Inc. 24700 Miles Road Bedford Heights, Ohio 44146 8 10 With a copy to: Calfee, Halter & Griswold 1400 McDonald Investment Center 800 Superior Avenue Cleveland, Ohio 44114 Attn: Thomas F. McKee, Esq. or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. Section 11.04 AMENDMENT OR ALTERATION. No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by both of the parties hereto. Section 11.05 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Ohio, without giving effect to the conflicts of laws provisions thereof. Section 11.06 SEVERABILITY. The holding of any provision of this Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of this Agreement, which shall remain in full force and effect. Section 11.07 WAIVER OR BREACH. No waiver of or failure to enforce any provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision of this Agreement, nor shall such waiver or failure to enforce constitute a continuing waiver. Section 11.08 ASSIGNMENT. This Agreement may not be transferred or assigned by either party without the prior written consent of the other party. Section 11.09 FURTHER ASSURANCES. The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Agreement. Section 11.10 HEADINGS. The section headings appearing in this Agreement are for purposes of each reference and shall not be considered a part of this Agreement or in any way modify, amend or affect its provisions. 9 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. HEALTH O METER PRODUCTS, INC. BY: /s/ S. Donald McCullough --------------------------------- Name: S. Donald McCullough Title: President /s/ Steven M. Billick ------------------------------------ Steven M. Billick 10 EX-10.18 4 EXHIBIT 10.18 1 Exhibit 10.18 ------------- 2 LEASE AGREEMENT DATED: OCTOBER 15, 1996 DUKE REALTY LIMITED PARTNERSHIP, AN INDIANA LIMITED PARTNERSHIP, LANDLORD HEALTH O METER PRODUCTS, INC., TENANT 3 LEASE AGREEMENT TENANT: HEALTH O METER PRODUCTS, INC. TABLE OF CONTENTS -----------------
Page ---- ARTICLE 1 TERM OF LEASE...........................................................................................2 SECTION 1.1 INITIAL TERM........................................................................2 SECTION 1.2 OPTIONS TO RENEW....................................................................2 SECTION 1.3 EXERCISE OF OPTIONS TO RENEW........................................................2 ARTICLE 2 CONSTRUCTION OF IMPROVEMENTS............................................................................2 INTENTIONALLY OMITTED...........................................................................2 SECTION 2.2 APPROVAL OF PLANS..................................................................3 SECTION 2.3 SCOPE OF WORK.......................................................................4 SECTION 2.4 CHANGES IN WORK....................................................................4 SECTION 2.5 COMPLETION.........................................................................5 (A) INITIAL IMPROVEMENT COMPLETION DATES...............................................5 (B) PERMITTED DELAYS-TENANT EXTENSION..................................................5 (C) AFFECT OF PERMITTED DELAYS OR TENANT EXTENSION.....................................6 (D) PROGRESS OF CONSTRUCTION...........................................................6 SECTION 2.6 SUBSTANTIAL COMPLETION..............................................................7 SECTION 2.7 TENANT'S REMEDIES FOR LANDLORD DELAY................................................7 SECTION 2.8 WARRANTY............................................................................8 SECTION 2.9 PUNCH LIST..........................................................................9 SECTION 2.10 INDEMNITY.........................................................................10 SECTION 2.10 EARLY OCCUPANCY...................................................................10 ARTICLE 2A EXPANSION OF DEMISED PREMISES.........................................................................11 SECTION 2A.1 OPTION TO EXPAND..................................................................11 (A) EXPANSION NOTICE..................................................................11 SECTION 2A.2 LANDLORD'S PROPOSED EXPANSION SPACE PARAMETERS....................................12 SECTION 2A.3 TENANT'S NOTICE TO PROCEED AND EXPANSION SPACE TERM...............................12 SECTION 2A.4 PREPARATION OF EXPANSION PLANS....................................................13 SECTION 2A.5 EXPANSION COMMENCEMENT DATE.......................................................14 SECTION 2A.6 SCOPE OF WORK - EXPANSION SPACE...................................................14 SECTION 2A.7 EXPANSION CHANGE ORDERS...........................................................14 SECTION 2A.8 WARRANTY AS TO EXPANSION SPACE....................................................15 SECTION 2A.9 EXPANSION PUNCH LIST..............................................................15 SECTION 2A.10 EXPANSION COSTS..................................................................15 ARTICLE 3 RENT...................................................................................................16 SECTION 3.1 BASE RENT.........................................................................16 (A) BASE RENT FOR INITIAL IMPROVEMENTS................................................16 (1) INITIAL TERM.............................................................16 (2) RENEWAL TERM.............................................................16
i 4 (B) EXPANSION SPACE RENT..............................................................16 (1) EXPANSION SPACE TERM.....................................................17 (2) RENEWAL TERMS............................................................18 (C) FAIR MARKET BASE RENT DETERMINATION...............................................18 SECTION 3.2 RENT PAYABLE WITHOUT PRIOR DEMAND; MAXIMUM RATE OF INTEREST........................19 SECTION 3.3. GOVERNMENTAL ASSISTANCE...........................................................20 ARTICLE 4 PAYMENT OF TAXES, ASSESSMENTS, ETC.....................................................................21 SECTION 4.1 ADDITIONAL RENT....................................................................21 SECTION 4.2 RIGHT TO CONTEST IMPOSITIONS.......................................................23 SECTION 4.3 TAXES ON RENT......................................................................23 SECTION 4.4 RECEIPTS FOR IMPOSITIONS...........................................................24 SECTION 4.5 LANDLORD'S RIGHT TO CONTEST IMPOSITIONS............................................24 ARTICLE 5 INSURANCE..............................................................................................25 SECTION 5.1 PROPERTY INSURANCE.................................................................25 SECTION 5.2 MUTUAL WAIVER OF CLAIMS AND SUBROGATION RIGHTS....................................26 SECTION 5.3 COMMERCIAL GENERAL LIABILITY INSURANCE.............................................26 SECTION 5.4 TENANT'S PROPERTY INSURANCE........................................................27 SECTION 5.5 TENANT'S BUSINESS INTERRUPTION INSURANCE...........................................27 SECTION 5.6 PROCEEDS, PAYMENT AND POLICY PROVISIONS............................................27 SECTION 5.7 INSURANCE APPROVAL.................................................................27 ARTICLE 6 USE AND MAINTENANCE OF THE DEMISED PREMISES............................................................28 SECTION 6.1 PREMISES USE......................................................................28 SECTION 6.2 TENANT'S REPAIRS...................................................................28 SECTION 6.3 LANDLORD'S REPAIRS.................................................................30 SECTION 6.4 PROHIBITION AGAINST WASTE..........................................................30 SECTION 6.5 MISUSE OR NEGLECT..................................................................30 SECTION 6.6 LIMITATION ON TENANT'S REPAIRS.....................................................30 ARTICLE 7 COMPLIANCE WITH LAWS AND ORDINANCES....................................................................31 SECTION 7.1 COMPLIANCE.........................................................................31 SECTION 7.2 OTHER COMPLIANCE...................................................................32 SECTION 7.3 ENVIRONMENTAL MATTERS..............................................................33 (A) DEFINITIONS.......................................................................33 (B) LANDLORD INDEMNITY................................................................34 (C) TENANT INDEMNITY..................................................................34 (D) NOTICE............................................................................35 (E) EXCLUSIVE REMEDY AND SURVIVAL.....................................................35 (F) COMPLIANCE WITH OTHER LAWS........................................................35 (G) STORAGE OF HAZARDOUS MATERIALS....................................................35 (H) ENVIRONMENTAL AUDITS..............................................................35 (I) TERMINATION OF LEASE..............................................................36 ARTICLE 8 MECHANIC'S LIENS AND OTHER LIENS.......................................................................37 SECTION 8.1 LIENS AND RIGHT OF CONTEST.........................................................37
ii 5 SECTION 8.2 LIENS ON LANDLORD'S WORK...........................................................38 SECTION 8.3 OTHER LIENS........................................................................39 ARTICLE 9 INTENT OF PARTIES......................................................................................39 SECTION 9.1 NET RENT...........................................................................39 SECTION 9.2 LANDLORD'S PERFORMANCE FOR TENANT..................................................39 SECTION 9.3 PAYMENT FOR LANDLORD'S PERFORMANCE FOR TENANT......................................40 ARTICLE 10 DEFAULTS AND LANDLORD'S REMEDIES......................................................................40 SECTION 10.1 DEFAULT...........................................................................40 SECTION 10.2 RE-LETTING AFTER DEFAULT..........................................................41 SECTION 10.3 ACCEPTANCE AFTER DEFAULT..........................................................42 SECTION 10.4 REMEDIES CUMULATIVE...............................................................42 ARTICLE 11 DESTRUCTION AND RESTORATION...........................................................................43 SECTION 11.1 RESTORATION.......................................................................43 SECTION 11.2 INSURANCE PROCEEDS................................................................43 SECTION 11.3 TENANT'S OBLIGATIONS FOLLOWING A CASUALTY.........................................43 SECTION 11.4 DESTRUCTION PRIOR TO COMMENCEMENT DATE............................................44 SECTION 11.5 RESTORATION AT END OF TERM........................................................44 ARTICLE 12 CONDEMNATION..........................................................................................44 SECTION 12.1 TOTAL CONDEMNATION................................................................44 SECTION 12.2 PARTIAL CONDEMNATION..............................................................45 SECTION 12.3 RESTORATION AFTER CONDEMNATION....................................................45 SECTION 12.4 BASE RENT REDUCTION...............................................................45 ARTICLE 13 ASSIGNMENT AND SUBLETTING.............................................................................46 ARTICLE 14 SUBORDINATION, NON-DISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT....................................46 SECTION 14.1 SUBORDINATION.....................................................................46 SECTION 14.2 MORTGAGEE PROTECTION CLAUSE.......................................................46 SECTION 14.3 ATTORNMENT........................................................................47 SECTION 14.4 COSTS.............................................................................47 ARTICLE 15 SIGNS.................................................................................................47 ARTICLE 16 TRADE FIXTURES........................................................................................48 ARTICLE 17 CHANGES AND ALTERATIONS...............................................................................48 ARTICLE 18 SURRENDER OF PREMISES.................................................................................50
iii 6 SECTION 18.1 SURRENDER OF POSSESSION...........................................................50 SECTION 18.2 REMOVAL OF TENANT'S PROPERTY; HOLDOVER RENT.......................................50 ARTICLE 19 MISCELLANEOUS PROVISIONS..............................................................................51 SECTION 19.1 RIGHT OF INSPECTION..............................................................51 SECTION 19.2 DISPLAY OF DEMISED PREMISES.......................................................52 SECTION 19.3 INDEMNITIES.......................................................................52 (A) TENANT............................................................................52 (B) LANDLORD..........................................................................53 SECTION 19.4 NOTICES...........................................................................53 SECTION 19.5 QUIET ENJOYMENT...................................................................54 SECTION 19.6 LANDLORD AND SUCCESSORS...........................................................54 SECTION 19.7 ESTOPPELS.........................................................................54 SECTION 19.8 SEVERABILITY; GOVERNING LAWS......................................................55 SECTION 19.9 BINDING EFFECT....................................................................55 SECTION 19.10 CAPTIONS.........................................................................55 SECTION 19.11 LANDLORD TENANT RELATIONSHIP.....................................................55 SECTION 19.12 MERGER OF AGREEMENTS.............................................................55 SECTION 19.13 LANDLORD'S PROPERTY..............................................................55 SECTION 19.14 SURVIVAL.........................................................................55 SECTION 19.15 REASONABLENESS...................................................................56 SECTION 19.16 REAL ESTATE BROKER...............................................................56 SECTION 19.17 EXHIBITS; RIDER PROVISIONS.......................................................56 SECTION 19.18 RECORDING........................................................................56 SECTION 19.19 FINANCIAL STATEMENTS............................................................56 SECTION 19.20. LIMITATION OF LANDLORD'S LIABILITY.............................................56 ARTICLE 20 CONTINGENCIES.........................................................................................57 SECTION 20.1 LANDLORD'S CONTINGENCIES..........................................................57 SECTION 20.2 TENANT'S CONTINGENCIES............................................................57 SECTION 20.3 WAIVER............................................................................57
iv 7 LEASE AGREEMENT TENANT: HEALTH O METER PRODUCTS, INC. This LEASE AGREEMENT (the "Lease") is made this 15th day of October, 1996, by and between Duke Realty Limited Partnership, a limited partnership existing under the laws of the State of Indiana (the "Landlord") and HEALTH O METER PRODUCTS, INC., a corporation existing under the laws of the State of Delaware, (the "Tenant"). WITNESSETH: A. Landlord, for and in consideration of the rents, covenants and agreements hereinafter contained, hereby leases, rents, lets and demises, unto Tenant, and Tenant does hereby take and hire, upon and subject to the conditions and limitations hereinafter expressed, all that parcel of land containing approximately 35.059 acres, more or less, situated in the Village of Glenwillow (the "Village"), County of Cuyahoga and State of Ohio, described in Exhibit A attached hereto and made a part hereof (the "Land"), together with all improvements located on and to be constructed thereon pursuant to the terms and conditions hereof. The initial improvements to be constructed on the Land by Landlord as provided in Article 2 hereto, are referred to as the "Initial Improvements." The improvements, if any, to be constructed by Landlord pursuant to Tenant's right to expand as provided in Article 2A hereof are referred to as the "Expansion Space." The Initial Improvements and the Expansion Space, if any, are collectively referred to as "Landlord's Improvements". B. Landlord's Improvements and all other improvements, fixtures and other property, real, personal or mixed, except those items of Tenant's attached or unattached personalty, which are deemed to be Trade Fixtures (as discussed in Article 16, the "Trade Fixtures") installed or located thereon, together with all additions, alterations and replacements thereof are collectively referred to as the "Improvements." The Land, Landlord's Improvements and any alterations, modifications or additions thereto are hereafter collectively referred to as the "Demised Premises." The structures located upon and forming a part of the Demised Premises which are constructed for human occupancy or for manufacturing, assembly or storage of goods, merchandise, equipment, or other personal property are collectively called the "Building." NOW THEREFORE, for and in consideration of the mutual covenants and conditions herein contained and for other good and valuable consideration, the parties hereto agree as follows: 1 8 ARTICLE 1 TERM OF LEASE SECTION 1.1 INITIAL TERM. The initial term of this Lease (the "Initial Term") shall be for fifteen (15) years commencing on August 1, 1997 (the "Commencement Date") and ending on July 31, 2012 (the "Termination Date"). Notwithstanding the foregoing, the Commencement Date and Termination Date are subject to adjustment as set forth in Section 2.5 hereof, but in no instance shall the Initial Term be less than fifteen (15) years, unless sooner terminated as provided herein. SECTION 1.2 OPTIONS TO RENEW. Tenant shall have the option (or the requirement as provided in Section 2A.3 in respect to Expansion Space) to extend the Initial Term for up to two (2) additional periods of five (5) years each (individually a "Renewal Term," and collectively, the "Renewal Terms") upon the terms and conditions contained in this Lease, except that the Base Rent for the Renewal Terms shall be as set forth in Sections 3.1 hereof. The Initial Term and Renewal Terms, if any, are sometimes collectively referred to as the "Term." SECTION 1.3 EXERCISE OF OPTIONS TO RENEW. The options to renew granted in Section 1.2 hereof may be exercised by Tenant giving written notice to Landlord (herein the "Renewal Notice") not later than twelve (12) months prior to the expiration of the then applicable portion of the Term. Should Tenant neglect to provide Landlord with a Renewal Notice as provided herein, Tenant's right to exercise Tenant's option to extend (and any succeeding option) shall expire. It shall be a condition of exercise of each option to renew that Tenant shall not be in Default (as defined in Section 10.1) of any of the terms and conditions of this Lease, either at the time of delivery of the Renewal Notice in question, or at the commencement of the Renewal Term in question. Notwithstanding the foregoing, regardless of a Renewal Notice, Tenant shall be deemed to have exercised its option for the applicable number of Renewal Terms in the instance of Expansion Space as provided in Section 2A.3 hereof. ARTICLE 2 CONSTRUCTION OF IMPROVEMENTS SECTION 2.1 INTENTIONALLY OMITTED. 2 9 SECTION 2.2 APPROVAL OF DESIGN PACKAGE PLANS. Landlord will cause to be prepared and delivered to Tenant for Tenant's approval by the following dates all of the design components of the Building in four specific design plan packages (the "Design Plan Packages"):
DATE TO BE DATE TO BE ---------- ---------- DESIGN PLAN DELIVERED TO AGREED UPON BY ----------- ------------ -------------- PACKAGE NO. DESCRIPTION TENANT LANDLORD ----------- ----------- ------ -------- AND TENANT 1 Earthwork and Site Utilities Received prior to Date of October 14, 1996 this Lease 2 Building Shell October 7, 1996 October 21, 1996 3 Warehouse Finishes November 4, 1996 November 18, 1996 4 Office Finishes (including January 20, 1997 February 3, 1997 Landscaping Plans)
The Design Plan Package No. 1 shall be prepared by M-E Civil Engineering, Inc. (the "Civil Engineer"), an Ohio licensed engineer, all of which shall be in substantial compliance with Tenant's Performance Criteria Specifications and Outline Plans (the "Performance Criteria") attached hereto as Exhibit B. The Design Plan Packages Nos. 2, 3 and 4 shall be prepared by Ford, Berry Architects, Inc. (the "Initial Architect") an Ohio licensed architect, all of which shall be in substantial compliance with the Performance Criteria. Upon receipt, Tenant shall either approve or disapprove the same. If a Design Plan Package (or a portion thereof) is disapproved, Tenant shall notify Landlord in writing, detailing, with appropriate specificity, that portion or element of the Design Plan Package disapproved and the reasons for such disapproval. The Tenant shall use the submitted documents to record the written commentary, and return a copy to the Landlord. Upon Tenant's disapproval, Landlord shall undertake to have such disapproved element of the Design Plan Package modified and shall promptly resubmit same to Tenant. Such submission and resubmission process shall continue until such time as all of the components comprising the Design Plan Packages have been approved by Tenant and Landlord but in no event later than the dates set forth in the table above. In the event Landlord and Tenant fail to agree on the final content of the Design Plan Packages, Tenant and the Civil Engineer, in the event the failure to agree is with respect to Design Plan Package No. 1 shall appoint an independent engineer to make such determination, and in the event the disagreement is as to Design Plan Packages Nos. 2, 3 or 4, Tenant and the Initial 3 10 Architect shall appoint an Independent Architect to make such determination. The decision of the Civil Engineer or Independent Architect, as the case may be, shall be binding on the parties. When each of the components of the Design Plan Packages have ultimately been approved by Tenant, Tenant and Landlord shall each affix their respective signatures or initials to each page comprising the Design Plan Packages, and when all components comprising the Design Plan Packages have been so signed or initialed they shall become a part of this Lease as Exhibit C and together shall constitute the Final Plans. SECTION 2.3 SCOPE OF WORK. Landlord agrees to furnish at Landlord's sole cost and expense (except in the instance of Change Orders), all of the material, labor and equipment necessary for the commencement and completion of construction on the Land of the Initial Improvements specified on the Final Plans. The Initial Improvements shall be constructed using new materials in a good and workmanlike manner in accordance with the Final Plans. Landlord agrees to complete the construction thereof in full compliance with all Laws as then in effect (except as such compliance may be affected as a result of work performed or to be performed in or about the Demised Premises by Tenant or Tenant's separate contractors). In the event any materials specified in the Final Plans are unavailable, Landlord reserves the right to substitute materials of higher or equal quality, provided that Tenant consents, in writing, to such substitutions, which consents shall not unreasonably be withheld or delayed. Landlord shall cause the Initial Improvements to be constructed, and, as of the Commencement Date, to be in full compliance with the requirements of the Americans With Disabilities Act of 1990, and any and all rules and regulations theretofore issued pursuant thereto ("ADA"). SECTION 2.4 CHANGES IN WORK. Although it may constitute a Tenant Extension (as hereafter defined), Tenant, without invalidating this Lease, may order changes in the work (or may be deemed to have ordered changes in the work) consisting of additions or deletions to, or other revisions in, the Final Plans (or the Expansion Plans, if applicable and as hereafter defined), with an appropriate adjustment, if any, for a credit to or payment by Tenant as hereafter provided and with an appropriate adjustment, if any, to the following hereafter defined dates: The Initial Completion Date; Commencement Date; Expansion Commencement Date; and any applicable dates on which Landlord is required to deliver components of the Final Plans (or Expansion Plans). Any such changes in work which have been authorized by a written change order (which shall be executed as hereafter provided), or have otherwise been deemed hereunder to have been so authorized and executed, is herein sometimes referred to as "Change Order." 4 11 Except as hereafter provided, a Change Order is a written order signed by Tenant and accepted, in writing, by Landlord stating in detail the change in the work, any adjustment in the foregoing dates or the time for the preparation of components of the Final Plans (or Expansion Plans, if applicable), and any credit to be afforded to Tenant or any additional payment obligation to be made by Tenant as a result thereof. If, in the instance of the Initial Improvements a Change Order results in a credit to Tenant, meaning that the Change Order Cost (as hereafter defined) is less than the original charge for the work being changed, such credit shall be effected by a credit to the Base Rent first owing under this Lease. If in the instance of either the Initial Improvements or the Expansion Space, a Change Order results in an additional charge to Tenant, meaning that the Change Order Cost is greater than the original charge for the work being changed, Tenant shall pay to Landlord the Change Order Cost with Tenant's first payment of Base Rent. The "Change Order Cost" shall be equal to the sum of all actual costs incurred in connection with the subject change. The actual costs of the subject change shall be the aggregate of all payment obligations under those contracts or modifications to contracts entered into by Landlord, including standard construction management fees, plus applicable general conditions, which are necessary to effectuate the specific Change Order. SECTION 2.5 COMPLETION. (a) INITIAL IMPROVEMENT COMPLETION DATES. Subject to Permitted Delays and Tenant Extensions, the Initial Improvements shall be Substantially Complete (as defined in Section 2.6) or if not Substantially Complete, at least completed to the extent that Tenant may begin to perform certain of its facility preparation work (as described in Section 2.11), on or before June 30, 1997 (herein the "Initial Completion Date"). Subject to Tenant Extensions, all of the Initial Improvements shall be Substantially Complete on or before the Commencement Date. (b) PERMITTED DELAYS-TENANT EXTENSION. The Initial Completion Date and Commencement Date (and Expansion Commencement Date, if applicable) shall be extended if Landlord is delayed as a result of: (1) strikes, labor disputes, unusual delays or shortages encountered in weather, transportation, fuel, material or labor shortages; (2) casualties, acts of God or the public enemy; or (3) governmental embargo restrictions or action or inaction of local, state or federal governments affecting the work (clauses (1) through (3) above are hereinafter individually referred to as a "Permitted Delay" and collectively as "Permitted Delays"). A "Tenant Extension" shall mean any delay encountered by Landlord as a result of any act or omission or neglect of Tenant, including the requesting and negotiating of Change Orders, or any act or neglect of any employee of Tenant or by any separate 5 12 contractor employed by Tenant, including, but not limited to the failure of Tenant or any of Tenant's contractors to complete interior construction or racking causing the Village to withhold its certificate of occupancy for the Initial Improvements (or Expansion Space) as a result thereof or causing the Initial Improvements (or Expansion Space) not to be in compliance with all applicable laws as a result thereof. (c) EFFECT OF PERMITTED DELAYS OR TENANT EXTENSION. Landlord shall use best efforts to overcome or mitigate the effect of a Permitted Delay. "Best efforts" (as used throughout this Lease) shall mean those efforts that are commercially reasonable under the circumstances. Promptly following the occurrence of a Permitted Delay or a Tenant Extension, Landlord, in writing, shall notify Tenant of such occurrence. Thereafter, promptly following Landlord's determination of the effect such occurrence will have, if any, on the time within which the Initial Improvements (or the Expansion Space, as the case may be) shall be Substantially Completed and ready for occupancy by Tenant and, in the instance of a Tenant Extension, only, the additional cost, if any, to Tenant, Landlord shall notify Tenant of same. Landlord shall endeavor to make such determination within ten (10) days following the occurrence, but in any event it shall be made with due diligence. In the case of continuing Permitted Delays or Tenant Extensions, only one such notice from Landlord is necessary. In the instance of a Permitted Delay, the Initial Completion Date, Commencement Date, Expansion Commencement Date (as hereafter defined) shall be moved back to the date necessary as a result of a Permitted Delay. In the instance of a Tenant Extension, the Commencement Date or the Expansion Commencement Date, if applicable, shall be the date on which the Initial Improvements or Expansion Space, respectively, would have been Substantially Complete, but for the Tenant Extension. Also, in the instance of a Tenant Extension, the Initial Completion Date and the dates when the applicable components of the Design Plan Packages (or Expansion Plans) must be prepared shall be moved back to the date necessary as a result of a Tenant Extension. (d) PROGRESS OF CONSTRUCTION. Landlord agrees to provide to Tenant construction schedules monthly which will depict the various stages of construction of the Initial Improvements, the progress to date, and Landlord's estimates for completion of future stages of construction. Such schedules shall also be updated by the Landlord from time to time in order to reflect any major changes in construction conditions and/or in the estimated time for delivery of the various stages of completion. Tenant may consult with the Initial Architect in the presence of Landlord in regard to the construction schedule and suggest methods in which such schedule may be modified in order to facilitate Substantial Completion in accordance with the dates provided herein. If, in Tenant's reasonable judgment, and after consultation with Landlord and the Initial Architect, Tenant believes that the dates contained herein for the delivery of the various stages of the 6 13 Initial Improvements cannot be met, then Tenant shall notify Landlord in writing of same. Landlord, upon receipt of such a notice agrees to consult with the, Initial Architect, and the major subcontractors to insure that all reasonable steps necessary to meet the time requirements set forth herein are being taken. In no event, however, shall the failure of Landlord to comply with or implement any suggestions or requests by Tenant be deemed to be a default by Landlord hereunder. Nothing contained in the previous sentence shall be construed as a limitation on the obligation of Landlord to use their best efforts to mitigate the effect of any Permitted Delay hereunder. SECTION 2.6 SUBSTANTIAL COMPLETION. Except for Tenant Extensions, the Initial Improvements and the Expansion Space, as the case may be, shall be deemed to be "Substantially Complete" or be deemed to have achieved "Substantial Completion" on the date on which: (i) the improvements in question are completed in compliance with all applicable laws (except as provided in Section 2.3 hereof) and in conformity in all material respects with the Final Plans (or the Expansion Plans, as the case may be); and (ii) when the Village (or other governmental authority having jurisdiction) has issued a certificate of occupancy (or other consent to or approval of Tenant's use and occupancy as may be necessary) of the Initial Improvements (or Expansion Space). In the event of any disagreement between Landlord and Tenant on the issue of whether Substantial Completion has been achieved under clause (i) above, Tenant and the Initial Architect shall appoint an independent third party architect (the "Independent Architect") to make such determination and the decision of the Independent Architect shall be binding on the parties. The issuance of a certificate of occupancy (or other consent or approval, as aforesaid, if necessary) by the Village (or other governmental authority having jurisdiction) which is temporary or conditional on the subsequent completion of weather-sensitive work, if any, or completion of minor Punch List Items (as defined in Section 2.9) which do not interfere with Tenant's use and occupancy of the Demised Premises, shall nevertheless fulfill the requirement of clause (ii) above. In the instance of the occurrence of Tenant Extensions, Substantial Completion of the Initial Improvements (or the Expansion Space, if applicable) shall be the date on which the improvements in question would have been completed in compliance with all applicable Laws (except as provided in Section 2.3 hereof) and in conformity in all material respects with the Final Plans (or the Expansion Plans, if applicable) and the Village (or other governmental authority having jurisdiction) would have issued a certificate of occupancy (or other consent or approval, as aforesaid, as may be necessary), but for the occurrence of a Tenant Extension. SECTION 2.7 TENANT'S REMEDIES FOR LANDLORD DELAY. Landlord acknowledges that Tenant's current lease expires on June 30, 1997 and Tenant will incur significant expense in the event 7 14 the time periods for Substantial Completion as set forth in this Lease are not met. Accordingly, Landlord agrees as follows: (a) Subject to Permitted Delays and Tenant Extensions, in the event that Substantial Completion of all of the Initial Improvements is not achieved on or before July 31, 1997, then for each day that Substantial Completion is delayed beyond said date, the Commencement Date shall be extended by one day. (b) In addition, subject to Permitted Delays and Tenant Extension, in the event that Substantial Completion of all of the Initial Improvements is not achieved on or before August 22, 1997, then for each day that Substantial Completion is delayed beyond said date, Tenant shall be entitled to full abatement of one (1) day of Base Rent following the Commencement Date. SECTION 2.8 WARRANTY. Subject to Section 2.3 hereof with respect to compliance with ADA and Landlord's, and Tenant's respective obligations in regard thereto, Landlord represents and warrants that all Initial Improvements to be constructed hereunder shall be constructed in full compliance with all applicable Laws and Landlord represents and warrants that the Initial Improvements shall be constructed in full compliance with all Laws (except as provided in Section 2.3 hereof) and in accordance with the Final Plans in all material respects. Landlord warrants all portions of the Initial Improvements constructed pursuant to the Final Plans for a period of one (1) year after Substantial Completion thereof, plus, for any Warranty Work, one (1) year after the date of completion of such Warranty Work (herein the "Warranty Period"). After the conclusion of the Warranty Period, Landlord shall assign and transfer to Tenant all warranties then in effect which were given to Landlord (except any such warranties with respect to portions of the Initial Improvements for which Landlord retains Landlord's Repair obligations). If, during the Warranty Period, Tenant notifies Landlord in writing of defective work in the design or construction of the Initial Improvements, Landlord shall promptly cause such defective work to be corrected. In the event Landlord performs any work during the Warranty Period for purposes of correcting any specific defect in the work (hereinafter referred to as "Warranty Work"), such Warranty Work, as provided above, shall be warranted by Landlord for a period of one (1) year from the date performed. The warranty which is provided hereunder is limited in certain respects, and is conditioned on certain user performance criteria, as follows: (a) Tenant agrees to use Landlord's Improvements in accordance with the design capacities and criteria established for same. Tenant acknowledges that any material misuse of same may void the warranty hereunder, and may void any manufacturers' warranties which may be assigned to Tenant hereunder. 8 15 (b) In addition to the foregoing, the warranty hereunder shall not extend to the electrical, plumbing and mechanical systems servicing the Building unless said systems are maintained and operated in substantial compliance with the manufacturers' specifications for same by one or more professionals experienced in the maintenance and servicing of such systems at least through the Warranty Period (provided that Landlord provides Tenant with copies of manufacturers' specifications or maintenance manuals or other similar information to enable Tenant to properly meet its obligations hereunder). Landlord shall be responsible for initially providing training to Tenant's operating and maintenance personnel (up to three people) with respect to the above referenced Building Systems (c) Warranty Work hereunder shall not in any way include, or require Landlord to perform, any routine and appropriate regular maintenance of the Landlord's Improvements required to be performed by Tenant during the Warranty Period as part of Tenant's Repairs (see Section 6.2 below). (d) The warranty hereunder specifically excludes (and Tenant waives any claims with respect to) damages to Tenant's products, equipment, or other personal property which may be located within the Demised Premises, Tenant hereby acknowledging and agreeing that it has acquired (or will acquire), and will maintain, appropriate amounts of insurance in order to manage said risks. (e) The obligations under this warranty shall be to correct those portions of the Landlord's Improvements which are not constructed in conformance with Final Plans (or Expansion Plans, as the case may be), are defective, or which fail due to faulty design or workmanship. SECTION 2.9 PUNCH LIST. Landlord shall notify Tenant of the date which is approximately seven (7) days prior to the estimated date on which Substantial Completion for the Initial Improvements is expected to be achieved (herein referred to as "Inspection Date"). Landlord, and Tenant shall, on the Inspection Date, make a joint physical inspection of the Building to list the items of work to be completed (herein referred to as "Punch List Items"). Landlord shall deliver, in writing, Landlord's promise to complete the Punch List Items within such reasonable period of time in respect to each item as is necessary to complete same, taking into account diligence and good workmanlike practices. In the event of a disagreement between the parties as to the inclusion or the exclusion of an item on the "Punch List," Tenant and the Initial Architect shall appoint an Independent Architect to make such determination and the decision of the Independent Architect (which decision shall be based solely on the determination of whether the item in question was constructed in conformity with Final Plans) shall control. 9 16 SECTION 2.10 INDEMNITY. (a) Landlord agrees to indemnify and save Tenant harmless from and against any and all loss, cost or damage that Tenant may sustain, including, without limitation, reasonable attorney's fees incurred by Tenant in connection with any claim, lien, charge, encumbrance or action brought, maintained or filed by any party for any labor performed or materials furnished for or in connection with the Initial Improvements. (b) Further, Landlord shall indemnify and hold harmless Tenant, its agents and employees from and against all claims, damages, losses and expenses, including reasonable attorney's fees (except to the extent caused by the negligence or willful misconduct of Tenant, its agents, employees or contractors) to the extent arising out of or resulting from the performance of any work in connection with the construction of the Initial Improvements, provided that any such claim, damage, loss or expense is (i) attributable to bodily injury, sickness, disease or death, or due to injury to or destruction of tangible property (other than the Improvements); and (ii) caused by any negligent or willful misconduct of Landlord or any of Landlord's employees, contractors, subcontractors or anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable. (c) Tenant shall indemnify and hold harmless Landlord, its agents and employees from and against all claims, damages, losses and expenses, including reasonable attorney's fees (except to the extent caused by the willful misconduct of Landlord, Landlord's agents, employees or contractors) to the extent arising out of or resulting from the performance of any work in connection with Tenant's use and occupancy of the Demised Premises to complete its facility preparation provided that such claim, damages, loss or expense is (i) attributable to bodily injury, sickness, disease or death, or due to injury to or destruction of tangible property; and (ii) caused by any negligent or willful misconduct of Tenant or any of Tenant's employees, contractors, subcontractors or anyone directly or indirectly employed by any of them or anyone of whose acts any for them may be liable. (d) Tenant and Landlord shall promptly notify the other party of any claim under the indemnities contained in this Section 2.10 of which Landlord or Tenant has knowledge. SECTION 2.11 EARLY OCCUPANCY . Landlord will use good faith efforts to allow Tenant to take possession of the warehouse portion of the Leased Premises on or before June 30, 1997 for fixturing purposes. Tenant agrees to coordinate its fixturing work with the work of the Landlord such that Tenant's work does not interfere with or delay Landlord's work; provided, however, that neither Landlord nor any of Landlord's affiliates shall have 10 17 any responsibility or liability whatsoever for any injury (including death) to any persons or loss or damage to any of Tenant's leasehold improvements, fixtures, equipment or any other materials installed or left in the Leased Premises prior to the Commencement Date unless and to the extent such injury or damage is caused by the negligence or willful misconduct of Landlord or any of Landlord's employees, contractors, subcontractors or anyone directly or indirectly employed by any one of them or anyone for whose acts any of them may be liable. All of the terms and conditions of this Lease will become effective upon Tenant taking possession of the Leased Premises except for the payment of rent, which will commence on the Commencement Date. ARTICLE 2A EXPANSION OF DEMISED PREMISES SECTION 2A.1 OPTION TO EXPAND. (a) EXPANSION NOTICE. Provided (i) Tenant is not then in material default hereunder, and (ii) Tenant's "Stockholder's Equity" as shown on Tenant's most recently prepared quarterly consolidated balance sheet, as of the date of Tenant's delivery of the Expansion Notice, is greater than or equal to Tenant's "Stockholder's Equity," as of the date hereof, by written notice provided to Landlord (herein an "Expansion Notice"), Tenant shall have the right, at any time (or times, up to a maximum of twice) during the Initial Term, to direct Landlord to prepare Expansion Plans (defined below) and to construct the Expansion Space. Tenant's Expansion Notice shall request Expansion Space of at least 80,000 square feet but not more than 160,000 square feet of additional manufacturing, assembly, warehouse or office space as Tenant may determine is necessary or desirable, provided such size is in compliance with the parameters hereafter provided and would then be in compliance with all Village codes, and other applicable governmental laws, statutes, ordinances, rules and regulations and further provided that the percentage of office space to be included within the Expansion shall not exceed twenty percent (20%) of the Total Expansion Space. Tenant shall have the right to direct Landlord to construct the Expansion Space in increments of 80,000 square feet over the Initial Term of this Lease. The Expansion Space shall be constructed on that portion of the Land delineated as "Expansion" on the Final Plans. Tenant's Expansion Notice shall contain the following information: (1) The desired size of the Expansion Space (at least 80,000 square feet but not greater than 160,000 square feet; (2) The proposed configuration and other relevant data concerning the desired Expansion Space (provided the Expansion Space shall be in conformity with the clear height of the Initial Improvements, and in conformity with the architecture, engineering 11 18 and general aesthetics of the Initial Improvements), all in sufficient detail to enable Landlord to reasonably determine the Expansion Cost (as hereafter defined) thereof; and (3) The estimated date on which Tenant requests that the Expansion Space be completed and ready for occupancy for Tenant's use (which date shall in no case be earlier than nine (9) months after Tenant's approval of the Expansion Plans). SECTION 2A.2 LANDLORD'S PROPOSED EXPANSION SPACE PARAMETERS. Within thirty (30) days following Landlord's receipt of the Expansion Notice, Landlord shall consult with Tenant concerning Tenant's specific requirements in regard to its need for expansion, and within said time period shall notify Tenant, in writing, of Landlord's proposal (which shall not be binding on Landlord or Tenant, but shall nonetheless be given, in good faith, by Landlord) of: (a) the size of the Expansion Space that Landlord is willing and able to construct in accordance with the then applicable ordinances of all governmental authority having jurisdiction over the Demised Premises and in accordance with the parameters set forth in Section 2A.1 above; (b) Landlord's estimate of the total Expansion Costs (defined in Section 2A.10 hereof) which will be incurred in planning and constructing the Expansion Space and other Land improvements or modifications necessary to accommodate the Expansion Space; and (c) Landlord's estimate, based on the Expansion Costs, of the Expansion Space Rent as provided in Section 3.1 (b) hereof. SECTION 2A.3 TENANT'S NOTICE TO PROCEED AND EXPANSION SPACE TERM. Within thirty (30) days following receipt of Landlord's proposal set forth in Section 2A.2 above, Tenant shall notify Landlord, in writing ("Notice to Proceed"), that (i) Tenant authorizes Landlord to proceed with the preparation of Expansion Plans, and the commencement of construction of the Expansion Space (as hereafter provided); or (ii) Tenant elects not to expand. If Tenant fails to serve said Notice to Proceed on Landlord within said thirty (30) day period, then Tenant shall be deemed to have elected not to expand. However, if a Notice to Proceed is given by Tenant authorizing the planning and construction of the Expansion Space, then concurrently therewith Tenant shall be deemed to have exercised that number of Renewal Terms that is necessary to extend the Term for a period of not less than fifteen (15) years following the Expansion Commencement Date (as hereafter defined). That portion of the Term equal to fifteen (15) years on and after the Expansion Commencement Date plus that portion of the applicable Renewal Term remaining after the expiration of said fifteen (15) years is hereafter referred to as the "Expansion Space Term." By way of example, if the Expansion Commencement Date occurs on the seventh (7th) anniversary of the Commencement Date, by delivery of the Notice to Proceed, Tenant shall be deemed to have elected to extend the Term for two (2) Renewal Terms, the 12 19 Term will be for not less than eighteen (18) years and the Expansion Space Term shall be for fifteen (15) years. SECTION 2A.4 PREPARATION OF EXPANSION PLANS. Following the date Landlord receives the Tenant's Notice to Proceed, Landlord shall cause to be prepared and delivered to Tenant all of the components of plans and specifications for the Expansion Space (herein, the "Expansion Plans") prepared by an Ohio licensed architect ("Expansion Architect") reasonably acceptable to Tenant, and in substantial conformity with the Expansion Notice. Said components of the Expansion Plans will be prepared for delivery as follows: (i) on or prior to the date sixty (60) days following Landlord's receipt of the Notice to Proceed, Landlord shall cause to be delivered to Tenant the base building plans component of the Expansion Plans in substantial compliance with the Landlord's proposal set forth in Section 2A.2, and which shall be in a form sufficiently complete to enable the issuance of a building permit by the Village for the construction of the base building portion of the Expansion Space. Within thirty (30) days after Tenant's approval of said base building plans component of the Expansion Plans as hereafter provided, Landlord shall cause to be delivered to Tenant the final plan component of the Expansion Plans (which shall contain substantially similar components as the Final Plans for the Initial Improvements). If: (i) each component submitted by Landlord is in substantial compliance with the Expansion Notice; and (ii) the character and quality of the systems and improvements described in the final plan component of the Expansion Plans are consistent with the character and quality of the improvements described in the base building component of the Expansion Plans, Tenant agrees that it will not unreasonably withhold its approval of any such submitted component, except for just and reasonable cause, and Tenant further agrees not to act in an arbitrary and capricious manner with respect to approval of such components. Any disapproval of the components by Tenant which, in order to obtain Tenant's approval upon resubmission, requires a revision thereto, which revision in Landlord's reasonable opinion is a substantial deviation from the Expansion Notice shall be deemed a Change Order as set forth in Section 2.7 hereof. Landlord, within seven (7) days following Landlord's receipt of such deviating disapproved component shall notify Tenant, in writing, of Landlord's good faith estimate of the amount, if any, of delay in the completion of construction of the Expansion Space and, if applicable, the extra cost to or savings to Tenant resulting from the requested revision. In no instance shall Tenant be permitted to order such deviation if such deviation would cause the Expansion Plans not to be in compliance with all applicable laws. When each of the components of the Expansion Plans have been ultimately approved by Tenant, Tenant and Landlord shall each affix their respective signatures or initials to each page 13 20 comprising such component. Thereafter, such approved components shall constitute the Expansion Plans and shall be deemed a part of this Lease as Exhibit C. SECTION 2A.5 EXPANSION COMMENCEMENT DATE. Except for Permitted Delays and Tenant Extensions, the Expansion Space shall be Substantially Completed on the date (herein the "Expansion Completion Date") which is nine (9) months following the final approval of all of the Expansion Plans. In the event that the Landlord Substantially Completes the Expansion Space on a date which is later than the date nine (9) months after the approval of the Expansion Plans (or earlier if Tenant commences use or occupancy of the Expansion Space) such later or earlier date, as the case may be, shall be the "Expansion Commencement Date." On the Expansion Commencement Date, the Expansion Space shall be deemed to be part of the Demised Premises. Notwithstanding the foregoing, in the event of Tenant Extensions, the Expansion Commencement Date shall be the date on which the Expansion Space would have been Substantially Complete, but for Tenant Extensions. SECTION 2A.6 SCOPE OF WORK - EXPANSION SPACE Subject to Permitted Delays, promptly following the approval of the Expansion Plans, Landlord agrees to furnish, at Landlord's sole cost and expense (except in the instance of Change Orders), all the material, labor and equipment necessary for the commencement and completion of construction of the Expansion Space. The Expansion Space shall be constructed in a good and workmanlike manner using new materials in accordance with the Expansion Plans, and Landlord agrees to complete the construction thereof in full compliance with all Laws as then in effect, except as such compliance may be affected as a result of any work to be performed by or on behalf of Tenant (other than by Landlord) in the Expansion Space on or prior to the Expansion Commencement Date. In the event Tenant requires any such work to be performed, Tenant shall timely advise Landlord, in writing, of the plans and specifications for such work. In the event Landlord approves such plans and specifications, Landlord shall cause the Expansion Space, on the Expansion Commencement Date to be in full compliance with all Laws, including ADA. In the event Tenant subsequently modifies such approved plans and specifications or Tenant's separate contractors fail to perform such work in compliance with such approved plans and specifications, then the procedures in respect to such subsequent modification or the affect of Tenant's separate contractors to comply with the approved plans and specifications shall be considered a Tenant Extension with respect to the Expansion Space. SECTION 2A.7 EXPANSION CHANGE ORDERS. Tenant shall be allowed to request Change Orders with respect to the Expansion Space in the same manner and with the same effect as Change Orders to the Initial Improvements. Any Change Orders with respect to the Expansion Space shall modify the Expansion Costs, upwards or downwards, as the case may be, that is set forth in the proposal 14 21 required to be delivered by Landlord to Tenant pursuant to Section 2A.2 hereof. Any increase in the amount of the Expansion Costs set forth in said Landlord's proposal as a result of a Change Order in respect to the Expansion Space shall be paid by Tenant within thirty (30) days of Tenant's receipt of an invoice therefor. SECTION 2A.8 WARRANTY AS TO EXPANSION SPACE. Landlord shall warrant all portions of the improvements constructed pursuant to the Expansion Plans for a period of one (1) year after Substantial Completion thereof, under the same terms, conditions and undertakings, and with the same limitations as set forth in Section 2.8 above. SECTION 2A.9 EXPANSION PUNCH LIST. Landlord shall notify Tenant of the date which is approximately seven (7) days prior to the estimated date on which Substantial Completion for the Expansion Space is expected to be achieved (herein referred to as "Expansion Inspection Date"). Landlord and Tenant shall, on the Expansion Inspection Date, make a joint physical inspection of the Expansion Space to list any items of work to be completed or corrected (herein referred to as "Expansion Punch List Items"). Landlord shall deliver, in writing, its promise to complete the Expansion Punch List Items, within such reasonable period of time in respect to each item as is necessary to complete same, taking into account diligence and good workmanlike practices. In the event of a disagreement between the parties as to the inclusion or the exclusion of an item as an Expansion Punch List Item, Tenant and the Expansion Architect shall appoint an Independent Architect to make such determination, and the decision of the Independent Architect (which decision shall be based solely on the determination of whether the item in question was constructed in substantial conformity with the Expansion Plans) shall control. SECTION 2A.10 EXPANSION COSTS. For purposes of determining the Base Rent for the Expansion Space for the fifteen (15) year period of the Term occurring on and after the Expansion Commencement Date, "Expansion Costs" shall be the aggregate of all payment obligations of those contracts for so-called "hard costs" and "soft costs," including, but not necessarily limited to, all actual construction costs, direct project overhead, insurance, reasonable construction interest costs, architect's and engineer's fees, permit fees (including impact fees imposed by any governmental authority) and other municipality costs, which are incurred by or on behalf of Landlord for the construction of the Expansion Space pursuant to the Expansion Plans. Landlord agrees to conduct its construction of the Expansion Space on an "open-book" basis so that Tenant shall have the opportunity to review and verify all of the component elements that comprise the Expansion Costs. 15 22 ARTICLE 3 RENT SECTION 3.1 BASE RENT. Tenant shall pay to Landlord at such place or to such other party as Landlord may from time to time designate in writing, in coin or currency which, at the time of payment, is legal tender for private or public debts of the United States of America, base rent (the "Base Rent") during the Term, which shall be the sum applicable for the Initial Improvements described in sub-paragraph (a) below, plus the sum applicable for the Expansion Space Rent (if any) described in sub-paragraph (b) below. (a) BASE RENT FOR INITIAL IMPROVEMENTS. Subject to adjustments referred to in Section 3.3, if any, for each of the following periods during the Term, the Base Rent applicable for the Initial Improvements shall be as follows: (1) INITIAL TERM. Base Rent for the Initial Improvements for the Initial Term shall be as follows:. Years 1-5 $3.32 per square foot Years 6-10 $3.74 per square foot Years 11-15 $4.19 per square foot On or before the Commencement Date, Landlord shall deliver to Tenant the Initial Architect's determination of the square footage contained within the Building. Tenant shall have the right to review and approve such determination and in the event of a disagreement between the parties as to the square footage contained within the Building, Tenant and the Initial Architect shall appoint an Independent Architect to make such determination, and the decision of the Independent Architect shall control. (2) RENEWAL TERM. Base Rent for the Initial Improvements for the Renewal Term shall be the greater of (a) Base Rent for the Initial Improvements during the Initial Term or the last year of the preceding Renewal Term, as the case may be, and (b) ninety-five percent (95%) of the "Fair Market Base Rent" determined pursuant to Section 3.1(c) below. (b) EXPANSION SPACE RENT. For each of the following periods during the Term on and after the Expansion Commencement Date, Tenant shall pay to Landlord, as Base Rent for the Expansion Space, the following amounts ("Expansion Space Rent"): 16 23 (1) EXPANSION SPACE TERM. As of the date this Lease is executed, Landlord shall determine the "Spread" defined as the difference between the yield on 20-year United States Treasury Bonds on the date this Lease is executed and 9.75%. For the period commencing on the Expansion Commencement Date to the end of the fifth year of the Expansion Space Term, the Expansion Space Rent shall be the annual amount equal to the Expansion Costs (as defined in Section 2A.10 hereof) multiplied by the greater of (i) the sum of the Spread plus the yield on 20-year United States Treasury Bonds on the Expansion Commencement Date or (ii) 9.00%, with such product then being divided by 97.5% to take into account a 2.5% vacancy factor, and then adding a $.05 per square foot structural reserve. Notwithstanding the foregoing sentence, in the event that at the time that Tenant delivers the Expansion Notice to Landlord, the yield on 20-year Treasury Bonds has increased to such an extent that it would be advantageous for Tenant to fund the proposed expansion through other sources available to Tenant, then Tenant, at the time of delivery of such Expansion Notice, shall be given the opportunity to negotiate with Landlord with respect to such other funding of the expansion, provided that an acceptable return for Landlord with respect to the expansion project can be agreed upon by the parties. Based upon the foregoing computations, within seven (7) days after the Expansion Commencement Date, Landlord shall advise Tenant, in writing, of the amount of the Expansion Space Rent and Landlord's calculation thereof as provided above. The Expansion Space Rent shall increase every five (5) years of the Expansion Space Term commencing on the fifth (5th) anniversary date of the Expansion Commencement Date and every five (5) years thereafter by twelve and one-half percent (12 1/2%) over the Expansion Space Rent payable during the immediately preceding five (5) year period. For example, assuming the 20-year Treasury Bond rate on the Lease execution date is 6.94%, and such rate is 8.00% on the Expansion Commencement Date, and the Expansion Costs for a requested 160,000 square foot expansion totaled $4,800,000, the annual Expansion Space Rent for the first five years of the Expansion Space Term would be $540,185.00, calculated as follows: $4,800,000 x (9.75% - 6.94% + 8.00%) / 97.5% + (160,000 x $.05) = $540,185.00 17 24 (2) RENEWAL TERMS. The Expansion Space Rent for the Renewal Terms shall be the greater of (a) the Expansion Space Rent required to be paid by Tenant during the last year of the Expansion Space Term or the last preceding Renewal Term, as the case may be, and (b) ninety five percent (95%) of the Fair Market Base Rent for the Expansion Space determined pursuant to Section 3.1(c) below. (c) FAIR MARKET BASE RENT DETERMINATION. The parties agree that the Base Rent for the Initial Improvements or for the entire Demised Premises, as applicable, for the applicable Renewal Term, shall be the current market rent then being charged by landlords for new tenants (as opposed to a "renewing tenant") in arms length bona fide negotiations of similar size and stature to Tenant for buildings comparable to the Building in the Solon/Glenwillow suburban market and taking into account all allowances and concessions provided, or paid to tenants, including, but not limited to: free rent, tenant improvements, buy-out of existing leases, signing bonuses, relocation expenses, and payment of service providers such as architects and brokers. In the event that the foregoing rent determination cannot reasonably be made, then, the Fair Market Base Rent for the applicable Renewal Term shall be determined by appraisal, and Landlord, in a notice to Tenant sent fifteen (15) months prior to the commencement of a Renewal Term, shall notify Tenant of the identity of Landlord's third-party appraiser. Tenant, within fifteen (15) days of receipt of Landlord's notice, shall identify, in writing, its third-party appraiser. Thereafter, within fifteen (15) days after Tenant identifies to Landlord its third-party appraiser, both third-party appraisers shall mutually agree on the designation of a third-party, independent appraiser ("Independent Appraiser"). If a party fails to identify its third-party appraiser or the identified appraisers fail to mutually agree on the designation of an Independent Appraiser, then such unidentified or undesignated appraiser shall be appointed by the Chief Judge of the United States District Court for the Northern District of Ohio, Eastern Division. Landlord shall pay all costs associated with the appraiser designated by Landlord; Tenant shall pay all costs associated with the appraiser designated by Tenant; and Landlord and Tenant shall share equally in all costs associated with the Independent Appraiser. All three appraisers shall be reputable real estate appraisers, each of whom shall be knowledgeable and experienced in the appraisals of 18 25 rent for office-warehouse-manufacturing buildings in the Cuyahoga County, Ohio suburban and, in particular, the Solon/Glenwillow market. Fair Market Base Rent shall be determined based upon such criteria as the appraisers deem appropriate, but such criteria shall include: (1) the then current use of the Demised Premises; (2) the size and condition of the entire Demised Premises; (3) the duration of the Renewal Term; and (4) rental rates then being charged by landlords for new tenants of similar size and stature in the Solon/Glenwillow suburban market. After their appointment, the appraisers shall be directed to independently determine the Fair Market Base Rent, which shall include a determination of appropriate periodic increases to the Fair Market Base Rent as so determined during the period for which the determination is being made, and which shall be determined on a per square foot basis. Within thirty (30) days after the designation of the Independent Appraiser, all three appraisals of the Fair Market Base Rent shall be submitted, in writing, to Landlord and Tenant. The weighted-average of the Fair Market Base Rent determined by the appraisers as aforesaid shall be used in determining the Base Rent for the applicable Renewal Term as provided in Section 3.1(a) and (b) hereof. If the Fair Market Base Rent is not determined until after the commencement of any such subsequent period, Tenant shall continue to pay the Base Rent paid in the year immediately preceding. When the Fair Market Base Rent is determined as provided above, and if such determination would have caused the Base Rent for the Initial Improvements or the entire Demised Premises, as applicable, for the subsequent period to increase, within thirty (30) days following such determination, Tenant shall pay to Landlord the deficiency of the Base Rent theretofore paid, prorated from the commencement of the subsequent period to the date paid. SECTION 3.2 RENT PAYABLE WITHOUT PRIOR DEMAND; MAXIMUM RATE OF INTEREST. Except as set forth herein, all payments of Base Rent for the Initial Improvements and, if applicable, Expansion Space and Additional Rent (as hereafter defined) shall be payable without previous demand therefor. If the Initial Term or any Renewal Term commences other than on the first day of a month or ends other than on the last day of a month, the Base Rent for such month and such portion of the Demised Premises shall be pro-rated accordingly. Except as specifically provided herein, the Base Rent shall be absolutely net to Landlord so that this Lease shall yield, net to Landlord, the Base Rent specified in 19 26 Section 3.1. Except as otherwise provided herein, in each year of the Term, all impositions, insurance premiums, utility charges, maintenance, repair and replacement expenses (except for Warranty Work, Landlord's Repairs and Punch List Items), all expenses relating to Compliance with Laws (as hereafter defined) chargeable to Tenant in accordance with the terms of Section 7.1 hereof, and all other costs, fees, charges, expenses, reimbursements and obligations of every kind and nature whatsoever relating to the Demised Premises which may arise or become due during the Term or by reason of events then occurring shall be paid or discharged by Tenant as additional rent (collectively, the "Additional Rent"). Tenant hereby agrees to indemnify, defend and save Landlord harmless from and against any and all such impositions, insurance premiums, utility charges, maintenance, repair and replacement expenses, all expenses relating to Compliance with Laws chargeable to Tenant in accordance with the terms of Section 7.1 hereof, and all other costs, fees, charges, expenses, reimbursements and obligations. Base Rent, Additional Rent and all other payment obligations of Tenant to Landlord hereunder are sometimes hereinafter collectively referred to as "Rent." In case of nonpayment by Tenant of any item of Rent payable to Landlord when the same is due, Landlord, following five (5) days' notice to Tenant, shall have, in addition to all its other rights and remedies, all of the rights and remedies available to Landlord under the provisions of this Lease or by law as if in the case of nonpayment of Base Rent. The performance and observance by Tenant of all the terms, covenants, conditions and agreements to be performed or observed by Tenant hereunder shall be performed and observed by Tenant at Tenant's sole cost and expense. Any installment of Base Rent or Additional Rent payable to Landlord or any other charges payable by Tenant to Landlord under the provisions hereof which shall not be paid when due shall bear interest at an annual rate equal to three (3.0%) percentage points per annum in excess of the rate of interest from time to time announced by KeyBank National Association (or similar institution if said bank shall cease to exist or to publish such a rate) as its corporate base rate of interest, but in no event in excess of the maximum lawful rate permitted to be charged by Landlord against Tenant plus an administrative charge equal to one percent (1%) of such late payments. Said rate of interest is sometimes hereinafter referred to as the "Maximum Rate of Interest". Notwithstanding the foregoing, Tenant shall be granted a "grace" period two (2) times per any consecutive twelve (12) month period during the Term for which interest on late payments shall not be charged provided same are received by Landlord within five (5) days following written notice from Landlord to Tenant. SECTION 3.3. GOVERNMENTAL ASSISTANCE. Base Rent shall be reduced in the event Landlord receives contributions from any governmental entity for on-site costs which are part of Landlord's original scope of work. The reduction in Base Rent 20 27 shall be calculated as the product of the total cost savings multiplied by 9.75%. Such reduction, however, does not apply to off-site costs, such as road curb cuts, deceleration lanes or sewer extensions which are not a part of Landlord's original cost estimates. ARTICLE 4 PAYMENT OF TAXES, ASSESSMENTS, ETC. SECTION 4.1 ADDITIONAL RENT. Tenant covenants and agrees to pay as Additional Rent, before any fine, penalty, interest or cost may be added thereto for the nonpayment thereof, all real estate taxes, special assessments, water rates and charges, sewer rates and charges, including any sum or sums payable for sewer or water capacity, charges for public utilities (the charges for the electric power portion thereof to be at rates charged by the applicable regulated utility providing such electricity, at Tenant's request), insurance premiums, street lighting, excise levies, licenses, permits, governmental inspection fees (incurred after Substantial Completion) and all other charges or burdens of whatsoever kind and nature (including costs, fees, and expenses of complying with any restrictive covenants or similar agreements to which the Demised Premises is subject) incurred in the use, occupancy, operation, leasing or possession of the Demised Premises (except as otherwise provided in Section 4.3 hereof), without particularizing by any known name or by whatever name hereafter called, and whether any of the foregoing be general or special, ordinary or extraordinary, foreseen or unforeseen (collectively, "Impositions"), which at any time during the Term may be payable. Landlord represents that it has received no notice of any change in the assessed valuation of the Land or any special assessment applicable to the Land. Tenant shall pay all components of Additional Rent as set forth in this Section 4.1 directly to the applicable public utility or other entity. Notwithstanding anything to the contrary herein, Landlord agrees that Impositions shall not include: (i) leasing commissions and attorneys fees incurred in connection with the negotiation and execution of this Lease; (2) costs incurred by Landlord in the discharge of its obligations under this Lease; (3) any amortization or depreciation on the Building; (4) costs incurred by Landlord to the extent due to a violation by Landlord of any of the terms of this Lease; (5) interest on debt or amortization payments on any mortgages or any other debt for borrowed money; (6) repairs or other work occasioned by fire, windstorm, or other casualty to the extent same are paid by the proceeds of insurance or condemnation awards; and (7) costs incurred to the extent resulting from the failure of the Building to comply with any applicable law, rule, regulation, or code in effect as of the Commencement Date of any governmental authority having jurisdiction over the Building. 21 28 Tenant shall pay all special (or similar) assessments or installments thereof (including interest thereon) for public improvements or benefits which, during the Term shall be laid, assessed, levied or imposed upon or become a lien upon the Demised Premises and which are payable during the Term, or any portion thereof; provided, however, that if by law any special assessment is payable (without default) or, at the option of the party obligated to make such payment, may be paid (without default) in installments (whether or not interest shall accrue on the unpaid balance of such special assessment), Tenant may pay the same, together with any interest accrued on the unpaid balance of such special assessment in installments as the same respectively become payable and before any fine, penalty, interest or cost may be added thereto for the nonpayment of any such installment and the interest thereon. Except as hereafter provided, Tenant shall pay all special assessments or installments thereof (including interest accrued thereon), whether heretofore or hereafter laid, assessed, levied or imposed upon the Demised Premises, or any portion thereof, which are due and payable during the Term (regardless of the period to which such assessments relate). Landlord shall pay all installments of special assessments (including interest accrued on the unpaid balance) which are payable prior to the commencement and after the termination of this Lease. Except as hereafter provided, Tenant shall pay all real estate taxes, whether heretofore or hereafter levied or assessed upon the Demised Premises, or any portion thereof, which are due and payable during the Term (regardless of the period to which such taxes relate). Provisions herein to the contrary notwithstanding, Landlord shall pay that portion of the real estate taxes and installments of special assessments due and payable in respect to the Demised Premises during the year the Term commences and the year in which the Term ends which the number of days in said year not within the Term of this Lease bears to 365, and except as hereafter provided, Tenant shall pay the balance of said real estate taxes and installments of special assessments during said years. The provisions of this Section 4.1 shall survive the expiration or earlier termination of this Lease. In the event the Land is currently taxed as part of a larger parcel for real estate tax purposes, promptly upon the execution of this Lease, Landlord will use good faith efforts to have the Land divided into a separate and distinct real estate tax parcel. Until such time as said tax division occurs, Landlord shall compute the portion of the real estate tax bill attributable to the Demised Premises and which portion is attributable to other property, if necessary. Landlord agrees to provide copies of all tax bills and Landlord's calculation of Tenant's proportionate share of the Real Estate taxes (until the tax division) promptly upon receipt of the tax bill. After the tax division of the Land occurs, Landlord will cause all real estate tax bills, assessments and notices to 22 29 be sent directly to Tenant, and Tenant agrees promptly to furnish copies of same to Landlord. Tenant's address for real estate tax purposes shall be the address for the Leased Premises. SECTION 4.2 RIGHT TO CONTEST IMPOSITIONS. Landlord agrees to notify Tenant of any Impositions as soon as possible so as to enable Tenant, if it so elects, to contest the validity, amount, propriety, or accuracy of any Imposition in a timely manner. If Tenant desires to contest the validity, amount, propriety, or accuracy of any Imposition, Tenant shall notify Landlord of same which notice shall state the nature of the Imposition being contested and the grounds for such contest. Tenant shall have the right, at its own expense, to contest the amount, propriety, accuracy, or validity, in whole or in part, of any Imposition by appropriate proceedings diligently conducted in good faith, but only after payment of such Imposition, unless non-payment would not cause a lien to be filed against title to the Demised Premises or would otherwise jeopardize title to the Demised Premises or Tenant's leasehold interest therein; in which event, notwithstanding the provisions of Section 4.1 hereof, Tenant may postpone or defer payment of such Imposition. Upon the termination of any such proceedings, Tenant shall pay the amount of such Imposition or part thereof, if any, as finally determined in such proceedings, the payment of which may have been deferred during the prosecution of such proceedings, together with any costs, fees, including attorney's fees, interest, penalties, fines and other liability in connection therewith. Tenant shall be entitled to the refund of any Imposition, penalty, fine and interest thereon received by Landlord or that are paid directly to Tenant which have been paid by Tenant or which have been paid by Landlord but for which Landlord has been previously reimbursed in full by Tenant. Landlord shall not be required to join in any proceedings referred to in this Section 4.2 unless the provisions of any law, rule or regulation at the time in effect shall require that such proceedings by brought by or in the name of Landlord, in which event Landlord shall join in such proceedings or permit the same to be brought in Landlord's name upon compliance with such conditions as Landlord may reasonably require. Landlord shall not ultimately be subject to any liability for the payment of any fees, including attorney's fees, costs and expenses in connection with such proceedings. Tenant agrees to pay all such fees (including reasonable attorney's fees), costs and expenses or, on demand, to make reimbursement to Landlord for such payment. SECTION 4.3 TAXES ON RENT. Except for any net income tax, if at any time during the Term, any method of taxation shall be such that there shall be levied, assessed or imposed on Landlord, or on the Base Rent or Additional Rent, or on the Demised Premises, or any portion thereof, in lieu of real property taxes, a capital levy, gross receipts tax (based on receipts from 23 30 the Demised Premises only) or other tax on the rents received therefrom, or a franchise tax, or an assessment, gross levy or charge measured by or based in whole or in part upon such gross Rents, Tenant, to the extent permitted by law, covenants to pay and discharge the same, it being the intention of the parties hereto that the Base Rent to be paid hereunder shall be paid to Landlord absolutely net without deduction or charge of any nature whatsoever, foreseeable or unforeseeable, ordinary or extraordinary, or of any nature, kind or description, except as otherwise expressly provided in this Lease. Notwithstanding the foregoing sentence, in the event that any method of taxation shall be such that there shall be levied, assessed, or imposed on Landlord, or on the Base Rent or Additional Rent, in lieu of a net income tax, a gross receipts tax (based on receipts from the Demised Premises only) or other tax on the rents received therefrom, Landlord shall be responsible for such tax without any right to pass the cost thereof through to Tenant. If such is the case that it cannot reasonably be determined whether a gross receipts tax is imposed in lieu of real property taxes or in lieu of a net income tax, Landlord and Tenant shall share the cost of such tax equally. Nothing contained in this Lease shall require Tenant to pay any Municipal, County, State or Federal net income or excess profits taxes assessed against Landlord, or any Municipal, State, County or Federal, estate, succession, inheritance or transfer taxes of Landlord, or corporation franchise taxes imposed upon any corporate owner of the fee of the Demised Premises. SECTION 4.4 RECEIPTS FOR IMPOSITIONS. Tenant covenants to furnish Landlord, within ten (10) days after the date upon which any Imposition or other tax, assessment, levy or charge is finally payable by Tenant, official receipts of the appropriate taxing authority, or other appropriate proof satisfactory to Landlord, evidencing the payment of the same. The certificate, advice or bill of the appropriate official designated by law to make or issue the same or to receive payment of any Imposition or other tax, assessment, levy or charge may be relied upon by Landlord as sufficient evidence that such Imposition or other tax, assessment, levy or charge is due and unpaid at the time of the making or issuance of such certificate, advice or bill. SECTION 4.5 LANDLORD'S RIGHT TO CONTEST IMPOSITIONS. In addition to the right of Tenant under Section 4.2 to contest the amount or validity of Impositions, Landlord shall also have the right, but not the obligation, to contest the amount or validity, in whole or in part, of any Impositions not contested by Tenant, by appropriate proceedings conducted in the name of Landlord or in the name of Landlord and Tenant. If Landlord elects to contest the amount or validity, in whole or in part, of any Impositions, such contests by Landlord shall be at Landlord's expense, provided, however, that if the amounts payable by Tenant for Impositions are reduced (or if a proposed increase in such amounts is avoided or reduced) by reason of Landlord's contest of 24 31 Impositions, Tenant shall reimburse Landlord for costs incurred by Landlord in contesting Impositions, but such reimbursements shall not be in excess of the amount saved by Tenant by reason of Landlord's actions in contesting such Impositions. ARTICLE 5 INSURANCE SECTION 5.1 PROPERTY INSURANCE. Tenant shall obtain and continuously maintain in full force and effect at all times during the Term, at Tenant's sole cost and expense, policies of insurance covering Landlord's Improvements constructed, installed or located on the Demised Premises, which insurance shall be for the benefit of Landlord and Landlord's designated mortgagee, trust deed holder or ground lessor (individually, "Mortgagee," and collectively, "Mortgagees"), as the named insured, against (i) loss or damage by fire; (ii) loss or damage from such other risks or hazards now or hereafter embraced by an "Extended Coverage Endorsement," including, but not limited to, windstorm, hail, explosion, vandalism, riot and civil commotion, damage from vehicles, smoke damage, water damage and debris removal; (iii) loss from flood if the Demised Premises is in a Federally designated flood area; (iv) loss from so-called explosion, earthquake (if appropriate), collapse and underground hazards; and (v) loss or damage from such other risks or hazards of a similar or dissimilar nature which are now or may hereafter be customarily insured against with respect to improvements similar in construction, design, general location, use and occupancy to the Demised Premises (hereinafter referred to as "Property Insurance"). At all times the Property Insurance coverage shall be in an amount equal to one hundred percent (100%) of the then "Full Replacement Cost" of Landlord's Improvements and shall include a so-called "Agreed Value Endorsement." Full Replacement Cost shall be interpreted to mean the cost of replacing Landlord's Improvements without deduction for depreciation, obsolescence, or wear and tear, and it shall include a reasonable sum for architectural, engineering, legal, interest charges, administrative and supervisory fees connected with the restoration or replacement of Landlord's Improvements in the event of damages thereto or destruction thereof. Full Replacement Cost shall be determined from time to time, at the request of Tenant or of Landlord or its mortgagee or trust deed holder, by an appraiser, engineer, architect or contractor designated by the party requesting such determination and at such party's expense. The Property Insurance provided by Tenant under this Section 5.1 shall: (a) be written with companies licensed to do business in the State of Ohio, having a Best's "General Policy Holding Rating" of A+ or better and a financial rating class of IX or better; (b) cite the interest of Landlord and Landlord's mortgagee(s) or trust deed holder(s) in standard mortgagee clauses 25 32 effective as of the Commencement Date (or earlier if required elsewhere herein); and (c) be maintained continuously through the Term hereof. During any period of construction of Landlord's Improvements, Landlord shall maintain in full force and effect, (i) worker's compensation insurance as may be required by the statutes of the State of Ohio or any applicable federal or municipal laws or regulations and (ii) on a completed value basis, insurance coverage on the Initial Improvements and the Expansion Space, as the case may be, through "builder's risk" insurance, an installation floater, or other comparable coverage. SECTION 5.2 MUTUAL WAIVER OF CLAIMS AND SUBROGATION RIGHTS. Whenever any loss, cost, damage, or expense resulting from fire, explosion or any other casualty or occurrence is incurred by either of the parties to this Lease, or anyone claiming by through, or under them in connection with the Demised Premises, and such party is then covered in whole or in part by insurance with respect to such loss, cost, damage or expense, which is required under this Lease to be so insured, the party so insured (or required to be insured) hereby waives all claims against and releases the other party from any liability which such other party may have on account of such loss, cost, damage or expense to the extent of any amount recovered by reason of such insurance (or which could have been recovered had such insurance been carried as so required) and waives any right of subrogation which might otherwise exist in or accrue to any person on account thereof. SECTION 5.3 COMMERCIAL GENERAL LIABILITY INSURANCE. Landlord and Tenant, during the Term, shall obtain and continuously maintain in full force and effect, at such party's sole cost and expense, commercial general liability insurance with broad liability endorsement for personal injury or property damage for any loss, liability or damage on, about or relating to the Demised Premises, or any portion thereof, having limits of not less than Five Million and 00/100 Dollars ($5,000,000.00) combined single limit coverage on an occurrence basis written by a reputable and financially sound insurance company authorized to insure such risks in the State of Ohio. Tenant's policy shall name Landlord, its mortgagee(s), beneficiaries, partners, and agents as additional insureds and Landlord's policy shall name Tenant and its beneficiaries and agent's as additional insureds. Tenant's and Landlord's insurance shall specifically insure (by contractual liability endorsement) Tenant's indemnity obligations under Section 19.3(a) and Section 2.10(c) of this Lease, and Landlord's indemnity obligations under Sections 2.10(a), 2.10(b) and 19.3(b) of this Lease respectively, but only to the extent that same directly or indirectly relate to death, bodily or personal injuries, and/or property damage. 26 33 SECTION 5.4 TENANT'S PROPERTY INSURANCE. Tenant shall maintain insurance coverage upon all personal property of Tenant (including boiler and pressure vessel and machinery peculiar to Tenant's use of the Demised Premises), and the personal property of others kept, stored or maintained on the Demised Premises against loss or damage by fire, windstorm or other casualties or causes for the full replacement cost thereof. Tenant shall also maintain such other insurance and in such amounts as may from time to time be reasonably required by Landlord, against other insurable hazards which at the time are commonly insured against in the case of premises and/or buildings and/or improvements similar in construction, design, general location, use and occupancy to those on or appurtenant to the Demised Premises. At Tenant's election, Tenant may choose not to obtain insurance to manage the risks described in this Section, and shall be entitled to self-insure as to same; provided, however, that Tenant releases Landlord from any damages that would otherwise have been covered had Tenant maintained such insurance, and agrees to indemnify and hold harmless Landlord against such damages. SECTION 5.5 TENANT'S BUSINESS INTERRUPTION INSURANCE. Tenant shall maintain business interruption insurance with a coverage period of not less than one (1) year and policy limits equal to the Rent paid for the preceding twelve (12) month period. For the first year of the Initial Term, the policy limits shall be One Million Five Hundred Thousand Dollars ($1,500,000). SECTION 5.6 PROCEEDS, PAYMENT AND POLICY PROVISIONS. All policies of insurance required by Section 5.1 shall provide that the proceeds thereof shall be payable to Landlord and shall be applied to the repair, replacement or Restoration (as that term is defined in Section 11.1) of Landlord's Improvements (or paid to Landlord in the event of Lease termination). Each policy of insurance required of Tenant or Landlord under this Article 5 shall have attached thereto (i) an endorsement that such policy shall not be canceled or materially changed without at least thirty (30) days' prior written notice to the other party, and (ii) an endorsement to the effect that the insurance as to the interests of the other party shall not be invalidated by any act or neglect of any person. SECTION 5.7 INSURANCE APPROVAL. All policies of insurance required of Tenant and Landlord under this Article shall be written in such form and by such companies licensed to do business in the State of Ohio as shall be reasonably satisfactory to Landlord. Certificates of insurance acceptable to Landlord and Tenant shall be delivered to the other party on or before the Commencement Date (or upon the date upon which Tenant exercises its rights to Early Access described herein). A new or replacement certificate of insurance acceptable to each party shall be delivered to both parties not less than fifteen (15) days prior to the expiration of the then current policy term. 27 34 ARTICLE 6 USE AND MAINTENANCE OF THE DEMISED PREMISES SECTION 6.1 PREMISES USE. Tenant shall use and occupy the Demised Premises as a manufacturing, storage, assembly facility, sales office and for general office purposes, and for such other purposes consistent with all zoning and other applicable laws (the "Premises Use"). Tenant shall not use or occupy the same, or knowingly permit them to be used or occupied, contrary to any statute, rule, order, ordinance, requirement or regulation applicable thereto, or in any manner which would violate any certificate of occupancy affecting the same, or which would make void or voidable any insurance then in force with respect thereto or which would make it impossible to obtain fire or other insurance thereon required to be furnished hereunder by Tenant, or which would cause structural injury to Landlord's Improvements or which would constitute a public or private nuisance or waste. Tenant agrees that it will promptly, upon discovery of any such use, compel the discontinuance of such use. Tenant shall not use, suffer or permit the Demised Premises, or any portion thereof, to be used by Tenant, any third party or the public (as such), without restriction or in such manner as might reasonably tend to impair Landlord's title to the Demised Premises, or in such manner as might reasonably make possible a claim or claims of adverse usage or adverse possession by the public, as such, or third persons, or of implied dedication of the Demised Premises, or any portion thereof. Nothing contained in this Lease and no action or inaction by Landlord shall be deemed or construed to mean that Landlord has granted to Tenant any right, power or permission to do any act or make any agreement that may create, or give rise to or be the foundation for any such right, title, interest, lien, charge or other encumbrance upon the estate of Landlord in the Demised Premises. SECTION 6.2 TENANT'S REPAIRS. Except for Landlord's Repairs, Warranty Work and subject to the limitation set forth in Section 6.6 below, Tenant, at its sole cost and expense, throughout the Term of this Lease, shall take good care of the Demised Premises, and shall keep the same in good order, condition and repair, and shall make and perform all routine maintenance thereof and all necessary repairs thereto, interior and exterior. All repairs made by Tenant, except as hereafter provided, shall be at least equal in quality to the original work and, in all events, shall be made by Tenant in Compliance with Laws. The necessity for or adequacy of maintenance and repairs shall be measured by the standards which are appropriate for improvements of similar construction and class, provided that Tenant shall in any event make all repairs necessary to avoid any structural damage or other damage or injury to the Improvements. 28 35 In addition, Tenant shall timely and properly maintain all of the Demised Premises, including, but not necessarily limited to mechanical systems, electrical systems, plumbing and sewage systems, fire protection systems, floor slabs, roof, foundation walls and footings, structural steel, driveways, roadways, sidewalks, curbs, parking areas, loading areas, and landscaping. Tenant shall obtain a preventative maintenance contract on the heating, ventilating and air conditioning systems which shall be subject to Landlord's reasonable approval. Tenant shall provide Landlord with a copy of the preventative maintenance contract no later than ninety (90) days after the Commencement Date. The preventative maintenance contract shall provide for the inspection and maintenance of the heating, ventilating and air conditioning system on not less than a semi-annual basis. Tenant shall also keep all portions of the Demised Premises in a clean and orderly condition, free from unreasonable accumulations of snow, ice, dirt rubbish, debris and unlawful obstructions. All of Tenant's obligations and requirements described above in this Section 6.2 are collectively called "Tenant's Repairs." In addition to the foregoing, except for Landlord's Repairs, Warranty Work and the limitation set forth in Section 6.6 hereof, Tenant's Repairs shall include the following maintenance (but not repair or replacement obligations that are a part of Landlord's Repair) of the following portions of the Demised Premises: (a) ROOF. Tenant shall maintain the roof of the Demised Premises in accordance with the specifications therefor established by the manufacturer of the roof membrane. Such maintenance shall not include repair or replacement of the roof provided Tenant maintains the same as described in the foregoing sentence. (b) STRUCTURAL MEMBERS. Tenant shall maintain the structural members of the Demised Premises which shall include, but shall not necessarily be limited to, painting, snow removal and prevention of undermining. The time permitted by Tenant to effectuate Tenant's Repairs shall be extended for such period as may reasonably be necessary provided Tenant is continuously, diligently and in good faith prosecuting the same. In addition, Landlord, may cause at Landlord's expense, independent private building inspectors, qualified in the specific discipline, to make inspections of the Building and Building systems or segments thereof to determine Tenant's compliance under this Section. If Tenant does not timely or properly perform Tenant's Repairs as above provided, Landlord may, but need not, after thirty (30) days' notice to Tenant, make such repairs, replacements or maintenance in a reasonably diligent fashion, and Tenant shall pay Landlord forthwith upon being billed for same by Landlord all of Landlord's actual costs incurred in connection therewith. Landlord may, but shall not be required to, enter the Demised Premises at all reasonable times upon reasonable notice 29 36 (except in the instance of an emergency) to make such repairs, alterations, improvements and additions to the Demised Premises or to any equipment, fixtures or landscaping located on the Demised Premises as Landlord deems reasonably necessary and which Tenant failed to do as required in this Lease after written notice from Landlord. However, any and all repairs, replacements or maintenance made by Landlord pursuant to this Lease shall be done in a reasonably diligent manner and so as to minimize any disruption to Tenant's business operations. SECTION 6.3 LANDLORD'S REPAIRS. Notwithstanding anything to the contrary contained in Section 6.2, from and after the date constructed and during the Term, at Landlord's sole cost and expense, Landlord shall repair and replace the roof, and repair any defect in materials or workmanship relating to the foundation walls, footings, and structural steel which comprise a part of the Landlord's Improvements (collectively, "Landlord's Repairs"). Notwithstanding the foregoing, that portion of Landlord's Repairs the scope of which was materially increased or necessitated as a result of (a) the willful or negligent failure of Tenant to timely (except in emergency conditions) notify Landlord of a condition which does or, with the passage of time, could necessitate Landlord's Repairs; (b) the willful or negligent failure of Tenant to make Tenant's Repairs; and (c) any act or omission of Tenant in contravention to the provisions of this Lease, shall be performed by Landlord at Tenant's cost and expense. SECTION 6.4 PROHIBITION AGAINST WASTE. Tenant shall not do or suffer any waste or damage, disfigurement or injury to the Demised Premises, or any improvements hereinafter erected thereon, or to the fixtures or equipment therein, or permit or suffer any overloading of the floors or other use of the Improvements that would place an undue stress on the same or any portion thereof beyond that for which the same was designed. SECTION 6.5 MISUSE OR NEGLECT. Tenant shall be responsible for all repairs to the Demised Premises which are made necessary by any misuse or neglect by: (i) Tenant or any of its officers, agents, employees, contractors, licensees, or subtenants; or (ii) any visitors, patrons, guests, or invitees of Tenant or its subtenant while in or upon the Demised Premises, exclusive of Landlord and its contractors, sub-contractors, employees or agents. SECTION 6.6 LIMITATION ON TENANT'S REPAIRS. If: (i) Tenant's Repairs requires Tenant to replace a capital item, being an item which is reasonably expected to have a useful life in excess of one year ("Capital Replacement"), and (ii) such Capital Replacement is required at any time during the last sixty (60) months of the Term, and (iii) the Capital Replacement is expected to cost in excess of $10,000.00, and (iv) the Capital Replacement has a "Recovery Period" (as determined under the Internal Revenue Code and Regulations applicable thereto) which exceeds the balance 30 37 of the Term, then Tenant shall so notify Landlord in writing, and of the cost and other specific arrangements in regard to Tenant's proposed Capital Replacement, and the remaining provisions of this Section shall apply. Landlord and Tenant shall reasonably and mutually agree whether the Capital Replacement proposed by Tenant is appropriate under the circumstances, or whether a less costly Capital Replacement is appropriate, or whether a satisfactory repair not including a Capital Replacement is practicable. Such agreement shall be based on, among other things, local industry standards for properties comparable to the Demised Premises. Neither party's agreement shall be unreasonably withheld or delayed. The cost of each and every Capital Replacement upon which Landlord and Tenant agree, as aforesaid, shall be shared by Landlord and Tenant as follows: (i) Landlord shall pay the amount determined by multiplying the total costs paid for such Capital Replacement by a fraction, the numerator of which is the total number of days contained in the Recovery Period of the Capital Replacement less the number of days from the date the Capital Replacement was placed in service to the date of the expiration of the Term, and the denominator of which is the total number of days contained in the Recovery Period of the Capital Replacement; and (ii) Tenant shall pay the entire balance of the total costs for such Capital Replacement. Each of the parties shall pay its portion of the costs of a Capital Replacement as and when payment for the same is due with respect to all such Capital Replacement work. If after the computation of the cost of the Capital Replacement as aforesaid, the Term is extended for either the Expansion Space Term or a Renewal Term, Landlord's portion of the cost of Capital Replacement shall be re-computed within thirty (30) days after each such extension, and Tenant shall then pay to Landlord the difference between that which the Landlord paid as of the date of the original computation and that which Landlord is required to pay as a result of such re-computation. ARTICLE 7 COMPLIANCE WITH LAWS AND ORDINANCES SECTION 7.1 COMPLIANCE. Except as required of the Landlord to construct the Initial Improvements as provided in Section 2.3 hereof, and except as required of Landlord to construct the Expansion Space as provided in Section 2A.6, Tenant shall, throughout the Term and at Tenant's sole cost and expense, promptly fully comply or cause full compliance with or remove or cure any violation of any and all present and future laws, ordinances (zoning or otherwise), orders, rules, regulations and requirements of all Federal, State, County, Municipal and other governmental bodies having jurisdiction over the Demised Premises and the appropriate departments, commissions, boards and officers thereof (excluding only Environmental Laws which are separately addressed in Section 7.3), and the orders, rules and regulations 31 38 of the Board of Fire Underwriters where the Demised Premises is situated, or any other body now or hereafter constituted exercising lawful or valid authority over the Demised Premises, or any portion thereof, or the sidewalks, curbs, roadways, alleys or entrances adjacent or appurtenant thereto, or exercising authority with respect to the use or manner of use of the Demised Premises and whether the compliance, curing or removal of any such violation and the costs and expenses necessitated thereby shall have been foreseen or unforeseen, ordinary or extraordinary, and whether or not the same shall be presently within the contemplation of Landlord or Tenant or shall involve any change of governmental policy, or require structural or extraordinary repairs, alterations or additions by Tenant and irrespective of the costs thereof (hereafter referred to as "Laws" and the compliance therewith as aforesaid is hereafter referred to as "Compliance with Laws"). Notwithstanding the foregoing, in the event of a change in any laws, statutes or ordinances of any governmental authority having jurisdiction over the Demised Premises or over Tenant and Tenant's business operations, and such change in the law requires physical alterations or improvements to be made to the Building, then if such change in law is such that the required physical alterations or improvements to the Building are specific or peculiar to Tenant or to Tenant's business operations, all costs associated with making such physical alterations or improvements and otherwise complying with the changes in said law shall be borne by Tenant. Otherwise all costs associated with making such physical alterations or improvements and otherwise complying with the changes in said law shall be borne initially by Landlord and such costs shall be amortized over the Recovery Period of such alteration or physical improvement and Tenant shall reimburse Landlord the amount determined by multiplying the total costs paid for such alteration or improvement by a fraction, the numerator of which is the total number of days remaining in the Term and the denominator of which is the total number of days in the Recovery Period. If after the computation of the cost of an alteration or improvement described in this Section 7.1, the Term is extended for either the Expansion Space Term or a Renewal Term, Landlord's portion of the cost of Capital Replacement shall be recomputed within thirty (30) days after each such extension, and Tenant shall then pay to Landlord the difference between that which the Landlord paid as of the date of the original computation and that which Landlord is required to pay as a result of such re-computation. SECTION 7.2 OTHER COMPLIANCE. Tenant, at its sole cost and expense, shall comply with all agreements, contracts, easements, restrictions, reservations or covenants, if any, running with the Land, or hereafter created by Tenant or consented to, in writing, by Tenant or requested, in writing, by Tenant. Tenant shall also comply with, observe and perform all provisions and requirements of all policies of insurance at any time in force 32 39 with respect to the Demised Premises and required to be obtained and maintained under the terms of Article 5 hereof and shall comply with all development permits issued by governmental authorities issued in connection with development of the Demised Premises. SECTION 7.3 ENVIRONMENTAL MATTERS. Tenant acknowledges receipt of a copy of the environmental report (the "Environmental Report") prepared by EDP Consultants, Inc. as attached hereto as Exhibit D. In addition to the compliance requirements set forth herein, and not by way of limitation thereof, Tenant and Landlord mutually covenant and agree as follows: (a) DEFINITIONS: As used in this Section 7.3: (1) "Environmental Condition(s)" means the presence on, in, under, or migrations from the Demised Premises of a Hazardous Substance(s), except naturally occurring substances, which exceed any applicable and effective state or federal cleanup standards, whether such presence is in ambient air, surface water, groundwater, land surface or subsurface strata. (2) "Environmental Liability(ies)" means any Environmental Conditions with respect to which there are effective and applicable Environmental Laws pursuant to which the regulatory authorities having jurisdiction over the Demised Premises would have authority to require remediation activities. Designation of a condition as an Environmental Liability by regulatory authorities or other third parties, pursuant to this Agreement shall not be construed as an admission by either party. (3) "Environmental Laws" means all federal and state environmental laws and regulations thereunder that are applicable to the Demised Premises, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. (CERCLA); the Solid Waste Disposal Act (SWDA) and Resource Conservation and Recovery Act (RCRA), 42 U.S.C. Section 6901, et seq.; the Clean Water Act, 33 U.S.C. Section 1251, et seq.; the Clean Air Act, 42 U.S.C. Section 7401, et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq.; and the Safe Drinking Water Act, 42 U.S.C. Section 300f through 300j, and the Ohio Environmental Protection Act, Ohio Revised Code Section 3745, et. seq. (4) "Hazardous Substances" means all hazardous substances, as that term is defined in CERCLA or other Environmental Laws, petroleum or petroleum products, 33 40 and any other federal, state or local environmental law, ordinance, rule or regulation now or hereafter in effect. (b) LANDLORD INDEMNITY. Except to the extent Tenant, its employees, agents, contractors or subcontractors cause Environmental Conditions, to the extent Landlord is indemnified by Milstein (as defined in Section 20.1) pursuant to Section 15 of that certain Real Property Purchase Agreement dated as of August 29, 1996, Landlord shall defend, hold harmless and indemnify Tenant and its directors, officers, parent, subsidiaries and affiliates from and against any and all claims, liabilities, damages, costs, penalties, forfeitures, losses, or expenses (including attorney fees) that such indemnified party or person may sustain, suffer, or incur arising out of any Environmental Liabilities based on Environmental Laws in existence, effective and applicable to the Demised Premises and attributable to Environmental Conditions existing as of the Commencement Date. (c) TENANT INDEMNITY. Except to the extent Landlord, its employees, agents, contractors, or subcontractors cause Environmental Conditions, and except to the extent Landlord indemnifies Tenant pursuant to Section 7.3(b) hereof, Tenant shall defend, hold harmless and indemnify Landlord and its beneficiaries, officers, agents, partners and affiliates from and against any and all claims, liabilities, damages, costs, penalties, forfeitures, losses or expenses (including attorneys fees) that such indemnified party or person may sustain, suffer, or incur arising out of Environmental Liabilities based on Environmental Laws in existence as of the Commencement Date or enacted or adopted at any time thereafter, arising out of, or as a direct result of the acts or omissions of Tenant, its employees, contractors, agents, subtenants, assignees, or business invitees, or as a direct result of a spill, discharge or other release of Hazardous Substances onto the Demised Premises caused by the acts or omissions of Tenant, its employees, contractors, agents, subtenants, assignees or business invitees during the Term. In the event the Environmental Condition which gives rise to an Environmental Liability for which a claim for indemnification is made by Landlord hereunder, is the migration onto or within the Demised Premises during the Term of Hazardous Substances from a source or sources other than the Demised Premises, then Tenant's obligations to indemnify Landlord hereunder shall only be effective if (i) Tenant has actual knowledge of such Environmental Condition, or in the exercise of reasonable business practices should have known thereof, and (ii) Tenant failed to promptly take all 34 41 reasonable steps necessary to abate, mitigate or otherwise prevent such migrating Hazardous Substances onto the Demised Premises. If Tenant becomes aware of an Environmental Condition which could give rise to any Environmental Liability, Tenant shall promptly notify Landlord of same. (d) NOTICE. If a claim by a third person (including without limitation any governmental entity) is made against any person indemnified hereunder and the party against which said claim is made intends to seek indemnification with respect to such claim under this Section 7.3, the party seeking such indemnification shall promptly give notice of such claim to the indemnifying party. In addition, if a party indemnified under this Section 7.3 comes into possession of facts which could reasonably lead to a claim for indemnification under this Section 7.3, such party shall promptly give notice of such facts to the indemnifying party. (e) EXCLUSIVE REMEDY AND SURVIVAL. Notwithstanding the indemnity provided in Section 19.3 of this Lease, the parties agree that the foregoing indemnifications shall exclusively define their rights and obligations with respect to Environmental Liabilities arising from or related to the Demised Premises. Except as expressly provided otherwise in this Lease, the provisions of this Section 7.3 shall survive the termination of the Lease and be effective for so long as Landlord or Tenant may have any liability whatsoever with respect to the Demised Premises. (f) COMPLIANCE WITH OTHER LAWS. Tenant, at its sole cost and expense, shall fully comply with, and provide to Landlord all information needed from time to time in regard to, all provisions of the federal and state environmental protection acts, responsible property transfer laws, RCRA, CERCLA, and any other applicable federal, state or local environmental liability or protection or cleanup responsibility laws, either currently in effect or hereafter enacted which affect Tenant's operations at the Demised Premises. (g) STORAGE OF HAZARDOUS MATERIALS. Tenant agrees not to use or store on or in the Demised Premise, any Hazardous Substances or any material deemed to be toxic or hazardous by any governmental authority having jurisdiction over the Land, except in full compliance with all applicable laws, statutes, regulations or ordinances. (h) ENVIRONMENTAL AUDITS. Upon request by Landlord during the Term of this Lease, prior to the exercise of any 35 42 option to renew for any Renewal Term and/or prior to Tenant's vacation of the Demised Premises, Tenant shall undertake and submit to Landlord an environmental audit from an environmental company reasonably acceptable to Landlord which audit shall evidence Tenant's compliance with this Article 7. If Tenant, at any time during the Term prior to Landlord's request for an environmental audit, has been cited for violation of any Environmental Requirements, or other hazardous materials laws by any governmental body having jurisdiction thereof, or if a violation of an Environmental Law or a breach of this Section 7.3 is discovered or confirmed by such audits, then such environmental audits shall be at Tenant's sole cost and expense. In all other instances, Landlord shall pay the cost and expense of such requested environmental audits. (i) TERMINATION OF LEASE. In the event of an Environmental Liability affecting the health and welfare of the occupants and invitees of the Land, Building or any portion thereof that is not the subject of the Landlord indemnity set forth in subparagraph (b) above or the Tenant indemnity contained in sub-paragraph (c) above (a "Third Party Cause"), Landlord, at its option, upon written notice to Tenant within sixty (60) days following the date of such Third Party Cause (or such later date that Landlord knew of the occurrence of such Third Party Cause), shall elect to either remediate such Third Party Cause or decline the obligation of such remediation. If Landlord fails to give such notice, it shall be presumed that Landlord has elected not to remediate. If Landlord elects to remediate, it shall do so, at its sole cost and expense, as promptly as practical under the circumstances, but in any event with diligence. If Landlord elects or is presumed to have elected not to remediate, Tenant, at its option upon written notice to Landlord within sixty (60) days following the date Landlord elected or was presumed to have elected not to remediate the Third Party Cause, shall elect to either remediate such Third Party Cause or terminate this Lease effective on the date provided below. If Tenant elects to remediate, it shall do so, at its sole cost and expense, as promptly as practical under the circumstances, but in any event with diligence. If Tenant has elected to terminate this Lease, Landlord, within ten (10) business days thereafter, upon written notice to Tenant, shall have the further option to either elect to remediate the Third Party Cause (thereby voiding Tenant's option to terminate this Lease as above provided) or to decline such remediation. If Landlord fails to give such ten (10) business day notice, it shall be presumed that Landlord has elected to decline remediation and this 36 43 Lease shall terminate as hereafter provided. However, if Landlord elects to remediate, it shall do so at its sole cost and expense, as promptly as possible under the circumstances, but in any event with diligence, and this Lease shall remain in full force and effect in such event. However, if Landlord elected or is presumed to have elected not to remediate as last above provided, within ten (10) business days following Landlord's election or presumed election (whichever first occurs), Tenant may notify Landlord, in writing, that Tenant elects to have the Term remain in effect, on a year to year basis, on the same terms and conditions as provided in this Lease (except as hereafter provided), commencing on the first to occur of the date Landlord last above elected or is presumed to have elected not to remediate, and ending on the day before the first anniversary of such commencement (but in no instance longer than the Term provided for in Article 1 hereof), unless, one hundred twenty (120) days prior to such anniversary, Tenant, by written notification to Landlord, elects to further cause the Term to remain in effect for one (1) additional calendar year (but in no instance longer than the Term provided for in Article 1 hereof). If Tenant so elects to cause the Term to remain in effect for one (1) or two (2) more years as above provided, it shall be on the same terms and conditions provided for in this Lease, except that Landlord, in no instance, shall be liable to Tenant or anyone claiming by, through or under Tenant for any loss, damage, injury, claim, demand, action or cause of action (Tenant hereby releasing and waiving the same) resulting from the subject Third Party Cause Environmental Liabilities. If Tenant does not elect to have the Term remain in effect as aforesaid, this Lease shall terminate on the date Landlord last above elected or is presumed to have elected not to remediate, whichever first occurs. ARTICLE 8 MECHANIC'S LIENS AND OTHER LIENS SECTION 8.1 LIENS AND RIGHT OF CONTEST. Tenant shall not suffer or permit any mechanic's lien or other lien to be filed against the Demised Premises, or any portion thereof, by reason of work, labor, skill, services, equipment or materials supplied or claimed to have been supplied to the Demised Premises at the request of Tenant, or any one holding the Demised Premises, or any portion thereof, through or under Tenant. If any such mechanic's lien or other lien shall at any time be filed against the Demised Premises, or any portion thereof, Tenant shall, within forty-five (45) days after the date of filing the same, either cause the same to be discharged of record or bond over the same, if pursuant to 37 44 Ohio law such bonding over has the effect of expunging the encumbrance of the lien. However, in the event Tenant desires to contest the validity of any lien, it shall, within forty-five (45) days of the date such lien was recorded, notify Landlord, in writing, that Tenant intends to so contest same, and either (i) bond over the lien, if pursuant to Ohio law such bonding over has the effect of expunging the encumbrances of the lien; or (ii) cause a title insurer satisfactory to Landlord to insure over such lien, in form and content satisfactory to Landlord. If Tenant complies with the foregoing, and Tenant continues, in good faith, to contest the validity of such lien by appropriate legal proceedings which shall operate to prevent the collection thereof and the sale or forfeiture of the Demised Premises, or any part thereof, to satisfy the same, Tenant shall be under no obligation to pay such lien until such time as the same has been decreed, by court order, to be a valid lien on the Demised Premises. Provided that nonpayment of such lien does not cause Landlord to be in violation of any of its contractual undertakings, Landlord agrees not to pay such lien during the period of Tenant's contest. Tenant shall indemnify and defend Landlord against and save Landlord and the Demised Premises, and any portion thereof, harmless from and against all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable attorney's fees, resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanic's lien or other lien or the attempt by Tenant to discharge same as above provided. All materialmen, contractors, artisans, mechanics, laborers and any other person now or hereafter furnishing any labor, services, materials, supplies or equipment to Tenant with respect to the Demised Premises, or any portion thereof, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for the same. Notice is hereby given that Landlord shall not be liable for any labor, services, materials, supplies, skill, machinery, fixtures or equipment furnished or to be furnished to Tenant upon credit, and that no mechanic's lien or other lien for any such labor, services, materials, supplies, machinery, fixtures or equipment shall attach to or affect the estate or interest of Landlord in and to the Demised Premises, or any portion thereof. SECTION 8.2 LIENS ON LANDLORD'S WORK. The provisions of Section 8.1 above shall not apply to any mechanic's lien or other lien for labor, services, materials, supplies, machinery, fixtures or equipment furnished to the Demised Premises in the performance of Landlord's obligations to construct the Landlord's Improvements, provide Warranty Work, or Punch List Item or Expansion Punch List Item work required herein. Landlord agrees to indemnify and defend Tenant against and save Tenant and the Demised Premises, and any portion thereof, harmless from all 38 45 losses, costs, damages, expenses, liabilities and obligations, including, without limitation, reasonable attorney's fees resulting from the assertion, filing, foreclosure or other legal proceedings with respect to any such mechanic's lien or other lien. SECTION 8.3 OTHER LIENS. Tenant shall not create, permit or suffer, and, subject to the right to contest as set forth in Section 8.1 hereof, shall promptly discharge and satisfy of record, any other lien, encumbrance, charge, security interest, or other right or interest which, as a result of Tenant's action or inaction contrary to the provisions hereof, shall be or become a lien, encumbrance, charge or security interest upon the Demised Premises, or any portion thereof, or the income therefrom. ARTICLE 9 INTENT OF PARTIES SECTION 9.1 NET RENT. Landlord and Tenant do each state and represent that it is their respective intention that this Lease be interpreted and construed as an absolute net lease and all Base Rent and Additional Rent shall be paid by Tenant without abatement, deduction, diminution, deferment, suspension, reduction, set off, defense or counterclaim with respect to the same (except as expressly provided herein). Except as otherwise provided herein, the obligations of Tenant shall not be affected by reason of damage to or destruction of the Demised Premises from whatever cause, nor shall the obligations of Tenant be affected by reason of any condemnation, eminent domain or like proceedings. Except as provided herein, all Impositions, insurance premiums, utility expense, repair and maintenance expenses, and all other costs, fees, interest, charges, expenses, reimbursements and obligations of every kind and nature whatsoever relating to the Demised Premises, or any portion thereof, which may arise or become due during the Term, or any extension or renewal thereof, shall be paid or discharged by Tenant as Additional Rent. SECTION 9.2 LANDLORD'S PERFORMANCE FOR TENANT. If Tenant shall at any time fail to pay any Imposition in accordance with the provisions of Article 4, or to take out, pay for, maintain and deliver any of the insurance policies or certificates of insurance provided for in Article 5, or shall fail to make any other payment or perform any other act on its part to be made or performed, then Landlord, after fifteen (15) days prior written notice to Tenant (or without notice in case of emergency), and without waiving or releasing Tenant from any obligation of Tenant contained in this Lease, may, but shall be under no obligation to do so, (i) pay after said fifteen (15) days' written notice to Tenant, any Imposition payable by Tenant pursuant to the provisions of Article 4; (ii) take out, pay for and maintain any of the insurance policies provided for in this Lease; or (iii) make any other payment on Tenant's part to be paid hereunder. Landlord may enter 39 46 upon the Demised Premises for any such purpose and take all such action therein or thereon as may be necessary therefor and all such action taken by Landlord shall be in a reasonably diligent fashion. SECTION 9.3 PAYMENT FOR LANDLORD'S PERFORMANCE FOR TENANT. All sums so paid by Landlord and all costs and expenses, including reasonable attorney's fees, reasonably incurred by Landlord in connection with the performance of any such act, together with interest thereon at the Maximum Rate of Interest from the respective dates of Landlord's making of each payment of such cost and expense, including reasonable attorney's fees, shall be paid by Tenant to Landlord on demand. ARTICLE 10 DEFAULTS AND LANDLORD'S REMEDIES SECTION 10.1 DEFAULT. The following events, following the expiration of the applicable cure periods, in this Article are sometimes referred to as an event of "Default:" (a) If default shall be made by Tenant, under the provisions of Article 13 hereof relating to assignment, sublease, mortgage or other transfer of Tenant's interest in this Lease or in the Demised Premises or in the income arising therefrom; (b) If default shall be made in the due and punctual payment of Base Rent or any installment thereof and such default shall continue for five (5) business days after written notice to Tenant, or if default shall be made in the payment of Additional Rent or in the payment of any other sum required to be paid by Tenant under this Lease and such default shall continue for seven (7) business days after written notice to Tenant; (c) If default shall be made in the observance or performance of any of the other covenants or conditions in this Lease which Tenant is required to observe and perform and such default shall continue for thirty (30) days after written notice to Tenant, or if a default involves a hazardous or emergency condition and is not cured by Tenant immediately; provided, however, the time allowed Tenant (except in the instance of hazardous or emergency conditions) within which Tenant is permitted to cure the same shall be extended for such reasonable period as may be necessary for the curing provided Tenant is continuously, diligently and in good faith prosecuting such cure; and (d) If, during the term of this Lease: (1) Tenant shall make an assignment for the benefit of creditors; (2) a 40 47 voluntary petition shall be filed by Tenant under any law having for its purpose the adjudication of Tenant a bankrupt, or Tenant shall be adjudged a bankrupt pursuant to an involuntary petition in bankruptcy; (3) a receiver is appointed for the property of Tenant; (4) any department of the state or federal government, or any officer thereof duly authorized, shall take possession of the business or property of Tenant; or (5) any involuntary petition in bankruptcy shall be filed against Tenant under any federal or state bankruptcy or insolvency laws and shall not have been dismissed within ninety (90) days from the filing thereof. Landlord may treat the occurrence of any one or more of the foregoing events of Default as a breach of this Lease. In any such event, Landlord, at any time thereafter during the continuance of any such event of Default, may give written notice to Tenant specifying such event of Default or events of Default and stating that this Lease and the Term hereby demised shall expire and terminate on the date specified in such notice, and upon the date specified in such notice this Lease and the Term hereby demised, and all rights of Tenant under this Lease, including all rights of renewal whether exercised or not, shall expire and terminate, or in the alternative or in addition to the foregoing remedy, Landlord may assert and have the benefit of any and all other remedies and rights provided at law or in equity. SECTION 10.2 RE-LETTING AFTER DEFAULT. To the extent permitted by law, in the event of a Default, Landlord may terminate Tenant's right of possession and may repossess the Demised Premises by forcible entry and detainer suit, by taking peaceful possession or otherwise, without terminating this Lease, in which event Landlord shall use commercially reasonable efforts to relet the same for the account of Tenant, for such rent and upon such terms as may be satisfactory to Landlord. For the purpose of such re-letting, Landlord is authorized to repair the Demised Premises. If Landlord shall fail to relet the Demised Premises, Tenant shall pay to Landlord, as damages, a sum equal to the amount of Rent reserved in this Lease for the balance of the Initial Term or the Renewal Term, as the case may be, as the same becomes due and payable. If the Demised Premises is relet and a sufficient sum shall not be realized from such re-letting after paying all of the costs and expenses of all repairs and the reasonable expenses of such re-letting (which expenses shall be limited to attorneys' fees and brokerage commissions) and of the collection of the rent accruing therefrom to satisfy the Rent provided for in this Lease, Tenant shall satisfy and pay the same upon demand therefor from time to time. For purposes of this Article 10, costs relating to remodeling or altering the Demised Premises shall not be deemed expenses of re-letting. It is understood and agreed that if Landlord incurs any cost or expense for re-letting as described above, such cost and expense shall be 41 48 amortized over the term of the lease that is the subject of such re-letting, and Tenant's obligation to Landlord in respect thereto shall be an amount equal to such cost and expense multiplied by a fraction, the numerator of which is the number of days remaining in the unexpired Term hereof, and the denominator of which is the number of days in the term of the lease that is the subject of the re-letting. Tenant agrees that Landlord may file suit to recover any sums falling due under the terms of this Article 10 from time to time and that no suit or recovery of any portion due to Landlord hereunder shall be any defense to any subsequent action brought for any amount not theretofore reduced to judgment in favor of Landlord. SECTION 10.3 ACCEPTANCE AFTER DEFAULT. No failure by Landlord or Tenant, as the case may be, to insist upon the performance of any of the terms of this Lease or to exercise any right or remedy consequent upon a breach thereof, and no acceptance by Landlord of full or partial Rent from Tenant or any third party during the continuance of any such breach, shall constitute a waiver of any such breach or of any of the terms of this Lease. None of the terms of this Lease to be kept, observed or performed by either party hereunder, and no breach thereof, shall be waived, altered or modified except by a written instrument executed by Landlord and by Tenant. No waiver of any breach shall affect or alter this Lease, but each of the terms of this Lease shall continue in full force and effect with respect to any other then existing or subsequent breach of this Lease. No waiver of any Default of Tenant herein shall be implied from any omission by Landlord to take any action on account of such Default, if such Default persists or is repeated and no express waiver shall affect any Default other than the Default specified in the express waiver and that only for the time and to the extent therein stated. One or more waivers by Landlord or by Tenant, as the case may be, shall not be construed as a waiver of a subsequent breach of the same covenant, term or condition. SECTION 10.4 REMEDIES CUMULATIVE. In the event of any breach or threatened breach by Tenant of any of the terms contained in this Lease, Landlord shall be entitled to invoke any right or remedy allowed at law or in equity or by statute or otherwise (including injunctive relief) as though entry, re-entry, summary proceedings and other remedies, as the case may be, were not provided for in this Lease. Each remedy or right of Landlord provided for in this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease, or now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or the beginning of the exercise by Landlord of any one or more of such rights or remedies except as otherwise provided herein, shall not preclude the simultaneous or later exercise by Landlord of any or all other rights or remedies. 42 49 ARTICLE 11 DESTRUCTION AND RESTORATION SECTION 11.1 RESTORATION. In case of damage to or destruction of all or a portion of the Landlord's Improvements by fire or other casualty (a "Casualty"), after the date on which Substantial Completion of the Initial Improvements is achieved and during the Term, Landlord, to the extent of insurance proceeds received shall promptly restore, repair, replace and rebuild the same as nearly as possible to the condition for which the Property Insurance set forth in Section 5.1 was procured. Tenant shall forthwith give Landlord written notice, except in cases of emergency when Landlord may be notified by telephone, of Casualty upon the occurrence thereof and specify in such notice, in reasonable detail, the extent thereof. Such restoration, repairs, replacements, rebuilding, including the cost of temporary repairs for the protection of the Demised Premises, or any portion thereof, pending completion thereof are sometimes hereinafter referred to as the "Restoration." Landlord shall employ its diligent good faith efforts to complete the Restoration reasonably promptly and with as little disruption as to the Premises Use as is reasonably possible. If Landlord advises Tenant thirty (30) days after damage or destruction that Landlord is unable to complete the Restoration within nine (9) months following the destruction, Tenant, on not less than thirty (30) days written notice to Landlord, may terminate this Lease provided Tenant vacates the undamaged portion of the Demised Premises as otherwise provided in this Lease. SECTION 11.2 INSURANCE PROCEEDS. All insurance moneys recovered by Landlord or its Mortgagee on account of such Casualty, less the costs, if any, to Landlord or its Mortgagee of such recovery, shall be applied by Landlord to the payment of the costs of the Restoration and shall be paid out from time to time as the Restoration progresses. If the net amount of the insurance proceeds (after deduction of all costs, expenses and fees related to recovery of the insurance proceeds) recovered is insufficient to complete the Restoration of such improvements (exclusive of Tenant's personal property and Tenant's Trade Fixtures which shall be restored, repaired or rebuilt out of Tenant's separate funds), Tenant shall provide all additional funds necessary to complete the Restoration. SECTION 11.3 TENANT'S OBLIGATIONS FOLLOWING A CASUALTY. If the Casualty shall render the Demised Premises wholly untenantable or unusable for the Premises Use in Tenant's reasonable judgment, Base Rent payable hereunder shall abate from the date of Casualty to the date on which Restoration is complete. If the Casualty shall render a portion of the Demised Premises untenantable or unusable for the Premises Use in Tenant's reasonable judgment, Base Rent shall abate proportionately to the square footage of the Demised Premises rendered untenantable or 43 50 unusable until Restoration of such portion of the Demised Premises is complete. SECTION 11.4 DESTRUCTION PRIOR TO COMMENCEMENT DATE. The provisions of this Article 11 apply only to a Casualty occurring (a) as to the Initial Improvements, after the Commencement Date and (b) as to the Expansion Space, after the Expansion Commencement Date. Any such Casualty occurring to the Initial Improvements prior to the Commencement Date or occurring to the Expansion Space prior to the Expansion Commencement Date shall be restored, repaired, replaced and rebuilt by Landlord, and during such period of construction, Landlord shall obtain and maintain the insurance coverage referred to in Section 5.1 hereof. All moneys received by Landlord under its insurance coverage shall be applied by Landlord to complete the Restoration of such Casualty, and if such insurance proceeds are insufficient, Landlord shall provide all additional funds necessary to complete the Restoration of the Initial Improvements or the Expansion Space, as appropriate. SECTION 11.5 RESTORATION AT END OF TERM. If, within twelve (12) full calendar months prior to the expiration of the Initial Term, Expansion Space Term or Renewal Term(s), as the case may be, Landlord's Improvements shall be destroyed or damaged, Landlord shall be relieved of the obligation to make the Restoration, and this Lease shall terminate, provided, however, if Tenant, within thirty (30) days following such Casualty, elects, in writing with no right of withdrawal, to extend the Term for whatever Renewal Term then is available to Tenant (if such a Renewal Term is available), Landlord shall not be permitted to terminate this Lease pursuant to the provisions of this Section 11.5 and shall be required to complete the necessary Restoration in accordance with the terms of this Article 11. ARTICLE 12 CONDEMNATION SECTION 12.1 TOTAL CONDEMNATION. If, during the Term, the entire Demised Premises shall be taken as the result of the exercise of the power of eminent domain (the "Proceedings"), this Lease and all right, title and interest of Tenant hereunder shall terminate on the date of vesting of title pursuant to such Proceedings, and Landlord shall be entitled to and shall receive the total award made in such Proceedings. Except in the instance of a separate award for moving expenses and loss of Tenant's Trade Fixtures, or in the instance of a single award where moving expenses and loss of Tenant's Trade Fixtures are reasonably and separately ascertainable, Tenant hereby assigns any interest in such award, damages, consequential damages and compensation to Landlord. Landlord agrees that it will not object to the petition of Tenant for a separate award as set forth herein provided such 44 51 petition or award in no way diminishes the award otherwise payable to Landlord hereunder. SECTION 12.2 PARTIAL CONDEMNATION. If during the Term, less than the entire Demised Premises shall be taken in any such Proceedings, this Lease shall, upon vesting of title in the Proceedings, terminate as to the portion of the Demised Premises so taken. If the portion of the Demised Premises taken shall, in the good faith exercise of Tenant's reasonable business judgment, substantially and materially interfere with or inhibit Tenant's use of the Demised Premises, Tenant may, at its option, terminate this Lease as to the remainder of the Demised Premises. Such termination as to the remainder of the Demised Premises shall be effected by notice in writing given not more than sixty (60) days after the date of vesting of title in such Proceedings, and shall specify a date not more than sixty (60) days after the giving of such notice as the date for such termination. Upon the date specified in such notice, the Term, and all right, title and interest of Tenant hereunder, shall cease and terminate. If this Lease is terminated as provided in this Section 12.2, Landlord and Tenant shall receive so much of the award as is provided in Section 12.1 hereof In the event that Tenant elects not to terminate this Lease as to the remainder of the Demised Premises, the rights and obligations of Landlord and Tenant shall be governed by the provisions of Section 12.3 hereof. SECTION 12.3 RESTORATION AFTER CONDEMNATION. If, in the case of partial taking, this Lease is not terminated as provided in Section 12.2 hereof, this Lease shall, upon vesting of title pursuant to the Proceedings, terminate as to the parts so taken, and, except as provided in Section 12.1 hereof, Tenant shall have no claim or interest in the award, damages, consequential damages and compensation, or any part thereof. Landlord, in such case and to the extent Landlord receives proceeds from such Proceedings, covenants and agrees to promptly restore that portion of the Demised Premises not so taken to a complete architectural and mechanical unit for Tenant's use as provided in this Lease. SECTION 12.4 BASE RENT REDUCTION. In the event of a partial taking of the Demised Premises under Section 12.2 hereof, followed by Tenant's election not to terminate this Lease, the fixed Base Rent payable hereunder during the period from and after the date of vesting of title pursuant to such Proceedings to the earlier of the termination of this Lease or until the next date upon which Rent is determined under Section 3.1 above, shall be determined by multiplying the Base Rent then being paid by Tenant by a fraction, the numerator of which is the square footage of the Building after such taking and after the same has been restored to a complete architectural unit, and the denominator of which is the square footage of the Building prior to such taking. 45 52 ARTICLE 13 ASSIGNMENT AND SUBLETTING Provided Tenant remains primarily liable for all of Tenant's obligations under this Lease, Tenant may assign or sublet all or any portion of the Demised Premises upon prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. Landlord's consent shall be deemed to have been unreasonably withheld if: (a) the proposed assignee's or sublessee's stockholder's equity is equal to or greater than Tenant's Stockholder's Equity as of the date of the proposed assignment or subletting, and (b) the proposed assignee's or sublessee's business reputation is at least as good as Tenant's. Thirty (30) days prior to Tenant assigning or subletting all or any portion of the Premises or any assignee or sublessee subsequently assigning or subletting all or any portion of the Demised Premises, Tenant shall notify Landlord, in writing, with reasonable specificity, of the terms, provisions and conditions of such assignment or sublease. ARTICLE 14 SUBORDINATION, NON-DISTURBANCE, NOTICE TO MORTGAGEE AND ATTORNMENT SECTION 14.1 SUBORDINATION. This Lease and all rights of Tenant herein, and any and all interest or estate of Tenant in the Demised Premises, or any portion thereof, shall be subject and subordinate to the lien held by or in favor of any Mortgage which at any time may be placed upon the Demised Premises, or any portion thereof, by Landlord, and to any replacements, renewals, amendments, modifications, extensions or refinancing thereof, and to each and every advance made under any Mortgage; provided however, the subordination herein agreed upon shall not be effective unless and until Landlord, Landlord's mortgagee and Tenant execute and deliver a subordination, non-disturbance and attornment agreement substantially in the form attached hereto as Exhibit F (the "Subordination Agreement"). Landlord and Tenant agree at any time hereafter, and from time to time on demand of the other party, to promptly execute and deliver to each other any reasonable instruments, releases or other documents that may reasonably be required to carry out the intent of this Section 14.1. The lien of any Mortgage shall not cover Tenant's Trade Fixtures or other personal property located in or on the Demised Premises. SECTION 14.2 MORTGAGEE PROTECTION CLAUSE. In the event of any act or omission of Landlord constituting a default by Landlord, Tenant shall not exercise any remedy until Tenant has given Landlord and any mortgagee (whose identity and address have been provided to Tenant) of the Demised Premises a thirty (30) day written notice of such act or omission, and until a reasonable period of time to allow Landlord or the mortgagee to remedy such 46 53 act or omission shall have elapsed following the giving of such notice. However, if such act or omission cannot, with due diligence and in good faith, be remedied within such thirty (30) day period, Landlord and the mortgagee shall be allowed such further reasonable period of time as may be reasonably necessary provided that it commence remedying the same with due diligence and in good faith within said thirty (30) day period. Nothing herein contained shall be construed or interpreted as requiring any mortgagee to remedy such act or omission. SECTION 14.3 ATTORNMENT. If any mortgagee shall succeed to the rights of Landlord under this Lease or to ownership of the Demised Premises, whether through possession or foreclosure or delivery of a deed in lieu of foreclosure, then, upon the written request of such mortgagee so succeeding to Landlord's rights hereunder, provided such mortgagee assumes, in writing, the obligations of Landlord hereunder accruing on and after the date such mortgagee acquired title to the Demised Premises, and further provided such mortgagee executes and delivers to Tenant a Subordination Agreement, Tenant shall attorn to and recognize such mortgagee as Tenant's landlord under this Lease. In the event of any other transfer of Landlord's interest hereunder, upon the written request of the transferee and Landlord, provided such transferee assumes, in writing, the obligations of Landlord hereunder accruing on and after the date of such transfer, Tenant shall attorn to and recognize such transferee as Tenant's landlord under this Lease and shall execute and deliver any reasonable instrument that such transferee and Landlord may reasonably request to evidence such attornment. SECTION 14.4 COSTS. Landlord agrees to reimburse Tenant up to One Thousand Dollars ($1,000.00) for its reasonable fees of outside counsel incurred in connection with the review of any Subordination Agreements (other than the form of Subordination Agreement set forth as Exhibit F attached hereto) or estoppel letter described in Section 19.7 (other than the form of "Estoppel Letter" set forth as Exhibit E attached hereto) which Landlord may request Tenant to execute. ARTICLE 15 SIGNS Tenant may erect signs on the exterior or interior of the Building or on the landscaped area adjacent thereto, provided that such sign or signs (i) do not cause any structural damage or other damage to the Building; (ii) do not violate applicable governmental laws, ordinances, rules or regulations; (iii) do not violate any existing restrictions affecting the Demised Premises are compatible with the architecture of the Building and the landscaped area adjacent thereto and (iv) have been approved by Landlord, which approval shall not be unreasonably withheld or delayed. 47 54 ARTICLE 16 TRADE FIXTURES It is the intent of the parties that Trade Fixtures shall include those items of personal property which are specifically used by Tenant in the conduct of the Tenant's business and shall belong to Tenant. The parties agree that all items contained in the Final Plans and Expansion Plans shall be deemed not to be Trade Fixtures, but shall (absent the written agreement of the parties to the contrary) constitute fixtures or real property and shall belong to the Landlord as part of the Landlord's Improvements. ARTICLE 17 CHANGES AND ALTERATIONS Tenant shall have the right at any time, and from time to time during the Term, to make such changes and alterations, structural or otherwise, to the Building, improvements and fixtures hereafter erected on the Demised Premises as Tenant shall deem necessary or desirable in connection with the requirements of its business, which changes and alterations (other than changes or alterations of Tenant's Trade Fixtures and equipment) shall be made in all cases subject to the following conditions, which Tenant covenants to observe and perform: (a) No change or alteration shall be undertaken until Tenant shall have procured and paid for, so far as the same may be required from time to time, all Municipal, State and Federal permits and authorizations of the various governmental bodies and departments having jurisdiction thereof, and Landlord agrees to join in the application for such permits or authorizations whenever such action is necessary, all at Tenant's sole cost and expense, provided such applications do not cause Landlord to become liable for any cost, fees or expenses, and provided, at Landlord's direction, such approval is terminated, at the option of Landlord, at the expiration of the Term. (b) In any undertaking of Tenant pursuant to this Article 17, except in the instance of interior decorating, no structural change or alteration shall be undertaken until detailed plans and specifications have been first submitted to and approved in writing by Landlord, which approval shall not unreasonably be withheld or delayed. Before commencement of any such change, alteration, restoration or construction ("New Work") which in Landlord's reasonable judgment would alter the mechanical, structural, or other Building systems, Tenant shall: (i) obtain Landlord's prior written 48 55 consent, (which consent may be withheld if the change or alteration would, in the reasonable judgment of Landlord, impair the value or usefulness to Landlord of the Land or Landlord's Improvements, or any substantial part thereof or would unreasonably alter the aesthetics of the Demised Premises); (ii) guarantee the completion thereof within a reasonable time thereafter (1) free and clear of all mechanic's liens or other liens, encumbrances, security interests and charges, and (2) in accordance with the plans and specifications approved by Landlord; and (iii) Tenant shall promptly upon the completion of the New Work deliver to Landlord two (2) complete sets of "as built" drawings for the New Work. (c) Any change or alteration shall, when completed, be of such character as not to reduce the value or utility of the Demised Premises below its value or utility to Landlord immediately before such change or alteration, nor shall such change or alteration reduce the area or cubic content of the Building, nor change the character of the Demised Premises as to use without Landlord's express written consent. (d) All New Work shall be done promptly and in a good and workmanlike manner and in Compliance with Laws and in accordance with the orders, rules and regulations of the Board of Fire Underwriters where the Demised Premises is located, or any other body exercising similar functions. The cost of any such change or alteration shall be paid by Tenant so that the Demised Premises and all portions thereof shall at all times be free of liens for labor and materials supplied to the Demised Premises, or any portion thereof. The New Work shall be prosecuted with reasonable dispatch, delays due to strikes, lockouts, acts of God, inability to obtain labor or materials, governmental restrictions or similar causes beyond the reasonable control of Tenant excepted. Tenant shall obtain and maintain, at its sole cost and expense, during the performance of the New Work, workers' compensation insurance covering all persons employed in connection with the New Work and with respect to which death or injury claims could be asserted against Landlord or Tenant or against the Demised Premised or any interest therein, together with comprehensive general liability insurance for the mutual benefit of Landlord and Tenant with limits of not less than One Million Dollars ($1,000,000.00) in the event of injury to one person, Three Million Dollars ($3,000,000.00) in respect to any one accident or occurrence, and Five Hundred Thousand Dollars ($500,000.00) for property damage, and the fire insurance with "extended coverage" endorsement required by Section 5.1 hereof shall be supplemented with 49 56 "builder's risk" insurance on a completed value form or other comparable coverage on the New Work. All such insurance shall be in a company or companies authorized to do business in Ohio and reasonably satisfactory to Landlord. All such policies of insurance or certificates of insurance shall be delivered to Landlord endorsed "Premium Paid" by the company or agency issuing the same, or with other evidence of payment of the premium satisfactory to Landlord, prior to the commencement of any New Work. (e) All improvements and alterations (other than Tenant's Trade Fixtures, equipment and signs) made or installed by Tenant shall immediately, upon completion or installation thereof, become the property of Landlord without payment therefor by Landlord, and shall be surrendered to Landlord on the expiration of the Term (unless the parties agree to the contrary). (f) No change, alteration, restoration or new construction shall be in or connect Landlord's Improvements with any property, building or other improvement located outside the boundaries of the Land and Expansion Land, nor shall the same obstruct or interfere with any then existing easement. ARTICLE 18 SURRENDER OF PREMISES SECTION 18.1 SURRENDER OF POSSESSION. Tenant shall, upon termination of this Lease for any reason whatsoever, surrender to Landlord the Demised Premises, together with all buildings, structures, fixtures and building equipment or real estate fixtures upon the Demised Premises, together with all additions, alterations and replacements thereof (except Tenant's personalty and Trade Fixtures) in good order, condition and repair, with all mechanical, electrical and plumbing systems in good working order and repair, reasonable wear and tear excepted (provided that said exception shall in no way be deemed to relieve Tenant from its obligations to make all necessary and appropriate Tenant Repairs as and when required hereunder). SECTION 18.2 REMOVAL OF TENANT'S PROPERTY; HOLDOVER RENT. Except as otherwise provided herein, at the expiration of the Term, Tenant shall surrender the Demised Premises and shall surrender all keys to the Demised Premises to Landlord at the place then fixed for the payment of Base Rent and shall inform Landlord of all combinations on locks, safes and vaults, if any. Except as otherwise provided herein, Tenant shall at such time remove all of its property (including its Trade Fixtures) therefrom and all alterations and improvements placed thereon by Tenant if so requested by Landlord pursuant to Article 17 hereof. 50 57 Tenant shall repair any damage to the Demised Premises caused by such removal, and any and all such property not so removed when required shall, at Landlord's option, become the exclusive property of Landlord or be disposed of by Landlord, at Tenant's cost and expense, without further notice to or demand upon Tenant. In addition to Additional Rent, Tenant shall pay to Landlord a sum equal to 125% of the Base Rent herein provided for the month immediately prior to the termination during each month or portion thereof for which Tenant shall remain in possession of the Demised Premises or any part thereof after the termination of the Term or of Tenant's rights of possession, whether by lapse of time or otherwise and in such case, Tenant shall become a tenant from month to month. The provisions of this Section 18.2 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein at law or at equity, and shall not be deemed to be a consent to any holdover nor to grant Tenant any right to holdover. All property of Tenant not removed on or before the last day of the Term of this Lease shall be deemed abandoned. Tenant hereby appoints Landlord its agent to remove all property of Tenant from the Demised Premises upon termination of this Lease and to cause its transportation and storage for Tenant's benefit, all at the sole cost and risk of Tenant and Landlord shall not be liable for damage, theft, misappropriation or loss thereof and Landlord shall not be liable in any manner in respect thereto. Tenant shall pay all costs and expenses of such removal, transportation and storage. Tenant shall reimburse Landlord upon demand for any expenses incurred by Landlord with respect to removal or storage of abandoned property and with respect to restoring said Demised Premises to good order, condition and repair. ARTICLE 19 MISCELLANEOUS PROVISIONS SECTION 19.1 RIGHT OF INSPECTION. Upon reasonable advance notice to Tenant (except for emergency situations), Tenant agrees to permit Landlord and its authorized representatives to enter upon the Demised Premises at all reasonable times during ordinary business hours for the purpose of inspecting the same and, pursuant to the terms of this Lease, making any necessary repairs to comply with any laws, ordinances, rules, regulations or requirements of any public body, or the Board of Fire Underwriters, or any similar body. Except as otherwise provided herein, nothing shall imply any duty upon the part of Landlord to do any such work which, under any provision of this Lease, Tenant may be required to perform and the performance thereof by Landlord shall not constitute a waiver of Default in failing to perform the same. Landlord shall not unreasonably interfere with the use and occupancy of the Demised Premises pursuant to the provisions of this Section 19.1. 51 58 SECTION 19.2 DISPLAY OF DEMISED PREMISES. Upon reasonable advance notice to Tenant, Landlord is hereby given the right during usual business hours at any time during the Term to enter upon the Demised Premises and to exhibit the same for the purpose of mortgaging or selling the same. During the final year of the Term, Landlord shall be entitled to display the Demised Premises for sale or lease without such prior notice, and shall be allowed to post appropriate signage in or about the Demised Premises but in such manner as to not unreasonably interfere with Tenant's business. Landlord shall not unreasonably interfere with the use and occupancy of the Demised Premises pursuant to the provisions of this Section 19.2. SECTION 19.3 INDEMNITIES. (a) TENANT. Tenant shall at all times indemnify, defend and hold Landlord and Landlord's mortgagee(s), beneficiaries, partners, and managing agent harmless against and from any and all claims, costs, liabilities, actions and damages (including, without limitation, reasonable attorneys' fees and costs) by or on behalf of any person or persons, firm or firms, corporation or corporations, to the extent arising from the conduct or management, or from any work or things whatsoever done in or about the Demised Premises during the Term, and will further indemnify, defend and hold Landlord harmless against and from any and all claims arising during the term of this Lease, to the extent arising from any condition of the Improvements or any curb or sidewalk adjoining the Demised Premises, or of any passageways or space therein or appurtenant thereto, or to the extent arising from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed, pursuant to the terms of this Lease, or arising from any negligence of Tenant, its agents, servants, employees or licensees, or arising from any accident, injury or damage whatsoever caused to any person, firm or corporation occurring during the term of this Lease, in or about the Demised Premises, or upon the sidewalk and the land adjacent thereto, and from and against all costs, reasonable attorney's fees, expenses and liabilities incurred in or about any such claim or action or proceeding brought thereto; and in case any action or proceeding be brought against Landlord by reason of any such claim, Tenant, upon notice from Landlord, covenants to defend such action proceeding by counsel reasonably satisfactory to Landlord. The indemnity obligations of Tenant under this Section 19.3(a) which relate directly or indirectly to death, bodily or personal injury or property damage, shall be insured by contractual liability endorsement on Tenant's policies of insurance required under the provisions of Article 5. Notwithstanding anything contained herein to the contrary, Tenant's obligations to indemnify, defend and hold Landlord harmless against and from any and all claims, costs, liabilities, actions and damages shall not apply to any claims, costs, liabilities, actions and damages to the extent 52 59 arising as a result of (i) the negligence or willful misconduct or omissions of Landlord; and/or (ii) the failure of Landlord to comply with a provision of this Lease. (b) LANDLORD. To the fullest extent permitted by law, Landlord shall at all times indemnify, defend and hold Tenant and Tenant's shareholders and employees harmless from any and all claims, costs, liabilities, actions and damages (including, without limitation, reasonable attorneys' fees and costs) by or on behalf of any person or persons, firm or firms, corporation or corporations, to the extent arising from the conduct of or the failure to conduct any of Landlord's obligations hereunder, or any negligence in the performance thereof and from and against all costs, reasonable attorneys' fees, expenses and liabilities incurred in or about any such claim, action or proceeding brought thereon; and in case any action or proceeding be brought against Tenant by reason of such claim, Landlord, upon notice from Tenant, covenants to defend such action or proceeding by counsel reasonably satisfactory to Tenant. The indemnity obligations of Landlord under this Section 19.3(b) which relate directly or indirectly to death, bodily or personal injury or property damage, shall be insured by contractual liability endorsement on Landlord's policy of insurance required under the provisions of Section 5. Notwithstanding anything contained herein to the contrary, Landlord's obligations to indemnify, defend and hold Tenant harmless against and from any and all claims, costs, liabilities, actions and damages shall not apply to any claims, costs, liabilities, actions and damages to the extent arising as a result of (i) the negligence or willful misconduct or omissions of Tenant; and/or (ii) the failure of Tenant to comply with a provision of this Lease. SECTION 19.4 NOTICES. All notices, demands and requests which may be or are required to be given, demanded or requested by any party to the other shall be in writing. All transmittals by Landlord or Tenant shall be delivered by private messenger, or sent by United States registered or certified mail, postage prepaid, or by Federal Express or similar overnight courier service, addressed to Tenant (prior to the Commencement Date) as follows: Health o meter Products, Inc. 24700 Miles Road Bedford Heights, Ohio 44146 Attention: Steven M. Billick and thereafter, to each of them, at the Demised Premises, or at such other place as Tenant may from time to time designate by written notice to Landlord. Tenant's address for billing and invoicing is same as above. Any such transmittals by Tenant to Landlord shall be delivered by private messenger, or sent by United States 53 60 registered or certified mail, postage prepaid or by Federal Express or similar overnight delivery service, addressed to Landlord at the following address: Duke Realty Limited Partnership 8888 Keystone Crossing, Suite 1200 Indianapolis, Indiana 46240 Attn: Legal Department or at such other place as Landlord may from time to time designate by written notice to Tenant. Notices, demands and requests which shall be served upon Landlord by Tenant, or upon Tenant by Landlord, in the manner aforesaid, shall be deemed to be sufficiently served or given for all purposes hereunder three (3) days after the time such transmittals shall be mailed, or upon the actual date of delivery to the addressee if sent by private messenger, or overnight courier. SECTION 19.5 QUIET ENJOYMENT. Landlord covenants and agrees that Tenant, upon paying the Rent, and upon observing and keeping the covenants, agreements and conditions of this Lease on its part to be kept, observed and performed, shall lawfully and quietly hold, occupy, and enjoy the Demised Premises during the Term without hindrance or molestation. SECTION 19.6 LANDLORD AND SUCCESSORS. The term "Landlord", as used in this Lease so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners at the time in question of the fee of the Demised Premises, and in the event of any transfer or transfers or conveyance (provided that such grantee assumes in writing the obligations of Landlord hereunder on and after the date of such conveyance), the then grantor shall be automatically freed and relieved, from and after the date of such transfer or conveyance, of all liability with respect to any covenants or obligations on the part of Landlord contained in this Lease, the performance of which first accrues on or after the date of such transfer, provided that any funds in the hands of such landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be turned over to the grantee, and any amount then due and payable to Tenant by Landlord or the then grantor under any provision of this Lease shall be paid to Tenant. It is intended that the covenants and obligations contained in this Lease on the part of Landlord shall, subject to the aforesaid, be binding on Landlord, its successors and assigns, only during and in respect of their respective successive periods of ownership. SECTION 19.7 ESTOPPELS. Tenant shall, without charge at any time and from time to time, within thirty (30) days after written request by Landlord, certify by written instrument in substantially the form set forth as Exhibit E hereto, duly executed, acknowledged, and delivered to any mortgagee, assignee 54 61 of a mortgagee, proposed mortgagee, or to any purchaser or proposed purchaser, or to any other person dealing with Landlord or the Demised Premises as to the matters set forth in Exhibit E attached hereto. SECTION 19.8 SEVERABILITY; GOVERNING LAWS. If any covenant, condition, provision, term or agreement of this Lease shall, to any extent, be held invalid or unenforceable, the remaining covenants, conditions, provisions, terms and agreements of this Lease shall not be affected thereby, but each covenant, condition, provision, term or agreement of this Lease shall be valid and in force to the fullest extent permitted by law. This Lease shall be construed and be enforceable in accordance with the laws of the State of Ohio. SECTION 19.9 BINDING EFFECT. The covenants and agreements herein contained shall bind and inure to the benefit of Landlord, its successors and assigns, and Tenant and its permitted successors and assigns. SECTION 19.10 CAPTIONS. The caption of each Article and Section of this Lease is for convenience of reference only, and in no way defines, limits or describes the scope or intent of such Article or Section of this Lease. SECTION 19.11 LANDLORD TENANT RELATIONSHIP. This Lease does not create the relationship of principal and agent, or of partnership, joint venture, or of any association or relationship between Landlord and Tenant, the sole relationship between Landlord and Tenant being that of landlord and tenant; nor, except as otherwise provided herein, shall any person, firm or corporation be entitled to claim any rights as a third party beneficiary hereof. SECTION 19.12 MERGER OF AGREEMENTS. All preliminary and contemporaneous negotiations are merged into and incorporated in this Lease. This Lease contains the entire agreement between the parties and shall not be modified or amended in any manner except by an instrument in writing executed by the parties hereto. Submission of the form of the Lease for examination shall not bind Landlord in any manner, and no Lease or obligations of Landlord shall arise until this instrument is signed by both Landlord and Tenant and is delivered to each. SECTION 19.13 LANDLORD'S PROPERTY. Tenant acknowledges that the Demised Premises is the property of Landlord and that Tenant has only the right to possession and use thereof upon the covenants, conditions, provisions, terms and agreements set forth in this Lease. SECTION 19.14 SURVIVAL. All obligations of the parties hereunder (together with interest on Tenant's monetary obligations 55 62 at the Maximum Rate of Interest) accruing prior to expiration of the Term shall survive the expiration or other termination of this Lease. SECTION 19.15 REASONABLENESS. Any consent, action or inaction required to be given (or which may be withheld), done or not done by any of the parties hereto shall, at all times, be given (or not withheld), done or not done in a commercially reasonable fashion. SECTION 19.16 REAL ESTATE BROKER. The Tenant represents that Tenant has dealt with (and only with) Cleveland Real Estate Partners as its broker in connection with this Lease (whose commission shall be paid by Landlord in accordance with its agreement with same), and that insofar as Tenant knows, no other outside broker negotiated this Lease (although Tenant acknowledges Landlord is a broker but further understands Tenant is not paying Landlord a commission) or is entitled to any commission in connection therewith. Tenant agrees to indemnify, defend and hold Landlord harmless from and against any claims made by any broker or finder other than the broker named above for a commission or fee in connection with this Lease, provided that Landlord has not in fact retained such broker or finder. Landlord agrees to indemnify, defend and hold Tenant harmless from and against any claims made by any broker or finder other than the broker named above for a commission or fee in connection with this Lease. SECTION 19.17 EXHIBITS; RIDER PROVISIONS. Any Exhibits attached hereto are an integral part hereof and this Lease Agreement shall be construed as though such Exhibits were set forth in full herein. In the event that there are one or more Riders attached to this Lease, then the provisions of such Rider(s) shall take precedent over any conflicting provisions contained herein. SECTION 19.18 RECORDING. A Memorandum of Lease prepared by Tenant and acceptable in form and content to Landlord, reciting the operative provisions of this Lease, may, at the request of either party, be executed and recorded with the Cuyahoga County, Ohio, Recorder of Deeds Office. SECTION 19.19 FINANCIAL STATEMENTS. During the Term, Tenant shall provide to Landlord on an annual basis, within one hundred twenty (120) days following the end of the Tenant's fiscal year, a copy of Tenant's most recent audited financial statements prepared as of the end of Tenant's fiscal year. SECTION 19.20. LIMITATION OF LANDLORD'S LIABILITY. If Landlord shall fail to perform or observe any term, condition, covenant or obligation required to be performed or observed by it under this Lease and if Tenant shall, as a consequence thereof, recover a money judgment against Landlord (whether compensatory 56 63 or punitive in nature), Tenant agrees that it shall look solely to Landlord's right, title and interest in and to the Building and to Landlord's insurance for indemnity obligations insured under the provisions of Article 5 for the collection of such judgment; and Tenant further agrees that no other assets of Landlord shall be subject to levy, execution or other process for the satisfaction of Tenant's judgment and that Landlord shall not be personally liable for any deficiency. ARTICLE 20 CONTINGENCIES SECTION 20.1 LANDLORD'S CONTINGENCIES. The obligations of Landlord hereunder are contingent upon the following: (a) Landlord's purchase by October 31, 1996 of the Land from Carl Milstein, Trustee for the Carl Milstein Trust ("Milstein") on terms and conditions satisfactory to Landlord, at a cost not to exceed Forty Thousand Dollars ($40,000.00) per acre. (b) The Village establishing by October 30, 1996 a Community Reinvestment Area and abating 100% of the taxes of the real estate taxes relating to the Demised Premises for fifteen (15) years. SECTION 20.2 TENANT'S CONTINGENCIES. The obligations of Tenant hereunder are contingent upon the Village establishing by October 30, 1996 a Community Reinvestment Area and abating 100% of the real estate taxes relating to the Demised Premises for fifteen (15) years. SECTION 20.3 WAIVER. Landlord may waive in writing any of the contingencies set forth in Section 20.1 and Tenant may waive in writing any of the contingencies set forth in Section 20.2 and thereafter, such contingency shall be of no further force or effect. 57 64 IN WITNESS WHEREOF, each of the parties hereto has caused this LEASE AGREEMENT, to be duly executed as of the day and year first above written. Signed in the presence of: LANDLORD: DUKE REALTY LIMITED PARTNERSHIP /s/ R.C. Farro - ---------------------------- ------------------------------------------ Print Name: R.C. Farro ----------------- By: Duke Realty Investments, Inc. /s/ Brent D. Ballard Its: General Partner - ---------------------------- Print Name: Brent D. Ballard ----------------- By: /s/ William E. Linville, III ------------------------------------ William E. Linville, III, Vice President-Indiana Industrial Group TENANT: HEALTH O METER PRODUCTS, INC. /s/ R.C. Farro By: /s/ Steven M. Billick - ---------------------------- --------------------------------------- Print Name: R.C. Farro Steven M. Billick, ----------------- Senior Vice President, Treasurer and Chief Financial Officer /s/ Brent D. Ballard - ---------------------------- Print Name: Brent D. Ballard ----------------- 58 65 STATE OF Ohio ) ----------------- )ss COUNTY OF Cuyahoga ) ---------------- Before me, a Notary Public in and for said County and State, personally appeared William E. Linville, III, Vice President, Indiana Industrial Group of Duke Realty Investments, Inc., general partner of Duke Realty Limited Partnership, who acknowledged that he did execute the foregoing on behalf of said partnership and said corporation and that the same is his free act and deed as such officer and the free act and deed of said partnership and corporation. WITNESS my hand and Notarial Seal this 15th day of October, 1996. /s/ Brent D. Ballard ----------------------------------------- Notary Public Printed Name: Brent D. Ballard ---------------------------- My commission expires: No Expiration Date ------------------- STATE OF Ohio ) ----------------- )ss COUNTY OF Cuyahoga ) ---------------- Before me, a Notary Public in and for said County and State, personally appeared Steven M. Billick, Senior Vice President, Treasurer and Chief Financial Officer of Health o Meter Products, Inc., who acknowledged that he did execute the foregoing on behalf of said corporation and that the same is his free act and deed as such officer and the free act and deed of said corporation. WITNESS my hand and Notarial Seal this 15th day of October, 1996. /s/ Brent D. Ballard ----------------------------------------- Notary Public Printed Name: Brent D. Ballard ---------------------------- My commission expires: No Expiration Date ------------------- 59 66 LEASE AGREEMENT TENANT: HEALTH O METER PRODUCTS, INC. SCHEDULE OF EXHIBITS --------------------
EXHIBITS DESCRIPTION -------- ----------- A Legal Description of Land B Performance Criteria C Design Plan Packages (to be attached when complete) D Environmental Report E Estoppel Letter F Subordination Agreement
60 EX-10.19 5 EXHIBIT 10.19 1 Exhibit 10.19 ------------- 2 A G R E E M E N T ----------------- Between HEALTH-0-METER, INC. And MANUFACTURING, PRODUCTION AND SERVICE WORKERS UNION, LOCAL NO. 24, AFL-CIO November 14, 1994 Through November 13, 1997 3 TABLE OF CONTENTS PAGE ---- ARTICLE I - Recognition and Union Security............................. 1 Section 1.1 Recognition in Bargaining Unit................. 1 Section 1.2 Union Security................................. 1 Section 1.3 Checkoff....................................... 1 Section 1.4 Indemnification................................ 2 ARTICLE II - Management Rights...................................... 2 ARTICLE III - No-Strike, No Lockout................................. 2 Section 3.1 No Strike...................................... 2 Section 3.2 Union Responsibility........................... 3 Section 3.3 No Lockout..................................... 4 ARTICLE IV - Hours of Work............................................. 4 Section 4.1 Workday and Workweek........................... 4 Section 4.2 Normal Hours................................... 4 Section 4.3 Overtime....................................... 4 Section 4.4 Assignment of Overtime......................... 4 Section 4.5 Reporting Pay.................................. 5 Section 4.6 Call-In Pay.................................... 5 Section 4.7 Rest Periods................................... 6 ARTICLE V - Holidays................................................... 6 Section 5.1 Recognized Holidays............................ 6 Section 5.2 Computation of Holiday Pay..................... 7 Section 5.3 Eligibility.................................... 7 Section 5.4 Pay For Holidays Worked........................ 8 Section 5.5 Holidays observed During Vacation.............. 8 Section 5.6 Personal Day................................... 8 ARTICLE VI - Vacations................................................. 9 Section 6.1 Eligibility.................................... 9 Section 6.2 Computation of Vacation Pay.................... 9 Section 6.3 Vacation Bonus................................. 10 Section 6.4 Scheduling of Vacations........................ 10 Section 6.5 Terminated Employees........................... 10 -i- 4 ARTICLE VII - Grievance Procedure and Arbitration...................... 10 Section 7.1 Grievances..................................... 10 Section 7.2 First Step..................................... 11 Section 7.3 Second Step.................................... 11 Section 7.4 Third Step..................................... 11 Section 7.5 Arbitration.................................... 11 Section 7.6 Authority of Arbitrator........................ 12 Section 7.7 Time Limits.................................... 13 Section 7.8 Pay For Meetings With Management .............. 13 Section 7.9 Waiver......................................... 13 Section 7.10 Work Stoppage Arbitration...................... 13 ARTICLE VIII - Leave of Absence........................................ 13 Section 8.1 Military Leave................................. 13 Section 8.2 Medical and Personal Leave..................... 14 Section 8.3 Maternity Leave................................ 14 Section 8.4 Union Leave.................................... 14 ARTICLE IX - Seniority................................................. 14 Section 9.1 Definition..................................... 14 Section 9.2 Probationary Period............................ 14 Section 9.3 Continued Accumulation......................... 14 Section 9.4 Reduction-in Force, Layoff & Recall......................................... 15 Section 9.5 Temporary Layoffs.............................. 15 Section 9.6 Job Posting.................................... 16 Section 9.7 Termination of Seniority....................... 17 Section 9.8 Seniority Lists................................ 18 Section 9.9 Superseniority................................. 18 ARTICLE X - Miscellaneous.............................................. 18 Section 10.1 Jury Pay....................................... 18 Section 10.2 Injury on the Job.............................. 18 Section 10.3 Funeral Pay.................................... 18 Section 10.4 Safety Committee............................... 18 Section 10.5 Movement of Facility........................... 19 Section 10.6 Distribution of Paychecks...................... 19 Section 10.7 Supervisors Working............................ 19 Section 10.8 Pay Telephone.................................. 19 Section 10.9 First Aid Certification........................ 19 Section 10.10 First Aid Kits................................. 19 Section 10.11 Disciplinary Warning Slips..................... 19 Section 10.12 Incentive Committee............................ 19 Section 10.13 Uniforms....................................... 19 -ii- 5 ARTICLE XI - Wages..................................................... 20 Section 11.1 Regular Wage Rates.............................. 20 Section 11.2 Cost of Living Adjustment....................... 20 Section 11.3 Completion of Probationary Period............... 20 Section 11.4 Wage Rates Effective November 14, 1994.......... 20 Section 11.5 Wage Rates Effective November 20, 1995.......... 22 Section 11.6 Wage Rates Effective November 18, 1996.......... 23 Section 11.7 Daywork Job Classification...................... 24 Section 11.8 Piecework Job Classification.................... 25 Section 11.9 Employee Classification Plan For Daywork Employees........................... 25 Section 11.10 Employee Classification Plan For Piecework Employees......................... 26 Section 11.11 Daywork Wage Payment Plan....................... 27 Section 11.12 Piecework Wage Payment Plan..................... 29 Section 11.13 Notice of Rates................................. 36 ARTICLE XII - Insurance ............................................... 36 Section 12.1 Agreement to Contribute......................... 36 Section 12.2 Initial Contribution............................ 36 Section 12.3 Succeeding Contributions........................ 37 Section 12.4 Purposes........................................ 37 Section 12.5 Irrevocable Trust............................... 37 Section 12.6 Representation as to Lawfulness and Qualification............................... 37 Section 12.7 Joint Administration............................ 37 Section 12.8 Authority of Trustees........................... 37 Section 12.9 Employer Payments............................... 38 Section 12.10 Delinquencies................................... 38 Section 12.11 Corrections of Erroneous Contributions.......... 39 Section 12.12 Supplemental Coverage........................... 39 Section 12.13 Claims Information.............................. 39 ARTICLE XIII - Pension Plan............................................ 40 ARTICLE XIV - Waiver and Entire Agreement.............................. 40 ARTICLE XV - Duration of Agreement..................................... 40 EXHIBIT A - Job Posting Form........................................... 42 -iii- 6 A G R E E M E N T This AGREEMENT is entered into as of the 14th day of November, 1994 between HEALTH-O-METER, INC. (hereinafter referred to as the "Company") and MANUFACTURING, PRODUCTION AND SERVICE WORKERS UNION, LOCAL NO. 24, AFL-CIO (hereinafter referred to as the "Union"). WHEREAS, the parties desire to set forth herein their entire agreement covering rates of pay, wages, hours and other conditions of employment to be observed by the parties hereto; to secure the efficient and profitable operation of the company; to secure and sustain maximum productivity of each employee by this Agreement; and to provide the procedure for the prompt and peaceful settlement of grievances which may arise between the Company and its employees or the Union; NOW THEREFORE, it is agreed as follows: ARTICLE I RECOGNITION AND UNION SECURITY SECTION 1.1. RECOGNITION IN BARGAINING UNIT. The company recognizes the Union as the sole and exclusive bargaining agency with respect to rates of pay, hours of work, and other terms and conditions of employment, for all regular production and maintenance employees, excluding office clericals,, professionals, technical employees, truck drivers, temporary and casual employees, supervisors and guards as defined in the National Labor Relations Act. This recognition is given by the Company pursuant to its obligation under the National Labor Relations Act and nothing in this clause shall be deemed as a guarantee of or obligation to continue operations or any portion thereof or as a guarantee of employment to any employee. SECTION 1.2. UNION SECURITY. All Employees must as a condition of employment become and remain members of the Union in good standing Forty-five (45) days after the effective date of this agreement or upon completion of their probationary period as provided in Section 9.2 of this agreement, whichever is later. SECTION 1.3. CHECKOFF. Upon receipt of a lawfully executed written authorization from an employee, the Company agrees to deduct the initiation fees and the regular union monthly membership dues of such employee from the employee's first pay received each month and to remit such deduction within ten (10) days to the official designated by the Union in writing to receive such deductions. Such deduction authorization shall be revocable in the manner provided by law. The Union will notify the Company in writing of the exact amount of such regular membership dues to be deducted. The Union will 7 notify the Company in writing of the exact amount of such regular membership dues to be deducted. The Union will refund to the Company or the employee any dues which may erroneously be deducted or any monies which may erroneously be remitted to the Union. SECTION 1.4. INDEMNIFICATION. The Union agrees to indemnify and hold the Company harmless against any and all claims, suits, orders or judgments, brought or issued against the Company as a result of any action taken or not taken by the Company under the provisions of this Article. ARTICLE II MANAGEMENT RIGHTS ----------------- Except as specifically limited by the express language of other provisions of this Agreement, all functions of management of the enterprise shall be retained by the management of the Company. The functions listed in this Article are illustrations of the rights retained by the Company and are not intended as an all-inclusive list. The management of the manufacturing operations; methods of production; the determination of the means and places of production or manufacturing; the direction of the work force, including but not limited to, the right to direct and control all the operations or services to be performed in or at the plant or by the employees of the Company; to decide what work, products, components or services shall be performed in or made in the plant or by employees of the Company; to schedule working hours; to hire; to promote, demote, and transfer for legitimate cause; to suspend, discipline, and discharge for cause; to relieve employees because of lack of work or other legitimate reasons; to make and enforce reasonable shop rules and regulations; to establish reasonable production standards and reasonable rates for new or changed jobs; to introduce new and improved methods, materials, equipment or facilities; to change or eliminate existing methods, materials, equipment or facilities, are among the rights vested exclusively in management. ARTICLE III NO-STRIKE, NO-LOCKOUT --------------------- SECTION 3.1. NO STRIKE. During the term of this Agreement the grievance machinery of this Agreement and the administrative and judicial remedies and procedures provided by statute shall be the sole and exclusive means of settling any dispute between the employees and/or the Union and the Company whether relating to the application of this Agreement, economic matters, or otherwise. Accordingly, neither the Union nor the -2- 8 employees will instigate, promote, sponsor, engage in or condone any strike, slow-down, picketing, concerted stoppage of work or any other intentional interruption of production. The Company shall have the right to discharge or otherwise discipline any employee (and such discipline need not be uniform) who violates the provisions of the foregoing sentence and in the event a grievance is filed, the sole question for arbitration shall be whether the employee engaged in the prohibited activity. A threat to commit any of the above acts shall be considered a violation of this Article. SECTION 3.2. UNION RESPONSIBILITY. In the event that any employee or group of employees covered by this Agreement shall, during its term, participate or engage in any of the activities herein prohibited, the Union agrees, immediately upon being notified by the Company, to direct such employee or group of employees to cease such activity and resume work at once. This requirement will be deemed satisfied if the Union takes the following steps: (1) Post signed copies of the following notice on the designated bulletin boards: "Employees of Health-o-meter": We have been advised by the Company that acts interfering with production which are prohibited by our collective bargaining agreement have occurred. If you are engaging in or have engaged in such activity, you are hereby officially instructed to cease participation immediately and resume normal operations. Your failure to resume normal operations may subject you to severe discipline including discharge. All Union officials and employees are being sent a copy of this notice and no one is authorized to give contrary instructions. Manufacturing, Production and Service Workers Union, Local No. 24 By:______________________ "President" (2) Mail a copy of the above notice duly signed to each employee in the bargaining unit or to employees in the bargaining unit participating in the interference with production. (3) If the Union in good faith abides by the foregoing provisions of this Article, it shall be -3- 9 absolved of any damages for any claimed violation of this Article. SECTION 3.3. NO LOCKOUT. During the term of this Agreement the Company agrees that there shall be no lockout on its part for any reason whatsoever including controversies and grievances between the Company, the Union, and the employees. ARTICLE IV HOURS OF WORK ------------- SECTION 4.1. WORKDAY AND WORKWEEK. The employee workday will be a twenty-four (24) hour period commencing with the scheduled starting time of the regular first shift except that for first shift employees whose regular job assignments commence daily prior to the starting time of the regular first shift, the workday shall commence at the regular starting time of their job assignments. The employee workweek shall be a period of seven (7) consecutive twenty-four (24) hour days commencing with the scheduled starting time of the regular first shift on Monday; except that for the first shift employees whose regular job assignments commence daily prior to the starting time of the regular first shift, such workweek shall commence on Monday at the starting time of their job assignments. SECTION 4.2. NORMAL HOURS. For purposes of computing overtime only, a normal workday shall consist of eight (8) consecutive hours, exclusive of meal periods, and a normal workweek shall consist of five (5) consecutive normal workdays. SECTION 4.3. OVERTIME PAY. Overtime pay shall be paid at the rate of one and one-half (1-1/2) times the regular straight-time earnings for all hours worked in excess of eight (8) hours in one workday and in excess of forty (40) hours in one work-week. For the purpose of computing weekly overtime only, an employee eligible to receive holiday pay under the provisions of Article V will be credited with eight (8) hours worked whether such hours were actually worked or not. There shall be no pyramiding of overtime, nor shall holiday pay and overtime pay be paid for the same hours. Employees shall receive time and one-half (1-1/2) for all work performed on Saturday. Employees shall receive double time for all work performed on Sunday. SECTION 4.4. ASSIGNMENT OF OVERTIME. Overtime work shall be required on a reasonable basis as a condition of -4- 10 continued employment. The Company shall determine the need for overtime work and shall schedule it in accordance with the following: (a) overtime will first be assigned to the employee or employees regularly scheduled to work an the particular assignment. (b) Upon reasonable request honored by the Company to be excused from the work assigned under (a) above, the work shall be assigned to an employee (or employees) in the same job classification and department as the employee or employees so excused. In making such assignments under this paragraph (b), the Company shall attempt to make said assignment of overtime hours as equally as practicable among employees who are qualified to perform the work. An employee who fails for any reason to work assigned overtime or who is excused shall, for equal distribution purposes, be credited with having worked the overtime that was available. (c) If upon the complaint of an employee, it is determined that there has been a misassignment or an error in the distribution of overtime hours under paragraph (b) above, such employee shall be given preference for future overtime assignments for which he is qualified in his classification and department and such future preference shall be the sole remedy for the misassignment or error in overtime distribution. (d) An employee scheduled to work on Saturday will be notified of such assignment before the end of his shift Thursday except in those cases where the Company did not know of the condition causing the overtime work in time to give such notice. SECTION 4.5. REPORTING PAY. An employee who reports for work at his scheduled starting time and has not been notified by the Company not to report shall receive not less than four (4) hours pay at his regular straight-time rate, unless the failure to work is due to the fault or refusal of the employee, the disciplining of him, a stoppage of work in connection with a labor dispute, or causes beyond the Company's control, such as, but not limited to, accidents, fires, power breakdowns, or extreme weather. An employee who completes more than four (4) hours of work but less than six (6) hours of work, will be guaranteed six (6) hours of work or pay. SECTION 4.6. CALL-IN PAY. An employee who is called in to work at a time other than his scheduled starting time shall receive a guaranteed minimum of four (4) hours pay at the -5- 11 rate of pay for the job to which he is assigned. SECTION 4.7. REST PERIODS. Employees working on daywork jobs shall be given two fifteen (15) minute rest periods, one in the first half of his normal 8 hour day and the other in the second half of his normal 8 hour day. Employees working on piece work jobs are provided with an allowance for personal and fatigue time in the calculation of their incentive earnings and shall be permitted to the take rest periods in accordance with such allowances. The time of such rest periods may be specified by the Company, but such rest periods shall be scheduled as close to mid-morning and mid-afternoon as possible. SECTION 4.8. CHANGE IN WORKWEEK. (a) The Company will have the right to institute a four (4) day workweek at ten (10) hours per day with overtime after ten (10) hours during the period Monday through Thursday for the entire plant or any part thereof. (b) The Company will have the right to institute a special shift for Friday, Saturday and Sunday consisting of new hires at the above new hire rates and at straight time pay and also consisting of current employees at existing contract rates including applicable premium pay. Seniority and any other applicable contract provisions will apply in the selection of such special shift employees. ARTICLE V HOLIDAYS -------- SECTION 5.1. RECOGNIZED HOLIDAYS. The following days shall be considered holidays: New Year's Day Day after Thanksgiving Good Friday Day before Christmas Day Memorial Day Christmas Day Independence Day Day before New Year's Day Labor Day Employee's Birthday Thanksgiving Day The Employee's birthday may be observed on the following Friday or Monday. When a holiday falls on Saturday, the preceding Friday will be observed as the holiday. When a holiday falls on Sunday, the following Monday -6- 12 will be observed as the holiday. When Christmas and New Year's fall, or are observed, on Monday, the holidays scheduled for the day before Christmas and New Year's will be observed on the preceding Friday. When Christmas and New Year's fall, or are observed, on Tuesday or Friday, the day preceding each will be observed as the holidays scheduled for the Day before Christmas Day and the Day before New Year's Day. When Christmas and New Year's fall an Wednesday, the two days preceding Christmas will be observed as the holidays scheduled for the Day before Christmas Day and the Day before New Year's Day. When Christmas and New Year's fall on Thursday, the Friday following each will be observed as the holidays scheduled for the Day before Christmas Day and the Day before New Year's Day. A holiday as recognized herein shall be a period of twenty-four (24) consecutive hours commencing at the same hour of the day as the beginning of the employees' workday. SECTION 5.2. COMPUTATION OF HOLIDAY PAY. Employees eligible for holiday pay for a holiday not worked shall receive eight (8) hours pay at their regular straight-time rate computed as follows: (a) Holiday pay for an employee who is regularly scheduled on the night shift at the time a holiday is observed shall be paid his night shift differential in addition to his regular holiday pay. (b) Holiday pay for a daywork employee shall be computed on the basis of his regular day work hourly rate in effect at the time the holiday is observed, excluding night shift differential and premium pay for overtime worked. (c) Holiday pay for a piecework employee shall be computed on the basis of his average hourly earnings calculated in accordance with Section 11.12, 8 (a), Payment of Average Earnings. SECTION 5.3. ELIGIBILITY. In order to be eligible for holiday pay for holidays not worked, an employee must have completed his probationary period and must have worked at least one full day in the workweek in which the holiday is observed, and must also have worked the scheduled day immediately preceding the holiday and the scheduled day immediately after the holiday. Management may excuse absence for a partial day or -7- 13 for a full day. It is understood that such excuse shall not be unreasonably denied. An employee who is not actively at work during the week in which a holiday occurs because of disabling illness or injury will become eligible for holiday pay if he returns to work within ninety (90) days following the holiday and works one full workweek immediately thereafter. The Company shall notify employees of scheduled work to be performed on a premium workday which falls immediately prior to or following a holiday within ten (10) days of the premium workday. Employees desiring to be excused from working the premium workday without jeopardy to their holiday pay shall make such request not later than seven (7) days prior to the premium workday. Depending on business conditions, plant operations and the number of employees making such requests, management may excuse employees from working the premium workday; however, it is understood that such excuse shall not be unreasonably denied. Management shall respond to employee requests not later than the end of their Monday shift preceding the premium workday. All conditions being equal, requests will be honored in seniority order with due regard to equitable rotation. SECTION 5.4. PAY FOR HOLIDAYS WORKED. In the event an employee is required to work on any of the recognized holidays he shall be paid triple time for all hours actually worked plus holiday pay for the difference between the number of hours worked that day (if less than eight (8)), and eight (8). An employee who is scheduled to work on a holiday and who without reasonable cause fails to report and perform such holiday work shall receive pay for such holiday not worked provided he meets the other eligibility requirements. However, he may be subject to disciplinary action for failure to report and perform the scheduled work. SECTION 5.5. HOLIDAYS OBSERVED DURING VACATION. When a holiday is observed during an eligible employee's scheduled vacation he shall be paid for the unworked holiday in addition to his vacation pay without regard to the provisions of Section 5.3. As an option, an employee may elect to receive an additional day of vacation in lieu of the holiday pay. The additional day of vacation shall be the last scheduled day preceding or the first scheduled day following the vacation. An employee who has elected to receive an additional day of vacation as provided in this section but who is required to work on both his last scheduled work day immediately preceding and his next scheduled workday immediately following his vacation, shall be paid for such next scheduled workday immediately following his vacation as though it were a holiday -8- 14 worked by him. In no event, however, shall he be paid triple time for more than eight hours work. SECTION 5.6. PERSONAL DAY. All full-time non-probationary employees shall be granted one (1) personal day off with pay each year of this Agreement. Notice of such day shall be given to the Company as far in advance as practicable. A request for a particular day off shall not be unreasonably denied by the Company. ARTICLE VI VACATIONS --------- SECTION 6.1. ELIGIBILITY. Effective January 1, 1992 an employee who on or before December 1st of the current calendar year has attained both years of continuous service and the days of attendance as indicated in the table below shall be eligible for vacation as follows:
Years Days of of Attendance Prior Service 1 2 6 7 8 9 12 13 14 15 16 20 Calendar Year* - ----------------------------------------------------------------------------------------------- 5 10 12 13 14 15 16 17 18 19 20 21 120 or more 4 8 10 10 11 12 13 14 14 15 16 17 100 - 119 Days 3 6 7 8 8 9 10 10 11 11 12 13 80 - 99 of 2 4 5 5 6 6 6 7 7 8 8 9 60 - 79 Vacation 1 2 2 3 3 3 3 3 4 4 4 5 40 - 59 0 0 0 0 0 0 0 0 0 0 0 0 0 - 39 * 12 month period commencing with date of hire for an employee who has only one year of seniority on or before December 1st of the current calendar ear.
For the purpose of determining the number of days worked, only whole days worked shall be counted. In order to be eligible for a vacation in the current calendar year, an employee must work for the Company on the last scheduled workday in the prior calendar year. If he should be absent for any reason on such last scheduled workday, he may qualify for a vacation by working at least one full day of the current calendar year. SELECTION 6.2. COMPUTATION OF VACATION PAY. For each day of vacation an employee shall receive eight (8) hours of vacation pay at his regular straight time rate computed in accordance with the following: (a) An employee regularly scheduled to work on the night shift during the period immediately prior to vacation shall be paid a night shift differential -9- 15 in addition to his regular vacation pay. (b) Regular vacation pay for a day work employee shall be computed on the basis of his regular day rate in effect at the time the employee takes his vacation, excluding night shift differential and premium pay for overtime worked. (c) Regular vacation pay for a piecework employee shall be computed on the basis of his average hourly earnings calculated in accordance with Section 11.12, paragraph 8 (a), Payment of Average Earnings. SECTION 6.3. VACATION BONUS. Vacation bonus will be added to an employee's vacation pay at the rate of one (1) hour's pay for each full year of seniority in excess of 18 years. Such bonus will be calculated in the same manner as vacation pay. SECTION 6.4. SCHEDULING OF VACATIONS. As promptly as possible after January 1st of each year each employee entitled or expected to become entitled to take vacation time off in that year will be requested to specify the vacation period or periods he desires. In the event that the orderly operations of the plant would be jeopardized, the Company reserves the right to limit the number of employees in a department who may take their vacation allotment in any single week. The Company's right to limit is conditioned upon the right of the most senior employees to have preference and to take their time allotments so long as there are employees remaining who are qualified to perform the work required by the Company during the week in question. If an employee has not filed a request by April 1st his seniority shall not be given consideration when scheduling his vacation. Vacations must be taken in the current calendar year and shall not be allowed to accrue from one year to the next. Upon mutual agreement of the Company and the employee, pay in lieu of vacation time off may be taken by an employee in any calendar year in which the employee is eligible for vacation. The Company reserves the right to schedule a plant shutdown for vacation commencing with the first Monday in July. Employees will be given sixty (60) days notice of such shutdown. Employees entitled to more vacation than the period of the plant shutdown may take such additional vacation at a time selected by the Company, according due consideration to the preference of the employee, which preference may be based on -10- 16 seniority, all other factors being relatively equal. SECTION 6.5. TERMINATION EMPLOYEES. An employee terminated for any reason during a year in which he is eligible for a vacation shall receive his vacation pay at the same time he receives his pay for the last period worked. ARTICLE VII GRIEVANCE PROCEDURE AND ARBITRATION ----------------------------------- SECTION 7.1. GRIEVANCES. A grievance shall be defined as a claim by the employees or the Union that the Company has violated or is violating the provisions of a specific section or sections of this Agreement. The provisions of this Article shall set forth the sole and exclusive procedures for the adjustment of any grievance of the employees or the Union. SECTION 7.2. FIRST STEP. A grievance must first be raised by the employee with his foreman, either with or without his Steward at the employee's option. A grievance must be raised within three working days of its occurrence. A grievance involving a continuing violation may be raised at any time during the period of such continuation, but in no case will the resolution of such grievance have any retroactive effect before the date upon which it was raised. SECTION 7.3. SECOND STEP. Upon denial of the grievance by the foreman or upon his failure to respond within three working days, the employee and his Steward may appeal the grievance within five additional working days to the Vice President of Human Resources by a written submission signed by both the employee and the Steward. The Vice President of Human Resources shall then have three working days within which to answer the grievance in writing. SECTION 7.4. THIRD STEP. Upon denial of the grievance by the Vice President of Human Resources or upon his failure to answer the grievance in writing within three workdays of his receipt of the grievance, the Union may appeal the grievance to the Vice President of Manufacturing which grievance shall designate the specific section or sections of this Agreement which are claimed to have been violated by the Company. The Vice President of Manufacturing shall respond to the grievance in writing within five (5) working days from his receipt of the grievance. Upon mutual agreement of the parties, they shall meet for the purpose of discussing the grievance. Upon mutual agreement of the parties to this Agreement, any step or steps of this grievance procedure may be -11- 17 omitted in a particular case. Any grievance brought by the Union on behalf of itself shall commence at the Third Step. SECTION 7.5. ARBITRATION. Upon denial of the grievance by the Vice President of Manufacturing, his failure to respond within five (5) working days of his receipt of the grievance, or upon the Union's dissatisfaction with the Vice President of Manufacturing's proposed settlement of the grievance at the meeting or meetings held for such purpose, if any, the Union alone may appeal the grievance to arbitration under the following procedure: (a) Within ten (10) days of receipt of the Company's last answer, the Union must give written notice to the Vice President of Manufacturing of its desire to proceed to arbitration. (b) If the grievance is appealed to arbitration, representatives of the Company and the Union shall meet to select an arbitrator. If the parties are unable to agree on an arbitrator within (10) working days after the Union has served its written notice upon the Company, the parties shall request the Federal Mediation and Conciliation Service to submit a list of five arbitrators. The Union shall strike two names from the list and the Company shall then strike two names and the person whose name remains shall be the arbitrator, provided that either party, before striking any names, shall have the right to reject one panel of arbitrators. (c) The arbitrator shall be notified of his selection by a joint letter from the Company and the Union requesting that he set a time and place for the hearing, subject to availability of the Company and Union representatives, and the letter shall specify the issue(s) to the arbitrator in the following form: "Did the Company violate Section(s) of its labor agreement with the Union by taking the action or position complained of in Grievance No.______________?" (d) The costs of the arbitrator and hearing room, if any, and of a transcript, if jointly requested, shall be borne equally by the parties. If a transcript is requested by only one party, that party shall assume the full cost of same, including that of the arbitrator's copy. Each party shall bear its own costs of preparation, including those of witnesses and representatives at the hearing. SECTION 7.6. AUTHORITY OF ARBITRATOR. If the matter sought to be arbitrated does not involve a grievance concerning -12- 18 the interpretation or application of any term or condition of this Agreement, the arbitrator shall so rule in his award. An arbitrator shall have no authority to add to, detract from or amend in any way the express terms of this Agreement. It is understood that the parties intended nothing more than that which is expressly set forth in this Agreement or in any written, mutually executed supplement or amendment hereto. The decision of the arbitrator shall be final and binding upon the Company, the Union and the employees. SECTION 7.7. TIME LIMITS. All time limits set forth in an Article shall be rigidly maintained unless the parties specifically agree to the waiver of same in a particular case. If no such waiver takes place, a grievance not timely raised or appealed shall be deemed waived and settled as of the last answer. Any grievance not timely answered by the Company shall be deemed denied and immediately appealable to the next step. SECTION 7.8. PAY FOR MEETINGS WITH MANAGEMENT. Time spent in meetings with management shall be paid for as follows: If the grievant or Steward is a daywork employee he shall be paid his regular daywork rate. If the grievant or Steward is a piecework employee he shall be paid in accordance with the allowance rules set forth in Section 11.12. SECTION 7.9. WAIVER. Since the Company has granted the employees a grievance and arbitration procedure for resolving grievances, the Union and the employees waive their right to pursue any judicial remedy against the Company as to any matter subject to the procedures established in this article until said procedures have been exhausted. SECTION 7.10. WORK STOPPAGE ARBITRATION. Notwithstanding the foregoing procedure, if the Union or any of its members violates Article III of this Agreement the Union agrees to have the matter immediately submitted to an arbitrator of the Company's choice to adjudicate the existence of the work stoppage. The sole question presented to the arbitrator shall be whether in fact employees are engaging in a work stoppage. If the arbitrator finds that a work stoppage has occurred, he shall order the employees to cease their activity and to return immediately to work. Utilization of the procedure established in this Section is purely discretionary with the Company and shall not operate as a condition precedent upon the Company's resort to other contractual, administrative, or judicial remedies. -13- 19 ARTICLE VIII LEAVE OF ABSENCE ---------------- SECTION 8.1. MILITARY LEAVE. Leaves of absence shall be granted to employees who enter into the Armed Forces of the United States. Such employees shall be accorded reinstatement rights in accordance with the Selective Service Act, as amended, upon release from service. SECTION 8.2. MEDICAL AND PERSONAL LEAVE. Upon written request on a form provided by the Company, employees may request a leave of absence for medical or personal reasons. The Company will give consideration to the circumstances of each application and shall have the right to determine whether or not the leaves shall be granted and the duration of any such leave. Such requests shall not be unreasonably denied. Any leave required to be granted pursuant to law will be granted in accordance with applicable law. SECTION 8.3. MATERNITY LEAVE. A leave of absence for pregnancy will be granted by the Company. The effective date and the duration of leave shall take into consideration the recommendations of the employee's personal physician. SECTION 8.4. UNION LEAVE. Upon request of the Union in writing submitted to the Company, a maximum of two (2) duly selected employees at a time will be given a leave of absence not to exceed two (2) weeks in duration in order to attend annual Union conventions; provided that such request shall be submitted at a reasonable time but not less than two (2) weeks in advance of the commencement of the leave. ARTICLE IX SENIORITY --------- SECTION 9.1. DEFINITION. For the purpose of serving as a qualification of benefits expressly provided for in this Agreement and for no other purpose, plant seniority shall be defined as the length of an employee's continuous service with the Company at the plant covered by this Agreement, dating from his last date of hire. SECTION 9.2. PROBATIONARY PERIOD. Each employee shall be considered as a probationary employee for his first forty-five (45) calendar days; provided that upon written notice to the Union, the Company can extend the probationary period an additional thirty (30) calendar days. -14- 20 When an employee has completed his probationary period his plant seniority shall date from his date of hire. There shall be no seniority among probationary employees, who may be laid off, discharged, or otherwise terminated at the sole discretion of the Company. SECTION 9.3. CONTINUED ACCUMULATION. When an employee is promoted from a bargaining unit job to a position outside the unit, he shall continue to accumulate seniority for an additional period, not to exceed one year. If he is transferred back to the bargaining unit, he shall be entitled to a job in accordance with such total seniority and ability as if he has been on layoff. SECTION 9.4. REDUCTION-IN-FORCE, LAYOFF AND RECALL. In the event of a reduction-in-force the employee or employees with the least seniority shall be laid off, provided the remaining employees are qualified to perform the work required. The following procedures shall apply in effecting such reduction-in-force: (a) If an employee whose job is eliminated is not the least senior employee in his department, he shall displace the least senior employee in the department whose work he is qualified to perform. (b) If an employee whose job is eliminated is the least senior employee in his department or if he is not qualified to displace a less senior employee in the department, he shall be removed from the department. (c) If an employee removed from his department under (b)above is not the least senior employee in the plant, he shall displace the least senior employee in the plant whose work he is qualified to perform. (d) If an employee removed from his department under (b) above is the least senior employee in the plant or if he is not qualified to displace a less senior employee in the plant, he shall be laid off. (e) The provisions of (a), (b), (c) and (d) above shall be applicable to an employee who is displaced by a senior employee in which event the displaced employee shall be treated as though he were an employee whose job has been eliminated by a reduction-in-force. (f) No employee with seniority shall be displaced under (a) or (c) above if there is a job opening in the plant for which the senior employee is qualified, in which event said senior employee will be assigned to the job opening. -15- 21 When job openings occur, laid off employees with seniority will be recalled in order of seniority, provided they are qualified to performed the work. SECTION 9.5. TEMPORARY LAYOFFS. In cases of temporary curtailment of work not exceeding two (2) workdays, decreases in force may be made by the Company without regard to the provisions of this Article, provided that the period of temporary layoff may be extended by one (1) additional day upon mutual agreement of the Company and the Union. The Union will not unreasonably withhold its agreement to such an extension. If other work is available in the plant and the Company offers the option to employees to perform this work, qualified employees affected by the temporary layoffs will be given the option by seniority to perform this work. SECTION 9.6. JOB POSTING. In the event that a permanent job vacancy develops in a classification covered by this agreement, notice of such vacancy shall be posted on the form set forth in exhibit A for a period of two (2) workdays during which employees may apply therefore in writing to the Vice President of Human Resources. This provision shall not be construed to mean that employees have the right to select their job assignments within their classification. Job assignments shall be made with due regard for seniority and qualifications to perform the work required. A copy of each job posting will be given to each union steward. At the conclusion of the posting period a copy of the completed form will be posted showing the names of the bidders and the identification of the successful bidder, if any. A copy of the completed form will be furnished to any steward or any of the unsuccessful bidders upon request. Upon request by an unsuccessful bidder, the reason for his failure to get the job assignment will be explained to him. The Company is not obligated to consider a bid by a probationary employee or an employee who has been assigned to his current job for less than thirty (30) days. The job will be filled in accordance with the following: (a) First consideration shall be given to any employee who previously held the vacant job but was displaced or removed from such job pursuant to the provisions of Section 9.4., provided that the employee is qualified to perform the work. (b) In the event that the vacant job is not filled under (a) above, consideration shall be given to employees whose regular department is the department wherein the vacancy has occurred. As between employees whose skill and ability is relatively -16- 22 equal, primary consideration shall be given to seniority. (c) In the event that no employees covered under (b) above apply or if the Company decides that none of the applicants under (b) above have the necessary skill and ability, consideration shall be given to employees in the plant. As between such employees whose skill and ability is relatively equal, primary consideration shall be given to seniority. Nothing contained in this Section shall prevent the Company from temporarily filling a posted vacancy until it is determined whether there are applicants with the ability to perform satisfactorily the work involved or from offering the posted vacancy to a qualified employee who did not apply, or hiring a new qualified employee for the vacancy if there are no applicants during the period of posting, or if none of the applicants has the ability to perform satisfactorily the work involved. Permanent job vacancies, except for entry level jobs, will not go unposted for bidding purposes for more than thirty (30) days after the Company determines such permanent vacancy. Any employee who accepts a position in another job classification pursuant to this Section and fails to demonstrate his ability during a trial period, if any, to perform the work involved in a satisfactory manner shall be retransferred to his former classification, displacing the employee, if any, who replaced him. SECTION 9.7. TERMINATION OF SENIORITY. Seniority and the employment relationship shall be terminated when an employee: (a) Voluntarily leaves the Company's employment by resignation or quits; or (i) Is absent from work for three (3) consecutive working days without reporting the reason for such absence; (ii) Fails to report for work at the expiration of vacation or leave of absence unless excused in advance by the Company; or (iii) If a laid off employee fails to report for work within a period of three (3) working days, unless such period is extended by the Company; (b) Is discharged for cause; -17 23 (c) Is laid off and not recalled to work for the Company within a period of two (2) years or the length of his seniority at the time of layoff, whichever is shorter; (d) Is absent from work due to disabling illness or injury for a period of two (2) years or the length of his seniority at the time he last worked for the Company, whichever is shorter, which time may be extended by the Company; or (e) Works for another employer or is self-employed while on a leave of absence from the Company, unless excused by the Company; or (f) Retires. SECTION 9.8. SENIORITY LISTS. Once each six (6) months the Company will furnish the Chief Union Steward with an up-to-date seniority list, a copy of which will be posted on the Union Bulletin Board. SECTION 9.9. SUPERSENIORITY. Union Stewards shall head the seniority list for the plant during their respective terms of office. Such preferred seniority shall be applicable only to prevent their being laid off for a period in excess of three (3) working days, provided they are qualified to perform a remaining job or jobs in the plant. ARTICLE X MISCELLANEOUS ------------- SECTION 10.1. JURY PAY. An employee who is called for Jury Service will be granted time off with pay. In the case of a daywork employee, such pay will be computed at his regular daywork hourly rate for hours for each day of Jury Service, less the amount of jury pay received. In the case of a piecework employee, such pay shall be computed at the hourly rate for his classification for eight (a) hours for each day of Jury Service, less the amount of jury pay received. SECTION 10.2. INJURY ON THE JOB. An employee who is injured on the job, reports such injury on the day of its occurrence, and is sent to the Company doctor, shall receive pay for the balance of his scheduled shift upon certification by the doctor that he is unable to work the balance of the day. Such pay in the case of a daywork employee will be computed at his regular day work hourly rate and such pay for a piecework employee will be computed in accordance with the allowance rules set forth in Section 11.12. -18- 24 SECTION 10.3. FUNERAL PAY. When a death occurs in a non-probationary employee's immediate family (spouse, parent, child, sister, brother, or parent-in-law), he shall be granted time off with pay for not less than one (1) normal workday nor more than three (3) normal workdays (for the death of a grandparent, no more than two (2) normal workdays; and for the death of a grandchild, brother-in-law or sister-in-law, no more than one (1) normal workday), provided the employee attends the funeral. Such pay in the case of a daywork employee will be computed at his regular daywork hourly rate, and such pay in the case of a piecework employee will be computed at the base rate of his piecework classification. SECTION 10.4. SAFETY COMMITTEE. Two employees designated by the Union shall attend and participate in monthly safety meetings. A daywork employee shall be paid his regular daywork hourly rate. A piecework employee shall be paid in accordance with the allowance rules set forth in Section 11.12. SECTION 10.5. MOVEMENT OF FACILITY. In the event the plant and/or any of its operations are moved to another location, employees affected by such move will be offered the opportunity to transfer, and this contract shall continue in effect until its expiration date, provided the Union represents a majority of the employees at such new location after the move. SECTION 10.6. DISTRIBUTION OF PAYCHECKS. Paychecks shall be distributed to employees each Friday following the afternoon rest period. SECTION 10.7. SUPERVISORS WORKING. Supervisors shall not perform bargaining unit work which results in the displacement of qualified bargaining unit employees on straight time or overtime, except when an emergency arises, when the work is experimental or instructional in nature, or is negligible in amount. SECTION 10.8. PAY TELEPHONES. Two pay telephones shall be installed in convenient locations for the use of employees. SECTION 10.9. FIRST AID CERTIFICATION. Within forty (40) days following the effective date of this agreement, designated first-aid personnel shall update their certification cards. SECTION 10.10. FIRST AID KITS. There shall be one emergency first-aid kit located in each department. SECTION 10.11. DISCIPLINARY WARNING SLIPS. Each six (6) months the Company will notify the Chief Union Steward of disciplinary warning slips not retained by the Company for more than six (6) months. -19- 25 All disciplinary suspensions and discharges will be issued in the presence of the Vice President of Human Resources or his designated representative, the Foreman, a Union Steward and the employee involved. SECTION 10.12. INCENTIVE COMMITTEE. An incentive committee meeting will be held monthly at the Union's request. Company and Union incentive committee will consist of not more than two persons each who will be knowledgeable of the subject matter to be discussed. SECTION 10.13. UNIFORMS. Adequate protective clothing will be providing by the Company for employees performing painting job and tank cleaning job as directed by supervision. ARTICLE XI WAGES ----- SECTION 11.1. REGULAR WAGE RATES. Effective November 14, 1994 wage rates will be as set forth in Section 11.4. Daywork employees will be given increases to place them in the same relative position in their rate range. Piecework employees will be paid in accordance with the provisions of Section 11.12. Commencing with the first pay period next succeeding the first anniversary of this Agreement, wage rates will be as set forth in Section 11.5. These wage rates will be applied in the same manner as described above. SECTION 11.2. COST OF LIVING ADJUSTMENT. The $0.28 COLA payment in effect at the conclusion of the 1982 Agreement shall continue to be paid as an "add-on" to hours worked and paid for the duration of the 1994 contract. SECTION 11.3. COMPLETION OF PROBATIONARY PERIOD. A daywork employee will receive a ten cent($0.10) per hour increase upon completion of his probationary period. EFFECTIVE NOVEMBER 14, 1994 SECTION 11.4. WAGE RATES.
DAYWORK RATE STRUCTURE ---------------------- Labor Minimum Mid-Range Maximum GRADE RATE RATE RATE - ------------------------------------------------------------------------- 1 $7.77 $8.20 $8.63
-20- 26
Labor Minimum Mid-Range Maximum GRADE RATE RATE RATE - ------------------------------------------------------------------------- 2 $8.13 $8.58 $9.03 3 $8.52 $9.00 $9.47 - ------------------------------------------------------------------------- 4 $8.92 $9.41 $9.91 5 $9.39 $9.91 $10.43 6 $9.92 $10.47 $11.02 - ------------------------------------------------------------------------- 7 $10.84 $11.44 $12.04 8 $11.70 $12.35 $13.00 9 $12.66 $13.37 $14.07 - ------------------------------------------------------------------------- 10 $14.36 $15.16 $15.96 - -------------------------------------------------------------------------
PIECEWORK RATE STRUCTURE ------------------------
Labor Base Hourly Earning Grade Rate Rate objective - --------------------------------------------------------------------------- 1 $7.66 $8.14 $9.58 2 $8.01 $8.51 $10.01 3 $8.40 $8.93 $10.50 4 $8.80 $9.35 $11.00 5 $9.21 $9.79 $11.51 - ------------------------------------------------------------------------- 6 $9.63 $10.23 $12.04 7 $10.13 $10.76 $12.66 8 $10.62 $11.28 $13.28 9 $11.10 $11.79 $13.88 - -------------------------------------------------------------------------
DAYWORK LEARNER RATE STRUCTURE ------------------------------
Labor Minimum Maximum Maximum Grade Rate Rate Weeks - ---------------------------------------------------------------------------- 3 $7.75 $8.61 3 4 $8.09 $8.99 6 5 $8.53 $9.48 13 - ---------------------------------------------------------------------------- 6 $9.01 $10.01 26 7 $9.83 $10.92 52 8 $10.61 $11.79 78 - ---------------------------------------------------------------------------- 9 $11.48 $12.76 104 - ----------------------------------------------------------------------------
-21- 27 EFFECTIVE NOVEMBER 20. 1995 SECTION 11.5. WAGE RATES DAYWORK RATE STRUCTURE ----------------------
Labor minimum Mid-Range Maximum Grade Rate Rate Rate - --------------------------------------------------------------------------- 1 $7.93 $8.36 $8.80 2 $8.29 $8.75 $9.21 3 $8.69 $9.18 $9.66 4 $9.10 $9.60 $10.11 5 $9.58 $10.11 $10.64 - ------------------------------------------------------------------------- 6 $10.12 $10.68 $11.24 7 $11.06 $11.67 $12.28 8 $11.93 $12.60 $13.26 9 $12.91 $13.64 $14.35 - ------------------------------------------------------------------------- 10 $14.65 $15.46 $16.28 - -------------------------------------------------------------------------
PIECEWORK RATE STRUCTURE ------------------------
Labor Base Hourly Earning Grade Rate Rate Objective - ------------------------------------------------------------------------- 1 $7.81 $8.30 $9.77 2 $8.17 $8.68 $10.21 3 $8.57 $9.11 $10.71 - ------------------------------------------------------------------------- 4 $8.98 $9.54 $11.22 5 $9.39 $9.99 $11.74 6 $9.82 $10.43 $12.28 - ------------------------------------------------------------------------- 7 $10.33 $10.98 $12.91 8 $10.83 $11.51 $13.55 9 $11.32 $12.03 $14.16 - -------------------------------------------------------------------------
DAYWORK LEARNER RATE STRUCTURE
Labor Minimum Maximum Maximum Grade Rate Rate Weeks - ------------------------------------------------------------------------------- 3 $7.91 $8.78 3 4 $8.25 $9.17 6 5 $8.70 $9.67 13 - -------------------------------------------------------------------------------
-22- 28
Labor Minimum Maximum Maximum Grade Rate Rate Weeks - ------------------------------------------------------------------------------- 6 $9.19 $10.21 26 7 $10.03 $11.14 52 8 $10.82 $12.03 78 - ------------------------------------------------------------------------------- 9 $11.71 $13.02 104 - -------------------------------------------------------------------------------
EFFECTIVE NOVEMBER 18, 1996 --------------------------- SECTION 11.6. WAGE RATES DAYWORK RATE STRUCTURE ----------------------
Labor minimum Mid-Range Maximum Grade Rate Rate Rate - ------------------------------------------------------------------------- 1 $8.09 $8.53 $8.98 2 $8.46 $8.93 $9.39 3 $8.86 $9.36 $9.85 - ------------------------------------------------------------------------- 4 $9.28 $9.79 $10.31 5 $9.77 $10.31 $10.85 6 $10.32 $10.89 $11.46 - ------------------------------------------------------------------------- 7 $11.28 $11.90 $12.53 8 $12.17 $12.85 $13.53 9 $13.17 $13.91 $14.64 - ------------------------------------------------------------------------- 10 $14.94 $15.77 $16.61 - -------------------------------------------------------------------------
PIECEWORK RATE STRUCTURE ------------------------
Labor Base Hourly Earning Grade Rate Rate Objective - --------------------------------------------------------------------- 1 $7.97 $8.47 $9.97 2 $8.33 $8.85 $10.41 3 $8.74 $9.29 $10.92 - --------------------------------------------------------------------- 4 $9.16 $9.73 $11.44 5 $9.58 $10.19 $11.97 6 $10.02 $10.64 $12.53 - --------------------------------------------------------------------- 7 $10.54 $11.20 $13.17 8 $11.05 $11.74 $13.82 9 $11.55 $12.27 $14.44 - ---------------------------------------------------------------------
-23- 29 DAYWORK LEARNER RATE STRUCTURE ------------------------------
Labor Minimum Maximum Maximum Grade Rate Rate Weeks - ---------------------------------------------------------------------------- 3 $8.07 $8.96 3 4 $8.42 $9.35 6 5 $8.87 $9.86 13 - ------------------------------------------------------------------------- 6 $9.37 $10.41 26 7 $10.23 $11.36 52 8 $11.04 $12.27 78 - ------------------------------------------------------------------------- 9 $11.94 $13.28 104 - -------------------------------------------------------------------------
SECTION 11.7. DAYWORK JOB CLASSIFICATIONS. All jobs will be placed within one of the classifications listed below and will be given a labor grade by the Company based on professionally accepted standards. Prior to the starting of a new job classification or a changed job classification the Company shall notify the Union and furnish the Union with a job description and the proposed rates of pay applicable to such classification. When a new or changed classification has been in operation for a period of thirty (30) days, either the Company or the Union may, within the succeeding thirty (30) days, request negotiations pertaining to the rate for a new or changed job classification. In the absence of a request during such period, the rates contained in the Company's notice shall be deemed permanent upon the expiration of the second thirty (30) day period. Where negotiations are requested, the rates resulting therefrom shall constitute the permanent rates. Where negotiations do not result in establishing agreed rates, the issue shall be taken up at Step 3 of the grievance procedure and processed in accordance with the provisions. LABOR GRADE CLASSIFICATION NAME 3 Conveyor Paint Line 4 Degreaser 5 Driver-Shop Truck or Stacker 3 Line Inspector 4 Inspector 7 Inspector 7-11 Leader -24- 30 10 Maintenance Mechanic (major) 7 Maintenance Mechanic (minor) 6 Painter 6 Receiving Clerk 3 Repairer 8 Setter Punch Press 5 Setter Assembly 7 Setter Welding 5 Shipping Order Filler 3 Stock Helper & Stacker 5 Stockkeeper 10 Toolmaker SECTION 11.8. PIECEWORK JOB CLASSIFICATIONS LABOR GRADE CLASSIFICATION NAME 2 Assembler 3 Assembler 4 Assembler 3 Bench Worker 4 Drill Press 3 Grinder 4 Milling Machine 5 Polisher 4 Punch Press (Secondary) 5 Punch Press (Automatic) 5 Welder 8 Setter Punch Press 5 Setter Assembly -25- 31 7 Setter Welding SECTION 11.9. EMPLOYEE CLASSIFICATION PLAN FOR DAYWORK EMPLOYEES 1. ASSIGNED WORK IN ONE CLASSIFICATION -------------------------------------- An employee regularly assigned to perform work in one daywork classification shall be classified in such daywork classification. 2. ASSIGNED WORK IN TWO OR MORE CLASSIFICATIONS ----------------------------------------------- (a) In same labor grade. An employee regularly assigned to perform work in two or more daywork classifications in the same labor grade shall be classified in the daywork classification which covers the work which occupies the greatest percentage of the employee's time. (b In different labor grades. An employee regularly assigned to perform work in daywork classifications in two or more labor grades shall be classified in the highest daywork classification which covers work that occupies ten percent (10%) or more of the employee's time. 3. CALCULATION OF PERCENTAGES ----------------------------- In order that the calculation of percentages referred to herein will reflect average conditions, a sufficient period of time, in the past or projected into the future, shall be used so that all of an employee's regular assignments are included, and normal variations in time spent on each assignment are taken into consideration. SECTION 11.10. EMPLOYEE CLASSIFICATION PLAN FOR PIECEWORK EMPLOYEES 1. ASSIGNED JOBS IN ONE CLASSIFICATION -------------------------------------- An employee regularly assigned to perform operations all of which are classified in the same piecework classification shall be classified in such piecework classification. 2. ASSIGNED JOBS IN TWO OR MORE CLASSIFICATIONS ----------------------------------------------- (a) In same labor grade. An employee regularly assigned to perform operations classified in two or more piecework classifications in the same labor grade shall be classified in the piecework classification which covers the work which constitutes the greatest percentage of the employee's piecework earnings. For example, an employee who makes 60% of his piecework earnings from Grade 2 Assembly work and 40% from B22 Bench Work will be classified as a Grade 2 Assembler. -26- 32 (b) In different labor grades. An employee regularly assigned to perform operations classified in piecework classifications in two or more labor grad es shall be classified in the highest piecework classification which covers operations that constitute ten percent (10%) or more of the employee's piecework earnings. 3. CALCULATION OF PERCENTAGES ----------------------------- In order that the calculation of the percentages referred to herein will reflect average conditions, a sufficient period of time, in the past or projected into the future, shall be used so that all of an employee's regular assignments are included, and normal variations in time spent on each assignment are taken into consideration. SECTION 11.11. DAYWORK WAGE PAYMENT PLAN 1. PURPOSE ---------- The purpose of the Daywork Wage Payment Plan is to encourage high employee productivity by enabling employees to earn a rate of pay within their rate range on the basis of their demonstrated performance, reliability, and length of time on the assigned job. 2. DEFINITIONS -------------- "Maximum Rate". The maximum rate is the rate which represents the value of the job. It is the rate which the average skilled employee will be paid when he has been assigned to a classification for a sufficient period of time to demonstrate his ability to perform all of the requirements of the job in a reliable and workmanlike manner. "Mid-Range Rate." The mid-range rate is ninety-five percent (95%) of the maximum rate. An employee who fails to show that he merits a rate equal to or above the mid-range rate within a reasonable period of time after his assignment to a classification should be considered unqualified and be removed from the job. "Minimum Rate". The minimum rate is ninety (90%) of the maximum rate. A new employee, or an employee newly assigned to a classification who has some experience on the type of work required will normally be paid between the minimum and the mid-range rate. 3. DAYWORK RATE STRUCTURE ------------------------- The daywork rate structure shall be set forth in the separate schedule entitled "Daywork Rate Structure." -27- 33 4. STARTING RATES ----------------- (a) All employees who are hired after November 14, 1994 will be paid the following wage rates for the term of this contract, and with respect to such employees this provision will supercede all other terms of the contract to the contrary: Labor Grades 1-3: $6.50/Hour Labor Grades 4-6: $7.50/Hour Labor Grades 7-9: $9.50/Hour Labor Grade10: $10.00/Hour Such employees assigned to piecework jobs will have the above rates as their base rates. The contractual piecework formula will then apply to those rates. (b) Subject to paragraph (a) above, an employee assigned to a classification will be paid a rate within the rate range of his classification on the basis of an evaluation of his experience on the type of work required, either within the Company or elsewhere, except as provided in Section 8 below. 5. INCREASES ------------ An employee's rate will be reviewed at frequent intervals, and increases within the rate range of his classification will be granted when warranted on the basis of the employee's demonstrated performance and reliability. 6. TEMPORARY ASSIGNMENTS ------------------------ An employee temporarily assigned to a different daywork classification for a period of one full week or more shall be paid a rate within the rate range of such classification to which he is temporarily assigned. When an employee is temporarily assigned for one full day or more to a job on which he has previously worked at least five (5) full days, he will be paid a temporary rate within the rate range of such temporary job. But in no case shall his rate for the temporary assignment be less than his rate for his regular classification. An employee temporarily assigned to work classified in a piecework classification will continue to be paid his regular daywork rate, except that if his earnings on priced piecework operations exceed his regular rate for the day, he will be paid such piecework earnings in excess of his regular rate. 7. MEDICAL TREATMENT -------------------- -28- 34 An employee will be paid his regular daywork rate for time spent during his regular shift while receiving medical treatment at the Company's direction in case of injury arising out of and in the course of employment, provided he performs work for the Company on the day such treatment is received. 8. LEARNERS ----------- Except for employees hired after November 14, 1994, an employee newly assigned to a classification, who has no experience or requires training to perform the minimum requirements of such classification in labor grades 3 to 9 may be identified as learner and paid a rate below the minimum rate for his classification but not lower than the minimum learner rate specified in the separate schedule entitled "Daywork Learner Rate Structure." His rate will be reviewed at regular intervals and increases will be granted consistent with his progress in learning and performing the work assigned. Not later than the time limits set forth in the schedule, the employee's learner rate will be discontinued and the employee will be paid a rate within the rate range of his classification in accordance with all other provisions of the Plan. 9. OVERTIME AND INVENTORY ------------------------- An employee assigned to work outside his regular working hours or during inventory will be paid the rate applicable to such work. SECTION 11.12. A. PIECEWORK WAGE PAYMENT PLAN 1. PURPOSE ---------- The purpose of the Piecework Wage Payment Plan is to encourage high employee productivity by enabling employees to attain piecework earnings in direct relation to their productivity. 2. DEFINITIONS -------------- "SELECT TIME" The select time for an operation is the time required for a skilled pieceworker to perform the operation when working under standard working conditions and under full incentive stimulation. Select time does not include allowances for incidental duties, fatigue, personal, delays, etc. "STANDARD TIME" The standard time for an operation is the total time established for the performance of the operation. The standard time is based on select time, -29- 35 but includes allowances added for incidental duties, fatigue, personal, delays, etc. "PRODUCTION STANDARD" The production standard for an operation is the number of pieces which will be produced per hour when the operation is performed within the standard time. The production standard is computed by dividing the standard time into 60: Production Standard = 60 ------------- Standard Time "BASE Rate" The base rate is the monetary rate used to calculate piecework pieces and is the rate of pay an employee will earn on a priced piecework operation when producing the number of pieces per hour equal to the production standard. The base rate is also used as the minimum earnings guaranteed a pieceworker when working on a priced piecework operation and for other purposes described below. "HOURLY RATE" The hourly rate is a rate of pay which is paid to pieceworkers under certain circumstances when not working on a priced piecework operation. The hours rate is six and a quarter percent (6.25%) above the base rate. The application of the hourly rate is described below. "EARNING OBJECTIVE" The earning objective is the rate of pay an employee will earn on a priced piecework operation when exceeding the production standard by twenty-five percent (25%). 3. STANDARD ALLOWANCE IN STANDARD TIME -------------------------------------- After the select time and incidental allowance included in the time study of an operation are totalled, a standard allowance shall be calculated as follows: (a) Nineteen and four tenths percent (19.4%) of such total shall be added to bring the select time and incident allowances up to the industry concept of normal performance and to cover personal time, fatigue, an miscellaneous delays. The time required for personal time, fatigue and miscellaneous delays will vary from day to day. The standard allowance covers the average time required. (i) The allowance for personal time compensates for up to thirty (30) minutes per day to meet washroom and other personal needs. (ii) The allowance for fatigue covers all piecework operations, taking into consideration: a. Employees are reasonably suited for -30- 36 the classification to which they are assigned and, therefore, are capable of performing the work without undue strain. b. Standard times compensate for all measurable items, such as weight, distance, etc., in terms of time. c. Classifications are evaluated to compensate for working conditions. (ii) The allowance for miscellaneous delays compensates for delays of six (6) minutes duration or less which are not included in the time study, such a job variations, interruptions, normal make ready, normal clean-up, change-over from one operation to another, punching job tickets in and out where required, recording pieces produced, making out time-cards, receiving instructions, etc. (b) Twenty-five percent (25%) of the total arrived at in the preceding paragraph (a) shall be added to provide the opportunity to exceed the production standard through the application of incentive effort by the pieceworker. 4. PIECEWORK RATE STRUCTURE ------------------------ The piecework rate structure shall be as set forth in the separate schedule entitled "Piecework Rate Structure" 5. PIECEWORK PRICES ---------------- Piecework prices are computed by multiplying the standard time by the base rate times 100 and dividing by 60. Piecework Price per 100 = STD. TIME X BASE RATE X 100 ----------------------------- 60 6. APPLICATION OF STANDARDS AND PRICES ----------------------------------- Established production standards and piecework prices shall apply to an operation only when the methods and conditions are precisely the same as those upon which the standards and prices are based. (a) An established production standard and piecework price for an operation shall not be changed so long as the methods and conditions remain precisely the same as those upon which the standard and price are based, except that arithmetical and clerical errors may be corrected at any time. -31- 37 (b) When a change occurs in the methods or conditions upon which the standard and price are based, the standard and price shall not be applicable to such changed operation. (c) The Company will establish standards and prices on piecework operations without undue delay. (d) There shall be no limit on the earnings a pieceworker may earn provided: (i) The employee performs the operation under the precise condition and methods on which the production standard and piecework price are based. (ii) The employee maintains the quality standards required on the operation. (iii) Time paid by the hour is accurately recorded. 7. SPECIAL PIECEWORK PRICES ------------------------ A special piecework price may be established for a temporary period during which an operation is performed under one or more of the following conditions: (a) Tooling, methods, or material are under investigation, and have not yet been approved for establishment of the permanent standard and piecework price. (b) An operation is changed and is not yet ready for the establishment of the permanent standard and the piecework price. (c) An operation is performed under methods or conditions different from those upon which the standard and price are based, and such methods or conditions are not adopted as an approved change. 8. ALLOWANCE PAYMENTS ------------------- Allowance payments in addition to piecework earnings will be paid under certain circumstances: (a) Payment of Average Earnings. -32- 38 An Employee will be paid an allowance at his average earnings for the following: (1) Instructing other employees. (2) Performing no-price set-up or tear down operations for other employees/ (3) Acting as an assistant supervisor or leader. (4) Attending meetings called by the Company (5) Steward attending grievance meeting with management. (6) Employee representative attending safety committee meeting with management. A pieceworker's average earnings shall be computed an the basis of his average hourly earnings for the first four (4) of the last six (6) weeks worked prior to the week in which the allowance is paid, excluding night shift differential and premium pay for overtime worked. However, no week in which the employee has worked less than twenty (20) hours, nor any week in which the employee's average earnings are adversely affected as the result of an on-the-job injury, shall be used for such computation; in this event, the next prior week in which he has worked twenty (20) or more hours shall be used. An employee who has been transferred to a piecework classification within the last six (6) weeks prior to the week in which the allowance is paid shall have his average hourly earnings for the entire period of such recent assignment to piecework up to and including the day before the payment of the allowance, excluding night shift differential and premium pay for overtime worked. (b) Payment of Hourly Rate (1) An employee will be paid an allowance at the hourly rate of his classification for the following: a. Performing no-price piecework operations. -33- 39 b. Performing extra work not covered by a piecework price where the time necessary to perform such extra work can be accurately estimated. c. Standing by or performing a substitute assignment other than a priced piecework operation in lieu of idle time during any period in excess of six (6) minutes where a delay of more than six (6) minutes occurs while an employee is working on a period piecework operation. d. Reworking materials, parts, or assemblies where no standard and piecework price are established. e. Grievant attending grievance meetings with management. f. Employee injured on the job, for time lost on day of injury as provided in Section 10.2. (2) An employee will be paid an allowance to bring his earnings up to the hourly rate of his classification during any period when he is directed to continue operating a priced piecework job under conditions or methods which impede his output, where such methods or conditions are other than those upon which the standard and price are based. (3) An employee will be paid an allowance at the hourly rate two (2) labor grades higher than the hourly rate for his classification for setup or tear-down of a machine when changing over from one operation to another, where such work is not covered by a standard and price. (c) Payment of Base Rate. (1) An employee will be paid an allowance to bring his earnings up to the base rate of his classification for the time that he works on each priced piecework operation. In order to be eligible for such allowance, the employee shall notify his supervisor in advance and the time the job is started and completed will be recorded and initialled by both the employee and the supervisor. Deductions will -34- 40 be made from the recorded time for any period during which the employee is paid an allowance based on time, or for time away from the job for personal time in excess of that allowed in the piecework price or for lunch. (2) An employee who due to his own fault produces faulty pieces or performs work on faulty pieces or performs work on faulty material or pieces while working on a priced piecework operation, where the quantity of such faulty pieces is in excess of the acceptable percentage of faulty pieces shall be paid as follows: a. He shall not receive credit for the excess number of faulty pieces in calculating his piecework earnings. b. He shall be paid the base rate for time spent in producing such excess number of faulty pieces. The allowance shall be computed by the formula: Allowance = 80% x no. faulty pcs. x price. This provision shall be inoperative if the employee has already received his pay at the time of the discovery of the error, or if the Company uses the faulty pieces without increased cost for inspecting, sorting, reworking, or for paying special rates or allowances. (d) In order to be eligible to receive an allowance as provided herein, an employee shall notify his supervisor of the condition for which an allowance is payable. Allowances shall not be paid for any time prior to such notification. (e) An employee will not become eligible to receive the allowance payments set forth herein until he has demonstrated by actual performance that he can consistently maintain piecework earnings equal to or higher than the hourly rate for his classification. Until such time an employee reaches the required level of output, he shall be paid for such allowance conditions at a rate between the base rate and the hourly rate of his classification on a merit rating basis. 9. LEARNERS -------- -35- 41 An employee newly assigned to a classification in labor grades 3 to 7 may be identified as a learner and paid a rate between the base rate less 10% and the hourly rate of his classification on a merit rating basis, such rate to be paid for total time worked, whether on priced or no-priced piecework operations. However, not later than the time limits set forth below, the employee's learner rate will be discontinued and the employee shall be paid in accordance with all the other provisions of the Plan. Labor Grade Time Limit ----------- ---------- 3 2 weeks 4 4 weeks 5 8 weeks 6 16 weeks 7 26 weeks 10. OVERTIME ASSIGNMENTS -------------------- A piecework employee assigned to work other than priced piecework operations outside his regular working hours or during inventory shall be paid the rate applicable to such work. B. GROUP INCENTIVE PLAN -------------------- In any case where two or more Employees are working on an incentive part, they will be paid in accordance with a group incentive rate as established by the Company. Such rate will be the existing incentive rate as measured by the count of finished parts produced by the group. C. Notwithstanding anything to the contrary in Section 11.12 above, the Company will have the right to set standards using MTM or Watchtime methods. SECTION 11.13. NOTICE OF RATES. When the Company changes a piecework rate in accordance with the provisions of this Agreement, the Union Steward and the Union will be given written notice of such change prior to its being placed into effect. The Union Steward and the Union will be given the following: a. Data explaining the reason for the change and supporting the accuracy of the new rate; b. Upon request, a meeting with management, consisting of no more than 3 employees in the affected area, to discuss the new rate; C. An opportunity to study the rate with an expert selected by the Union and to present the findings to -36- 42 the Company. The Company will be entitled to put the new rate into effect after notice to the Union steward; provided that any subsequent disagreement with the rate that cannot be resolved after the above requests have been satisfied will be subject to the grievance procedure. ARTICLE XII INSURANCE --------- SECTION 12.1. AGREEMENT TO CONTRIBUTE. The Employer agrees that for each employee with thirty (30) days or more of service and in the active employ of the Company (except as modified in Section 12.9(b) and Section 12.9(c) of this Article), it shall make the monthly contributions to the Central States Joint Board Health and Welfare Trust Fund for coverage under its "Plan B" as follows: SECTION 12.2. INITIAL CONTRIBUTIONS. Effective January 1, 1995, the contributing employer agrees to pay on behalf of each eligible employee as described in Section 1 into the Central States Joint Board, Health & Welfare Trust Fund, an amount not to exceed $205.00 per month. SECTION 12.3. SUCCEEDING CONTRIBUTIONS. Effective January 1, 1996, and January 1, 1997, the contributing employer agrees to pay on behalf of each eligible employee as described in Section 12.1 into the Central States Joint Board, Health and Welfare Trust Fund, an amount that shall not exceed the previous year's rate by more than 18%. The actual contribution level shall be determined after completion of an actuarial study of the Fund. The contributing Employer shall be notified in writing of the monthly contribution actuarially determined not later than 60 days preceding January 1, of each year. SECTION 12.4. PURPOSES. The Fund shall use these payments for purposes permitted under the Trust Agreement and to provide health, welfare, death and such other benefits as permitted by said Trust Agreement, as amended, from time to time, and by Section 302(c) of the Labor Management and Relations Act of 1947 and the Employee Retirement Income Security Act of 1974. SECTION 12.5. IRREVOCABLE TRUST. The Union represents that the Fund is an irrevocable Trust heretofore created by an Agreement and Declaration of Trust (Trust Agreement), pursuant to Collective Bargaining Agreements between certain employers and the Union. -37- 43 SECTION 12.6. REPRESENTATION AS TO LAWFULNESS AND OUALIFICATION. (a) The Union represents to the Company that said Trust is lawful and is qualified under all applicable provisions of the Internal Revenue Code, so that all contributions by the Company will be deductible for income tax purposes; and the obligation of the Company to contribute to the Trust shall cease at any time the Fund loses its qualification under the Internal Revenue Code. (b) The Company's sole liability shall be for the payment of the monthly contributions set forth in Sections 1, 2, & 3, of this Article and in no way guarantees payment of the benefits established by Trust Fund nor the solvency of the Fund. SECTION 12.7. JOINT ADMINISTRATION. The Union represents that this Fund is administered jointly by Trustees equal in number appointed by the Union and appointed by the Employers who contribute to the Fund. SECTION 12.8. AUTHORITY OF TRUSTEES. The Trustees of the Fund shall have the sole power (a) to construe the provisions of the Trust Agreement and rules and regulations and all terms used therein, and (b) to determine all disputes with respect to eligibility, the right to participate in benefits of the Fund, time, method of payment, payment during periods of Employee illness or disability, methods of enforcement of payment and related matters, and any construction adopted and any determination made by the Trustees in good faith shall be final and binding upon all Employers, Employees, participants, legal representatives, dependents, relatives and all persons and parties. SECTION 12.9. EMPLOYER PAYMENTS. The Employer payments to the Fund shall be as follows: (a) The amount per Employee per month shall be paid for each Employee covered by this Agreement by the 10th of the month next following the end of the Employee's probationary period and by the 10th of each month thereafter, and who has received at least eight (8) hours of compensation for that month, including the month in which an employee terminates active employment. (b) If a covered Employee is absent because of non-occupational illness or injury, the Employer shall pay the required payment for a minimum of Two (2) additional month(s) following the month in which the illness or injury occurred. (c) If a covered Employee is absent because of occupational illness or injury, the Employer shall pay the required payment for a period of two (2) month(s). -38- 44 SECTION 12.10. DELINQUENCIES. (a) Whenever the Trustees of the Fund determine thatthe Company is delinquent in making payments to the Fund, as required undernthis Article or the rules and regulations of the Fund then the Company shall be responsible for any losses of any Health & Welfare benefits resulting thereby and agrees to make full reimbursement to the Fund for all costs incurred in the collection of said delinquencies or the enforcement of this Article. (b) The Union also may elect to submit the issue of delinquencies to the grievance-arbitration procedure. In the event a judgment by a court of competent jurisdiction or an arbitrator against the Company for payment of such delinquencies is not complied with within three (3) weeks after such award is sent by registered or certified mail to the Company, the Union may order a strike or picketing to enforce the judgment or award, notwithstanding the provisions of Article III of this Agreement. Upon compliance with the judgment or award, such activity shall cease. SECTION 12.11. CORRECTIONS OF ERRONEOUS CONTRIBUTIONS. No payment of credits, due to contributions made by the employer for an ineligibleemployee, or for family plan premiums submitted in error, shall be allowed if claim for such credit is not made on or prior to the last day of the month for which the report containing the error was due and payable. SECTION 12.12. SUPPLEMENTAL COVERAGE. Effective January 1, 1991, employees shall pay $8.00 per week to the Company, and the Company shall pay the cost to provide the following insurance benefits, which supplement the benefits provided by the Central States Joint Board Health and Welfare Trust Fund Plan B: LIFE INSURANCE (employee only) -- $10,000.00 SICKNESS AND ACCIDENT (Non-Occupational, employee only) 65% of salary for employees with 3 years or more seniority, and 60% of salary for employees with less than 3 years seniority, to a maximum weekly benefit of $300.00 from the first day of an accident, eighth day of an illness, for a maximum of 26 weeks. DENTAL (Employee Only as per Plan B) After a payment of $500 in any one year by the Central States Joint Board, Health and Welfare Trust Fund pursuant to its published schedule of procedures existing as of the date hereof, the Company will supplement such benefits by extending said published schedule of procedures to a -39- 45 maximum overall payment by the Company of $500 per individual. The provisions of this Section 12.12 are subject to the terms and provisions of the insurance policy or policies issued by the insurance carrier. Provided that these benefit levels are maintained, the Company may unilaterally change insurance carriers of such supplemental benefits during the term of this Agreement in order to obtain cost or administrative advantages. Employees shall, as a condition of obtaining such supplemental benefits, execute such reasonable authorizations permitting payroll deductions of $8.00 per week as the Company may from time-to-time request. Employees shall be required to provide reasonable and adequate data to substantiate claims pursuant to this Article. SECTION 12.13. The Union will provide the Company with reasonable claims experience information annually as requested by the Company. ARTICLE XIII PENSION PLAN ------------ Employees will be covered by the Health-O-Meter, Inc. 401(k) Plan which will be administered in accordance with its terms and applicable law. No Company action respecting the plan nor any disputes relating to the Plan will be subject to arbitration under this agreement, unless otherwise mutually agreed by the parties in writing. ARTICLE XIV WAIVER AND ENTIRE AGREEMENT --------------------------- The parties acknowledge that during the negotiations resulting in this Agreement, each had the unlimited right and opportunity to make demands and proposals with respect to any and all subjects or matters not removed by law from the area of collective bargaining and that the understandings and agreements arrived at by the parties after exercise of that right and opportunity are set forth in this Agreement and in any future Letters of Understanding. Therefore, the Company and the Union each voluntarily and unqualifiedly waive the right, and each agrees that the other shall not be obligated to bargain collectively with respect to any subject or matter referred to -40- 46 or covered in this Agreement, unless specifically provided in this Agreement to the contrary, even though such subject or matter may not have been within the knowledge or contemplation of either or both of the parties at the time that they negotiated or signed this Agreement. All rights and duties of both parties are specifically expressed in this Agreement and in any future Letters of Understanding and such expression is all-inclusive. This Agreement and any future Letters of Understanding constitute the entire agreement between the parties and concludes collective bargaining for its term except for the Grievance and Arbitration procedures set forth in Article VII, and the matters referred to in Article X, Section 10.5. ARTICLE XV DURATION-OF AGREEMENT --------------------- This Agreement shall remain in full force and effect until Midnight, November 13, 1997 and shall thereafter be continued for annual periods unless notice of termination is given in writing by registered or certified mail by either party at least sixty(60) days prior to November 13, 1997 or any subsequent annual expiration date. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and year first above written. MANUFACTURING, PRODUCTION IND SERVICE WORKERS UNION, LOCAL HEALTH-O-METER, INC. NO. 24, AFL-CIO /s/ Dennis Mascolo /s/ Charles Shreiber - ------------------------------- ------------------------------- Business Representative Director of Operations /s/ Richard Lostroscia /s/ Valentinas Zilinskas - ------------------------------- ------------------------------- /s/ Janinina Wargacki V. P. H. R. - ------------------------------- /s/ Stanley Yarka - ------------------------------- /s/ William Buck - ------------------------------- /s/ Ross Hegner - ------------------------------- /s/ Diane Carmona - ------------------------------- /s/ Diana Chapman - ------------------------------- /s/ Eleanor Fleisleber - ------------------------------- 47 -42- /s/ - ------------------------------- /s/ - ------------------------------- EXHIBIT A JOB OPENING Date:_____________________ Department_____________________________________________________________________ Occupation_____________________________________________________________________ _______________________________________________________________________________ Classification_________________________________________________________________ PIECEWORK RATE DAYWORK RATE -------------- ------------ Base_____________________ Min.__________________________ Earning objective (25%) over base_____________ Control_________________________ If you wish to be considered for this job, apply at the Personnel Office. EX-23.1 6 EXHIBIT 23.1 1 Exhibit 23.1 ------------ 2 The Board of Directors Health o meter Products, Inc.: We consent to incorporation by reference in the Registration Statement (No. 333-04019) on Form S-8 of Health o meter Products, Inc. of our report dated December 3, 1996, relating to the consolidated balance sheets of Health o meter Products, Inc. and subsidiary as of September 29, 1996 and October 1, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years ended September 29, 1996, October 1, 1995, and for the nine-month period ended October 2, 1994, and all related schedules, which report appears in the September 29, 1996, annual report on Form 10-K of Health o meter Products, Inc. /s/ KPMG Peat Marwick LLP KPMG Peat Marwick LLP Cleveland, Ohio December 3, 1996 EX-27.1 7 EXHIBIT 27.1
5 0000883327 HEALTH O METER PRODUCTS, INC 1,000 YEAR SEP-29-1996 OCT-02-1995 SEP-29-1996 736 0 60,552 2,592 43,626 109,007 41,250 22,728 273,490 48,393 170,531 91 0 0 48,916 273,490 282,977 282,977 192,706 256,341 0 923,000 19,134 7,859 4,900 2,959 0 0 0 2,959 .33 .33
EX-27.2 8 EXHIBIT 27.2
5 0000925252 HEALTH O METER, INC. 1,000 YEAR SEP-29-1996 OCT-02-1995 SEP-29-1996 736 0 60,552 2,592 43,626 109,007 41,250 22,728 273,490 48,393 170,531 10 0 0 1,339 273,490 282,977 282,977 192,706 256,341 0 923,000 19,134 7,859 4,900 2,959 0 0 0 2,959 0 0
-----END PRIVACY-ENHANCED MESSAGE-----