FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-12727
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SENTRY TECHNOLOGY CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 96-11-3349733
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1881 Lakeland Avenue, Ronkonkoma, NY 11779
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(Address of principal executive offices) (Zip Code)
631-739-2000
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
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
-
As of November 4, 2003, there were 85,748,886 shares of Common Stock
outstanding.
SENTRY TECHNOLOGY CORPORATION
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INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
- ---------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets --
September 30, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Operations --
Three Months Ended September 30, 2003 and 2002
and Nine Months Ended September 30, 2003 and 2002 4
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 2003 and 2002 5
Notes to Condensed Consolidated Financial
Statements - September 30, 2003 6 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 12
Item 4. Controls and Procedures 12 - 13
PART II. OTHER INFORMATION
- ------------------------------
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
PART I. FINANCIAL INFORMATION
- ---------------------------------
Item 1. Financial Statements (Unaudited)
SENTRY TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2003 2002
--------------- --------------
ASSETS
- --------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 215 $ 266
Accounts receivable, less allowance for doubtful
accounts of $357 and $303, respectively . . . . . . . . . 1,944 1,472
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 2,197 3,145
Prepaid expenses and other current assets. . . . . . . . . . 135 237
--------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . 4,491 5,120
PROPERTY, PLANT AND EQUIPMENT, net . . . . . . . . . . . . . . 190 2,563
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 281 309
--------------- --------------
$ 4,962 $ 7,992
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------
CURRENT LIABILITIES
Revolving line of credit and term loan . . . . . . . . . . . $ 1,895 $ 2,067
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 747 1,807
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . 1,812 1,523
Obligations under capital leases -
current portion . . . . . . . . . . . . . . . . . . . . . 5 97
Deferred income. . . . . . . . . . . . . . . . . . . . . . . 242 394
--------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . . 4,701 5,888
NOTES PAYABLE 263 ---
OBLIGATIONS UNDER CAPITAL LEASES -
non-current portion. . . . . . . . . . . . . . . . . . . . . 15 2,555
--------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . 4,979 8,443
SHAREHOLDERS' EQUITY
Common stock . . . . . . . . . . . . . . . . . . . . . . . . 86 78
Additional paid-in capital . . . . . . . . . . . . . . . . . 44,657 44,521
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . (44,640) (44,930)
Note receivable from shareholder . . . . . . . . . . . . . . (120) (120)
--------------- --------------
Total shareholders' equity (deficit) . . . . . . . . . . . (17) (451)
--------------- --------------
$ 4,962 $ 7,992
=============== ==============
See notes to the condensed consolidated financial statements.
SENTRY TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
2003 2002 2003 2002
------------------- -------------------
REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 3,784 $ 3,425 $ 9,684 $11,348
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 1,490 1,884 3,979 5,591
Customer service expenses . . . . . . . . . . . . . . . . 1,094 977 2,912 3,310
Selling, general and administrative expenses. . . . . . . 976 1,389 2,726 4,139
Research and development. . . . . . . . . . . . . . . . . 157 119 492 415
-------- -------- -------- --------
3,717 4,369 10,109 13,455
-------- -------- -------- --------
OPERATING PROFIT (LOSS). . . . . . . . . . . . . . . . . . . . 67 (944) (425) (2,107)
INTEREST AND FINANCING EXPENSES. . . . . . . . . . . . . . . . 171 104 513 376
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . (104) (1,048) (938) (2,483)
INCOME TAXES (BENEFIT) (143) --- (491) ---
-------- -------- -------- --------
PROFIT (LOSS) BEFORE EXTRAORDINARY ITEM. . . . . . . . . . . . 39 (1,048) (447) (2,483)
EXTRAORDINARY ITEM - Gain on extinguishment
of debt, net of $143 and $491 income taxes 215 --- 737 ---
-------- -------- -------- --------
NET PROFIT (LOSS). . . . . . . . . . . . . . . . . . . . . . .$ 254 $(1,048) $ 290 $(2,483)
======== ======== ======== ========
NET PROFIT (LOSS) PER SHARE
Profit (loss) before extraordinary item. . . . . . . . . . . .$ 0.00 (0.01) $ (0.01) $ (0.04)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . 0.00 0.00 0.01 0.00
-------- -------- -------- --------
Basic and diluted . . . . . . . . . . . . . . . . . .$ 0.00 (0.01) $ 0.00 $ (0.04)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES
Basic and diluted . . . . . . . . . . . . . . . . . . . 85,656 78,044 83,619 70,243
======== ======== ======== ========
See notes to the condensed consolidated financial statements.
SENTRY TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
-----------------
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
- ----------------------------------------------------------------
Net profit (loss). . . . . . . . . . . . . . . . . . . . . . . $ 290 $(2,483)
Adjustments to reconcile net profit (loss)
to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 244 359
Provision for bad debts . . . . . . . . . . . . . . . . . . 38 (39)
Gain on extinguishment of debt (1,228) ---
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . (510) 853
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 948 1,019
Accounts payable and accrued liabilities. . . . . . . . . . 454 684
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . (32) 190
---------- --------
Net cash provided by operating activities. . . . . . . . . . 204 583
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net . . . . . . . . (23) (64)
Intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . (12) (12)
---------- --------
Net cash used in investing activities. . . . . . . . . . . . (35) (76)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under the revolving line of credit and term loan. (172) (351)
Repayment of obligations under capital leases. . . . . . . . . (53) (61)
Proceeds from sale of stock, net . . . . . . . . . . . . . . . 5 11
---------- --------
Net cash used in financing activities. . . . . . . . . . . . (220) (401)
---------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . (51) 106
CASH AND CASH EQUIVALENTS, at beginning of period. . . . . . . . 266 423
---------- --------
CASH AND CASH EQUIVALENTS, at end of period. . . . . . . . . . . $ 215 $ 529
========== ========
See notes to the condensed consolidated financial statements.
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE A -- Basis of Presentation
- ------------------------------------
Sentry Technology Corporation ("Sentry"), a Delaware Corporation, was
established to effect the merger of Knogo North America Inc. ("Knogo N.A.") and
Video Sentry Corporation ("Video Sentry"), which was consummated on February 12,
1997. The merger resulted in Knogo N.A. and Video Sentry becoming wholly owned
subsidiaries of Sentry. The consolidated financial statements include the
accounts of Sentry and its majority-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Interim
results are not necessarily indicative of the results that may be expected for a
full year. These financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in Sentry's
Annual Report to Stockholders on Form 10-K for the fiscal year ended December
31, 2002, as filed with the Securities and Exchange Commission.
Certain prior period amounts have been reclassified to conform to current period
presentation.
NOTE B -- Financial Condition and Liquidity
- -------------------------------------------------
We have incurred reduced revenue levels, decreased financial position and
recurring operating losses over the past several years. As a result, the Board
of Directors approved a restructuring plan for 2003 to strengthen the Company's
operating efficiencies and to better align its operations with current economic
and market conditions. To date our progress under the revised business plan is
as follows:
- - Significantly downsized our operations including the elimination of
approximately 55 of 117 positions as of March 7, 2003.
- - Negotiated a settlement with past due trade vendors which has resulted in
an $875,000 gain.
- - Negotiated with the previous landlord to move out of its Hauppauge
corporate facility. The lease termination has resulted in a gain of
$353,000.
- - Relocated its corporate offices to a smaller and less costly facility.
- - Dedicated a substantial portion of our remaining resources towards
maintaining and improving our relationships with our 30 largest
customers.
- - Outsourced all non-essential manufacturing and assembly operations to
qualified subcontractors.
- - Further expanded our Service Partner program to augment service and
installations performed by our employees.
On January 7, 2003, Sentry initiated its restructuring plan. Due to the size of
the layoff, Sentry was required to give the terminated employees a 60-day notice
period. The costs associated with these restructuring activities are being
expensed as they are incurred. The successful implementation of this
restructuring to date has resulted in substantial gross margin improvements and
reductions in operating expenses beginning in the second quarter of 2003.
There can be no assurance, however, that changes in Sentry's plans or other
events affecting its operations will not result in accelerated or unexpected
cash requirements, or that the Company will be successful in achieving positive
cash flow from operations or that additional debt or equity financing will be
available on terms that are satisfactory to Sentry, or that any such debt or
equity financing will be sufficient to provide the full amount of funding
necessary. Sentry's future cash requirements are expected to depend on numerous
factors, including, but not limited to: (i) the ability to generate positive
cash flow from operations, and the extent thereof, (ii) the ability to raise
additional capital or obtain additional financing, and (iii) economic
conditions.
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Sentry will require liquidity and working capital to finance increases in
receivables and inventory associated with sales growth, payments to past due
vendors and, to a lesser extent, for capital expenditures. The Company had no
material capital expenditure or purchase commitments as of September 30, 2003.
Currently, Sentry's major shareholder, Dialoc ID, is not able to provide
additional financial support for Sentry. If the Company is not able to raise
additional debt or equity financing, it could be forced into a bankruptcy or be
required to liquidate its assets. In this scenario, most likely, Sentry's
secured lender would receive the bulk of any proceeds.
NOTE C -- Extraordinary Items - Gain on Extinguishment of Debt
- ------------------------------------------------------------------------
On July 9, 2003, Sentry entered into a settlement agreement with its landlord
regarding the termination of its long-term capital and operating leases for its
then current facility in Hauppauge, New York. Under terms of the settlement,
Sentry was released from its current and future liabilities under the leases in
exchange for a $250,000, 8% note, payable in 36 equal monthly installments of
$7,834, including interest, commencing November 1, 2003. The note also
obligates Sentry to prepay an amount of $100,000 against the note in the event
of an equity financing, as defined. In addition, Sentry issued the landlord
1,000,000 shares of common stock, for which the fair value of the stock
($33,000) was determined using the closing price as of July 9, 2003. Sentry was
also obligated to pay rent of $16,000 per month until it vacated the premises on
September 30, 2003. The Company recognized a gain of $353,000 in the third
quarter of 2003, representing the difference between the carrying amounts of
outstanding obligations to the landlord less the net book value of the property
on the date of the settlement.
As of October 1, 2003, Sentry moved its corporate offices and distribution
center to a 20,000 square foot facility in Ronkonkoma, New York. The Company
entered into a three-year lease with annual rents of $140,000, $144,200 and
$148,600, respectively.
In the second and third quarters of 2003, the Company entered into a settlement
with certain of its vendors for past due obligations. Under the terms of the
settlement, each participating vendor received a note for approximately 10% of
their balance due and two shares of Sentry common stock for each dollar owed in
full satisfaction of their outstanding balances, which approximated $1,092,000.
The notes, approximating $112,000, are non-interest bearing and are payable in
three equal installments on January 15, 2004, 2005, and 2006. The 2,186,539
shares issued in connection with this settlement were valued at approximately
$105,000, based on the market value of the stock at the time of the settlement.
As a result of this transaction, in the second and third quarters, the Company
realized an extraordinary gain of $875,000, representing the difference between
the amounts due before the settlement and the total amount payable, including
the value of the common stock, as a result of the settlement.
The $143,000 and $491,000 income tax provisions recognized in the third quarter
and first nine months of 2003 on the extraordinary gains were offset by an
equivalent income tax benefit generated from the current periods' loss from
operations and the utilization of net operating loss carryforwards.
NOTE D -- Inventories
- ------------------------
Inventories consist of the following:
September 30, 2003 December 31, 2002
-------------------- -------------------
(in thousands)
Raw materials $ 648 $ 513
Work-in-process 504 618
Finished goods 1,045 2,014
----- -----
$ 2,197 $ 3,145
= ===== = =====
Reserves for excess and obsolete inventory totaled $2,422,000 and $3,610,000 as
of September 30, 2003 and December 31, 2002, respectively and have been included
as a component of the above amounts.
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE E -- Related Party Transactions
- -----------------------------------------
As a result of the Dialoc ID investment, Sentry entered into a distribution
agreement with Dialoc ID, which contemplates a two-way distribution relationship
between the companies. Under the agreement, Sentry has the rights to sell
Dialoc ID's EAS, access control and RFID products and accessories and Sentry
gives Dialoc ID the rights to sell its EAS and CCTV products and accessories.
Pricing for products under the agreements are at the lowest prices charged to
affiliates. Also, Peter Murdoch, a shareholder of Dialoc ID, receives an annual
salary of $50,000 in 2003 in the capacity of President of Sentry. Purchases
from Dialoc ID were $17,000 and $3,000 in the quarters ended September 30, 2003
and September 30, 2002 and $29,000 and $13,000 in the nine month periods ended
September 30, 2003 and 2002, respectively. Services and sales to Dialoc ID were
$28,000 and $24,000 in the quarters ended September 30, 2003 and 2002 and
$67,000 and $37,000 in the nine month periods ended September 30, 2003 and 2002,
respectively. The net amount payable to Dialoc ID as of September 30, 2003 was
$136,000.
In addition, on March 27, 2002, Peter Murdoch, our President and CEO, exercised
a stock option for two million shares of Sentry common stock at an exercise
price of $0.06 per share, which was paid for through the issuance of a
promissory note in the amount of $120,000. The principal of the note is secured
by the option shares and is repayable no later than January 8, 2006. Mr.
Murdoch will not have any personal liability for the principal of the note if
the value of the option shares is not sufficient to repay the note. The note
bears interest at prime (currently 4 %) less .75%. The note has been reflected
as a reduction of shareholders' equity on the balance sheet.
NOTE F -- Recent Accounting Pronouncements
- -----------------------------------------------
In April 2003, FASB issued Statement of Financial Accounting Standards No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities
("SFAS 149"). SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133. SFAS 149 is effective for
contracts and hedging relationships entered into or modified after June 30,
2003. We adopted the provisions of SFAS 149 effective June 30, 2003 and such
adoption did not have a material impact on our consolidated financial statements
since we have not entered into any derivative or hedging transactions.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("FAS 150"). This statement establishes standards for
how an issuer classifies and measures in its statement of financial position
certain financial instruments with characteristics of both liabilities and
equity. In accordance with the standard, financial instruments that embody
obligations for the issuer are required to be classified as liabilities. FAS 150
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted the provisions of SFAS 150 effective
June 30, 2003 and such adoption did not have a material impact on our
consolidated financial statements.
NOTE G -- Earnings Per Share
- ---------------------------------
The earnings per share calculations (basic and diluted) at September 30, 2003
and 2002 are based upon the weighted average number of common shares outstanding
during each period. There are no reconciling items in the numerator or
denominator of the earnings per share calculations in either of the periods
presented. Options to purchase 1,598,424 and 3,648,588 shares of common stock
with a weighted average exercise price of $0.57 and $0.72 were outstanding at
September 30, 2003 and 2002, but were not included in the computation of diluted
net loss per share because their effect would be antidilutive or immaterial.
Stock options issued to employees are accounted for under the intrinsic value
method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." No stock-based employee compensation cost is reflected in net income
(loss), as all options granted had an exercise price equal to the market value
of the underlying common stock on the date of grant. The following table
illustrates the effect on net loss and net loss per share if we had applied the
fair value method of accounting for stock options under the provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation".
SENTRY TECHNOLOGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
(in thousands, except per share data)
Net income (loss),
as reported $ 254 $(1,048) $ 290 $(2,483)
Deduct: Total stock-based
employee compensation expense
determined under the fair
value method for all awards,
net of related tax effects 21 32 36 169
------- -------- ------- --------
Pro-forma net income (loss) $ 233 $(1,080) $ 254 $(2,652)
======= ======== ======= ========
Net income (loss) per share:
Basic and Diluted-as reported $ 0.00 $ (0.01) $ 0.00 $ (0.04)
======= ======== ======= ========
Basic and Diluted-pro forma $ 0.00 $ (0.01) $ 0.00 $ (0.04)
======= ======== ======= ========
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model. No options were granted in the three or
nine-month periods ended September 30, 2003 or 2002.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain Factors That May Affect Future Results
- ----------------------------------------------------
Information contained or incorporated by reference in this periodic report on
Form 10-QSB and in other SEC filings by Sentry contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 which can be identified by the use of forward-looking terminology such
as "believes," "expects," "may," "will," "should" or "anticipates" or the
negative thereof, other variations thereon or comparable terminology, or by
discussions of strategy. These forward-looking statements involve certain
significant risks and uncertainties, and actual results may differ materially
from the forward-looking statements. For further details and discussion of these
risks and uncertainties see Sentry Technology Corporation's SEC filings
including, but not limited to, its annual report on Form 10-K. No assurance can
be given that future results covered by the forward-looking statements will be
achieved, and other factors could also cause actual results to vary materially
from the future results covered in such forward-looking statements. We do not
undertake to publicly update or revise any of our forward-looking statements
even if experience or future changes show that the indicated results or events
will not be realized.
Results of Operations:
- ------------------------
We sell our products predominantly into the retail market. While we are
beginning to see signs of an improving domestic retail economy, we still believe
that domestic revenues may continue to be affected by a soft market for retail
capital goods spending. As part of our restructuring plan and due to the
limitations of our financial resources, we reduced the number of direct
salespersons from thirteen to four, whose efforts are supplemented by six
in-house sales support staff and two independent sales representatives. Our
sales efforts were primarily focused towards our top 30 customers. The
transition to this strategy may result in large swings in our order flow, based
on the timing of new store openings and the receipt of orders from these
customers. This is reflected in the reduction in our backlog of orders from
approximately $5.3 million at September 30, 2002 to approximately $4.4 million
at September 30, 2003. Consolidated revenues were 10% higher and 15% lower in
the quarter and nine months ended September 30, 2003 than in the quarter and
nine months ended September 30, 2002. Total revenues for the periods presented
are broken out as follows:
SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Q-3 Q-3 % 9 Mos. 9 Mos. %
2003 2002 Change 2003 2002 Change
---- ---- ------ ---- ---- ------
(in thousands) (in thousands)
EAS $ 490 $ 676 (28) $ 1,460 $ 1,992 (27)
CCTV 706 621 14 2,653 3,251 (18)
SentryVision 1,420 1,037 37 2,279 2,173 5
3M library products --- 24 (100) 45 215 (79)
------ ----- ----- -------- ------- -----
Total sales 2,616 2,358 11 6,437 7,631 (16)
Service revenues
and other 1,168 1,067 9 3,247 3,717 (13)
------ ----- ----- -------- ------- -----
Total revenues $ 3,784 $3,425 10 $ 9,684 $11,348 (15)
======= ====== ===== ======== ======== =====
Direct sales of EAS products were lower in both the third quarter and first nine
months of 2003 as compared to the same period in the prior year as a result of
lower sales to our Mexican Distributor and to smaller boutique customers. There
was an increase in CCTV and SentryVision revenues from Lowe's Home Centers of
approximately $1.0 million in the third quarter of 2003 as compared to the third
quarter of 2002 as a result of the timing of the contracts received. Cumulative
business with Lowe's through the first nine months of 2003 is approximately the
same as the first nine months of 2002. Overall sales of conventional CCTV
systems in the first nine months of 2003 have weakened with several of our
existing customers compared to the prior year while sales of our proprietary
SentryVision Smart Track system continued to strengthen. We terminated our
distribution agreement with 3M for library products as of the end of 2002,
however, the final installations were completed in first quarter of 2003.
Service revenues and other increased in the third quarter primarily as a result
of higher installation revenue than in the third quarter of 2002, but were lower
in the first nine months of 2003.
Cost of sales were 57% and 62% of total sales in the three and nine month
periods ended September 30, 2003 compared to 80% and 73% in the same periods of
the prior year. Part of our restructuring plan for 2003 included the
outsourcing of all significant manufacturing operations. The decrease in the
cost of sales percentage in the third quarter and first nine months of 2003 is
primarily the result of the elimination of the charge to cost of sales of under
absorbed fixed overhead costs due to the termination of in-house manufacturing
as of the end of the first quarter of 2003.
Customer service expenses, as a percentage of service revenues, increased 2% in
the third quarter of 2003 as compared to the third quarter of 2002 due to
pricing pressures on the maintenance contracts with certain major customers but
remained constant for the first nine months of 2003 as compared to the first
nine months of 2002. Through a combination of a decrease in the number of
customer service employees and increased use of outside service contractor
costs, we were able to lower total net customer service costs to compensate for
the lower revenue levels in the first nine months of 2003.
Selling, general and administrative expenses were 30% and 34% lower in the three
and nine month periods ended September 30, 2003 when compared to the same period
of the previous year primarily as a result of lower payroll costs and
commissions partly as a result of the headcount reduction as of March 7, 2003.
We anticipate that selling, general and administrative costs will continue to
decline on a comparative basis during the remainder of 2003, particularly after
our relocation to a smaller, less costly facility as of October 1, 2003.
Research and development costs were higher in the third quarter and first nine
months of 2003 when compared to the third quarter and first nine months of 2002
due to a reorganization and transfer of employees into the engineering group as
part of our restructuring.
Bank interest expense declined for the third quarter and first nine months of
2003 due to lower average borrowings and lower interest rates under our
revolving credit agreement. However, total interest and financing costs in the
2003 periods were higher than in the 2002 periods because we were required to
supplement our financing needs through the use of PO financing with EPK
Financial, which carries substantially higher financing fees than the revolving
credit line. We expect that PO financing would be eliminated and interest costs
would significantly decrease if we are successful in raising equity financing in
the future.
SENTRY TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On July 9, 2003, Sentry entered into a settlement agreement with its landlord
regarding the termination of its long-term capital and operating leases for its
current facility in Hauppauge, New York. The Company recognized an
extraordinary gain of $212,000 (net of $141,000 income taxes) in the third
quarter of 2003, representing the difference between the carrying amounts of
outstanding obligations to the landlord less the net book value of the property
on the date of the settlement. In the second and third quarters of 2003, the
Company also entered into settlements with certain of its vendors for past due
obligations which resulted in a gain of approximately $525,000 (net of $350,000
income taxes) which represents the difference between the amounts due before the
settlement and the total amount payable, including the value of the common
stock, as a result of the settlement.
The $143,000 and $491,000 income tax provisions recognized on the extraordinary
gains were offset by equivalent income tax benefits generated from the current
year's losses from operations and the utilization of net operating loss
carryforwards. Due to net operating losses, we have not provided for income
taxes in any of the periods of 2002.
As a result of the foregoing, Sentry had net profits of $254,000 and $290,000
in the quarter and first nine months ended September 30, 2003 as compared to net
losses of $1.0 and $2.5 million in the quarter and first nine months ended
September 30, 2002.
Liquidity and Capital Resources as of September 30, 2003
- ----------------------------------------------------------------
We have incurred reduced revenue levels, decreased financial position and
recurring operating losses over the past several years. As a result, the Board
of Directors approved a restructuring plan for 2003 to strengthen the Company's
operating efficiencies and to better align its operations with current economic
and market conditions. To date, we have made significant progress under our
revised business plan including the following:
- - Significantly downsized our operations including the elimination of
approximately 55 of 117 positions as of March 7, 2003.
- - Negotiated a settlement with past due trade vendors which has resulted in
an $875,000 gain.
- - Negotiated with the previous landlord to move out of its Hauppauge
corporate facility. The lease termination resulted in a $353,000
gain.
- - Relocated its corporate offices to a smaller and less costly facility.
- - Dedicated a substantial portion of our remaining resources towards
maintaining and improving our relationships with our 30 largest
customers.
- - Outsourced all non-essential manufacturing and assembly operations to
qualified subcontractors.
- - Further expanded our Service Partner program to augment service and
installations performed by our employees.
On January 7, 2003, Sentry initiated its restructuring plan. Due to the size of
the layoff, Sentry was required to give the terminated employees a 60-day notice
period. The costs associated with these restructuring activities are being
expensed as they are incurred. The successful implementation of this
restructuring to date has resulted in substantial gross margin improvements and
reductions in operating expenses beginning after the first quarter of 2003.
As of September 30, 2003, we had borrowings of approximately $1.9 million with
CIT, the maximum amount available under the revolving credit facility. Most of
our trade vendors have us on a cash in advance or COD basis for purchases.
Therefore, we continue to supplement our borrowings under the CIT credit
facility with purchase order financing through EPK Financial Corporation.
During the third quarter and first nine months of 2003, we funded $926,000 and
$1,612,000 in inventory purchases under this facility. As of September 30,
2003, we owed approximately $284,000 to EPK Financial.
On July 9, 2003, Sentry entered into a settlement agreement with its landlord
regarding the termination of its long-term capital and operating leases for its
then current facility in Hauppauge, New York. Under terms of the settlement,
Sentry was released from its current and future liabilities under the leases in
exchange for a $250,000, 8% note, payable in 36 equal monthly installments of
$7,834, including interest, commencing November 1, 2003. The note also obligates
Sentry to prepay an amount of $100,000 against the note in the event of an
equity financing, as defined. In addition, Sentry issued the landlord 1,000,000
shares of common stock, for which the fair value of the stock ($33,000) was
determined using the closing price as of July 9, 2003. Sentry was also obligated
to pay rent of $16,000 per month until it vacated the premises on September 30,
2003. The Company recognized a gain of $353,000 in the third quarter of 2003,
representing the difference between the carrying amounts of outstanding
obligations to the landlord less the net book value of the property on the date
of the settlement.
As of October 1, 2003, Sentry moved its corporate offices and distribution
center to a smaller and less costly 20,000 square foot facility in Ronkonkoma,
New York. The Company entered into a three-year lease with annual rents of
$140,000, $144,200 and $148,600, respectively. It is anticipated that the move
will result in excess of $250,000 in savings on an annualized basis.
In the first and second quarters of 2003, the Company entered into a settlement
with certain of its vendors for past due obligations. Under the terms of the
settlement, each participating vendor received a note for approximately 10% of
their balance due and two shares of Sentry common stock for each dollar owed in
full satisfaction of their outstanding balances, which approximated $1.1
million. The notes, approximating $112,000, are non-interest bearing and are
payable in three equal installments on January 15, 2004, 2005, and 2006. The
2,186,539 shares issued in connection with this settlement were valued at
approximately $105,000, based on the market value of the stock at the time of
the settlement. As a result of this transaction, the Company realized an
extraordinary gain of $875,000, representing the difference between the amounts
due before the settlement and the total amount payable, including the value of
the common stock, as a result of the settlement. To date, approximately 81% of
past due trade debts have been settled.
We continue to pursue additional debt or equity financing through our financial
advisors.
There can be no assurance, however, that changes in Sentry's plans or other
events affecting its operations will not result in accelerated or unexpected
cash requirements, or that we will be successful in achieving positive cash flow
from operations or that additional debt or equity financing will be available on
terms that are satisfactory to Sentry, or that any such debt or equity financing
will be sufficient to provide the full amount of funding necessary. Our future
cash requirements are expected to depend on numerous factors, including, but not
limited to: (i) the ability to generate positive cash flow from operations, and
the extent thereof, (ii) the ability to raise additional capital or obtain
additional financing, and (iii) economic conditions.
We will require liquidity and working capital to finance increases in
receivables and inventory associated with sales growth, payments to past due
vendors and, to a lesser extent, for capital expenditures. We had no material
capital expenditure or purchase commitments as of September 30, 2003.
Currently, Sentry's major shareholder, Dialoc ID, is not able to provide
additional financial support for Sentry. If the Company is not able to raise
additional debt or equity financing, we could be forced into a bankruptcy or be
required to liquidate our assets. In this scenario, most likely, Sentry's
secured lender would receive the bulk of any proceeds.
Related Party Transactions
- ----------------------------
Details of related party transactions are included in Note E of this Form
10-QSB.
Item 4. Controls and Procedures
As of the end of the period covered by this report, Sentry Technology
Corporation carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-15 of the Securities and Exchange Act of 1934. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information related to the Company that is
required to be included in Sentry Technology Corporation's periodic SEC filings.
There has been no change in the Company's internal control over financial
reporting during the period covered by this report that has materially affected,
or is reasonable likely to materially affect, the Company's internal control
over financial reporting.
PART II - OTHER INFORMATION
- -------------------------------
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
10.34 - Stipulation of Settlement and Lease Termination dated July 29, 2003
between Knogo North America Inc. and NOG (NY) QRS 12-23, Inc.
10.35 - Lease Agreement dated September 16, 2003 between Sentry Technology
Corporation and G & J Lakeland Realty Corp.
31.1 - Certification by the Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 - Certification by the Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 - Certification by the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.***
32.2 - Certification by the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.***
*** In accordance with Item 601(b)(32)(ii) of Regulation S-B, this exhibit
shall not be deemed "filed" for the purposes of Section 18 of the Securities and
Exchange Act of 1934 or otherwise subject to the liability of that section, nor
shall it be deemed incorporated by reference in any filing under the Securities
Act of 1933 or the Securities Exchange Act of 1934.
(b) Reports on Form 8-K - There were no Reports on Form 8-K filed in
the three months ended September 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SENTRY TECHNOLOGY CORPORATION
-------------------------------
Date: November 4, 2003 By: /S/ PETER J. MUNDY
------------------ ------------------------
Peter J. Mundy,
Vice President - Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Exhibit 10.34
DISTRICT COURT, 4TH DISTRICT
COUNTY OF SUFFOLK: NON-RESIDENTIAL
- ---------------------------------------------
:
NOG (NY) QRS 12-23, INC., : INDEX NUMBER
: -------------
: SMLT 143/03
Petitioner-Landlord, :
:
:
: STIPULATION OF
-against- : SETTLEMENT
: ---------------
:
KNOGO NORTH AMERICA INC., :
:
Respondent-Tenant, :
:
- ----------------------------------------------
The parties hereto hereby stipulate and agree to be effective as of July 9,
2003, as follows:
1. Respondent-Tenant Knogo North America Inc. ("Tenant") hereby appears in this
proceeding through its attorney, Mark Haltzman, Esq.
2. Tenant hereby admits service of process of the petition and notice of
petition herein, and of all predicate notices underlying this proceeding, and
waives all affirmative defenses relating to personal jurisdiction and subject
matter jurisdiction.
3. Tenant hereby acknowledges and admits that there is due to
Petitioner-Landlord NOG (NY) QRS 12-23, Inc. ("Landlord") under a written lease
dated as of December 24, 1996 between Petitioner-Landlord and Respondent-Tenant
(the "Lease") for premises at 350 Wireless Boulevard, Hauppauge, New York (the
"Premises") rent and additional rent in the aggregate amount of $486,027.49
through May, 2003, without any claim, counterclaim, offset, right of recoupment
or defense, all of which are hereby waived, released and abandoned.
4. Tenant consents to the immediate entry of a judgment of possession and the
immediate issuance of a warrant of eviction, with the execution of same stayed
through and including September 30, 2003.
5. Tenant shall vacate, on or prior to September 30, 2003, the Premises in broom
clean condition, and deliver all keys to the Premises to Landlord on a date of
which Tenant shall give to Landlord written notice not less than ten (10) days
in advance (the "Vacate Date").
6. In June, Tenant paid by wire transfer to Landlord the sum of SIXTEEN
THOUSAND DOLLARS ($16,000) by certified or cashiers check, representing use and
occupancy for the Premises for the month of June, 2003.
7. In July, 2003, Tenant paid to Landlord the sum of SIXTEEN THOUSAND
DOLLARS ($16,000) by certified or cashiers check or wire transfer, representing
use and occupancy for the Premises for the month of July, 2003.
8. In addition to the foregoing, on or before August 1, 2003 and on or before
September 1, 2003, Tenant shall also pay to Landlord the sum of SIXTEEN THOUSAND
DOLLARS ($16,000) by certified or cashiers check or wire transfer, representing
use and occupancy for the Premises for each such respective month. In the event
that the Vacate Date shall be prior to the end of a month, Tenant shall be
permitted to prorate the payment of use and occupancy for that month and shall
receive a credit or refund in the event that $16,000 exceeds the prorated amount
due from Tenant for the period from the beginning of the month through and
including the Vacate Date.
9. In addition to the foregoing, simultaneously with the execution hereof,
Tenant shall also execute a promissory note in favor of Landlord in the amount
of TWO HUNDRED AND FIFTY THOUSAND DOLLARS ($250,000), in the form annexed
hereto. The Note shall bear interest at 8% per annum and shall be payable in 36
monthly installments of $7,834.09, with the first payment of due November 1,
2003. Each monthly payment shall be in advance not in arrears. The Note may be
prepaid in whole or in part at any time without penalty. Further, Tenant shall
pay $100,000 at such time as an equity financing of Tenant is closed, at which
time the monthly payments due under the Note shall be reset to fully amortize
the remaining balance due by October 1, 2006. The Note shall also provide that
if the Tenant shall be in default of its obligations under the Note, then Tenant
shall be liable for any reasonable attorney's fees and expenses incurred by
Landlord to collect any amounts due under the Note.
10. In addition to the foregoing, simultaneously with the execution hereof,
Tenant shall deliver to Landlord a certificate evidencing the issuance to, and
the ownership by, Landlord of ONE MILLION (1,000,000) shares of non-assessable,
Rule 144, fully-paid common stock of Sentry Technology Corporation.
11. In the event that Tenant shall default in making any payment due to Landlord
hereunder as and when due, or shall otherwise default in the performance of any
other obligation of Tenant under the Lease, prior to the Vacate Date and Tenant
shall fail to cure such default within three (3) business days following the
sending of notice of such default by Landlord or Landlord's counsel to Tenant
and Tenant's counsel by overnight mail delivery service, then, without any
further notice to Tenant, Landlord shall have the right to proceed immediately
to execute on the warrant of eviction, and Tenant waives the right to commence
any action or proceeding in any court to seek to stay Tenant's eviction from the
Premises.
12. Landlord shall be permitted to collect from the two Respondents-Undertenants
of the Premises, Ace Franchising, Inc. and Shorewood Packaging Corporation
(collectively the "Undertenants"), the rent that would otherwise be due and
payable from the Undertenants to Tenant for the period from June 1, 2003 through
and including the Vacate Date. Tenant acknowledges that the Undertenants have
attorned to Landlord heretofore, and Tenant consents to such prior attornment.
13. Tenant acknowledges that the Lease shall be deemed in full force and effect,
and Tenant shall continue to comply in all respects with its obligations
thereunder, except as expressly set forth herein, until the Vacate Date.
14. In the event, and only in the event, that Tenant shall comply with each and
every one of its obligations hereunder, and with all other obligations of Tenant
under the Lease, the Lease shall be deemed terminated, and all rights and
obligations of Landlord and Tenant under the Lease shall be deemed of no further
force and effect, as of the Vacate Date.
15. Landlord hereby withdraws, and discontinues, this proceeding with regard to
the Undertenants.
16. This Court shall retain jurisdiction of this proceeding, and of the parties.
17. This stipulation may be executed in counterparts.
[SIGNATURES ON FOLLOWING PAGE]
NOG (NY) QRS 12-23, INC. KNOGO NORTH AMERICA INC.
Petitioner-Landlord Respondent-Tenant
By: /s/ Franck Ruimy By: /s/ Peter J. Mundy
------------------------- --------------------------
Franck Ruimy Peter J. Mundy
First Vice President Vice President and
Chief Financial Officer
REED SMITH LLP MARK S. HALTZMAN AND ASSOCIATES
Attorneys for Attorney for Respondent-Tenant
Petitioner-Landlord
By: /s/ Mark S. Haltzman, Esq.
By: /s/ ------------------------------
------------------------
SHOREWOOD PACKAGING CORPORATION
Respondent-Undertenant
By: /s/ Richard O'Leary
-----------------------------
Richard O'Leary
Superintendent - Finance
NIXON PEABODY LLP
Attorney for Respondent-Undertenant
By: /s/
-------------------------------------
SO ORDERED:
/s/ 7/22/03
----------------------------------------
PROMISSORY NOTE
---------------
$250,000.00 July 9, 2003
- -----------
New York, New York
FOR VALUE RECEIVED, the undersigned, KNOGO NORTH AMERICA INC., a
corporation organized and existing under the laws of the State of Delaware, and
having an address at 350 Wireless Boulevard, Hauppauge, New York 11788 (the
"Borrower"), hereby promises to repay to NOG (NY) QRS 12-23, INC., a corporation
organized and existing under the laws of the State of New York, and having an
address at c/o W.P. Carey Inc., 50 Rockefeller Plaza, New York, NY 10020 (the
"Lender"), the sum of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) together
with interest thereon at the rate of eight percent (8%) per annum on the unpaid
principal portion thereof, in 36 equal monthly installments of $7,834.09 with
the first payment due on or before November 1, 2003 and then on or before the
first day of each month thereafter, with a final payment of any unpaid interest
and accrued interest on October 1, 2006.
The Borrower shall have the right to prepay at any time all or part of the
unpaid principal amount hereunder without any penalty or premium, but with
interest to the date of such prepayment.
In the Event that Borrower shall have closed on equity financing prior to
October 1, 2006, Borrower shall be obligated to prepay $100,000 of this Note
simultaneously with the closing of such equity financing, at which time the
monthly payments due hereunder shall be reset to an amount necessary to amortize
the then remaining unpaid principal by October 1, 2006.
In the event that the holder hereof shall incur any reasonable expense in
enforcing, or attempting to enforce, the obligations of the Borrower hereunder,
including reasonable attorneys' fees and expenses, the Borrower shall be liable
to the holder hereof for all such expenses.
The parties acknowledge that this Note shall be deemed an instrument
for the payment of money only under the Civil Practice Law and Rules. This
note shall be negotiable.
In the event that any dispute shall arise hereunder,
The parties acknowledge that venue shall be proper in a court of competent
jurisdiction located in the County of New York, State of New York.
KNOGO NORTH AMERICA INC.
By: /s/ Peter J. Mundy
----------------------------
Peter J. Mundy
Vice President and
Chief Financial Officer
Exhibit 10.35
STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
Agreement of Lease, made as of this 16th day of September in the year 2003,
between G & J LAKELAND REALTY CORP., a domestic corporation, having an address
at 1879 Lake1and Avenue Ronkonkoma, New York 11779, party of the first part,
hereinafter referred to as OWNER, and SENTRY TECHNOLOGY CORPORATION, a domestic
corporation, having an address at 350 Wireless Blvd., Hauppauge, NY 11788
party of the second part, hereinafter referred to as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from
Owner 20,000 square foot building located at 1881 Lakeland Avenue, Ronkonkoma,
New York 11779
For the term of THREE (3) YEARS
(or until such term shall sooner cease and expire as hereinafter provided) to
commence on the first day of October in the year 2003, and to end on the
thirtieth day of September in the year 2006, and both dates inclusive, at an
annual rental rate of
SEE RENT SCHEDULE ANNEXED HERETO AND MADE A PART HEREOF
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any setoff or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this lease
be a renewal).
In the event that, at the commencement of the term of this lease, or thereafter,
Tenant shall be in default in the payment of rent to Owner pursuant to the terms
of another lease with Owner or with Owner's predecessor in interest, Owner may
at Owner's option and without notice to Tenant add the amount of such arrears to
any monthly installment of rent payable hereunder, and the same shall be payable
to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Rent: 1. Tenant shall pay the rent as above and as hereinafter
provided.
Occupancy: 2. Tenant shall use and occupy the demised premises for 0ffice
and warehouse only provided such use is in accordance with the certificate of
occupancy for the building, if any, and for no other purpose.
Alterations: 3. Tenant shall make no changes in or to the demised premises
of any nature without Owner's prior written consent. Subject to the prior
written consent of Owner, and to the provisions of this article, Tenant, at
Tenant's expense, may make alterations, installations, additions or improvements
which are non-structural and which do not affect utility services or plumbing
and electrical lines, in or to the interior of the demised premises, using
contractors or mechanics first approved in each instance by Owner. Tenant shall,
at its expense, before making any alterations, additions, installations or
improvements obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof, and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner. Tenant agrees to carry, and will
cause Tenant's contractors and sub-contractors to carry, such worker's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty (30) days
thereafter, at Tenant's expense, by payment or filing a bond as permitted by
law. All fixtures and all paneling, partitions, railings and like installations,
installed in the demised premises at any time, either by Tenant or by Owner on
Tenant's behalf, shall, upon installation, become the property of Owner and
shall remain upon and be surrendered with the demised premises unless Owner, by
notice to Tenant no later than twenty (20) days prior to the date fixed as the
termination of this lease, elects to relinquish Owner's right thereto and to
have them removed by Tenant, in which event the same shall be removed from the
demised premises by Tenant prior to the expiration of the lease, at Tenant's
expense. Nothing in this article shall be construed to give Owner title to, or
to prevent Tenant's removal of, trade fixtures, moveable office furniture and
equipment, but upon removal of same from the demised premises, or upon removal
of other installations as may be required by Owner, Tenant shall immediately,
and at its expense, repair and restore the demised premises to the condition
existing prior to any such installations, and repair any damage to the demised
premises or the building due to such removal. All property permitted or
required to be removed by Tenant at the end of the term remaining in the demised
premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or removed from the
demised premises by Owner, at Tenant's expense.
Repairs: 4. Owner shall maintain and repair the exterior of and the
public portions of the building. Tenant shall, throughout the term of this
lease, take good care of the demised premises including the bathrooms and
lavatory facilities (if the demised premises encompass the entire floor of the
building), the windows and window frames, and the fixtures and appurtenances
therein, and at Tenant's sole cost and expense promptly make all repairs thereto
and to the building, whether structural or non-structural in nature, caused by,
or resulting from, the carelessness, omission, neglect or improper conduct of
Tenant, Tenant's servants, employees, invitees, or licensees, and whether or not
arising from Tenant's conduct or omission, when required by other provisions of
this lease, including Article 6. Tenant shall also repair all damage to the
building and the demised premises caused by the moving of Tenant's fixtures,
furniture or equipment. All the aforesaid repairs shall be of quality or class
equal to the original work or construction. If Tenant fails, after ten (10)
days notice, to proceed with due diligence to make repairs required to be made
by Tenant, the same may be made by Owner at the expense of Tenant, and the
expenses thereof incurred by Owner shall be collectible, as additional rent,
after rendition of a bill or statement therefore. If the demised premises be or
become infested with vermin, Tenant shall, at its expense, cause the same to be
exterminated. Tenant shall give Owner prompt notice of any defective condition
in any plumbing, heating system or electrical lines located in the demised
premises and following such notice, Owner shall remedy the condition with due
diligence, but at the expense of Tenant, if repairs are necessitated by damage
or injury attributable to Tenant, Tenant's servants, agents, employees, invitees
or licensees as aforesaid. Except as specifically provided in Article 9 or
elsewhere in this lease, there shall be no allowance to Tenant for a diminution
of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner, Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises, or in
and to the fixtures, appurtenances or equipment thereof. It is specifically
agreed that Tenant shall not be entitled to any setoff or reduction of rent by
reason of any failure of Owner to comply with the covenants of this or any other
article of this lease. Tenant agrees that Tenant's sole remedy at law in such
instance will be by way of an action for damages for breach of contract. The
provisions of this Article 4 with respect to the making of repairs shall not
apply in the case of fire or other casualty with regard to which Article 9
hereof shall apply.
Window Cleaning: 5. Tenant will not clean nor require, permit, suffer or
allow any window in the demised premises to be cleaned from the outside in
violation of Section 202 of the New York State Labor Law or any other applicable
law, or of the Rules of the Board of Standards and Appeals, or of any other
Board or body having or asserting jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads: 6. Prior to the
commencement of the lease term, if Tenant is then in possession, and at all
times thereafter, Tenant shall, at Tenant's sole cost and expense, promptly
comply with all present and future laws, orders and regulations of all state,
federal, municipal and local governments, departments, commissions and boards
and any direction of any public officer pursuant to law, and all orders, rules
and regulations of the New York Board of Fire Underwriters, Insurance Services
Office, or any similar body which shall impose any violation, order or duty upon
Owner or Tenant with respect to the demised premises, whether or not arising out
of Tenant's use or manner of use thereof, or, with respect to the building, if
arising out of Tenant's use or manner of use of the demised premises of the
building (including the use permitted under the lease). Except as provided in
Article 30 hereof, nothing herein shall require Tenant to make structural
repairs or alterations unless Tenant has, by its manner of use of the demised
premises or method of operation therein, violated any such laws, ordinances,
orders, rules, regulations or requirements with respect thereto. Tenant shall
not do or permit any act or thing to be done in or to the demised premises which
is contrary to law, or which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Owner. Tenant shall not keep anything in the demised premises except
as now or hereafter permitted by the Fire Department, Board of Fire
Underwriters, Fire Insurance Rating Organization and other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the building, nor use the
demised premises in a manner which will increase the insurance rate for the
building or any property located therein over that in effect prior to the
commencement of Tenant's occupancy. If by reason of failure to comply with the
foregoing the fire insurance rate shall, at the beginning of this lease or at
any time thereafter, be higher than it otherwise would be, then Tenant shall
reimburse Owner, as additional rent hereunder, for that portion of all fire
insurance premiums thereafter paid by Owner which shall have been charged
because of such failure by Tenant. In any action or proceeding wherein Owner and
Tenant are parties, a schedule or "make-up" or rate for the building or demised
premises issued by a body making fire insurance rates applicable to said
premises shall be conclusive evidence of the facts therein stated and of the
several items and charges in the fire insurance rates then applicable to said
premises. Tenant shall not place a load upon any floor of the demised premises
exceeding the floor load per square foot area which it was designed to carry and
which is allowed by law. Owner reserves the right to prescribe the weight and
position of all safes, business machines and mechanical equipment. Such
installations shall be placed and maintained by Tenant, at Tenant's expense, in
settings sufficient, in Owner's judgment, to absorb and prevent vibration,
noise and annoyance.
Subordination: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which the demised premises are a part, and to all
renewals, modifications, consolidations, replacements and extensions of any such
under-lying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
Tenant's Liability Insurance Property Loss, Damage, Indemnity: 8. Owner or
its agents shall not be liable for any damage to property of Tenant or of others
entrusted to employees of the building, nor for loss of, or damage to, any
property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by, or due to, the negligence of Owner, its agents, servants or employees;
Owner or its agents shall not be liable for any damage caused by other tenants
or persons in, upon or about said building or caused by operations in connection
of any private, public or quasi public work. If at any time any windows of the
demised premises are temporarily closed, darkened or bricked up (or permanently
closed, darkened or bricked up, if required by law) for any reason whatsoever
including, but not limited to, Owner's own acts, Owner shall not be liable for
any damage Tenant may sustain thereby, and Tenant shall not be entitled to any
compensation therefor nor abatement or diminution of rent, nor shall the same
release Tenant from its obligations hereunder nor constitute an eviction. Tenant
shall indemnify and save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Owner
shall not be reimbursed by insurance, including reasonable attorney's fees,
paid, suffered or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees, or licensees, of any covenant or condition of
this lease, or the carelessness, negligence or improper conduct of Tenant,
Tenant's agents, contractors, employees, invitees or licensees. Tenant's
liability under this lease extends to the acts and omissions of any subtenant,
and any agent, contractor, employee, invitee or licensee of any subtenant. In
case any action or proceeding is brought against Owner by reason of any such
claim, Tenant, upon written notice from Owner, will, at Tenant's expense, resist
or defend such action or proceeding by counsel approved by Owner in writing,
such approval not to be unreasonably withheld.
Destruction, Fire and Other Casualty: 9. (a) If the demised premises or any
part thereof shall be damaged by fire or other casualty, Tenant shall give
immediate notice thereof to Owner and this lease shall continue in full force
and effect except as hereinafter set forth. (b) If the demised premises are
partially damaged or rendered partially unusable by fire or other casualty, the
damages thereto shall be repaired by, and at the expense of, Owner, and the rent
and other items of additional rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty according to
the part of the demised premises which is usable. (c) If the demised premises
are totally damaged or rendered wholly unusable by fire or other casualty, then
the rent and other items of additional rent as hereinafter expressly provided
shall be proportionately paid up to the time of the casualty and thenceforth
shall cease until the date when the demised premises shall have been repaired
and restored by Owner (or sooner reoccupied in part by Tenant then rent shall be
apportioned as provided in subsection (b) above), subject to Owner's right to
elect not to restore the same as hereinafter provided. (d) If the demised
premises are rendered wholly unusable or (whether or not the demised premises
are damaged in whole or in part) if the building shall be so damaged that Owner
shall decide to demolish it or to rebuild it, then, in any of such events, Owner
may elect to terminate this lease by written notice to Tenant, given within
ninety (90) days after such fire or casualty, or thirty (30) days after
adjustment of the insurance claim for such fire or casualty, whichever is
sooner, specifying a date for the expiration of the lease, which date shall not
be more than sixty (60) days after the giving of such notice, and upon the date
specified in such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this lease, and Tenant shall forthwith quit, surrender and vacate the demised
premises without prejudice however, to Owner's rights and remedies against
Tenant under the lease provisions in effect prior to such termination, and any
rent owing shall be paid up to such date, and any payments of rent made by
Tenant which were on account of any period subsequent to such date shall be
returned to Tenant. Unless Owner shall serve a termination notice as provided
for herein, Owner shall make the repairs and restorations under the conditions
of (b) and (c) hereof, with all reasonable expedition, subject to delays due to
adjustment of insurance claims, labor troubles and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the demised premises as promptly as reasonably
possible, all of Tenant's salvageable inventory and movable equipment,
furniture, and other property. Tenant's liability for rent shall resume five (5)
days after written notice from Owner that the demised premises are substantially
ready for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve
Tenant from liability that may exist as a result of damage from fire or other
casualty. Notwithstanding the foregoing, including Owner's obligation to restore
under subparagraph (b) above, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible, and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery with respect to
subparagraphs (1,), (d) and (e) above, against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The release
and waiver herein referred to shall be deemed to include any loss or damage to
the demised premises and/or to any personal property, equipment, trade fixtures,
goods and merchandise located therein. The foregoing release and waiver shall be
in force only if both releasors' insurance policies contain a clause providing
that such a release or waiver shall not invalidate the insurance. If, and to the
extent, that such waiver can be obtained only by the payment of additional
premiums, then the party benefiting from the waiver shall pay such premium
within ten (10) days after written demand or shall be deemed to have agreed that
the party obtaining insurance coverage shall be free of any further obligation
under the provisions hereof with respect to waiver of subrogation. Tenant
acknowledges that Owner will not carry insurance on Tenant's furniture and/or
furnishings or any fixtures or equipment, improvements, or appurtenances
removable by Tenant, and agrees that Owner will not be obligated to repair any
damage thereto or replace the same: (I) Tenant hereby waives the provisions of
Section 227 of the Real Property Law and agrees that the provisions of this
article shall govern and control in lieu thereof.
Eminent Domain: 10. If the whole or any part of the demised premises
shall be acquired or condemned by Eminent Domain for any public or quasi public
use or purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease. Tenant shall
have the right to make an independent claim to the condemning authority for the
value of Tenant's moving expenses and personal property, trade fixtures and
equipment, provided Tenant is entitled pursuant to the terms of the lease to
remove such property, trade fixtures and equipment at the end of the term, and
provided further such claim does not reduce Owner's award.
Assignment, Mortgage, Etc.: 11. Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner in each
instance. Transfer of the majority of the stock of a corporate Tenant or the
majority partnership interest of a partnership Tenant shall be deemed an
assignment. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, undertenant or occupant, and
apply the net amount collected to the rent herein reserved, but no such
assignment, underletting, occupancy or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, undertenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
Electric Current: 12. Rates and conditions in respect to submetering or
rent inclusion, as the case may be, to be added in RIDER attached hereto.
Tenant covenants and agrees that at all times its use of electric current shall
not exceed the capacity of existing feeders to the building or the risers or
wiring installation, and Tenant may not use any electrical equipment which, in
Owner's opinion, reasonably exercised, will overload such installations or
interfere with the use thereof by other tenants of the building. The change at
any time of the character of electric service shall in no wise make Owner liable
or responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
Access to Premises: 13. Owner or Owner's agents shall have the right (but
shall not be obligated) to enter the demised premises in any emergency at
any time, and, at other reasonable times, to examine the same and to make such
repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to any portion of the building, or which Owner may elect to
perform in the demised premises after Tenant's failure to make repairs, or
perform any work which Tenant is obligated to perform under this lease, or for
the purpose of complying with laws, regulations and other directions of
governmental authorities. Tenant shall permit Owner to use, maintain and replace
pipes and conduits in and through the demised premises, and to erect new pipes
and conduits therein provided, wherever possible, they are within walls or
otherwise concealed. Owner may, during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction, nor shall Tenant be entitled to any abatement
of rent while such work is in progress, nor to any damages by reason of loss or
interruption of business or otherwise. Throughout the term hereof Owner shall
have the right to enter the demised premises at reasonable hours for the purpose
of showing the same to prospective purchasers or mortgagees of the building, and
during the last six (6) months of the term for the purpose of showing the same
to prospective tenants, and may, during said six (6) months period, place upon
the demised premises the usual notices "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. If Tenant is not
present to open and permit an entry into the demised premises, Owner or Owner's
agents may enter the same whenever such entry may be necessary or permissible by
master key or forcibly, and provided reasonable care is exercised to safeguard
Tenant's property, such entry shall not render Owner or its agents liable
therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all or
substantially all of Tenant's property therefrom, Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation, and
such act shall have no effect on this lease or Tenant's obligation hereunder.
Vault, Vault Space, Area: 14. No vaults, vault space or area, whether
or not Vault Space, enclosed or covered, not within the property line of the
building is leased hereunder, anything contained in or indicated on any sketch,
blue print or plan, or anything contained elsewhere in this lease to the
contrary notwithstanding. Owner makes no representation as to the location of
the property line of the building. All vaults and vault space and all such
areas not within the property line of the building, which Tenant may be
permitted to use and/or occupy, is to be used and/or occupied under a revocable
license, and if any such license be revoked, or if the amount of such space or
area be diminished or required by any federal, state or municipal authority or
public utility, Owner shall not be subject to any liability, nor shall Tenant be
entitled to any compensation or diminution or abatement of rent, nor shall such
revocation, diminution or requisition be deemed constructive or actual eviction.
Any tax, fee or charge of municipal authorities for such vault or area shall be
paid by Tenant, if used by Tenant, whether or not specifically leased hereunder.
Occupancy: 15. Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy issued for the building of
which the demised premises are a part. Tenant has inspected the demised premises
and accepts them as is, subject to the riders annexed hereto with respect to
Owner's work, if any. In any event, Owner makes no representation as to the
condition of the demised premises and Tenant agrees to accept the same subject
to violations, whether or not of record. If any governmental license or permit
shall be required for the proper and lawful conduct of Tenant's business, Tenant
shall be responsible for, and shall procure and maintain, such license or
permit.
Bankruptcy: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by sending of a written
notice to Tenant within a reasonable time after the happening of any one or more
of the following events: (1) the commencement of a case in bankruptcy or under
the laws of any state naming Tenant as the debtor; or (2) the making by Tenant
of an assignment or any other arrangement for the benefit of creditors under any
state statute. Neither Tenant nor any person claiming through or under Tenant,
or by reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised, but shall forthwith quit and surrender the
demised premises. If this lease shall be assigned in accordance with its terms,
the provisions of this Article 16 shall be applicable only to the party then
owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the
termination of this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant, as and for liquidated damages, an amount equal to the
difference between the rental reserved hereunder for the unexpired portion of
the term demised and the fair and reasonable rental value of the demised
premises for the same period. In the computation of such damages the difference
between any installment of rent becoming due hereunder after the date of
termination and the fair and reasonable rental value of the demised premises for
the period for which such installment was payable shall be discounted to the
date of termination at the rate of four percent (4%) per annum. If the demised
premises or any part thereof be relet by Owner for the unexpired term of said
lease, or any part thereof, before presentation of proof of such liquidated
damages to any court, commission or tribunal, the amount of rent reserved upon
such reletting shall be deemed to be the fair and reasonable rental value for
the part or the whole of the demised premises so re-let during the term of the
re-letting. Nothing herein contained shall limit or prejudice the right of the
Owner to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the tune when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above.
Default: 17. (1) If Tenant defaults in fulfilling any of the covenants
of this lease other than the covenants for the payment of rent or additional
rent; or if the demised premises becomes vacant or deserted, or if this lease be
rejected under 365 of Title 11 of the U.S. Code (Bankruptcy Code); or if any
execution or attachment shall be issued against Tenant or 'w of Tenant's
property whereupon the demised premises shall be taken or occupied by someone
other than Tenant; or if Tenant shall be in default with respect to any other
lease between Owner and Tenant; or if Tenant shall have failed, after five (5)
days written notice, to redeposit with Owner any portion of the security
deposited hereunder which Owner has applied to the payment of any rent and
additional rent due and payable hereunder or if Tenant fails to move into or
take possession of the demised premises within thirty (30) days after the
commencement of the term of this lease, of which fact Owner shall be the sole
judge; then in any one or more of such events, upon Owner serving a written
fifteen (15) days notice upon Tenant specifying the nature of said default, and
upon the expiration of said fifteen (15) days if Tenant shall have failed to
comply with or remedy such default or if the said default or omission complained
of shall be of a nature that the same cannot be completely cured or remedied
within said fifteen (15) thy period and if Tenant shall not have diligently
commenced during such default within such fifteen (15) day period, and shall not
thereafter with reasonable diligence and in good faith proceed to remedy or cure
such default, then Owner may serve a written five (5) days notice of
cancellation of this lease upon Tenant, and upon the expiration of said five (5)
days this lease and the term thereunder shall end and expire as fully and
completely as if the expiration of such five (5) day period were the day herein
definitely fixed for the end and expiration of this lease and the term thereof,
and Tenant shall then quit and surrender the demised premises to Owner, but
Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been
given, and the term shall expire as aforesaid; or if Tenant shall be in default
in the payment of the rent reserved herein or any item of additional rent herein
mentioned, or any part of either, or in making any other payment herein
required; then and in any of such events, Owner may upon 5 business days written
notice, re-enter the demised premises either by force or otherwise, and
dispossess Tenant by summary proceedings or otherwise, and the legal
representative of Tenant or other occupant of the demised premises, and remove
their effects and hold the demised premises as if this lease had not been made,
and Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall make default hereunder
prior to the date fixed as the commencement of any renewal or extension of this
lease, Owner may cancel and terminate such renewal or extension agreement by
written notice.
Remedies of Owner and Waiver of Redemption: 18. In case of any such default,
re-entry, expiration and/or dispossess by summary proceedings or other wise, (a)
the rent, and additional rent, shall become due thereupon and be paid up to the
time of such re-entry, dispossess and/or expiration, (b) Owner may relet the
demised premises or any part or parts thereof, either in the name of Owner or
otherwise, for a term or terms, which may at Owner's option be less than or
exceed the period which would otherwise have constituted the balance of the term
of this lease, and may grant concessions or free rent or charge a higher rental
than that in this lease, (c) Tenant or the legal representatives of Tenant shall
also pay to Owner as liquidated damages for the failure of Tenant to observe and
perform said Tenant's covenants herein contained, any deficiency between the
rent. hereby reserved and or coy-enacted to be paid and the net amount, if any,
of the rents collected on account of the subsequent lease or leases of the
demised premises for each month of the period which would otherwise have
constituted the balance of the term of this lease. The failure of Owner to
re-let the demised premises or any part or parts thereof shall not release or
affect Tenant's liability for damages. In computing such liquidated damages
there shall be added to the said deficiency such expenses as Owner may incur in
connection with re-letting, such as legal expenses, reasonable attorneys' fees,
brokerage, advertising, and for keeping the demised premises in good order or
for preparing the same for re-letting. Any such liquidated damages shall be paid
in monthly installments by Tenant on the rent day specified in this lease, and
any suit brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Owner to collect the deficiency for any
subsequent month by a similar proceeding. Owner, in putting the demised premises
in good order or preparing the same for re-rental may, at Owner's option, make
such alterations, repairs, replacements, and/or decorations in the demised
premises as Owner, in Owner's sole judgment, considers advisable and necessary
for the purpose of re-letting the demised premises, and the making of such
alterations, repairs, replacements, and/or decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Owner shall
in no event be liable in any way whatsoever for failure to re-let the demised
premises, or in the event that the demised premises are re-let, for failure to
collect the rent thereof under such re-letting, and in no event shall Tenant be
entitled to receive any excess, if any, of such net rents collected over the
sums payable by Tenant to Owner hereunder. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof, Owner
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if re-entry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present or future laws.
Fees and Expenses: 19. If Tenant shall default in the observance or
performance of any term or covenant on Tenant's part to be observed or performed
under, or by virtue of, any of the terms or provisions in any article of this
lease, after notice if required, and upon expiration of the applicable grace
period, if any, (except in an emergency), then, unless otherwise provided
elsewhere in this lease, Owner may immediately, or at any time thereafter, and
without notice, perform the obligation of Tenant thereunder. If Owner, in
connection with the foregoing, or in connection with any default by- Tenant in
the covenant to pay rent hereunder, makes any expenditures or incurs any
obligations for the payment of money, including but not limited to reasonable
attorneys' fees, in instituting, prosecuting or defending any action or
proceeding, and prevails in any such action or proceeding, then Tenant will
reimburse Owner for such sums so paid or obligations incurred with interest and
costs. The foregoing expenses incurred by reason of Tenant's default shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Owner
within ten (10) days of rendition of any bill or statement to Tenant therefor.
If Tenant's lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be -recoverable
by Owner as damages.
Building Alterations and Management: 20. Owner shall have the right, at
any time, without the same constituting an eviction and without incurring
liability to Tenant therefor, to change the arrangement and or location of
public entrances, passageways, doors, doorways, corridors, elevators, stairs,
toilets or other public parts of the building, and to change the name, number or
designation by which the building may be known. There shall be no allowance to
Tenant for diminution of rental value and no liability on the part of Owner by
reason of inconvenience, annoyance or injury to business arising from Owner or
other Tenant making any repairs in the building or any such alterations,
additions and improvements. Furthermore, Tenant shall not have any claim against
Owner by reason of Owner's imposition of any controls of the manner of access to
the building by Tenant's social or business visitors, as Owner may deem
necessary, for the security of the building and its occupants.
No Representations by Owner: 21. Neither Owner nor Owner's agents have made
any representations or promises with respect to the physical condition of the
building, the land upon which it is erected, the demised premises, the rents,
leases, expenses of operation, or any other matter or thing affecting or related
to the demised premises or the building, except as herein expressly set forth,
and no rights, easements or licenses are acquired by Tenant by implication or
otherwise except as expressly set forth in the provisions of this lease. Tenant
has inspected the building and the demised premises and is thoroughly acquainted
with their condition and agrees to take the same "as-is" on the date possession
is tendered, and acknowledges that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises, and the
building of which the same form a part, were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant, and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
End of Term: 22. Upon the expiration or other termination of the term of
this lease, Tenant shall quit and surrender to Owner the demised premises,
"broom-clean" in good order and condition, ordinary wear and damages which
Tenant is not required to repair as provided elsewhere in this lease excepted,
and Tenant shall remove all its property from the demised premises. Tenant's
obligation to observe or perform this covenant shall survive the expiration or
other termination of this lease. If the last day of the term of this Lease, or
any renewal thereof, falls on Sunday, this lease shall expire at noon on the
preceding Saturday, unless it be a legal holiday, in which case it shall expire
at noon on the preceding business day.
Quiet Enjoyment: 23. Owner covenants and agrees with Tenant that upon
Tenant paying the rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 34 hereof, and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
Failure to Give Possession: 24. If Owner is unable to give possession of
the demised premises on the date of the commencement of the term hereof because
of the holding-over or retention of possession of any tenant, undertenant or
occupants, or if the demised premises are located in a building being
constructed, because such building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been procured, or if Owner has not completed any work required
to be performed by Owner, or for any other reason, Owner shall not be subject to
any liability for failure to give possession on said date and the validity of
the lease shall not be impaired under such circumstances, nor shall the same be
construed in any wise to extend the term of this lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for Owner's
inability to obtain possession or complete any work required) until after Owner
shall have given Tenant notice that Owner is able to deliver possession in the
condition required by this lease. If permission is given to Tenant to enter
into possession of the demised premises, or to occupy premises other than the
demised premises, prior to the date specified as the commencement of the term of
this lease, Tenant covenants and agrees that such possession and/or occupancy
shall be deemed to be under all the terms, covenants, conditions and provisions
of this lease, except the obligation to pay the fixed annual rent set forth in
page one of this lease. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of Section
223-a of the New York Real Property Law.
No Waiver: 25. The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of, any covenant or condition of this lease,
or of any of the Rules or Regulations, set forth or hereafter adopted by Owner,
shall not prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation. The
receipt by Owner of rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach, and no provision of this
lease shall be deemed to have been waived by Owner unless such waiver be in
writing signed by Owner. No payment by Tenant, or receipt by Owner, of a lesser
amount than the monthly rent herein stipulated shall be deemed to be other than
on account of the earliest stipulated rent, nor shall any endorsement or
statement of any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Owner may accept such check or payment
without prejudice to Owner's right to recover the balance of such rent or pursue
any other remedy in this lease provided. All checks tendered to Owner as and for
the rent of the demised premises shall be deemed payments for the account of
Tenant. Acceptance by Owner of rent from anyone other than Tenant shall not be
deemed to operate as an attornment to Owner by the payor of such rent, or as a
consent by Owner to an assignment or subletting by Tenant of the demised
premises to such payor, or as a modification of the provisions of this lease. No
act or thing done by Owner or Owner's agents during the term hereby demised
shall be deemed an acceptance of a surrender of said premises, and no agreement
to accept such surrender shall be valid unless in writing signed by Owner. No
employee of Owner or Owner's agent shall have any power to accept the keys of
said premises prior to the termination of the lease, and the delivery of keys to
any such agent or employee shall not operate as a termination of the lease or a
surrender of the demised premises.
Waiver of Trial by Jury: 26. It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall, and they hereby do, waive trial
by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
demised premises, and any emergency statutory or any other statutory remedy. It
is further mutually agreed that in the event Owner commences any proceeding or
action for possession, including a summary proceeding for possession of the
demised premises, Tenant will not interpose any counterclaim, of whatever nature
or description, in any such proceeding, including a counterclaim under Article
4, except for statutory mandatory counterclaims.
Inability to Perform: 27. This Lease and the obligation of Tenant to pay
rent hereunder and perform all of the other covenants and agreements hereunder
on part of Tenant to be performed shall in no wise be affected, impaired or
excused because Owner is unable to fulfill any of its obligations under this
lease, or to supply, or is delayed in supplying, any service expressly or
impliedly to be supplied, or is unable to make, or is delayed in making, any
repairs, additions, alterations or decorations, or is unable to supply, or is
delayed in supplying, any equipment, fixtures or other materials, if Owner is
prevented or delayed from doing so by reason of strike or labor troubles, or any
cause whatsoever beyond Owner's sole control including, but not limited to,
government preemption or restrictions, or by reason of any rule, order or
regulation of any department or subdivision thereof of any government agency, or
by reason of the conditions which have been or are affected, either directly or
indirectly, by war or other emergency.
Bills and Notices: 28. Except as otherwise in this lease provided,
a bill statement, notice or communication which Owner may desire or be required
to give to Tenant, shall be deemed sufficiently given or rendered if, in
writing, delivered to Tenant personally, or sent by registered or certified mail
addressed to Tenant at the building of which the demised premises form a part,
or at the last known residence address or business address of Tenant, or left at
any of the aforesaid premises addressed to Tenant, and the time of the rendition
of such bill or statement and of the giving of such notice or communication
shall be deemed to be the time when the same is delivered to Tenant, mailed, or
left at the premises as herein provided. Any notice by Tenant to Owner must be
served by registered or certified mail addressed to Owner at the address first
hereinabove given, or at such other address as Owner shall designate by written
notice.
Water Charges: 29. If Tenant requires, uses or consumes water for any
purpose in addition to ordinary lavatory purposes (of which fact Owner shall be
the sole judge) Owner may install a water meter and thereby measure Tenant's
water consumption for all purposes. Tenant shall pay Owner for the cost of the
meter and the cost of the installation. Throughout the duration of Tenant's
occupancy, Tenant shall keep said meter and installation equipment in good
working order and repair at Tenant's own cost and expense. In the event Tenant
fails to maintain the meter and installation equipment in good working order and
repair (of which fact Owner shall be the sole judge) Owner may cause such meter
and equipment to be replaced or repaired, and collect the cost thereof from
Tenant as additional rent. Tenant agrees to pay for water consumed, as shown on
said meter as and when bills are rendered, and in the event Tenant defaults in
the making of such payment, Owner may pay such charges and collect the same from
Tenant as additional rent. Tenant covenants and agrees to pay, as additional
rent, the sewer rent, charge or any other tax, rent or levy which now or
hereafter is assessed, imposed or a lien upon the demised premises, or the
realty of which they are a part, pursuant to any law, order or regulation made
or issued in connection with the use, consumption, maintenance or supply of
water, the water system or sewage or sewage connection or system.
Independently of, and in addition to, any of the remedies reserved to Owner
hereinabove or elsewhere in this lease, Owner may sue for and collect any monies
to be paid by Tenant, or paid by Owner, for any of the reasons or purposes
hereinabove set forth.
Sprinklers: 30. Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the New York Fire
Insurance Exchange or any bureau, department or official of the federal, state
or city government recommend or require the installation of a sprinkler system,
or that any changes, modifications, alterations, or additional sprinkler heads
or other equipment be made or supplied in an existing sprinkler system by reason
of Tenant's business, the location of partitions, trade fixtures, or other
contents of the demised premises, or for any other reason, or if any such
sprinkler system installations, modifications, alterations, additional sprinkler
heads or other such equipment, become necessary to prevent the imposition of a
penalty or charge against the full allowance for a sprinkler system in the fire
insurance rate set by said Exchange or any other body making fire insurance
rates, or by any fire insurance company, Tenant shall, at Tenant's expense,
promptly make such sprinkler system installations, changes, modifications,
alterations, and supply additional sprinkler heads or other equipment as
required, whether the work involved shall be structural or non-structural in
nature. Tenant shall pay to Owner as additional rent the sum of $ on the
first day of each month during the term of this lease, as Tenant's portion of
the contract price for sprinkler supervisory service.
Elevators, Heat, Cleaning: 31. As long as Tenant is not in default
under any the covenants of this lease, beyond the applicable grace period
provided in this lease for the curing of such defaults, Owner shall: (a) provide
necessary passenger elevator facilities on business days from 8 am. to 6 p.m.
and on Saturdays from 8 a.m. to 1 p.m.; (b) if freight elevator service is
provided, same shall be provided only on regular business days, Monday through
Friday inclusive, and on those days only between the hours of 9 a.m. and 12 noon
and between 1 p.m. and 5 p.m.; (c) furnish heat, water and other services
supplied by Owner to the demised premises, when and as required by law, on
business days from 8 am. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.; (d)
clean the public halls and public portions of the building which are used in
common by all tenants. Tenant shall, at Tenant's expense, keep the demised
premises, including the windows, clean and in order, to the reasonable
satisfaction of Owner, and for that purpose shall employ person or persons, or
corporations approved by Owner. Tenant shall pay to Owner the cost of removal of
any of Tenant's refuse and rubbish from the building. Bills for the same shall
be rendered by Owner to Tenant at such time as Owner may elect, and shall be due
and payable hereunder, and the amount of such bills shall be deemed to be, and
be paid as additional rent. Tenant shall, however, have the option of
independently contracting for the removal of such rubbish amid refuse in the
event that Tenant does not wish to have same done by employees of Owner. Under
such circumstances, however, the removal of such refuse and rubbish by others
shall be subject to such rules and regulations as, in the judgment of Owner, are
necessary for the proper operation of the building. Owner reserves the right to
stop service of the heating, elevator, plumbing and electric systems, when
necessary, by reason of accident or emergency, or for repairs, alterations,
replacements or improvements, which in the judgment of Owner are desirable or
necessary to be made, until said repairs, alterations, replacements or
improvements shall have been completed. If the building of which the demised
premises are a part supplies manually operated elevator service, Owner may
proceed diligently with alterations necessary to substitute automatic control
elevator service without in any way affecting the obligations of Tenant
hereunder.
Security: 32. Tenant has deposited with Owner the sum of $11,666.67 as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this lease. It is agreed that in the event Tenant
defaults in respect of any of the terms, provisions and conditions of this
lease, including, but not limited to, the payment of rent and additional rent,
Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional
rent, or any other sum as to which Tenant is in default, or for any sum which
Owner may expend, or may be required to expend, by reason of Tenant's default in
respect of any of the terms, covenants and conditions of this lease, including
but not limited to, any damages or deficiency in the re-letting of the demised
premises, whether such damages or deficiency accrued before or after summary
proceedings or other re-entry by Owner. In the event that Tenant shall fully
and faithfully comply with all of the terms, provisions, covenants and
conditions of this lease, the security shall be returned to Tenant after the
date fixed as the end of the lease, and after delivery of entire possession of
the demised premises to Owner. In the event of a sale of the land and building
or leasing of the building, of which the demised premises form a part, Owner
shall have the right to transfer the security to the vendee or lessee, and Owner
shall thereupon be released by Tenant from all liability for the return of such
security; and Tenant agrees to look to the new Owner solely for the return of
said security, and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new Owner. Tenant further
covenants that it will not assign or encumber, or attempt to assign or encumber,
the monies deposited herein as security, and that neither Owner nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
Captions: 33. The Captions are inserted only as a matter of convenience and
for reference, and in no way define, limit or describe the scope of this lease
nor the intent of any provision thereof.
Definitions: 34. The term "Owner" as used in this lease means only the owner
of the fee or of the leasehold of the building, or the mortgagee in possession
for the time being, of the land and building (or the owner of a lease of the
building or of the land and building) of which the demised premises form a part,
so that in the event of any sale or sales of said land and building or of said
lease, or in the event of a lease of said building, or of the land ad building,
the said Owner shall be and hereby is entirely freed and relieved of all
covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "rent" includes the annual rental rate whether so expressed
or expressed in monthly installments, and "additional rent." "Additional rent"
means all sums which shall be due to Owner from Tenant under this lease, in
addition to the annual rental rate. The term "business days" as used in this
lease, shall exclude Saturdays, Sundays and all days observed by the State or
Federal Government as legal holidays, and those designated as holidays by the
applicable building service union employees service contract, or by the
applicable Operating Engineers contract with respect to HVAC service. Wherever
it is expressly provided in this lease that consent shall riot be unreasonably
withheld, such consent shall not be unreasonably delayed.
Adjacent Excavation-Shoring: 35. If an excavation shall be made upon land
adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation, a
license to enter upon the demised premises for the purpose of doing such work as
said person shall deem necessary to preserve the wall or the building, of which
demised premises form a part, from injury or damage, and to support the same by
proper foundations, without any claim for damages or indemnity against Owner, or
diminution or abatement of rent.
Rules and Regulations: 36. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations annexed hereto and such other and further reasonable
Rules and Regulations as Owner or Owner's agents may from time to time adopt.
Notice of any additional Rules or Regulations shall be given in such manner as
Owner may elect. In case Tenant disputes the reasonableness of any additional
Rules or Regulations hereafter made or adopted by Owner or Owner's agents, the
parties hereto agree to submit the question of the reasonableness of such Rules
or Regulations for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rules or
Regulations upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing, upon Owner, within fifteen (15)
days after the giving of notice thereof. Nothing in this lease contained shall
be construed to impose upon Owner any duty or obligation to enforce the Rules
and Regulations or terms, covenants or conditions in any other lease, as against
any other tenant, and Owner shall not be liable to Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
Glass: 37. Owner shall replace, at the expense of Tenant, any and all plate and
other glass damaged or broken from any cause whatsoever in and about the demised
premises. Owner may insure, and keep insured, at Tenant's expense, all plate and
other glass in the demised premises for and in the name of Owner. Bills for the
premiums therefor shall be rendered by Owner to Tenant at such times as Owner
may elect, and shall be due from, and payable by, Tenant when rendered, and the
amount thereof shall be deemed to be, and be paid as, additional rent.
Estoppel Certificate: 38. Tenant, at any time, and from time to time, upon
at least ten (10) days prior notice by Owner, shall execute, acknowledge and
deliver to Owner, and/or to any other person, firm or corporation specified by
Owner, a statement certifying that this lease is unmodified and in full force
and effect (or, if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), stating the dates to
which the rent and additional rent have been paid, and stating whether or not
there exists any default by Owner under this lease, and, if so, specifying each
such default.
Directory Board Listing: 39. If, at the request of, and as accommodation
to, Tenant, Owner shall place upon the directory board in the lobby of the
building, one or more names of persons or entities other than Tenant, such
directory board listing shall not be construed as the consent by Owner to an
assignment or subletting by Tenant to such persons or entities.
Successors and Assigns: 40. The covenants, conditions and agreements
contained in this lease shall bind and inure to the benefit of Owner and Tenant
and their respective heirs, distributees, executors, administrators,
successors, and except as otherwise provided in this lease, their assigns.
Tenant shall look only to Owner's estate and interest in the land and building
for the satisfactions of Tenant's remedies for the collection of a judgement (or
other judicial process) against Owner in the event of any default by Owner
hereunder, and no other property or assets of such Owner (or any partner,
member, officer or director thereof, disclosed or undisclosed), shall be subject
to levy, execution or other enforcement procedure for the satisfaction of
Tenant's remedies under, or with respect to, this lease, the relationship of
Owner and Tenant hereunder, or Tenant's use and occupancy of the demised
premises.
In Witness Whereof, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first
above written.
Witness for Owner: G&J Lakeland Realty Corp.
/s/ Paula B. Steuerman
- ------------------------------- By: /s/ Glenn Steuerman Pres.
----------------------------
Glenn Steuerman
Witness for Tenant: Sentry Technology Corporation
/s/ By: /s/ Peter J. Muncy, VP-CFO
- ------------------------------- ------------------------------
Peter J. Mundy
ACKNOWLEDGEMENT
STATE OF NEW YORK,
ss.:
COUNTY OF SUFFOLK
On the 8th day of September in the year 2003, before me, the undersigned, a
Notary Public in and for said State, personally appeared Peter J. Mundy,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual(s) whose name(s) is (are) subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person upon behalf of which the individual(s) acted,
executed the instrument.
/s/ Elizabeth A. Heyder
-----------------------------------
NOTARY PUBLIC
ELIZABETH A. HEYDER
Notary Public, State of New York
No. 01 HE5063405
Qualified in Suffolk County
Commission Expires July 22, 2006
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE IN ACCORDANCE
WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors 'or halls shall not be obstructed or
encumbered by Tenant or used for any purpose other than for ingress or egress
from the demised premises and for delivery of merchandise and equipment in a
prompt and efficient manner, using elevators and passageways designated for such
delivery by Owner. There shall not be used in any space, or in the public hail
of the building, either by Tenant or by jobbers or others in. the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant shall further, at Tenant's expense, keep the sidewalk and curb
in front of said premises clean and free from ice, snow, dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed, and
no sweepings, rubbish, rags, acids or other substances shall be deposited
therein, and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by Tenant, whether or not caused by
Tenant, its clerks, agents, employees or visitors.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and Tenant shall not sweep or throw, or permit to be
swept or thrown, from the demised premises, any dirt or other substances into
any of the corridors of halls, elevators, or out of the doors. or windows or
stairways of the building, and Tenant shall not use, keep, or permit to be used
or kept, any foul or noxious gas or substance in the demised premises, or permit
or suffer the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odors, and or vibrations, or interfere in any way, with other tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of
the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the outside of the
demised premises or the building, or on the inside of the demised premises if
the same is visible from the outside of the demised premises, without the prior
written consent of Owner, except that the name of Tenant may appear on the
entrance door of the demised premises. In the event of the violation of the
foregoing by Tenant, Owner may remove same without any liability, and may charge
the expense incurred by such removal to Tenant. Interior signs on doors and
directory tablet shall be inscribed, painted or affixed for Tenant by Owner at
the expense of Tenant, and shall be of a size, color and style acceptable to
Owner.
6. Tenant shall not mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with tine prior written
consent of Owner, and as Owner may direct. Tenant shall not lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used, an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by Tenant, nor shall any changes be made in existing locks or
mechanism thereof. Tenant must, upon the termination of his tenancy, restore to
Owner all keys of stores, offices and toilet rooms, either furnished to, or
otherwise procured by, Tenant, and in the event of the loss of any keys, so
furnished, Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the demised premises only
on the freight elevators and through the service entrances and corridors, and
only during hours, and in a manner approved by Owner. Owner reserves the right
to inspect all freight to be brought into the building, and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease, of which these Rules and Regulations are a part.
9. Tenant shall not obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or boot blacking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing, soliciting and
peddling in the building is prohibited and Tenant shall cooperate to prevent the
same.
10. Owner reserves the right to exclude from the building all persons who do
not present a pass to the building signed by Owner. Owner will furnish passes to
persons for whom any Tenant requests same in writing. Tenant shall be
responsible for all persons for whom it requests such pass, and shall be liable
to Owner for all acts of such persons. Notwithstanding the foregoing, Owner
shall not be required to allow Tenant or any person to enter or remain in the
building, except on business days from 8:00 am. to 6:00 , p.m. and on Saturdays
from 8:00 am. to 1:00 p.m. Tenant shall not have a claim against Owner by
reason of Owner excluding from the building any person who does not present such
pass.
11. Owner shall have the right to prohibit any advertising by Tenant which
in Owner's opinion, tends to impair the reputation of the building or its
desirability as a loft building, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring, or permit to be brought or kept, in or on the
demised premises, any inflammable, combustible, explosive, or hazardous fluid,
material, chemical or substance, or cause or permit any odors of cooking or
other processes, or any unusual or other objectionable odors, to permeate in, or
emanate from, the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs or
interferes with other tenants in the beneficial use of their premises.
14. Refuse and Trash. (1) Compliance by Tenant. Tenant covenants and
agrees, at its sole cost and expense, to comply with all present and future
laws, orders, and regulations, of all state, federal, municipal, and local
governments, departments, commissions and boards regarding the collection,
sorting, separation and recycling of waste products, garbage, refuse and trash.
Tenant shall sort and separate such waste products, garbage, refuse and trash
into such categories as provided by law. Each separately sorted category of
waste products, garbage, refuse and trash shall be placed in separate
receptacles reasonably approved by Owner. Tenant shall remove, or cause to be
removed by a contractor acceptable to Owner, at Owner's sole discretion, such
items as Owner may expressly designate. (2) Owner's Rights in Event of
Noncompliance. Owner has the option to refuse to collect or accept from Tenant
waste products, garbage, refuse or trash (a) that is not separated and sorted as
required by law or (b) which consists of such items as Owner may expressly
designate for Tenant's removal, and to require Tenant to arrange for such
collection at Tenant's sole cost and expense, utilizing a contractor
satisfactory to Owner. Tenant shall pay all costs, expenses, fines, penalties,
or damages that may be imposed on Owner or Tenant by reason of Tenant's failure
to comply with the provisions of this Building Rule 15, and, at Tenant's sole
cost and expense, shall indemnity, defend and hold Owner harmless (including
reasonable legal fees and expenses) from and against any actions, claims and
suits arising from such noncompliance, utilizing counsel reasonably satisfactory
to Owner.
Address: 1881 Lakeland Avenue
Ronkonkoma, N.Y. 11779
Premises
G & J Lakeland Realty Corp. to Sentry Technology Corporation
Standard Form of Loft Lease; The Real Estate Board of New York, Inc.
Dated in the year 2003
Rent Per Year $140,000.00
Rent Per Month $11,666.67
Term Three (3) years
From October 1, 2003 to September 30, 2006
RIDER TO LEASE DATED , 2003
BETWEEN G & J LAKELAND REALTY
CORP., AS OWNER AND SENTRY TECHNOLOGY
CORPORATION, AS TENANT
41. The Tenant agrees that it will at its own cost and expense obtain and
maintain liability insurance protecting Tenant as well as the Landlord against
injury or damage to third persons or property, which injury or damage shall be
incurred upon the premises demised to the Tenant herein, and that the limits of
such liability insurance shall be $3,000,000.00 combined primary and umbrella
coverage single limit for injury to person and damage to property. The Tenant
shall furnish the Landlord with a policy of insurance protecting the Landlord
against such liability. Should the Tenant fail to so obtain such liability
insurance, the Landlord may, at its option, purchase and maintain such liability
insurance policy and charge the cost thereof to the Tenant as additional rent
due and payable on the first day of the month next succeeding the purchase of
such insurance. The Tenant shall maintain insurance covering damage to its own
personal property situated upon the premises, as well as damage to third
persons, and will under any circumstances, hold the Landlord harmless and free
from any claim for damage to supplies, equipment, or other goods upon the
premises.
42. All of the insurance policies provided for in this lease shall be
delivered to the Landlord within fifteen (15) days prior to the commencement of
the term of this agreement. Upon the failure of the Tenant to so deposit any of
said policies, the Landlord shall have the privilege to procure said insurance
on its own application therefor, and the amount of the premium, if paid by the
Landlord, shall be due and payable with the rent installment next due and shall
be considered as additional rent reserved hereunder, collectible with the same
remedies as if originally reserved as rent hereunder. If any of the insurance
policies required to be obtained by the Tenant shall be cancelled and a new
policy not delivered to the Landlord prior to the cancellation date with proof
of payment of the premium therefor, or if the Tenant shall fail to deliver a
renewal policy no later than twenty (20) days prior to the expiration of any of
the existing insurance policies, Landlord, on twenty (20) days written notice to
the Tenant, may procure such policies and pay the premium therefor and any
amount so paid by the Landlord with interest thereon at the maximum legal rate
from the date of any such payment, shall become due and payable as additional
rent hereunder, together with the next installment of rent. All policies of
insurance required hereunder for the benefit of the Landlord shall name the
Landlord as the insured or additional insured and shall provide that
cancellation shall not become effective unless the Landlord is given thirty (30)
days written notice of cancellation.
43. The Landlord shall not be liable for any failure of water supply or
electric current or of any service by any utility, nor for any injury or damage
to person (including death) or property caused by or resulting from steam, gas,
electricity, water, rain or snow which may flow or leak from any part of the
demised premises, or from any pipes, appliances or plumbing works of the same,
or from the street or subsurface, or from any other place, nor from interference
with light or other incorporeal hereditaments or easements, however caused,
except if due to the negligent acts of the Landlord, its employees, agents,
invitees, and contractors.
44. All improvements, equipment and fixtures, other than Tenant's movable
business fixtures and equipment, made or installed by the Tenant shall
immediately, upon completion of installation thereof, be and become the property
of the Landlord without payment therefor by the Landlord, and shall be
surrendered to the Landlord upon the expiration or sooner termination of the
term of this lease.
45. In the event that any person performing work or supplying materials of
any kind or nature whatsoever at the request, order or direction of the Tenant,
shall file a lien against the subject premises, the Tenant agrees that it will
cause such lien to be discharged by bonding of same, or in any other manner in
which the Tenant may accomplish same, provided such lien shall be removed within
thirty (30) days from the filing thereof. Tenant will in all respects indemnify
and hold the Landlord harmless from any claim by any subcontractor, materialmen
or laborers engaged or hired by it, and further specifically agrees that no
alterations, interior or exterior, shall be undertaken by the Tenant without the
express written approval and consent of the Landlord.
46. If the Tenant shall at anytime be in default hereunder and if the
Landlord shall institute any action or summary proceeding or shall otherwise
incur expenses for legal fees as a consequence of Tenant's default or delay in
making payment or in complying with any term or condition of this lease, then
the Tenant will be liable to and will reimburse the Landlord for such reasonable
expense of attorney's fees and disbursements thus incurred by Landlord. The
amount of such expenses shall be deemed to be "additional rent" hereunder and
shall be due from the Tenant to the Landlord on the first day of the month
following the incurring of such respective expenses or following demand therefor
by the Landlord. If the Tenant shall allege or claim any damages resulting from
any breach or alleged breach by the Landlord under the terms of this lease or
any claim of any kind whatsoever arising in favor of the Tenant against the
Landlord, the Tenant agrees that such claim shall not be asserted and may not be
asserted against the Landlord either as a counterclaim, set-off or defense in
any action or proceeding brought by the Landlord against the Tenant for the
non-payment of rent or recovery of possession of the demised premises. Such
claim by the Tenant against the Landlord shall only be enforced, prosecuted or
maintained by a separate action or proceeding instituted by the Tenant against
the Landlord and shall not be consolidated with any action or proceeding brought
by Landlord to recover rent or to recover possession of the demised premises.
47. Any notice by either party to the other shall be deemed given only if in
writing and if delivered either personally or if such notice be posted by
registered or certified mail, return receipt requested, addressed (a) if to the
Tenant at the demised premises, to the attention of Peter Mundy and (b) if to
the Landlord at its address hereinabove stated. If either party admits receipt
of such notice, evidence thereof shall not be necessary. Either party shall be
privileged to designate a substitute address and/or person for the giving of
notice to it hereunder, by giving notice of such substitution in accordance with
the provisions of this paragraph. In addition to the foregoing, a copy of any
such notice shall be sent by regular mail to the attorney for the Landlord:
BERMAN & FREEDMAN, P.C., 1140 Franklin Avenue, Garden City, New York 11530 -
Attention: Donald E. Freedman, Esq. and to the attorney for the Tenant: Mark S.
Haltzman, Esq., One Belmont Avenue, Suite 402, Bala Cynwyd, Pennsylvania 19004.
48. It is mutually covenanted that if the Landlord shall reasonably pay or
be compelled to pay any sum of money or shall reasonably perform any act or be
compelled to perform any act, which act shall require the payment of any sum of
money, by reason of the failure of the Tenant to perform any one or more of the
covenants herein contained, the sum or sums so paid by the Landlord, together
with all interest, costs and damages, shall after ten days' written notice and
demand be added to rent installments next due and shall be collectible in the
same manner and with the same remedies as if originally reserved as rent
hereunder.
49. The Landlord has made no representations or warranties of any kind or
nature except as are specifically set forth herein and the parties agree that
this lease constitutes the full agreement by and between them. Any holding over
by the Tenant after the term of this lease shall be unlawful and in no manner
constitutes a renewal or extension of this lease agreement.
50. In the event that the Tenant shall not have paid the rent on or before
the 5th day of the month during which same is due, there shall be added to such
rent, as additional rent, a late charge of five percent (5%) of the rent due and
unpaid. This late payment charge is intended to compensate Landlord for its
additional administrative costs resulting from Tenant's failure to pay rent in a
timely manner and has been agreed upon by Landlord and Tenant as a reasonable
estimate of the costs that will be incurred by Landlord as a result of Tenant's
failure to make timely payment. This late payment charge will constitute
liquidated damages and will be paid to Landlord together with such unpaid
amounts. The Landlord shall have all rights with respect to this additional
rent as for the non-payment of any and all other rents due under the terms of
this lease. The demand for and collection of the aforesaid late charge shall in
no way be deemed a waived of any remedies that the Landlord may have under the
terms of this lease by summary proceedings or otherwise.
51. The Landlord shall not be liable in any way, or to any extent, or at
all, for or on account of any injury to any property at anytime in said
buildings, or for or on account of the destruction of any property at anytime in
said buildings. Landlord shall not be liable for any damage done or occasioned
by or from plumbing, gas, water, sprinkler, steam or other pipes or sewerage or
the bursting, leaking or running of any pipes, tank or plumbing fixtures, in,
above, upon or about said building or premises, nor for any damage occasioned by
water, snow or ice being upon or coming through the roof, skylights, trap door
or otherwise, nor for any damages arising from acts or neglect of co-tenants, or
other occupants of the same building or of any owners, or occupants, of adjacent
or contiguous property, except if caused by the actions of the Landlord, its
employees, agents, invitees, and contractors.
52. The Tenant shall on the last day of the term, or upon the sooner
termination of the term, peaceably and quietly surrender the leased property to
the Landlord, broom-clean, including all buildings, alterations, re-buildings,
replacements, changes, or additions placed by the Tenant hereof, in as good
condition and repair as at the commencement of the term, and as any buildings,
structures, replacements, additions, or improvements constructed, erected, added
or placed thereon by the Tenant are when completed, with the normal wear and
tear thereof excepted. Notwithstanding the foregoing, Tenant shall have the
right to remove any of Tenant's trade fixtures and other equipment belonging to
Tenant in the premises, provided Tenant repairs any damage caused to the
premises occasioned by reason of any such removal and further provided Tenant
restores the premises to its condition prior to the installation of any such
fixtures or equipment. In the event the Tenant vacates the premises and fails
to remove any such fixtures or equipment, then and in such event, the Landlord
shall have the absolute right and option to declare such fixtures and equipment
abandoned by the Tenant, in which event, such fixtures and equipment shall
become the property of the Landlord or Landlord shall have the option to direct
the Tenant to remove such fixtures and equipment and restore the premises at
Tenant's sole cost and expense.
53. The Tenant does hereby covenant for itself, its successors and assigns,
that it will not carry on, upon the said premises, or any part thereof, or
permit to be carried on, any trade or business which shall constitute a
nuisance; or use, or permit to be used, said premises, or any part thereof, for
any illegal purpose whatsoever.
54. INTENTIONALLY OMITTED.
55. No remedy herein conferred upon or reserved to the Landlord or Tenant is
intended to be exclusive of any other remedy or by law provided, but each shall
be cumulative and shall be in addition to every other remedy given hereunder or
nor or hereafter existing at law or in equity or by statute. In addition to all
other remedies provided in favor of the Landlord, the Landlord shall be entitled
to the restraint by injunction of the violation or attempted violation of any of
the terms, covenants, and conditions in this lease.
56. This lease is expressly made subject to the zoning ordinances of the
appropriate municipal authority having jurisdiction over the premises and any
agency or subdivisions thereof. All permits which may be necessary for the
maintenance and operation of the Tenant's business shall be obtained and
maintained by the Tenant at the Tenant's own cost and expense. Landlord
represents that certificates of occupancy/completion have been issued by the
municipal authority having jurisdiction over the premises for the building as
same presently exists.
57. The Tenant agrees at any time and from time to time, upon not less than
ten (10) days prior written request by the Landlord, to execute, acknowledge
and deliver to the Landlord a statement in writing certifying whether this lease
is unmodified and in full force and effect or if modified, stating the
modifications and dates to which rent and other charges have been paid in
advance, if any. Tenant further agrees to submit to the Landlord certified
annual financial statements concerning the Tenant as Landlord may reasonably
require from time to time.
58. The receipt by Landlord or payment by Tenant of rent with knowledge of a
breach of any covenant of this lease shall not be deemed a waiver of such
breach. No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent. No endorsement or statement on any check or any
letter accompanying any check or payment as rent shall be deemed an accord and
satisfaction. The Landlord may accept such check or payment without prejudice
to Landlord right to recover the balance of such rent or pursue any other remedy
in this lease provided.
59. INTENTIONALLY OMITTED.
60. If the demised premises be or become infested with vermin, the Tenant
shall at the Tenant's expense, cause the same to be exterminated from time to
time to the satisfaction of the Landlord.
61. Any statement in this lease contained as to the nature of the business
to be conducted by the Tenant in the demised premises shall not be deemed or
construed to constitute a representation or guarantee by the Landlord that such
business is lawful or permissible, it being the understanding of the parties
that Tenant shall be fully responsible for obtaining any and all permits,
licenses or variances which may be necessary for the conduct of Tenant's
business and in the event any such permit, license or variance is required,
there shall be no abatement or diminution of rent during the period of time
during which Tenant obtains any of the foregoing.
62. INTENTIONALLY OMITTED.
63. If Landlord shall be in default under this lease and, if as a
consequence of such default, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levied thereon against the right,
title and interest in the demised premises as the same may then be encumbered
and Landlord shall not be liable for any deficiency, nor shall Landlord be
liable for any consequential damages suffered by the Tenant as a result of
Landlord's failure to perform any of its obligations under this lease, unless
such failure shall be willful. In no event shall Tenant have the right to levy
execution against any property of Landlord (or against the stockholders,
officers and directors thereof) other than its interest in the demised premises
as hereinbefore expressly provided. Notwithstanding anything contained in this
paragraph or paragraph 46 hereof, in the event Tenant recovers a money judgment
against the Landlord, Tenant shall have the right to offset the amount of any
such judgment against the rent and additional rent due under this Lease
Agreement.
64. The Tenant shall bear the entire cost and expense of providing heat,
water, hot water, chilled water, janitor service, garbage removal, annual
backflow water test, fuel, gas, electricity, and all other utilities used by
Tenant in the demised premises. In the event that the Tenant should fail to pay
any of these charges, the Landlord may, but shall not be obliged, to pay the
same and upon such payment the amount so expended shall be deemed to be
additional rent due and payable on the next month succeeding the payment
therefor.
65. A. Tenant shall pay as additional annual rent hereunder all increases
in taxes over the base incurred or assessed on both the land and the buildings,
which comprise the building of which premises herein demised are a part. Such
additional rent shall be due and payable by the Tenant in equal monthly
installments on the first (1st) day of the month along with Tenant's rent. For
the purpose of this paragraph, the word "taxes" shall mean all real estate
taxes, assessments, reassessments and charges and governmental impositions,
duties and charges of every kind and nature whatsoever, extraordinary as well as
ordinary and whether now within the contemplation of the parties hereto or not,
and each and every installment of them, which shall or may during the term of
this lease be charged, laid, levied, assessed or imposed upon, or become a lien
or liens upon the demised premises or the building, of which the demised
premises are a part, or upon any sidewalks or streets in front of or adjoining
the demised premises or the building of which the demised premises are a part.
As used in this Lease, the Tenant's proportionate share shall be 100% of rental
space in the building.
B. In addition to the rent and taxes as hereinabove set forth, the Tenant
shall reimburse Landlord for 100% of the increase of premiums over the base for
fire insurance and extended mischief on the entire building, of which the
premises demised herein are a part. Such additional sums shall be paid in equal
monthly installments on the first (1st) day of the month along with Tenant's
rent. The total amount of insurance coverage for the building, of which the
demised premises are a part, shall not exceed 100% of the then replacement value
of the said building or the amount required by the lending institution,
whichever amount is greater. Tenant shall be entitled to apply, at anytime, to
the New York Fire Insurance Rating Organization for a specific breakdown of all
insurance charges included in the insurance rate for the entire building and the
part, which it occupies. Tenant's obligations hereunder, with respect to all
items of additional rent under this Lease, shall be pro-rated so as to
correspond to the terms of this Lease. In the event that the use of occupancy
of Tenant causes an increase in the rate of fire insurance of Tenant herein,
regardless of when said rate increase occurs, the within Tenant shall be liable
for the portion of insurance premiums due to such increased rate caused by
Tenant's use and occupancy of the premises. It is intended that if the
increase, if any, occurs during the base year of the Lease Agreement, Tenant
shall be responsible for said rate and premium increase. Fire insurance
premiums payable hereunder shall be deemed additional rent collectible by
summary proceedings or otherwise, at the option of the Landlord.
Landlord represents that the insurance premium for year ending July 31,
2003 is $3,118.00 which includes full replacement coverage for the building.
C. Notwithstanding anything to the contrary, if at anytime during the
term of this Lease there shall be levied, assessed and/or imposed in
substitution in whole or in part of the real estate taxes, a tax, charge or
capital levy or otherwise (other than a general gross receipts, franchise,
income or similar tax) on the rents received from said real estate or personal
property or the rents reserved herein, Tenant will be liable for and pay the
same as hereinabove provided, as additional rent. Tenant's liability for such
"substitute" real property taxes shall be 100% of any increased total amount of
"substitute" taxes and real property taxes for the whole building and premises
as set forth hereinabove.
D. The base for the purpose of real estate taxes shall be the 2002/2003
tax year and for insurance, the year 2003/2004.
E. Upon demand, Landlord shall provide Tenant with copies of tax and
insurance bills, which are the subject hereof.
66. No signs, advertisements, notice or other lettering or displays of any
kind or nature shall be affixed to the outer walls of the demised premises nor
shall same be placed in the windows or doors thereof without the prior written
consent of the Landlord. The Landlord has not rented to the Tenant any rights
in or to the outer side of the outside walls of the building of which the
demised premises form a part or the roof of the demised premises. The Tenant
agrees not to drill into or in any way mar or deface any part of the demised
premises and not to display or erect any lettering, signs, advertising, awnings
or other projections or stringing of wires in or on the demised premises or in
or upon the windows thereof.
67. Whenever reference is made in the printed portion of this lease to the
City of New York, its agencies or divisions, same shall be deemed to refer to
the local municipal authorities having jurisdiction over the geographic area in
which the demised premises is located. In the event of a conflict between the
provisions of this rider and the provisions of the printed form of the lease,
the provisions of this rider shall prevail and control.
68. Tenant shall not record this lease or a memorandum thereof without the
written consent of Landlord. Within ten (10) days after written request by
Landlord, Tenant will execute a memorandum of this lease in recordable form and
deliver same to Landlord.
69. This lease and the exhibits, riders and/or addenda, if any, attached
hereto set forth the entire agreement between the parties. Any prior
conversations or writings are merged herein and extinguished. No subsequent
amendment to this lease shall be binding upon Landlord or Tenant unless reduced
to writing and signed. Submission of this lease for examination does not
constitute an option for the demised premises and becomes effective as a lease
only upon execution by both parties and delivery hereof by Landlord to Tenant.
If any provision contained in a rider or addenda is inconsistent with the
printed provision of this lease, the provision contained in said rider or
addenda shall supersede said printed provision.
70. Notwithstanding anything contained herein, the Tenant shall pay to the
Landlord on or before October 1, 2003 the sum of $11,666.67 representing the
first month's rental.
71. The Tenant specifically represents that NEWMARK OF LONG ISLAND LLC
introduced the Tenant to this transaction and Tenant agrees to indemnify and
hold the Landlord harmless from any claim by any other broker who may claim that
he brought about this transaction.
72. SENTRY TECHNOLOGY CORPORATION, the Tenant named herein, hereby
represents that it is the entity which will occupy the premises, operate the
business and own the equipment to be installed in the demised premises.
73. In order to secure the Landlord and the Tenant benefits pursuant to the
General Rules of the New York Fire Insurance Rating Organization, the Landlord
and Tenant hereby agree to waive any and all rights of subrogation which may
accrue to them during the term of this Agreement to recover for any loss
occasioned by fire, casualty or otherwise for which the Tenant is or may be
liable to the Landlord or the Landlord liable to the Tenant, provided, however,
that:
A. The provisions of the paragraph do not in any way affect, diminish or
invalidate the protection afforded the Landlord or Tenant by virtue of any of
its contracts of insurance with any insurance carrier.
B. The compensation to which the Landlord or Tenant may be entitled by
virtue of such loss is not in any way diminished or decreased by reason hereof.
C. In the event Landlord or Tenant is unable to obtain or maintain fire
insurance (including vandalism and malicious mischief) in a licensed New York
Insurance Company acceptable to the lending institutions mortgagee by reason of
the provisions of this paragraph, the provisions of this entire paragraph shall
be deemed canceled, null and void.
74. Tenant covenants that it will vacate the premises immediately upon the
expiration or sooner termination of this lease. If the Tenant retains
possession of the premises or any part thereof after the termination of the
term, the Tenant shall pay the Landlord the fixed minimum annual rent at one and
one-half times the monthly rate of the last month of the term hereof for the
time the Tenant thus remains in possession and, in addition thereto, shall pay
the landlord for all damages consequential as well as direct, sustained by
reason of the Tenant's retention of possession. The provisions of this section
do not exclude the Landlord's rights of re-entry or any other right hereunder,
including without limitation, the right to refuse double the monthly rent and
instead to remove Tenant through summary proceedings for holding over beyond the
expiration of the term of this lease.
75. HAZARDOUS MATERIALS: (a) General Prohibition. Tenant shall not
--------------------- -------------------
cause or permit to be released, discharged, used, stored or disposed of on the
premises any hazardous substances, hazardous materials, hazardous wastes or
toxic substances (collectively "Hazardous Materials"), as such terms are defined
or classified under any laws or regulations, including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601 et. seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et. seq., the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et. seq., any amendments to the foregoing, and any
similar federal, state or local laws, ordinances, rules, decrees, orders or
regulations (collectively the "Laws"). Notwithstanding the foregoing, Landlord
hereby consents to Tenant's use, storage or disposal of products containing
small quantities of Hazardous Materials, which products are routinely used and
of a type customarily found in the type of business conducted by Tenant (such as
cleaning materials, solvents, detergents and the like), provided that Tenant
shall handle, use, store and dispose of such Hazardous Materials in a safe and
lawful manner and shall not allow such Hazardous Materials to contaminate the
premises.
(b) Indemnity. If Tenant breaches the covenants and
---------
obligations set forth herein, Tenant shall indemnify, defend and hold Landlord
and all the other tenant(s), owner(s) and operator(s) of the common areas or the
center free and harmless from and against any and all claims, judgments,
damages, penalties, fines, costs, liabilities and losses (including, without
limitation: diminution in the value of the premises and/or the common areas; and
sums paid in settlement of claims, attorneys' fees, consultant fees and expert
fees) which arise as a result of such contamination. This indemnification by
Tenant includes, without limitation: any and all costs incurred in connection
with any investigation of site conditions or any clean up, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of the presence of such Hazardous Materials in, on
or about the premises, the common areas or the soil or groundwater on or under
the demised premises and the building in which the demised premises is located.
76. The Tenant will be solely responsible for the proper maintenance and
repair of the demised premises and of the fixtures, appliances, services and
utilities therein, including but not limited to the plumbing, heating,
electrical, sprinkler and air-conditioning systems. Landlord shall be
responsible for all structural repairs which are defined as the roof, exterior
walls, foundations, floors, window frames, sidewalks, curbs and parking lot, the
liability of Landlord being the repair of same being limited to such repair as
is not the result of the fault or negligence of the Tenant, its agents,
invitees, employees or contractors.
77. The sidewalks, driveways and entrances of the demised premises shall not
be obstructed by the Tenant and the Tenant shall keep same free of ice, snow,
debris, refuse and in addition, make all repairs and replacements thereto which
may become necessary as a consequence of the fault or negligence on the part of
the Tenant.
78. In consideration of the mutual covenants herein contained, it is
agreed that the Tenant
shall have the absolute right and option to cause this lease to be extended for
a period of three (3) years from October 1, 2006 to September 30, 2009 upon the
following terms and conditions:
(a) That there shall be no default under the terms and conditions of
this lease;
(b) That the Tenant shall give notice to the Landlord in writing by
certified mail, return receipt requested of its intention to renew provided that
such notice shall be received by the Landlord no later than April 1, 2006. It
is further understood and agreed that time shall be considered to be of the
essence in the giving of notice to renew and in the event that the Tenant shall
fail to give notice as herein set forth, the Tenant shall be deemed to have
waived said option and the option shall be null, void and of no further force or
effect;
(c) That such extended period shall be pursuant to and in agreement with
the terms, conditions and covenants herein set forth with the exception of the
provisions of this paragraph granting to the Tenant the right to renew or extend
and further that the rent to be paid for such extended period shall be as
follows:
1) ONE HUNDRED SIXTY THOUSAND ($160,000.00) DOLLARS per annum payable
in equal monthly installments of THIRTEEN THOUSAND THREE HUNDRED THIRTY-THREE
AND 33/100 ($13,333.33) DOLLARS for the period from October 1, 2006 to September
30, 2007.
2) ONE HUNDRED SIXTY-FIVE THOUSAND ($165,000.00) DOLLARS per annum
payable in equal monthly installments of THIRTEEN THOUSAND SEVEN HUNDRED FIFTY
($13,750.00) DOLLARS for the period from October 1, 2007 to
September 30, 2008.
3) ONE HUNDRED SEVENTY THOUSAND ($170,000.00) DOLLARS per annum payable
in equal monthly installments of FOURTEEN THOUSAND ONE HUNDRED SIXTY-SIX AND
67/100 ($14,166.67) DOLLARS for the period from October 1, 2008 to September 30,
2009.
79. Landlord may replace, at the expense of Tenant, any and all broken glass
in and about the demised premises. Landlord may insure, and keep insured, all
plate glass in the demised premises for and in the name of Landlord. Bills for
the premiums therefor shall be rendered by Landlord to Tenant at such times as
Landlord may elect, and shall be due from, and payable by Tenant when rendered,
and the amount thereof shall be deemed to be, and be paid as, additional rental.
Damage and injury to the said premises, caused by the carelessness, negligence
or improper conduct on the part of the said Tenant or the Tenant's agents or
employees shall be repaired as speedily as possible by the Tenant at the
Tenant's own cost and expense.
80. Tenant shall pay to Landlord the rent or charge, which may, during the
demised term, be assessed or imposed for the water used or consumed in or on the
said premises, whether determined by meter or otherwise, as soon as and when the
same may be assessed or imposed. All such rents or charges or expenses shall
be paid as additional rent and shall be added to the next month's rent
thereafter to become due.
81. The Tenant will not nor will the Tenant permit undertenants or other
persons to do anything in said premises, or bring anything into said premises,
or permit anything to be brought into said premises or to be kept therein, which
will in anyway increase the rate of fire insurance on said premises, nor use the
demised premises or any part thereof, nor suffer or permit their use for any
business or purpose which would cause an increase in the rate of fire insurance
on said building, and the Tenant agrees to pay on demand any such increase.
82. Neither Landlord nor Landlord's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation, or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
required by Tenant by implication or otherwise except as expressly set forth in
the provisions of this Lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition, and acknowledges
that the taking of possession of the demised premises by Tenant shall be
conclusive evidence that the said premises and the building of which the same
form a part were in good and satisfactory condition at the time such possession
was so taken, except as to latent defects. All understandings and agreements
heretofore made between the parties hereto are merged in this contract, which
alone fully and completely expresses the agreement between Landlord and Tenant
and any executory agreement hereafter made shall be ineffective to change,
modify, discharge or effect an abandonment of it in whole or in part, unless
such executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
83. Any and all signs shall be subject to and comply with all the rules and
regulations of any governing authorities having jurisdiction thereof, including
the obtaining of permits or renewal of same. Said sign shall not interfere with
the signs of any other Tenant in the other building. Said sign shall be
installed and removed without damage to the building.
84. Tenant acknowledges that it has been informed that in the event Tenant
exercises its option to renew this Lease, a real estate brokerage commission
will be due from Landlord to NEWMARK OF LONG ISLAND LLC payable on a monthly
basis commencing on the first day of the first month of the renewal term and on
the first day of the succeeding eleven (11) months thereafter. Each monthly
payment shall be in the amount of TWO THOUSAND ($2,000.00) DOLLARS. In the
event Landlord fails to pay any of the monthly installments to NEWMARK OF LONG
ISLAND LLC as aforesaid, then and in such event, Tenant is directed to pay the
amount due NEWMARK OF LONG ISLAND LLC and is authorized to deduct same from the
monthly rent due Landlord hereunder upon receipt of a written notice from
NEWMARK OF LONG ISLAND LLC certifying that its monthly commission has not been
paid.
85. Landlord agrees to perform the following work in the demised premises at
Landlord's sole cost and expense:
a. All overgrowth of shrubs and weeds will be cut back around the
building.
b. Landlord will install new carpet, replace damaged ceiling
tiles, paint the walls and repair all damage resulting from leaks in the office
area.
c. All exit signs and emergency light fixtures will be serviced
and placed in operating order.
86. Upon execution of this lease by the Landlord and Tenant, Tenant shall
be given immediate possession of the demised premises. If such possession is
delivered prior to the October 1, 2003 commencement date, Tenant's occupancy of
the premises shall be governed by all of the terms, covenants and conditions
contained in this lease, except that Tenant shall not be required to pay rent or
additional rent for any period prior to October 1, 2003.
87. Landlord agrees that upon written request, it will execute the
"Landlord's Waiver", a copy of which is annexed hereto, made a part hereof and
marked Exhibit A. Landlord further agrees that it will execute a similar
"Landlord's Waiver" for any substitute lender designated by Tenant.
88. (A) Tenant covenants that it shall not assign this lease nor sublet
the Demised Premises or any part thereof by operation of law or otherwise
without the prior written consent of Landlord in each instance. Tenant may
assign this lease or sublet all or a portion of the Demised Premises with
Landlord's written consent, which consent will not be unreasonably withheld,
provided:
(ii) That such assignment or sublease is for a use which is in compliance
with this lease and the then existing zoning regulations and the Certificate of
Occupancy;
(ii) The proposed assignee or sublessee shall be, in the reasonable
opinion of the Landlord, financially responsible and of a character as is in
keeping with the character and nature of the building and its tenancies and
having a net worth at least equal to that of the Tenant at the time of the
execution of this lease;
(iii) That, at the time of such assignment or subletting, there is no
uncured default under the terms of this lease on the Tenant's part;
(iv) That, in the event of an assignment, the assignee shall assume in
writing the performance of all of the terms and obligations of the within lease;
(v) That a duplicate original of said assignment or sublease shall be
delivered by certified mail to the Landlord at the address herein set forth
within ten (10) days of the date that Tenant first advises Landlord of the name
and address of the proposed subtenant or assignee, as required pursuant to
subparagraph (D) hereof;
(vi) Such assignment or subletting shall not, however, release the within
Tenant or any successor tenant or any guarantor from their liability for the
full and faithful performance of all of the terms and conditions of this lease;
(vii) If this lease be assigned, or if the Demised Premises or any part
thereof be underlet or occupied by anybody other than Tenant, Landlord may after
default by Tenant, collect rent from the assignee, undertenant or occupant, and
apply the net amount collected to the rent herein reserved; and
(viii) That, in the event Tenant shall request Landlord's consent to a
proposed assignment of this lease or proposed sublease of all or a portion of
the Demised Premises, Tenant shall pay or reimburse to Landlord the reasonable
attorney fees incurred by Landlord in processing such request.
(B) Whenever Tenant shall claim under this Article or any other part of
this lease that Landlord has unreasonably withheld or delayed its consent to
some request of Tenant, Tenant shall have no claim for damages by reason of such
alleged withholding or delay, and Tenant's sole remedy thereof shall be a right
to obtain specific performance or injunction but in no event with recovery of
damages.
(C) Tenant shall not mortgage, pledge, hypothecate or otherwise encumber
its interest under this lease without Landlord's prior written consent.
(D) At least thirty (30) days prior to any proposed subletting or
assignment, Tenant shall submit to Landlord a written notice of the proposed
subletting or assignment, which notice shall contain or be accompanied by the
following information:
(i) the name and address of the proposed subtenant or assignee;
(ii) the nature and character of the business of the proposed
subtenant or assignee and its proposed use of the premises to be demised;
(iii) the most recent three (3) years of balance sheets and profit and
loss statements of the proposed subtenant or assignee or other financial
information satisfactory to Landlord; and
(iv) such shall be accompanied by a copy of the proposed sublease or
assignment of lease.
89. Except as to the provisions of Paragraph 88 hereof concerning
assignment or sublease, Landlord and Tenant agree that wherever in this lease
either party's consent is required, such consent will not be unreasonably
withheld.
90. Tenant shall have access to the parking area at all times and shall have
the right, at its expense, to designate thirty-nine (39) parking spaces in the
parking area for the exclusive use of Sentry, such designation may be done as to
those spaces located adjacent to the premises, in such manner as Sentry desires
and as to the remaining spaces, such designation shall not use poles or other
structures that would impede the traffic flow in the parking area. Further, it
is understood that the Landlord shall not be responsible if patrons of the
business which shares the parking area use the Sentry's designated parking
spots.
91. Landlord represents that (for the purposes of this paragraph shall
include the Landlord's employees and agents), it has received no notices of, and
has no knowledge of any contamination to the premises from any Hazardous
Material.
G & J LAKELAND REALTY CORP.
By: /s/ Glenn Steuerman Pres.
-------------------------------
Glenn Steuerman
SENTRY TECHNOLOGY CORPORATION
By: /s/ Peter J. Mundy VP-CFO
--------------------------------
Peter J. Mundy
Vice President and
Chief Financial Officer
RENT SCHEDULE
--------------
Re: G & J Lakeland Realty Corp., Landlord
Sentry Technology Corporation, Tenant
Premises - 1881 Lakeland Avenue,
Ronkonkoma, New York
During the term of this Lease Agreement, Tenant shall pay to the Landlord,
in addition to all other items of rent and additional rent set forth in this
Lease Agreement, the fixed minimum annual rent in accordance with the following
schedule payable in equal monthly installments in advance on the first day of
each month of the term of this lease.
1) ONE HUNDRED FORTY THOUSAND ($140,000.00) DOLLARS per annum payable
in equal monthly installments of ELEVEN THOUSAND SIX HUNDRED SIXTY-SIX AND
67/100 ($11,666.67) DOLLARS for the period from October 1, 2003 to September 30,
2004.
2) ONE HUNDRED FORTY-FOUR THOUSAND TWO HUNDRED ($144,200.00) DOLLARS
per annum payable in equal monthly installments of TWELVE THOUSAND SIXTEEN AND
67/100 ($12,016.67) DOLLARS for the period from October 1, 2004 to September 30,
2005.
3) ONE HUNDRED FORTY-EIGHT THOUSAND SIX HUNDRED ($148,600.00) DOLLARS
per annum payable in equal monthly installments of TWELVE THOUSAND THREE HUNDRED
EIGHTY-THREE AND 33/100 ($12,383.33) DOLLARS for the period from October 1, 2005
to September 30, 2006.
SECTION 302 CERTIFICATION:
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Certification of CEO
I, Peter L. Murdoch, certify that
1. I have reviewed this quarterly report on Form 10-QSB of Sentry Technology
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
/s/ PETER L. MURDOCH
-------------------------------------------------
Peter L. Murdoch
President and Chief Executive Officer
November 4, 2003
SECTION 302 CERTIFICATION:
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Certification of CFO
I, Peter J. Mundy, certify that
1. I have reviewed this quarterly report on Form 10-QSB of Sentry Technology
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
/s/ PETER J. MUNDY
-------------------------------------------------
Peter J. Mundy
Vice President and Chief Financial Officer
November 4, 2003
SECTION 906 CERTIFICATION:
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of CEO
In connection with the Quarterly Report of Sentry Technology Corporation (the
"Company") on Form 10-QSB for the period ended September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the Report"), I,
Peter L. Murdoch, Chief Executive Officer of the Company, certify, pursuant to
Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) and
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ PETER L. MURDOCH
-------------------------------------------------
Peter L. Murdoch
President and Chief Executive Officer
November 4, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
This certification accompanies this Report on Form 10-QSB pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by such Act, be deemed filed by the Company for purposes of Section 18
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
certification will not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference.
SECTION 906 CERTIFICATION:
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of CFO
In connection with the Quarterly Report of Sentry Technology Corporation (the
"Company") on Form 10-QSB for the period ended September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the Report"), I,
Peter J. Mundy, Chief Financial Officer of the Company, certify, pursuant to
Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) and
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ PETER J. MUNDY
-------------------------------------------------
Peter J. Mundy
Vice President and Chief Financial Officer
November 4, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
This certification accompanies this Report on Form 10-QSB pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by such Act, be deemed filed by the Company for purposes of Section 18
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
certification will not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Exchange Act, except to the
extent that the Company specifically incorporates it by reference.