U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 1
to
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to _________________
Commission File Number: 1-14078
BLUE FISH CLOTHING, INC.
---------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Pennsylvania 22-2781253
---------------- --------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
No. 3 Sixth Street, Frenchtown, New Jersey 08825
------------------------------------------------
(Address of Principal Executive Offices)
(908) 996-3844
-----------------------------------------------
(Issuer's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------------------- -------------------------------
Common Stock, $.001 par
value per share Chicago Stock Exchange
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.[ ]
Issuer's revenues for the fiscal year ended December 31, 1996, were $11,610,855.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of April 22, 1997, was $3,216,130.
As of April 22, 1997, 4,599,200 shares of Common Stock, $.001 par value per
share, were issued and outstanding.
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Blue Fish Clothing, Inc. (the "Company") is a designer, manufacturer,
wholesaler and retailer of hand block-printed women's and children's clothing
and accessories for the home. Each piece or garment that the Company sells is
unique in that it is based upon individual artwork applied by brush and
block-print, artist signature and embellishment. The Company's mission, to
inspire creativity and self-expression, is reflected in its products, its
workplace, its selling environments and its community involvement. The Company
markets its products through its wholesale division, as well as its four
Company-owned retail stores and participation in juried arts and craft fairs and
festivals across the United States.
COMPANY BACKGROUND
The Company was founded in 1985 by Jennifer Paige Barclay, who, prior to
founding the Company and at the age of 17, began block-printing cotton T-shirts
and dresses in her parents' garage, which she then sold at craft shows and
festivals. In 1986, Blue Fish participated in a New York wholesale show and
received over $100,000 in orders. In March 1987, the Company leased its first
production facility in Frenchtown, New Jersey, and was incorporated in the state
of New Jersey ("Blue Fish-NJ"). In June 1987, the first Blue Fish retail store
was opened in a renovated stone mill in Frenchtown, New Jersey. A second store
followed in June 1989, in Taos, New Mexico, and Blue Fish Taos, Inc. ("Blue
Fish-NM") was incorporated in New Mexico in May 1989. In Spring 1988, Nordstrom
became the Company's first major retailer added as a wholesale account. By 1994,
Blue Fish clothing was showcased in the Savvy department in 52 Nordstrom stores
across the United States. The Company expanded its product offerings by
introducing a line of sweaters in September 1993, and by experimenting with
different fabrications. In Spring 1994, the Company introduced a line of
children's clothing, and in Spring 1995 it offered its first home furnishing
products, tablecloths and pillows, through its own retail stores. In December
1994, the Company opened its third retail store in Santa Fe, New Mexico. The
Company opened a wholesale showroom in New York City in February 1996, and
opened its fourth retail store in Austin, Texas, in September 1996. In December
1996, the Company signed a lease for a retail store in New York City, which
opened in late March 1997. In January 1997, the Company closed its Taos, New
Mexico store.
In September 1995, Blue Fish-NJ, Blue Fish-NM and Blue Fish Clothing, Inc.,
a Pennsylvania corporation incorporated on September 6, 1995 (the "Company"),
entered into a Plan of Merger, pursuant to which the Company was the surviving
corporation. The merger became effective on September 19, 1995.
PUBLIC OFFERING
On November 13, 1995, the Company's Registration Statement on Form SB-2 for
800,000 shares of its Common stock was declared effective by the Securities and
Exchange Commission and the Company commenced a public offering of its Common
Stock. The Offering was made directly by the Company on a best efforts-basis at
a price of $5 per share for a minimum of 500,000 shares ($2,500,000) (the
"Minimum") and a maximum of 800,000 shares ($4,000,000). The Minimum was raised
as of May 13, 1996, the public offering closed as of May 15, 1996, and 787,200
shares were issued, generating cash of approximately $3,215,000, net of
transaction costs of $721,000, of which approximately $247,000 was expended in
1995.
COMPANY VALUES AND PHILOSOPHY
The Company's goal in its artisan crafted products and through its business
is to encourage people to believe in themselves and to inspire creativity and
self-expression (the "Blue Fish Concept"). The Company seeks to build long-term
relationships with its employees, suppliers, customers, stockholders, community
and environment. The Company has created its own educational outreach program,
called BLUEFISHGARTEN(TM), which brings the talents of Blue Fish employees to
art workshops at schools, camps and community organizations.
The Company also strives to be a leader among businesses in addressing
social and environmental concerns. The Company's major impact on the environment
is through its material usage. The Company outsources its dyeing to U.S.
contractors that use energy-efficient dyeing processes and water-based,
non-metallic, non-toxic fabric paints. The Company does not use any sizings or
acid washing treatments, which contain formaldehyde and are frequently used
throughout the industry. The Company uses only organic cotton for all of its
jersey garments. An independent
2
environmental audit performed on the Company in March 1995 by GreenAudit, Inc.,
found that, as a result of its extensive recycling and reuse programs, which the
Company has implemented at its production studio and at its stores, the Company
produces 7.6 times less waste per sales dollar than the New Jersey average.1 The
Company takes pride in this ratio in that New Jersey has historically the second
highest recycling rate in the country. The Company's commitment to social
responsibility is evidenced by its support of community organizations through
sponsorships, product donations and donations of a percentage of certain product
proceeds, as well as considerable time and effort. The Company contributed
$31,419 and $19,472 in cash, resources and products to various organizations
during 1995 and 1996, respectively, as well as donating designs and
participating in local events, such as environmental cleanups. In future years,
the Company intends to donate up to 10% of its net income as determined at the
discretion of the Board of Directors.
PRODUCTS
The Company designs, hand block-prints and distributes clothing and
accessories for the home. Each product is individually hand block-printed with
evocative designs and symbols and signed by the artist. Many products are
embellished with the distinctive Blue Fish label carrying a poetic message or
graphic design. The clothes are designed to be worn in a variety of ways
befitting the wearer. The Company seeks to produce clothing that is beautiful,
easy to wear, comfortable and practical, and that reflects the lifestyle and
spirit of the wearer and appeals to all age groups.
The Company currently has a women's line, and offers approximately 2,500
stock keeping units (SKUs). In 1996, the women's line was offered for eight
seasons per year. In 1997, the Company plans to introduce a men's clothing line.
The Company continually researches and develops new products, which are
introduced through its retail stores to test customers' reactions and gauge the
products' sell-through potential before offering them through the wholesale
business.
MESSENGER PROGRAM
The Messenger Program, which was implemented in the Spring of 1995, shifts
the Company's emphasis from using outside sales representatives to having its
own Company direct sales team out in the field. Each member, called a Messenger,
is responsible for growing wholesale accounts in their territory and for
relating the Company's philosophy, the Blue Fish Concept. The Messengers provide
personalized service by visiting the Company's wholesale accounts and by
providing merchandising support, which includes helping with the display of its
clothing, teaching the customers how to wear and combine the clothing, and
working with the accounts to provide support for local communities. By servicing
and growing its specialty store and boutique accounts, the Company intends to
reduce dependence on major retailers thereby reducing the risk of lost revenue
from account exodus or from forced price reductions.
To date, the Company has five regional Messengers, who cover the Southwest,
Southeast, Mid-Atlantic, New England and Midwest regions of the United States.
The Company believes that the Messenger program encourages wholesale sales
growth due to the higher level of personal contact and attention being available
in a region, as well as having a Blue Fish employee explain the Blue Fish
Concept. The Messenger Program incurs a higher level of fixed costs than
commission-only sales representatives do; however, the Company believes that the
higher costs of the Messenger Program will be offset by proportionately higher
sales, although no assurance can be given that this will occur. The Company
intends to expand the Messenger Program to other regions of the United States.
OBJECTIVE AND GROWTH STRATEGY
The Company's objective is to consistently offer products that inspire
creativity, self-expression and quality in terms of aesthetics. The Company
believes that this objective can be achieved by making and selling the highest
quality artisan-crafted clothing and related accessories. The Company defines
highest quality in terms of durability, craftsmanship and diversity. The
Company's growth strategy includes designing new product categories such as
men's clothing and home furnishings along with new clothing lines within
existing categories, such as a basics line, and a more ornate Blue Fish line.
Additionally, the Company plans to increase the number of its wholesale accounts
and open new retail stores. This expansion, the Company believes, will enable it
to reach out to more people by attracting new customers, providing jobs and
allowing the Company to expand its community outreach programs. The following
are the principal elements of the Company's growth strategy. Elements not funded
through the Company's public offering are intended to be ultimately funded
through internally generated cash flow and debt.
3
- --------
Source: BioCycle, Vol. 34, No. 5 (May 1993), Table 1, p. 46. U.S. Solid Waste
Management, By State (1992).
WHOLESALE GROWTH STRATEGY. The Company's wholesale growth strategy is to
increase the number of wholesale accounts through geographic expansion and by
reaching new market segments through product line extensions.
o Geographic Expansion. The Company plans to target new wholesale accounts
that embrace the Company's philosophy of self-expression. The Company
intends to increase the number of specialty and boutique clothing stores as
well as major retailers that carry its products. With the Messenger
Program, the Company intends to focus on developing sales to its specialty
and boutique accounts across the country. The Messengers are expected to
attend to smaller, regional markets and travel across their territories to
attract new customers and grow existing accounts.
In February 1996, the Company opened a showroom in New York City to
increase sales and to reduce its presence at trade shows and markets in New
York. The Company believes that a New York showroom will enable wholesale
accounts to buy directly from the Company at their convenience in a more
relaxed and unique Blue Fish environment. The Company also believes that,
by maintaining a showroom and by continuing to participate only at the
highest quality wholesale markets in New York, it will attract a
significant number of new wholesale customers.
o Product Line Extensions. The Company introduced a basic, lower priced
women's clothing line for the Spring of 1996. Management believes that this
new line will further distinguish the Company from its competitors by
enabling it to offer a wider price range of merchandise. The new line can
be combined with and is planned to be sold together with the Company's
current lines. In addition, to help accomplish its growth plans, the
Company has redefined the National Sales Manager's job description and will
fill this position in 1997. The Company also plans to launch a men's
clothing line in 1997, and plans to hire a men's designer.
RETAIL GROWTH STRATEGY. Management's decision to expand the number of Blue
Fish retail stores was based upon the increased retail margins, the ability to
offer a greater selection by designing small lines exclusively for its retail
stores and the desire to foster increased customer interaction. In addition to
the showroom described above, the Company's retail store expansion plan includes
the addition of two or more retail stores per year through 2000. This expansion
plan includes standard stores (small city or town destination points with
approximately 1,500 selling sq. ft.) and high volume, city stores (such as New
York City) of approximately 2,250 selling sq. ft. Expansion is expected to have
a minimal effect upon the Company's existing wholesale business due to the
limited number of new retail sites currently selected. Management believes that
retail store expansion may improve the Company's wholesale business through
increased marketing efforts and brand recognition. The new retail stores are
intended to reflect a lifestyle by offering a wide assortment of distinctive
products in unique shopping environments. Primary elements of the retail growth
strategy include:
o Retail Store Location. The Company plans to select retail sites that
naturally attract large concentrations of its target customers. These are
usually larger cosmopolitan cities and smaller cities or towns (such as
state capitals, major university towns and destination locations) that have
a strong arts, education and craft culture and attract a large number of
tourists. The Company opened and entered into a lease agreement for two new
retail stores within 7 months of the public offering, an approximately
2,000 selling sq. ft. Austin, Texas store in September 1996, and an
approximately 3,000 selling square foot store in New York City in December
1996. Wherever possible, the Company intends to locate its stores in
unconventional retail spaces and stand-alone structures.
o Retail Store Environments. The Company believes that it differentiates
itself from other retailers by designing distinctive store environments and
by employing local or regional artisans to assist in the buildout of each
new store. By creatively using and re-using natural materials, such as
wood, stone, metal and glass, finishes and existing architectural elements,
the Company creates a shopping environment that it believes appeals to the
senses and sensibilities of its customers. Each store is unique and a
showpiece to local craftsmanship.
o Merchandise Selection. The Company intends to maintain and increase the
emphasis on its own merchandise within its stores, as well as broaden its
range of merchandise by offering a more basic, lower priced women's line,
and a men's line along with "lifestyle" goods including home furnishings,
gifts, and other related products. The Company has hired a Product
Development/Merchandising Manager to design these goods in-house, and
intends to produce the goods itself wherever economically viable.
4
o Personal Shopping Service. The Company provides a personal shopping service
to customers across the United States who may not have access to Blue Fish
clothing locally or who do not have the time to visit stores. A personal
shopper, who gets to know and keeps a record of each customer's details
(such as height, weight, coloring as well as print, color and style
preferences), describes and discusses the store's selection with the
customer over the phone. A personal shopper often spends 30-45 minutes on
the phone with a customer, helping her select garments and putting together
outfits for her. Customers using this service are sent the Blue Fish
catalog each major season. The Company intends to expand its personal
shopping service, currently offered largely through its Frenchtown store,
to all of its retail locations. The Company believes that by increasing the
level of personalized service offered, the stores will increase their
average sales per customer as well as move additional merchandise in slower
months due to increased marketing efforts.
PRODUCTION AND MANAGEMENT EXPANSION. In order to achieve its objectives and
implement its wholesale and retail growth strategies, the Company anticipates
the need for a significant expansion of its production capacity and management
infrastructure support.
o Move to a New Facility. In December 1996, the Company entered into an
agreement to lease a 60,000 square foot corporate center and production
facility. The expected move date is January 1998. The Company believes this
will meet its space requirements for the foreseeable future. The Company
intends to fund the lease of the building and leasehold improvements
through funds generated from operations and a new debt facility, for which
the Company has not yet secured a commitment. See "Management's Discussion
and Analysis or Plan of Operation -- Liquidity and Capital Resources."
o Hire New Key Managers. In 1996, the Company hired a Human Resource Manager
and a Product Development Manager. The Company reorganized its
infrastructure with the assistance of outside management consultants, and
named two current executives to the positions of Vice President of Sales
and Marketing, and Vice President of Production, and hired a new Vice
President of Finance and Chief Financial Officer. In 1997, the Company
hired a new Vice President of Retail.
o Invest in Information Systems. The Company has invested and intends to
continue to invest in computer hardware, software and training. The Company
believes that its investment in computer information systems will improve
its efficiency and decrease its costs by facilitating the monitoring of
inventory, enabling more accurate sales forecasting, ensuring faster, more
accurate order processing and refining production scheduling and work flows
to ensure maximum efficiency and minimum waste.
o Provide Greater Employee Benefits. In order to continually improve its work
environment and attract and retain high caliber employees, the Company
intends to develop a child care center, a fitness center, and a workplace
lunch program over time when it moves to its new facility. It also intends
to emphasize continued employee training and development, through in-house
training courses and workshops.
COMPANY OPERATIONS
DESIGN. The Company's team of designers create 20 or more designs for each
of the eight seasons per year. Each season has a distinctive color palate and
unique set of prints, inspired by a certain topic or theme. Much of the
Company's inspiration comes from nature, the world around us, poetry, animals
and children. Management believes that the Company maintains freshness in its
product offerings by using different fabrics, such as recycled cotton, acetate
and silk, and by using vintage clothing, as well as having a distinctive
inspiration for each season. The in-house design team also creates home
accessory products, which are offered mainly through the Company's own stores.
PRODUCTION. The Company's production process is divided into two production
categories, external and internal. External production refers to all sourcing
from outside contractors and vendors. The Company uses different cutting and
sewing houses, depending on the fabrication and the quantities involved. The
Company piece-dyes its jersey fabric, which it believes improves the quality of
the garments produced while reducing cost and waste and favorably reducing the
inventory production cycle. The Company continues to garment-dye its other
fabrications due to the relatively small quantities involved. The Company
strives to maintain numerous vendor relationships in order to generate the best
pricing for materials and external labor. The Company believes that this
strategy will also decrease its reliance upon any one vendor. The cutting,
sewing and dyeing of all the Company's
5
products are by U.S. contractors and vendors that are currently located within a
100 mile radius of the Company's facility.
After the garments have been cut, sewn and dyed by outside production, they
are brought into the Company for internal production. The garments are then hand
printed with handcarved blocks and embellished at the Company's production
studio. Each garment is printed, signed by the artist and hung to dry. Most of
the garments are then embellished with the Blue Fish label, handmade clay or
antique buttons or ribbons, as appropriate, before going to the Company's
quality assurance department, where all of the Company's products are inspected.
Finally, the garments are sent to the shipping department to be packed and sent
through the various distribution channels to the customer.
SALES AND DISTRIBUTION. Blue Fish sells and distributes its products
through three channels:
o Wholesale. The Company currently sells to approximately 400 specialty
stores and boutiques, as well as to major retailers such as Nordstrom and
Neiman Marcus, which the Company believes place a high emphasis on personal
attention and service. Thirteen West Coast states are covered by an
independent sales representative based in Los Angeles. Blue Fish Messengers
currently cover additional states located in five national regions, the
Southwest, the Southeast, Mid-Atlantic, New England and the Midwest.
o Retail. The Company's first retail store opened in Frenchtown, New Jersey
in 1987. Subsequent retail expansion involved the opening of a second store
in Taos, New Mexico in 1989, a third in Santa Fe, New Mexico in December
1994, and a fourth store in Austin, Texas in September, 1996. The Company's
Taos, New Mexico store closed its operations on January 31, 1997. Due to
the proximity of the Santa Fe store (70 miles), sales revenues needed could
not be maintained in both stores. The Santa Fe location was selected to be
maintained because of its larger population base as well its larger size.
The Company entered into a ten-year lease agreement for a retail store in
New York City, which opened in late March 1997. A personal shopping service
is provided by telephone, largely from the Frenchtown store, for customers
to make purchases from the Company's catalog, which is mailed out each
quarter to individuals who request to be on the Company's mailing list. The
Company uses dynamic visual merchandising, striking store displays and a
distinctive cross merchandising approach to present its products in a
creative and inspirational context. Product displays and fixtures are
continually updated in tandem with the stores' changing merchandise. The
Company relies heavily on visual merchandising and community involvement,
rather than traditional forms of advertising, to invite its customers to
enter and explore its stores and buy its merchandise. Retail stores
incorporate creative decor, fixtures and leasehold improvements. The
Company's current policy is to lease retail sites. The Company believes
that this allows adequate post-opening site evaluation without a long-term
financial commitment.
o Craft. The Company attended 37 juried art and craft fairs and festivals
across the United States in 1996. At juried arts and craft fairs,
merchandiser participation is limited to those invited after evaluation of
representative product offerings. In 1997, this number is anticipated to
increase, with a greater emphasis on developing the Company's presence at
arts and crafts fairs and festivals in the West. The Company uses this
sales vehicle as a means to explore and develop new markets, as well as to
sell excess inventory. Since past season goods are sold between wholesale
and retail prices at craft fairs, the Company is not forced to take
undesirable markdowns for clearance in its retail stores or give deep
discounts to wholesalers. As the Company's inventory levels are
significantly reduced with the development of its management information
systems, the Company plans to continue using this outlet as a vehicle for
public relations, increasing its exposure and name recognition, raising
money for causes it supports, as well as for networking.
MARKETING
The Company's strategy is to develop highly interactive relationships with
customers through a variety of means, including: (i) creating very distinctive
sales environments, which encourage customers to explore the creativity of the
Blue Fish Concept; and (ii) creating excitement about the clothes and
encouraging word-of-mouth advertising by creating educational and inspiring
events at the Company's retail stores and at its wholesale account stores,
attending arts and craft fairs, as well as supporting creative events and causes
through sponsorship or product donations. The Company's advertising expenditures
have been limited and have focused on the Company's own stores as well as
cooperative advertising around special events with major wholesale accounts, and
mailings for its arts and craft fairs and events.
6
o Wholesale. The Company's Messenger Program provides a high level of
personalized service on a regional basis. Messengers visit the wholesale
accounts, assist with the display of clothing, educate the customers on how
to wear and combine the clothing and work with the accounts to provide
support for local communities. By listening to the customers, Messengers
provide valuable feedback to the Company in terms of design and sales
forecasts and, because they are out in the field, they can act upon
customers' ideas and suggestions promptly.
o Retail Stores. The Company's stores carry a range of related accessories
and gifts, as well as other designers' merchandise that complement Blue
Fish clothing. The Company regularly produces a color catalog which is
mailed to all its retail customers on its mailing list to promote store
visits and telephone sales. The stores hold frequent events to promote new
merchandise and to create the spirit of inspiration and sharing, in order
to make shopping at Blue Fish retail stores a unique experience.
o Craft Fairs and Events. The Company maintains an extensive mailing list
with over 45,000 names and sends customers on this mailing list a postcard
inviting them to the craft fairs or events in their region. At craft fairs,
the Company hands out a listing of all the specialty stores and boutiques
in the area that carry its clothing and encourages customers to buy current
season goods. The Company also provides support or sponsorship for
conferences, festivals and other events, many of which have a similar
philosophical approach. In 1996, the Company's sponsorship included the
Bioneers biodiversity conference, the Taos Film Festival, the American
Comedy Awards, Citizen's Action, and the National Organic Farmers
Association in New Jersey.
CUSTOMER BRAND LOYALTY
The Company believes that it has a very high degree of customer brand
loyalty. Due to customer demand, the Company reintroduced its former tradition
of sewing its Blue Fish label on the outside of most of its garments. Earlier
Blue Fish garments, which had dates printed on them, are considered collectors
items by some of the Company's customers. The Company proactively attempts to
communicate directly with its customers and develop a rapport and a personal
relationship through special events at its own stores and through the Messenger
Program. Hang tags on the Company's clothing frequently encourage interaction
with its customers and the Company's Summer 1996 catalog asked customers to
share something special about their involvement with Blue Fish Clothing. The
Company is continuing its customer contact through periodic Company updates and
highlights included in its seasonal catalog mailings.
The Company distributes a newsletter to all of its wholesale accounts for
each major season. The newsletter communicates information about the Company,
its philosophy and products, the inspiration for the season, as well as news
from the field and from its customers. The Company has also sent out surveys and
questionnaires to measure customer needs and satisfaction, and to hear their
ideas and feedback.
MANAGEMENT INFORMATION SYSTEM
From September 1994 through December 1995, the Company invested
approximately $150,000 to begin the establishment of a fully customized wide
area network, with remote dial-in capability. During 1996, the Company invested
approximately $700,000 from its initial public offering proceeds on the
continued expansion of its management information systems in hardware, software,
consulting, services and supplies. In 1996 the Company completed the
implementation of its retail point-of-sale system and merchandising system. This
system allows the Company to experience greater inventory control, higher retail
gross margins through better monitoring of inventory turn, and more efficient
customer check out. During 1996 the Company also completed the installation of a
Wide Area Network ("WAN") that connects the three primary production and
operational facilities in Frenchtown, New Jersey. The Company has already
experienced improved communications and productivity due to the WAN enabling the
use of messaging software and the sharing of files. Extensive training has and
will accompany each software/system installation.
During 1997, the Company plans to complete the installation and integration
of numerous software systems. A new accounting package will be installed that
will allow the Company to report on and monitor the Company's financial position
more effectively, automate specific tasks, and improve efficiencies. In
addition, a new manufacturing/production software system will be installed which
will allow the Company to obtain greater inventory control, improve production
management, improve capacity planning, allow for the Company's sales force to
enter orders while on the road, obtain information more easily, allow for
Electronic Data Interchange ("EDI"), and utilize bar coding and bar code
scanners. A new patternmaking system will also be installed which will allow the
Company to send patterns electronically, develop an electronic/file library of
patterns, and improve pattern, marker,
7
and grading efficiencies. The software systems will be integrated, including but
not limited to integration of the accounting package to the existing retail
point-of-sale system and the manufacturing/production system; and integration of
the manufacturing/production system from the retail point-of-sale system to
receive purchase orders directly. By 1999, the Company plans to have a fully
integrated Company-wide computer network with Internet access.
INVENTORY MANAGEMENT
The Company's designs for its women's line are produced for eight seasons
per year, which limits production, sales and delivery times. The Company has
countered this problem by improving workflows, delivery schedules and by selling
at or above planned production for new seasons, which compensates for returns or
cancellations. Any garments that are unsold go to the Company's inventory
management center which tracks all past season merchandise and handles the sale
of frequently requested garments from wholesale customers, promotional garments,
garments sold at craft fairs, as well as garments sold to employees.
The Company completed implementation of a customized Point-of-Sale ("POS")
register and polling system in 1996 for its retail stores. The POS provides
register efficiencies, improves customer checkout and overnight polling, and
will become fully integrated with the Company's planned wholesale order entry,
accounting and inventory management systems. The POS system provides management
with accurate and timely information about inventory, pricing, costing,
markdowns, markups, transfers, damages, sales and perpetual inventory counts.
This system also allows items to be monitored by SKU, by location and by day,
and will enable a faster sales cycle to be achieved by transferring merchandise
from one location to another that is selling the item more quickly.
EMPLOYEES
As of April 22, 1997, the Company employed 167 full-time and 34 part-time
employees. Approximately 88 of these employees were involved in production, 54
in sales and distribution, 28 in design and creative and 31 in general and
administrative. The Company employs temporary staff as the need arises. The
Company believes it generally has good relations with its employees. None of its
work force is unionized.
TRADEMARK AND SERVICE MARKS
The Company is the owner of the trademark and service mark "Blue Fish(R),"
which expires in the year 2000, and the service mark BLUEFISHGARTEN(R), which
expires in 2006 and which is used for its educational outreach program.
Registered trademarks and service marks expire ten years after issuance, but are
renewable indefinitely if still in use at the time of renewal. In the opinion of
management, the Company's trademark and service marks are important to its
business due to their name recognition with the Company's customers.
Accordingly, the Company intends to maintain and preserve its trademark and
service marks and to vigorously protect them from infringement.
The Company regards its trademarks, service marks, trade dress, trade
secrets and other intellectual property as critical to its success. This
intellectual property is protected by common law, as well as by registration and
contract. Nonetheless, given the large number of potentially copyrightable
expressions that the Company could seek to register in the United States and in
other countries, the Company has relied largely on its common law rights, rather
than registration. Merchandising design and artwork are crucial to the success
of Blue Fish, and the Company intends to take action to protect against
imitation of its products and to protect its copyrights as necessary.
COMPETITION
The Company's clothing generally competes with other casual weekend wear or
sportswear apparel, in the better sportswear and bridge categories. The
specialty retail and wholesale apparel businesses are highly competitive. Retail
competitive factors include store location; merchandise breadth, quality, style,
and availability; level of customer service; and price. The Company's retail
stores compete against a wide variety of smaller independent specialty stores as
well as department stores and national specialty stores. The Company's wholesale
division competes with numerous companies. To date, the Company has identified
20 companies that produce clothing with a hand block-printed look, and there may
be others. These companies are generally offering lower-priced garments, but the
Company believes the quality of the printing, the colors used and the design of
the silhouettes are not directly comparable to those of the Company. At the
present time, the Company does not intend to take any legal action against these
particular companies since the Company believes that these companies are too
small to pose any threat to the Company's business, but may do so in the future.
By offering a dressier Blue Fish line with more ornate and elaborate
block-printing, as well as using only organic cotton for all its jersey
garments, the Company plans to further distinguish itself from its competitors.
8
GOVERNMENT REGULATION
The Company is subject to various federal, state and local
environmental laws and regulations that limit the discharge, storage and
disposal of a variety of substances. Operations of the Company are also governed
by laws and regulations relating to workplace safety and worker health,
principally the Occupational Safety and Health Administration Act and
regulations and applicable state laws and regulations thereunder. The Company
believes that it presently is in compliance with these laws and regulations.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company has a five-year lease expiring in June 1998 at an annual rent
of $69,413, for an approximately 18,000 sq. ft. facility located in Frenchtown,
New Jersey, which currently accommodates the Company's production,
administrative, accounting, and wholesale functions. The Company also leases a
second facility consisting of approximately 18,000 sq. ft. of additional
production and storage space also located in Frenchtown, New Jersey, for an
annual rental of $50,493, which expires in November 1998. The Company also
leases an 800 sq. ft. design studio located above the Company's Frenchtown
retail store for a monthly rental of $895. The Company intends to continue to
lease the design studio on a month-to-month basis as long as required for the
Company's operations. Effective January, 1, 1996, the Company entered into a
five-year lease to secure a wholesale showroom space in New York City, New York,
at an annual rental of $58,800. The Company's four retail stores are also leased
at monthly rental rates ranging from $2,875 to $19,000, as set forth below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
LOCATION DATE OPENED LEASE EXPIRES NET SELLING SQ. FT.
- -------- ----------- ------------- ------------------
Frenchtown, NJ June 1987 April 2001 1,267
62 Trenton Avenue
Santa Fe, NM December 1994 October 1999 1,725
220 Shelby Street 3 options
3 years each
Austin, TX September 1996 August 2000 2,000
9901 Capital of Texas Hwy,
North
New York City, NY March 1997 December 2006 3,000
148 Greene Street
</TABLE>
The Company has entered into a lease, commencing January 1, 1997, for a
6,500 sq. ft. (approximately 3,000 selling sq. ft.) New York City retail store
at a monthly rent of $19,000, escalating to $24,791, ending in 2006.
The Frenchtown retail store and design studio are leased from David
Barclay, Jennifer Barclay's father. See "Certain Relationships and Related
Transactions."
The Company closed its 750 net selling sq. ft. Taos, New Mexico store in
January 1997 in large part due to its proximity to the Santa Fe, New Mexico
store. The store had been leased on a month-to-month basis.
The Company believes that, in order to accommodate its growth plans, it
will have to move into additional space by 1998. In December 1996, the Company
entered into an agreement to lease a 60,000 sq. ft. corporate center and
production facility in Palmer Township, Pennsylvania commencing in January 1998.
The Company plans to consolidate its production and administrative functions
into this single facility. The Company believes this will meet its space
requirements for at least the next 10 years.
9
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently involved in any material litigation or legal
proceedings and is not aware of any material litigation or proceeding threatened
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1996 through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is currently traded on the Chicago Stock Exchange
under the symbol BLF. The following table sets forth the high and low sales
prices quoted on the Chicago Stock Exchange for the periods indicated.
Fiscal Year Ended
December 31, 1996
High Low
Quarter Ended June 30, 1996 * 10 1/8 5 1/2
Quarter Ended September 30, 1996 7 7/8 6 1/2
Quarter Ended December 31, 1996 7 1/8 3 3/4
* Covers the period from the May 15, 1996 closing of the Company's initial
public offering though June 30, 1996.
As of April 22, 1997, the Company had approximately 2,638 stockholders of
record. As of that date, the last sale price of the Company's Common Stock was 4
3/4 per share.
The Company's Subchapter S election was terminated upon the closing of the
Company's initial public offering on May 15, 1996. Although the Company paid
dividends and made a distribution while an S corporation, the Company intends to
retain any future earnings and pay no dividends for the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company is a designer, manufacturer, wholesaler and retailer of hand
block-printed women's and children's clothing and accessories for the home. Each
product is individually hand block printed with evocative designs and symbols
and is signed by the artist. The Company markets its products to approximately
400 specialty stores and boutiques, as well as to major retailers, such as
Nordstrom and Neiman Marcus, through five regional direct sales personnel known
as Messengers, and one independent sales representative. The Company has four
Company-owned retail stores in Frenchtown, New Jersey; Santa Fe, New Mexico; New
York, New York; and Austin, Texas and participates in juried arts and crafts
fairs and festivals across the United States.
10
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain
items included in the Company's Statements of Operations (see Financial
Statements and Notes thereto elsewhere in this Report) for the periods
indicated:
Years Ended
December 31,
1995 1996
Statements of Operations Data:
Sales 100.0% 100.0%
Cost of goods sold 44.1 46.3
------- -------
Gross margin 55.9 53.7
Operating expenses, net 47.6 54.7
Compensation expense related to stock grant 9.0 ----
------- -------
Income (loss) from operations (0.7) (1.0)
Interest expense, net 1.7 1.4
----- -----
Historical income (loss) before pro forma income
taxes (benefit) (2.4) (2.4)
Pro forma income taxes (benefit) (0.7) (0.7)
----- -----
Pro forma net income (loss) (1.7)% (1.7)%
======= =======
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
SALES. The Company's sales increased by $2.0 million or 20.2% to $11.6
million in 1996. The Company's wholesale sales increased by 16.0% from $6.5
million in 1995 to $7.5 million in 1996, its retail sales increased by 22.6%
from $2.6 million in 1995 to $3.2 million in 1996, and craft fair sales
increased by 59.5% from $538,000 in 1995 to $857,000 in 1996. The Company
attributes the wholesale sales increase during the 1996 period primarily to an
increase in the number of wholesale accounts, and improved relations with
wholesale accounts through the Messenger Program. The increase in retail sales
is primarily attributed to same store sales increases of $384,000 or 14.7%, and
a store opened during 1996 generating sales of $207,000. The Company attributes
these increases to greater marketing efforts and repeat customer business. Same
store sales for the Taos retail store declined due to the close proximity of its
Santa Fe store, which is only 70 miles away. This was instrumental in the
Company's decision to close the Taos store in first quarter 1997. The increase
in craft fair sales was due to an increase in the number of fairs and festivals
the Company attended.
GROSS MARGIN. The major components affecting gross margin are raw
material and production costs, wholesale and retail maintained margins and sales
mix. The Company's gross margin decreased, as a percentage of sales, by 2.2
percentage points from 55.9% in 1995 to 53.7% in 1996. The Company attributes
this decrease to increased customer returns from specialty stores, higher
markdowns at retail, the planned closing of the Taos retail store resulting in
markdown driven sales, and an increase in sales of past season inventory
yielding lower gross margins.
OPERATING EXPENSES. The Company's operating expenses increased by $1.8
million from $4.6 million in 1995 to $6.4 million in 1996. Operating expenses
increased as a percentage of sales, from 47.6% during 1995 to 54.7% in 1996.
This was a result of the Company growing its infrastructure with the proceeds of
the public offering. The increase in the Company's operating expenses was
primarily due to expenses of approximately $1,100,000 in connection with the
addition of corporate management team members and staff support, $114,000
increase in marketing and public relation activities, $248,000 in connection
with the New York showroom and Austin retail store in 1996 and $121,000 relating
to consultant fees associated with the ongoing systems selection process. The
Company anticipates continued investment in the manufacturing, wholesale and
retail operations throughout 1997.
INTEREST EXPENSE, NET. The Company's interest expense, net, decreased
by $10,000 from $167,000 in 1995 to $157,000 in 1996. Interest expense increased
by $76,000 primarily due to increased borrowings for the Company's working
capital. Interest income increased by $86,000 as a result of the Company
investing cash raised from the initial public offering in interest-bearing
instruments.
NET INCOME OR LOSS. The net loss before income taxes of $275,000
represents a decrease of $914,000 or 143% in net income, which would have been
$639,000 in 1995 after removing the impact of the 1995 compensation charge
relating to a stock grant. The income tax benefit of $238,000 includes a one-
time benefit of $174,000 due to
11
reinstatement of deferred income taxes upon conversion of the Company to a C
corporation prior to the closing of the initial public offering. Pro forma net
loss after pro forma income taxes increased 19.4% to $(193,000).
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
SALES. The Company's sales increased by $2.0 million or 26.2% from $7.7
million in 1994 to $9.7 million in 1995. The Company's wholesale sales increased
by 21.7% to $6.5 million, its retail sales increased by 39.3% to $2.6 million,
and craft fair sales increased by 24.6% to $0.5 million in 1995. The Company
attributes the wholesale sales increase during the 1995 period primarily to an
increase in the number of wholesale accounts, improved relations with wholesale
accounts through the Messenger Program, lower return percentages based on timely
shipments and a $100,000 special order received from a major retailer. Same
store sales at the Company's retail division increased 4.1%, which the Company
attributes to increased marketing efforts and repeat customer business at its
Frenchtown store offset by a decrease in same store sales at the Company's Taos
store. The Company believes that same store sales for its Taos retail store
declined during 1995 due to the opening and close proximity of its Santa Fe
store, which achieved $673,000 in sales during 1995 and had minimal sales during
1994 due to the December 1994 opening date for this store. The increase in craft
fair sales was due to an increase in the number of fairs and festivals the
Company attended.
GROSS MARGIN. The major components affecting gross margin are raw
material and production costs, wholesale and retail maintained margins and sales
mix. The Company's gross margin increased, as a percentage of sales, by 3.3
percentage points from 52.6% in 1994 to 55.9% in 1995. The Company attributes
this increase to production efficiencies including increased production units
per employee, damage reductions, lower returns due to on-schedule deliveries,
increased retail sales at higher margins and the sale of past season merchandise
through craft shows.
OPERATING EXPENSES. The Company's operating expenses increased by $1.5
million from $3.1 million in 1994 to $4.6 million in 1995. Operating expenses
also increased as a percentage of sales, from 40.0% during 1994 to 47.6% in
1995. The increase in the Company's operating expenses was primarily due to
expenses of $0.8 million incurred in connection with the addition of management
team members and staff support and increased marketing expenses in the amount of
$0.2 million. The addition of the Santa Fe retail store, including depreciation
and personnel costs and additional depreciation expense from the Taos retail
store renovation were only partially offset by increased Santa Fe revenues.
COMPENSATION EXPENSE RELATED TO STOCK GRANT. In September 1995, the
Company granted its Chief Executive Officer 304,000 shares of common stock at a
market value of $1.58 per share, which resulted in compensation expense of
$480,000. In addition to this grant, the Company also accrued a $393,000 bonus
in September 1995, to be paid to its Chief Executive Officer for the payment of
income taxes associated with this stock grant. There was no comparable item in
1994.
INTEREST EXPENSE. The Company's interest expense increased by $51,000
from $116,000 in 1994 to $167,000 in 1995. This increase was attributed to
additional borrowing on a line of credit (up $300,000 from 1994) and the
increased assignment of receivables (to a factor in 1994 and sold with recourse
in 1995). See "Liquidity and Capital Resources."
NET INCOME OR LOSS. As a result of the $873,000 compensation charge and
the foregoing, net income (loss) before state income taxes (benefit) decreased
by $1.1 million or 127.5% from income of $852,000 in 1994 to a $234,000 loss in
1995. Net income (loss) after pro forma income taxes (benefit) decreased by
$658,000 or 132.6% from income of $496,000 in 1994 to $162,000 loss in 1995.
SEASONALITY AND QUARTERLY RESULTS
The Company's sales are seasonal and therefore its operating results are
subject to seasonal fluctuations. Historically, wholesale sales have been
highest during the Company's third and early fourth quarter (July through
October) when it ships fall and winter merchandise in advance of the apparel
sector's peak holiday selling season. The Company's wholesale sales are the
lowest during January and February. The Company's highest levels of retail sales
have historically occurred during June through August and November through
December. Certain of the Company's retail stores are currently located in
tourist destinations and are therefore affected by each location's overall level
of tourism. Wholesale and retail sales generated during the aforementioned
periods have traditionally had a significant impact on the Company's results of
operations, and any decrease in sales for these periods or in the
12
availability of working capital needed in the months preceding these periods
could have a material adverse effect on the Company's results of operations. The
Company's continued growth tends to mask seasonal fluctuations.
The Company's results of operations in one quarter are not necessarily
indicative of the results of operations that can be expected for any other
quarter or for the full year. The Company's results of operations may also
fluctuate from quarter to quarter as a result of the addition or loss of
wholesale accounts, the amount and timing of expenses incurred in connection
with the expansion and integration of new retail stores into the operations of
the Company, as well as other factors.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through bank
lines of credit, factoring agreements, bank notes and capital lease financing.
In May 1996, the Company completed an initial public offering which generated
approximately $3.5 million in proceeds in 1996, net of expenses. At December 31,
1996, the Company had $1.9 million in cash and cash equivalents (of which
$40,000 was restricted), a receivable purchase line of credit for up to
$1,500,000 (with a $403,000 outstanding balance), a demand bank line of credit
for up to $1,000,000 (with a $1,000,000 outstanding balance) with borrowing
limits subject to 50% of finished goods and 25% of work in progress inventory
levels and a $450,000 loan from a shareholder. The Company had working capital
of $2.9 million on December 31, 1996, reflecting an increase in working capital
of $3.0 million from $(79,000) on December 31, 1995. Working capital is defined
as current assets less current liabilities.
On September 11, 1995 the Company's then sole stockholder Ms. Barclay
requested a distribution of $450,000 of the taxed but undistributed S
corporation earnings. Ms. Barclay received this distribution on January 2, 1996.
Ms. Barclay loaned these funds back to the Company on an unsecured basis. The
Company issued her a promissory note in the principal amount of $450,000 and
bearing interest of 7% per annum, payable monthly. The principal amount of the
note will be payable upon demand by Ms. Barclay, subject to the following
limitations upon repayment: (i) the maximum amount of principal that the Company
is required to pay in any 3-month period is $50,000 and in any 12-month period
is $100,000; (ii) the Company is not required to make any repayments of
principal when its current assets to current liabilities ratio as set forth in
its latest quarterly balance sheet is below 1.0, excluding liabilities related
to amounts due pursuant to the note; and (iii) no repayment of principal will be
paid in the event that a disinterested majority of the Company's Board of
Directors determines that it is not advisable to make a repayment of principal
based upon the Company's then current cash flow or liquidity needs. Although the
restrictions imposed on repayment were designed to protect the Company from
experiencing liquidity problems, no assurance can be given that a demand for
repayment by Ms. Barclay will not result in a shortage of cash available to the
Company for operations. See "Certain Relationships and Related Transactions."
Net cash used by operating activities was $1.2 million during 1996,
consisting primarily of a net loss before deferred tax benefit, an increase in
inventories of $979,000 for store stock levels and planned 1997 wholesale
shipments, and a decrease in accrued bonus-stock grant of $403,000 partially
offset by a decrease in accounts receivable of $293,000. Net cash provided by
operating activities was $348,000 during 1995, consisting primarily of net
income before non-cash stock grant and a corresponding accrued bonus expense of
$636,000 and by payables increases of $367,000. This was partially offset by
increases in inventory of $561,000 for store stock levels and planned 1996
wholesale shipments.
Net cash used in investing activities in 1995 and in 1996 was $288,000
and $425,000, respectively. Net cash used in investing activities in 1996
consisted primarily of capital expenditures to purchase property and equipment,
the majority of which consisted of the buildout of the wholesale showroom in New
York and the Austin retail store. The 1995 investing activities consisted
primarily of capital expenditures to purchase property and equipment, including
the opening of the Company's Santa Fe retail store, the renovation of its Taos
retail store and the initial implementation of the Company's upgrade of its
management information system in 1994.
Net cash provided by financing activities in 1996 was $3.3 million,
consisting primarily of net cash proceeds received from the public offering of
$3.5 million in 1996, an increase on borrowings on the Company's line of credit
of $500,000, and $450,000 of borrowings from a majority shareholder. This
funding was offset in part by equity distributions of $556,000 to pay
stockholder taxes and distribute S corporation earnings. Net cash used in
financing activities in 1995 was $260,000, consisting primarily of deferred
offering costs of $247,000 related to the Company's public offering and equity
distributions of $419,000 to pay stockholder taxes, offset in part by increases
in short-term borrowings.
13
The Company's existing bank line of credit at December 31, 1996,
provided for borrowings up to $1.0 million. This line of credit bears interest
at the bank's prime interest rate plus 0.75% payable on demand or monthly. At
December 31, 1996, outstanding borrowings under the line of credit were
$1,000,000, and the interest rate was 9.0%. The line of credit is subject to a
maximum outstanding balance not to exceed 50% of finished goods inventory plus
25% of work in process. The Company also has a receivable purchase line of
credit agreement, which provides for the assignment and processing of Company
receivables with recourse to a maximum outstanding assigned amount of $1,500,000
for a term of one year. The Company assigns 100% of its wholesale credit sales.
The Company can borrow up to 90% of these assigned receivables, with the
remaining 10% held in reserve in the event of customer payment default. The
receivable purchase line of credit bears interest at 1.75% as a discount to all
receivables assigned, and the Company is responsible for reimbursing the bank
for all uncollectible accounts. Interest expense under this agreement was
$107,000 and $117,000 during 1995 and 1996, respectively. Both the line of
credit and the receivable purchase line of credit are secured by a stockholder
guarantee and have a first lien on all accounts receivable, inventory,
equipment, fixtures and deposit accounts. In March 1997, both the line of credit
and the receivable purchase line of credit were renewed and both were extended
through February 1998.
The Company has four notes payable to banks with outstanding balances
of $49,586 on December 31, 1996, and mature in August 1997 through November
2000. As of December 31, 1996, the Company has $152,537 outstanding in capital
lease obligations for various pieces of equipment. Four leases expire in 1998,
and one lease expires in October 1999.
The proceeds of the Company's public offering, together with planned
additional working capital financing, are expected to meet the Company's funding
needs to achieve its objectives and growth strategy through 1997. Additional
working capital financing would include inventory, receivables and fixed asset
secured lines of credit or term debt. The Company has entered into an agreement
to lease, with an option to buy a corporate headquarters and production
facility. If such a purchase option is exercised, the Company would pursue bank
mortgage financing. Thereafter, if funds generated by operations are
insufficient to finance the Company's growth strategy, it would be necessary to
raise additional funds from public or private financing. The Company would
pursue bank working capital financing, which would include inventory,
receivables and fixed asset secured lines of credit or term debt. No assurance
can be given that the Company would be successful in raising such additional
financing.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 and the Index therein for a listing of the financial statements
which are a part of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting and financial disclosure items.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The names and ages of the executive officers and directors of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jennifer Barclay (1) 30 Chairman of the Board of Directors
Marc Wallach (1) 59 President and Chief Executive Officer and Director
Richard Swarttz 40 Vice President of Finance, Chief Financial Officer and
Treasurer
Jolie Cross Doyle 41 Vice President of Sales and Marketing
Megan Doyle 28 Vice President of Production
14
Dianne Ige 48 Vice President of Retail
Lana Schempp 50 Corporate Secretary
Ben Cohen (2)(3) 46 Director
Gary Hirshberg (2)(3) 42 Director
</TABLE>
--------------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
JENNIFER BARCLAY founded Blue Fish in 1985, and has been its President and
Chairman of the Board of Directors since the Company's incorporation in March
1987. She also served as the Company's Chief Executive Officer from March 1987
until September 1994, and as its Treasurer from August 1993 through August 1995.
In September 1996, Ms. Barclay relinquished the title of President but remains
Chairman of the Board.
MARC WALLACH joined the Company as Chief Operating Officer and General
Manager in September 1993 and became the Company's Chief Executive Officer in
September 1994. Mr. Wallach was appointed as a Director of the Company in June
1995. In September 1996, Mr. Wallach assumed the additional title of President.
From 1990-1993, Mr. Wallach was an independent consultant to the apparel
industry. In 1987, Mr. Wallach founded U.S. One, a manufacturer and marketer of
children's apparel, and served as its President until 1989. For the 15 years
preceding 1987, Mr. Wallach served in various executive capacities, including
Senior Vice President of the Youthwear Division, for Cluett Peabody, Inc., an
apparel conglomerate. Mr. Wallach holds a Bachelor of Science degree in Textile
Management from Philadelphia College of Textiles and Science.
RICHARD SWARTTZ joined the Company in May 1996 as Chief Financial Officer
and was appointed Treasurer in August 1996. In September 1996, Mr. Swarttz's
position was changed to Vice President of Finance, Chief Financial Officer and
Treasurer. Prior to joining the Company, Mr. Swarttz was most recently Vice
President of Finance at International Women's Apparel, Inc., from May 1994, to
May 1996, and Vice President and Controller of McBriar Sportswear, Inc. from
October 1990 to May 1994. Mr. Swarttz is a Certified Public Accountant, and
holds a Bachelor of Science degree in Accounting and a Masters in Business
Administration from Philadelphia College of Textiles and Science.
JOLIE CROSS DOYLE has served as the Company's Vice President of Sales and
Marketing since October 1996. She joined the Company in November 1995 as
Director of Marketing and previously held various marketing positions in the
magazine publishing industry. Until January 1994, Ms. Cross Doyle served as
Vice President of Corporate Communications for Hachette Fillipacchi Magazines, a
company she joined in 1983 when it was owned by CBS Magazines.
MEGAN DOYLE has served as the Company's Vice President of Production since
October 1996. She joined the Company in February 1992 as a Patternmaker and held
various positions in production, such as Production Manager, Director of
Production, and Director of Merchandising and Manufacturing. Ms. Doyle holds a
Bachelor of Fine Arts degree from Parsons School of Design.
DIANNE IGE joined the Company in February 1997 as Vice President of Retail.
From January 1995 to May 1996 she was Director of Merchandising for Gant,
Division of Phillips - Van Heusen. From June 1993 to December 1994 she was
Senior Director of Outerwear for Polo/Ralph Lauren. From March 1992 to May 1993
she was Vice President of Sales and Marketing for Natori. Her professional
experience has spanned many product categories including men's and women's
sportswear, women's accessories, and intimate apparel. She has had experience in
both retail and wholesale, and exposure to both import and domestic
manufacturing markets. Ms. Ige holds a Bachelor of Arts degree in Psychology
from the University of Wisconsin.
LANA SCHEMPP was appointed Corporate Secretary in August 1996. She joined
the Company in January 1993, working with the accounting department in a variety
of capacities until June 1996. She now serves as Executive Assistant to the
President and Chief Executive Officer of Blue Fish Clothing, Inc. Prior to
joining the Company, she was an educator in several New Jersey school districts.
Ms. Schempp holds a Bachelor of Science degree from Douglass College.
15
BEN COHEN has served as a member of the Board of Directors since June 1995.
Mr. Cohen is the Co-Founder and Chairman of the Board of Ben and Jerry's
Homemade, Inc., a public company, and served as its Chief Executive Officer
until February 1995. He presently serves as a member of the Board of Directors
of Community Products, Inc., a privately held buttercrunch candy manufacturer,
Business for Social Responsibility and The Social Venture Network.
GARY HIRSHBERG has served as a member of the Board of Directors since June
1995. Mr. Hirshberg has been the Chief Executive Officer of Stonyfield Farm,
Inc., a privately held yogurt and ice cream company, since September 1983 and
its President since June 1989. He is the Co-Chair of The Social Venture Network
and a Trustee of the New Hampshire Audubon Society. Mr. Hirshberg has extensive
experience as an environmental activist, including terms as the founding
President of the Cape and Island Self Reliance Corporation, as founding
President of the Cape Cod Environmental Alliance and as a Director of the
Association for the Preservation of Cape Cod. Mr. Hirshberg holds a Bachelor of
Arts degree from Hampshire College, an honorary Doctor of Science degree from
New Hampshire College and an honorary Doctor of Laws degree from Notre Dame
College (Manchester, New Hampshire).
BOARD COMMITTEES
The Company's Board of Directors has established various committees. The
Executive Committee consists of Ms. Barclay and Mr. Wallach. The Executive
Committee is authorized to take any action upon which the Board of Directors is
authorized to act, except as reserved by law or the Company's Bylaws. The
Executive Committee also administers the Company's 1995 Non-Employee Directors'
Stock Option Plan. The Audit Committee consists of Messrs. Cohen and Hirshberg.
The Audit Committee, which will meet periodically with management and the
Company's independent public accountants, will review the results and scope of
the audit and other services provided by the Company's independent public
accountants, the need for internal auditing procedures and the adequacy of
internal controls. The Compensation Committee consists of Messrs. Cohen and
Hirshberg. The Compensation Committee has the responsibility and authority to
establish and administer compensation policies for all executive officers and
employees of the Company, including the Chief Executive Officer. The
Compensation Committee also administers the Company's 1995 Stock Option Plan.
The personal liability of the Company's directors is limited to the fullest
extent permitted by Pennsylvania law. Under the Company's Bylaws and
Pennsylvania Business Corporation Law ("PBCL"), a director shall not be
personally liable for monetary damages for his or her actions as a director
unless: (1) the director has breached or failed to perform the duties of his
office under subchapter 17B of PBCL; and (2) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. Pennsylvania law
further provides that this limitation is not available with respect to the
responsibility or liability of a director pursuant to any criminal statute or
the liability of a director for the payment of taxes pursuant to Federal, state
or local law.
The Company's Bylaws provide that the Company will indemnify directors and
officers, and may indemnify its employees and other agents, to the fullest
extent permitted by law. Indemnified parties are covered in all cases except
where such indemnification is prohibited by law, or where the conduct of the
indemnified party (i) constitutes willful misconduct or recklessness, or (ii) is
based upon receipt by the indemnified representative from the Company of a
personal benefit to which the indemnified party is not legally entitled. The
Company shall pay the expenses incurred in good faith by an indemnified party,
against an undertaking by the indemnified party to repay such expenses if it is
ultimately determined that the indemnified party is not entitled to
indemnification. Any dispute related to the right of indemnification will be
decided by arbitration. The Company also maintains liability insurance for its
directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act, indemnification may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions. The Company has
been informed that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. The Company believes that its Bylaws provisions
and indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.
NUMBER OF DIRECTORS, DIRECTORS' TERM OF OFFICE AND DIRECTOR COMPENSATION
The Company's Bylaws provide that the Company may have up to eight
directors. At each annual meeting of stockholders, directors will be elected to
hold office until the next annual meeting. The Company currently has four
16
directors and intends to elect an additional outside director within the next
year. The Company's employee directors do not receive any cash compensation for
their service on the Board of Directors. Directors who are not otherwise
employees of the Company are eligible to receive stock options under the
Company's 1995 Non-Employee Directors' Stock Option Plan. See "1995 Non-Employee
Directors' Stock Option Plan." All directors may be compensated for certain
expenses in connection with their attendance at Board meetings.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934.
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's Common Stock ("10% Stockholders"), to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership of the Company's
Common Stock and other equity securities on Form 3 and reports of changes in
such ownership on a Form 4 and Form 5. Executive officers, directors and 10%
Stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during, and with respect to, its most recent
fiscal year and written representation that no other reports were required, all
Section 16(a) filing requirements applicable to its officers, directors and 10%
Stockholders were complied with, except as follows:
On October 1, 1996, the Company appointed Jolie Cross Doyle Vice President
of Sales and Marketing and Megan Doyle Vice President of Production. Both
individuals failed to file Form 3s reporting their beneficial ownership of the
Company's securities (or lack thereof) within ten days of their appointments.
Form 3s for each individual were filed with the Commission on April 17, 1997.
17
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth for the years ended December 31, 1994, 1995,
and 1996 the annual compensation, including salary, bonuses and certain other
compensation, paid by the Company to its President, Chief Executive Officer, and
any executive officers whose annual compensation exceeded $100,000 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
- -------------------------------- ----------- -------------------------------------- ------------------------------- ------------
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
- -------------------------------- ----------- ---------- ---------- ---------------- ---------- --------- ---------- ------------
(a) (b) (c) (d) (e) (f) (g) (h)
Other
Annual Restricted All
Compen- Stock LTIP Other
Name and Fiscal sation Awards(s) Options/ Payouts Compensation
Principal Position Year Salary Bonus ($) ($) ($) SARs(#) ($) ($)
($)
- -------------------------------- ----------- ---------- ---------- ---------------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jennifer Barclay 12/31/96 $ $ $ $ $ --- $ ---
100,000 -0- 2,178 (3) --- ---
Chairman (1) $
4,905 (4)
$
1,985 (5)
12/31/95 $ $ $ $ $ --- $ ---
100,000 1,923 1,968 (3) --- ---
$
5,420 (4)
$
2,038 (5)
12/31/94 $ $ $ $ $ --- $ ---
108,903 207,328 1,968 (3) --- ---
$
5,420 (4)
Marc Wallach 12/31/96 $ $ $ $ $ --- $ ---
105,000 -0- 4,581 (3) --- ---
President & Chief $
Executive Officer (2) 900 (4)
$
2,355 (5)
12/31/95 $ $ $ $ 304,000 $ --- $ ---
105,000 21,576 5,163 (3) 480,320
$
900 (4)
$
2,532 (5)
$
392,989 (6)
12/31/94 $ $ $
101,524 -0- 5,163 (3)
- -------------------------------- ----------- ---------- ---------- ---------------- ---------- --------- ---------- ------------
</TABLE>
(1) Ms. Barclay served as Chairman and President until September 1996, when she
relinquished the title of President.
(2) Mr. Wallach served as Chief Executive Officer until September 1996, when he
assumed the additional title of President.
(3) Company contribution for healthcare premiums
(4) Allowance for automobile lease
(5) 401(k) Company match accrued at December 31
(6) Deferred grossed up bonus to pay taxes due on the restricted stock grant
The following table sets forth the aggregated option / SAR exercises
and fiscal year end option / SAR values by the Company to each executive officer
of the Company who earned $100,000 or more for the year ended December 31, 1996.
<TABLE>
<CAPTION>
- --------------------------------------------- ---------------------- --------------- --------------------- ----------------------
Number of
Unexercised Value of
Securities Unexercised
Shares Underlying In-The-Money
Acquired Options/SARs Options/SARs
On At FY-End (#) At FY-End ($)
Exercise Value Exercisable/ Exercisable/
Name (#) Realized Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- --------------------------------------------- ---------------------- --------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
Marc Wallach -0- $ -0- 45,600/68,400 $ 28,500/ $ 42,750
President & Chief Executive Officer
- --------------------------------------------- ---------------------- --------------- --------------------- ----------------------
</TABLE>
18
EMPLOYMENT AND NON-DISCLOSURE AGREEMENTS
The Company entered into an Employment Agreement with Marc Wallach to serve
as the Company's General Manager and Chief Operating Officer, effective January
1, 1994, for a period of three years, subject to termination by the Company for
cause or, by either party, at any time upon ninety (90) days prior written
notice. On September 7, 1994, Mr. Wallach was appointed Chief Executive Officer.
Although Mr. Wallach's Employment Agreement expired on December 31, 1996, he
continues to work for the Company on the same terms. The Company's Board of
Directors intends to consider an extension of the current Employment Agreement
or the execution of a new one at its next meeting. The Employment Agreement, as
amended, provides that Mr. Wallach's annual base compensation will be $105,000
effective September 1, 1994, and that he will receive an annual bonus of 3% of
the Company's net after-tax profits for each year that the Employment Agreement
remains in effect. Mr. Wallach will also receive an additional bonus of 1% of
the Company's net after-tax profits for each of the five years commencing
January 1, 1994 and ending December 31, 1998 provided that Mr. Wallach remains
continuously employed by the Company during this five-year period. This
additional bonus will be paid by the Company in five equal annual installments
commencing on January 1, 1999. Mr. Wallach is also entitled to participate in
the Company's employee benefit plans. Mr. Wallach is also subject to certain
non-disclosure covenants and has agreed not to compete with the Company during
the term of the Employment Agreement and for two years thereafter. On September
15, 1995, the Company granted to Mr. Wallach 304,000 shares of Common Stock in
consideration of services rendered. In connection with this stock grant, Ms.
Barclay contributed 304,000 shares of her Common Stock to the capital of the
Company and Ms. Barclay, Mr. Wallach and the Company entered into a Restricted
Stock Agreement. Pursuant to this Agreement, all of Mr. Wallach's 304,000 shares
are subject to purchase by the Company for a total consideration of $1 in the
event that Mr. Wallach voluntarily terminates his employment or is terminated
for cause by the Company prior to September 16, 1997. In 1995, the Company
recognized a compensation expense of $873,309, representing the fair market
value of the Common Stock plus a bonus to cover income taxes payable in
connection with the stock grant. Mr. Wallach also waived his right to receive
any portion or all of his undistributed S corporation earnings other than to pay
taxes on S corporation earnings. See "Certain Relationships and Related
Transactions."
The Company has also executed stock option agreements containing
non-competition and non-disclosure provisions with each of the Company's
officers and key employees who have been granted stock options under the
Company's 1995 Stock Option Plan.
401(K) PLAN
In March 1995, the Company adopted an employee savings and retirement plan
(the "401(k) Plan") covering all of the Company's employees who have attained
the age of 21 and who normally work 20 hours per week. The 401(k) Plan is
intended to be a tax-qualified plan under Section 401(a) of the Internal Revenue
Code. The 401(k) Plan enables employees to reduce their taxable compensation by
electing to defer current compensation into the 401(k) Plan, up to the
statutorily prescribed annual limit ($9,500 in 1996). The trustees of the 401(k)
Plan, at the direction of each participant, invest the assets of the 401(k) Plan
in the various investment alternatives offered under the 401(k) Plan. The
Company may, but is not required to, make matching contributions to the 401(k)
Plan based on the amounts participants contribute to the 401(k) Plan, but in no
event may the Company's contribution exceed 10% of the participant's gross
compensation. The Company presently makes monthly matching contributions of up
to 2% of a participant's gross compensation. The 401(k) Plan is administered by
Merrill Lynch.
1995 STOCK OPTION PLAN
The 1995 Stock Option Plan (the "Option Plan") was adopted by the Board of
Directors and approved by the stockholders in September 1995. The Option Plan is
intended to motivate and reward employees and selected consultants by granting
them stock options to acquire shares of Common Stock.
Grants of stock options under the Option Plan may be made to the Company's
employees, officers (including officers who are directors), and consultants. A
total of 570,000 shares of Common Stock has been reserved for issuance under the
Option Plan. The Option Plan is administered by the Compensation Committee of
the Board of Directors.
Both stock options intended to qualify as incentive stock options under the
Code and nonqualified stock options may be granted under the Option Plan. No
employee may receive options in any given calendar year to purchase more than
200,000 shares. The exercise price of incentive stock options granted under the
Option Plan will be at least equal to the fair market value of the Common Stock
of the Company on the date of the grant. The exercise
19
price of nonqualified stock options granted under the Option Plan will be not
less than eighty-five percent (85%) of the fair market value of the Common Stock
of the Company on the date of the grant. In addition, any option granted under
the Option Plan will have an exercise price of one hundred and ten percent
(110%) of the fair market value on the date of the grant in the case of any
person who owns stock possessing more than 10% of the total combined voting
power. Options granted under the Option Plan will vest at such times as are
specified by the Compensation Committee. If an individual with outstanding stock
options terminates employment on account of death, disability or retirement
approved by the Company, all of the individual's stock options will become
immediately exercisable. Once exercisable, stock options granted under the
Option Plan remain exercisable for nine years from the date of grant, unless the
individual terminates his or her relationship with the Company other than
described above. However, if an option holder wishes to preserve the status of
an option as an incentive stock option, the holder must exercise the option
within three months of his or her termination of employment or within one year
from a termination of employment on account of disability.
Prior to October 23, 1995, the Option Plan provided that all outstanding
stock options granted under the Option Plan, whether or not vested, would become
immediately exercisable upon a "change of control of the Company" (as defined in
the Option Plan). In certain circumstances, if an individual who has received an
option grant under the Option Plan terminates employment within 18 months of a
"change of control of the Company," the Company is required to make a cash
payment to the individual in an amount equal to the difference between the fair
market value of the shares of Common Stock subject to the option and the
option's exercise price, unless the individual elects otherwise. In addition, if
the Company is not the surviving corporation in a transaction such as a merger,
or sale of substantially all the assets of the corporation, at least 10 days
before the effective date of the transaction, each individual who has an
outstanding and currently exercisable stock option will be entitled to exercise
the option or to receive a cash payment equal to the difference between the fair
market value of the shares of Common Stock subject to the option and the
option's exercise price if a cash payment of the stock option would not affect
the accounting treatment of any such transaction in the judgment of the
Compensation Committee. The Option Plan was amended such that the provision
relating to individuals who terminate employment within 18 months of a change of
control was deleted, and for options granted on or after October 23, 1995, only
vested options are subject to immediate exercise or cash payment upon a change
of control.
On September 11, 1995 the Compensation Committee authorized the grant of
nine-year incentive stock options with an effective date of September 15, 1995
to purchase an aggregate of 60,000 shares of the Company's Common Stock to its
officers and key employees pursuant to the Option Plan. Options to purchase an
aggregate of only 55,000 shares were actually granted. Twenty percent were
immediately exercisable on September 15, 1995 and an additional 20% will become
exercisable on each of the first four anniversaries of the grant date. The
Compensation Committee also granted a nine-year incentive stock option under the
Option Plan with an effective date of September 15, 1995 to the Company's Chief
Executive Officer, Marc Wallach, to purchase 114,000 shares of the Company's
Common Stock. Mr. Wallach's option becomes exercisable according to a schedule
that provides for the most rapid exercise of the option without disqualifying
the option as an incentive stock option under the Code. All of the options were
granted with an exercise price of $4.00 per share. On December 15, 1995, the
Compensation Committee authorized an additional grant of nine-year incentive
stock options to purchase 45,000 shares to its officers and key employees
pursuant to the Option Plan under the same conditions as the September 15, 1995
grant, with an exercise price of $5.00 per share. Options to purchase only
40,000 shares were actually granted. During 1996, the Compensation Committee
granted a nine-year incentive stock option to purchase 14,300 shares of Common
Stock to an officer, with the same vesting schedule as the 1995 grants (other
than to Mr. Wallach), and at an exercise price of $7.00 per share. The
Compensation Committee also granted non-qualified five-year stock options to
purchase an aggregate of 12,000 shares to three consultants, at an exercise
price of $7.25 per share. One-half of the options became exercisable on January
1, 1997 and the balance become exercisable on January 1, 1998. On April 4, 1997
the Compensation Committee granted an incentive option to purchase 10,000 shares
of the Company's Common Stock to an officer of the Company with the same vesting
schedule as the 1995 grants with an exercise price of $4.75 per share.
Options to purchase 4,000 shares were exercised by three employees during
1996. The employment of four optionees holding options to purchase an aggregate
of 60,000 shares terminated during 1996. Of these options to purchase 60,000
shares, options to purchase 42,000 shares terminated unexercised during 1996 and
options to purchase an additional 10,000 shares terminated unexercised on March
2, 1997. Options to purchase the remaining 8,000 shares were exercised.
Accordingly, as of the date of this Report, options to purchase a total of
181,300 shares of Common Stock granted pursuant to the Option Plan remain
outstanding.
20
PERFORMANCE STOCK ESCROW AND LOCK-IN AGREEMENTS
All executive officers and directors of the Company are subject to a
"lock-in" agreement, under which they have agreed not to sell or otherwise
transfer any shares of the Company's Common Stock which are held or come to be
held by them for less than the Company's $5.00 initial public offering price. In
addition, Jennifer Barclay, the founder, Chairman of the Board of the Company,
has deposited into escrow 3,495,224 of the 3,486,000 shares of the Company's
Common Stock owned by her. Under the terms of the Escrow Agreement, 25% of her
shares shall become transferable on the sixth, seventh, eighth and ninth
anniversary dates of November 13, 1995. No transfer of those shares may be made
until November 13, 2001, except as follows: (A) Ms. Barclay may transfer a
number of her shares that, within any three-month period, would equal one
percent of the shares of the Company's Common Stock then outstanding; or (B) all
of the shares may earlier become transferable upon certification by the
Company's Chief Financial Officer that any of the following has been achieved:
(i) for two consecutive fiscal years after November 13, 1995, the Company has
minimum annual earnings equal to $0.25 per share; (ii) for five consecutive
fiscal years after November 13, 1995, the Company has an average minimum annual
earnings of $0.25 per share; (iii) after at least one year from November 13,
1995, the Company's Shares have traded on a United States stock exchange at a
price of at least of $8.75 per share (adjusted for stock splits, stock dividends
and recapitalizations) for at least 90 consecutive trading days; or (iv) the
Company's initial public offering is terminated, and none of the Company's
registered Common Stock is sold.
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In September 1995, the Board of Directors adopted and the stockholders
approved the Company's Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"). The Directors' Plan provides for an annual nondiscretionary
grant of stock options to each director who is not an employee of the Company
(collectively, the "Non-Employee Directors"). The annual grant is in lieu of an
annual retainer for service as a member of the Board of Directors.
A total of 75,000 shares of Common Stock has been reserved for issuance
under the Directors' Plan. On January 1 of each year, each Non-Employee Director
will receive a nondiscretionary grant of options to purchase a total amount of
shares of Common Stock equal in value to $7,500, plus an additional $2,500 for
each Board of Directors' committee on which the Non-Employee Director serves,
based on the fair market value of the Common Stock on the date of grant. The
exercise price of options granted under the Directors' Plan will be equal to the
fair market value of the Common Stock on the date of grant, except that the
exercise price shall be one hundred and ten percent (110%) of the fair market
value in the case of any person who owns stock possessing more than 10% of the
total combined voting power. Options will remain exercisable for nine years from
the date of grant.
Pursuant to the terms of the Directors' Plan, each of the two Non-Employee
Directors received grants of nonqualified stock options to purchase 2,500 shares
of Common Stock, at an exercise price of $5.00 per share on January 1, 1996, and
2,700 shares of Common Stock, at an exercise price of $4.63 per share on January
1, 1997. As of the date of this Report, options to purchase a total of 10,400
shares of Common Stock have been granted under the Directors' Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock as of April 22,
1997 for (i) each director and executive officer of the Company; (ii) each
stockholder known by the Company to own beneficially 5% or more of the
outstanding shares of its Common Stock; and (iii) all directors and officers as
a group for each class of capital stock of the Company. The Company believes
that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
21
<TABLE>
<CAPTION>
DIRECTORS, SHARES
EXECUTIVE OFFICERS BENEFICIALLY
AND 5% STOCKHOLDERS: OWNED (1) PERCENTAGE OF COMMON SHARES OUTSTANDING (1):
--------------------------------------------- ----------------------------------------------
<S> <C> <C>
Jennifer Barclay................. 3,486,000 75.8%
c/o Blue Fish Clothing, Inc.
No. 3 Sixth Street
Frenchtown, NJ 08825
Marc Wallach......... 349,600 (2) 7.5%
Richard Swarttz ................. 2,860 (3) *
Jolie Cross Doyle................ 4,400 (4) *
Megan Doyle...................... 1,000 (5) *
Dianne Ige....................... 2,000 (6) *
Ben Cohen ....................... 5,200 (7) *
Gary Hirshberg .................. 5,200 (7) *
All directors and executive ..... 3,856,260 (8) 82.7%
officers as a group (eight persons)
</TABLE>
*Less than 1%
(1) Pursuant to the rules of the Securities and Exchange Commission,
shares of Common Stock which an individual or group has a right to
acquire within 60 days pursuant to the exercise of options or
warrants are deemed to be outstanding for the purpose of computing
the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
(2) Consists of 304,000 shares of Common stock owned beneficially by Mr.
Wallach and 45,600 shares of Common Stock issuable upon exercise of
currently exercisable incentive stock options assuming a five-year
vesting schedule but excludes 68,400 shares of Common Stock issuable
upon exercise of incentive stock options granted under the Option
Plan that are not currently exercisable.
(3) Consists of 2,860 shares of Common Stock issuable upon exercise of
currently exercisable incentive stock options but excludes 11,440
shares of Common Stock issuable upon exercise of incentive stock
options granted under the Option Plan that are not currently
exercisable.
(4) Consists of 400 shares of Common stock owned beneficially by Ms.
Cross Doyle and 4,000 shares of Common Stock issuable upon exercise
of currently exercisable incentive stock options but excludes 6,000
shares of Common Stock issuable upon exercise of incentive stock
options granted under the Option Plan that are not currently
exercisable.
(5) Consists of 1,000 shares of Common Stock issuable upon exercise of
currently exercisable incentive stock options but excludes 3,000
shares of Common Stock issuable upon exercise of incentive stock
options granted under the Option Plan that are not currently
exerciable.
(6) Consists of 2,000 shares of Common Stock issuable upon excercise of
currently exercisable incentive stock options but excludes 8,000
shares of Common Stock issuable upon exercise of incentive stock
options granted under the Option Plan that are not currently
exercisable.
(7) Consists of 2,500 shares of Common Stock issuable upon exercise of
nonqualified options issued under the Directors' Plan
(8) Includes an aggregate of 65,860 shares of the Common Stock issuable
upon exercise of currently exercisable incentive stock options
granted under the Option Plan and Directors' Plan to executive
officers and directors, but excludes 96,840 shares of Common Stock
issuable upon exercise of incentive stock options granted under the
Option Plan that are not yet exercisable.
22
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEASE OF FRENCHTOWN RETAIL STORE
The Company leases its Frenchtown retail store, together with a design
studio located above the store, from David Barclay, the father of Jennifer
Barclay, the Company's Chairman and President, under leases dated April 1, 1991,
and April 11, 1994, respectively. The lease for the retail store, which consists
of 1,267 square feet of selling space, is for a term of ten years. The Company
pays approximately $35,000 in rent on an annual basis for the retail store. The
design studio is leased on a monthly basis for approximately $900 per month and
consists of 800 square feet.
AGREEMENTS WITH FORMER STOCKHOLDER
Pursuant to an Agreement dated June 30, 1993, the Company repurchased all
of the 2,048,696 shares of the Company's Common Stock then owned by Anne Haag, a
former stockholder and officer of the Company. These shares were held in
Treasury by the Company (the "Treasury Stock"). Pursuant to a Security
Agreement, the Treasury Stock, together with all accounts receivable,
inventories, work-in-progress, bank accounts, trademarks, choses in action,
leasehold interests, and fixed assets now or hereafter acquired, served as
collateral to secure the Company's obligations under certain promissory notes
representing the purchase price for Ms. Haag's shares. The total purchase price
of the Treasury Stock was $230,000, of which $162,400 was in the form of a
promissory note due in monthly installments of $3,140 including interest at 6%
and maturing in March 1997. The stockholder's note had an outstanding balance,
as of December 31, 1996, of $24,557. The Company satisfied all of its
obligations to Anne Haag pursuant to the Agreement and promissory notes on April
5, 1997. On April 20, 1997, the Company retired the Treasury Stock and returned
it to the status of authorized but unissued shares.
In addition, the Company executed a separate agreement on August 27, 1993
consisting of a Consulting and Non-Competition Agreement with Ms. Haag which
provided that the Company would retain Ms. Haag for a period of five years to
provide management consulting services to the Company and Ms. Haag agreed not to
compete with the business of the Company during this period of time. During the
period of the Consulting and Non-Competition Agreement, Ms. Haag may not engage
in a competitive business within a twenty-five (25) mile radius of Frenchtown,
New Jersey. Originally, Ms. Haag was to be paid a total of $120,000 over a
period of five years in monthly installments of $2,000 through August 1998 for
such consulting services, and $50,000 over a period of five years in monthly
installments of $833 through August 1998 for her agreement not to compete. In
December 1995, the Company agreed with Ms. Haag to accelerate quarterly payments
by $20,000 ($40,000 in the first quarter of 1996) in anticipation of increased
usage of her consulting contract on a short-term basis. This repayment agreement
is coincident with the existing loan, consulting, and non-compete agreements,
and does not increase the long-term liability of the Company, but rather repays
these agreements in an accelerated fashion. See "Certain Relationships and
Related Transactions". As a result of these accelerated payments, Ms. Haig was
paid in full as of September, 1996.
EMPLOYMENT AGREEMENT WITH MARC WALLACH
The Company entered into an Employment Agreement with Marc Wallach to serve
as the Company's General Manager and Chief Operating Officer effective January
1, 1994, for a period of three years, subject to termination by the Company for
cause or, by either party, at any time upon ninety (90) days prior notice. On
September 7, 1994, Mr. Wallach was appointed Chief Executive Officer. Although
Mr. Wallach's Employment Agreement expired on December 31, 1996, he continues to
work for the Company on the same terms. The Company's Board of Directors intends
to consider an extension of the current Employment Agreement or the execution of
a new one at its next meeting. The Employment Agreement provides that Mr.
Wallach will be employed by the Company for a period of three years, subject to
termination by the Company for cause. Mr. Wallach's annual base compensation is
$105,000 effective September 1, 1994 and Mr. Wallach is to receive an annual
bonus of 3% of the Company's net after-tax profits for each year the Employment
Agreement remains in effect. Mr. Wallach will also receive an additional bonus
of 1% of the Company's net after-tax profits for each of the five years
commencing January 1, 1994 and ending December 31, 1998, provided that Mr.
Wallach remains continuously employed by the Company during this five year
period. This additional bonus will be paid by the Company in five equal annual
installments commencing on January 1, 1999. Mr. Wallach is also entitled to
participate in the Company's employee benefit plans. Mr. Wallach is also subject
to certain non-disclosure covenants and has agreed not to compete with the
Company during the term of the Employment Agreement and for two years
thereafter. Effective September 15, 1995, in connection with an understanding
Mr. Wallach reached with Ms. Barclay in September 1994 regarding the terms of
his service
23
as Chief Executive Officer, the Company granted to Mr. Wallach 304,000 shares of
Common Stock in consideration for services rendered. In connection with this
stock grant, Ms. Barclay contributed 304,000 shares of her Common Stock to the
Company and Ms. Barclay, Mr. Wallach and the Company entered into a Restricted
Stock Agreement. Pursuant to this Agreement, all of Mr. Wallach's 304,000 shares
are subject to purchase by the Company for a total consideration of $1.00 in the
event that Mr. Wallach voluntarily terminates his employment or is terminated
for cause by the Company prior to September 16, 1997. The Company recorded a
compensation expense charge of $873,309 in 1995, representing the fair market
value for the Common Stock plus a bonus to Mr. Wallach to cover income taxes
payable in connection with the stock grant. The Company also granted a nine-year
incentive stock option to Mr. Wallach pursuant to the Option Plan to purchase
114,000 shares of the Company's Common Stock at an exercise price of $4.00 per
share. This option becomes exercisable according to a schedule that provides for
the most rapid exercisability permitted under the Internal Revenue Code without
disqualifying the incentive stock option.
DISTRIBUTION OF S CORPORATION EARNINGS AND LOAN FROM STOCKHOLDER
On September 11, 1995, the Company's then sole stockholder Jennifer Barclay
requested a withdrawal of $450,000 of the taxed but undistributed S corporation
earnings. Ms. Barclay received this distribution on January 2, 1996. Ms. Barclay
has loaned these funds back to the Company on an unsecured basis and the Company
issued her a promissory note in the principal amount of $450,000 and bearing
interest of 7% per annum, payable monthly. The principal amount of the note will
be payable upon demand by Ms. Barclay, subject to the following limitations upon
repayment: (i) the maximum amount of principal that the Company is required to
pay in any 3-month period is $50,000 and in any 12-month period is $100,000;
(ii) the Company is not required to make any repayments of principal when its
current assets to current liabilities ratio as set forth in its latest quarterly
balance sheet is below 1.0, excluding liabilities related to amounts due
pursuant to the note; and (iii) no repayment of principal will be paid in the
event that a disinterested majority of the Company's Board of Directors
determines that it is not advisable to make a repayment of principal based upon
the Company's then current cash flow or liquidity needs. Although the
restrictions imposed on repayment were designed to protect the Company from
experiencing liquidity problems, no assurance can be given that a demand for
repayment by Ms. Barclay will not result in a shortage of cash available to the
Company for operations.
The Company believes the foregoing transactions were fair and on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties. The Bylaws of the Company provide that contracts or transactions
between the Company and any of its officers or directors shall not be void or
voidable solely for that reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors that
authorizes the contract or transaction, or solely because his, her or their
votes are counted for that purpose, if (i) the contract or transaction is fair
as to the Company as of the time it is authorized, approved or ratified by the
Board of Directors or the stockholders, or (ii) the material facts as to the
relationship or interest are disclosed to or are known either by (a) the Board
of Directors and the Board authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors even though the
disinterested directors are less than a quorum; or (b) the stockholders entitled
to vote thereon and the contract or transaction is specifically approved in good
faith by vote of those stockholders.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS. The financial statements required to be
filed by Item 8 herewith are as follows:
Index to Financial Statements F-1
Report of Independent Public Accountants - Arthur Andersen LLP F-2
Balance Sheets at December 31, 1996 F-3
Statements of Operations for the years ending
December 31, 1995 and 1996 F-4
Statements of Stockholders' Equity for the years
ending December 31, 1995 and 1996 F-5
Statements of Cash Flows for the years ending
December 31, 1995 and 1996 F-6
Notes to Financial Statements F-7
(B) EXHIBITS AND REPORTS ON 8-K. The exhibits listed below were filed on
September 27, 1995 pursuant to Item 601 of Regulation S-B as part of the
Registration Statement on Form SB-2, on November 6, 1995 as part of
Amendment No. 1 thereto, on November 13, 1995 as part of Amendment No. 2
thereto, on December 27, 1995 as part of Form 10-QSB, or on May 20, 1996 as
part of Form 10-QSB, except those marked with an asterisk (*), which are
filed herewith. No Reports on Form 8-K were filed with the Commission
during the last quarter of 1996.
Exhibit
Number Description
------ -----------
2.1(a) Articles of Merger merging Blue Fish Clothing, Inc. a New
Jersey corporation, and Blue Fish Taos, Inc., a New Mexico
corporation with and into Blue Fish Clothing, Inc., a
Pennsylvania corporation, dated September 6, 1995
2.1(b) Certificate of Merger merging Blue Fish Clothing, Inc. a New
Jersey corporation, and Blue Fish Taos, Inc., a New Mexico
corporation with and into Blue Fish Clothing, Inc., a
Pennsylvania corporation, dated September 6, 1995
2.1(c) Merger Agreement and Irrevocable Appointment of the Secretary
of State of New Mexico as Agent for Service of Process, dated
September 8, 1995
3.1 Articles of Incorporation
3.2 Bylaws, as amended
4.1 Specimen Stock Certificate
4.2 Excerpts from Registrant's Bylaws defining the rights of
security holders
10.1 Employment Agreement between the Registrant and Marc Wallach
effective as of January 1, 1994
10.2 1995 Stock Option Plan, as amended
10.2(a) Form of Stock Option Grant and Nondisclosure/Noncompetition
Agreement
10.3 1995 Non-Employee Directors' Stock Option Plan, as amended
10.4 401(k) Plan
10.5 Restricted Stock Agreement by and among Marc Wallach, Jennifer
Barclay and the Registrant dated September 15, 1995
10.6 Agreement for Purchase and Sale of Shares by and among Anne F.
Haag, Blue Fish Clothing, Inc. and Blue Fish Taos, Inc. dated
June 30, 1993
10.6(a) Promissory Note dated August 27, 1993 in the principal amount
of $162,400 by and between the Registrant as Maker and Anne
Haag as Payee
10.6(b) Resignations of Anne Haag dated August 27, 1993 as Director,
Officer and employee of Blue Fish Clothing, Inc. and Blue Fish
Taos, Inc.
10.6(c) General Releases dated August 27, 1993 executed by Anne Haag in
favor of the Registrant
10.6(d) Security Agreement dated August 27, 1993 by and between the
Registrant as Debtor and Anne Haag as Secured Party
10.6(e) Consulting and Non-Competition Agreement dated as of August 27,
1993 by and between the Registrant and Anne Haag
10.7 Lease Agreement between David M. Barclay and the Registrant
dated April 1, 1991
10.8 Lease Agreement between Frederick A. Krause and the Registrant
dated July 1, 1993, as amended
10.9 Lease Agreement between T.H. McElvain Oil & Gas Limited
Partnership and the Registrant dated October 24, 1994 (Santa
Fe, New Mexico Retail Store)
10.10 $500,000 Line of Credit Agreement between Flemington National
Bank and Trust Company and the Registrant dated February 9,
1995
10.10(a) Loan and Security Agreement and $1,000,000 Line of Credit
Agreement between Carnegie Bank NA and the Registrant dated
February 9, 1996
10.11 Business Manager Receivable Purchase Line of Credit Agreement
between Flemington National Bank and Trust Company and the
Registrant dated February 9, 1994
10.11(a) Business Manager Receivable Purchase Line of Credit Agreement
between Carnegie Bank NA and the Registrant dated February 9,
1996
10.12 Revised Forms of Subscription and Share Purchase Agreement
10.13 Impound Agreement between Flemington National Bank and Trust
Company and the Registrant dated September 19, 1995
10.13(a) Impound Account Fee Agreement between Flemington National Bank
and Trust Company and the Registrant dated September 19, 1995
10.13(b) Custody Agreement between Flemington National Bank and Trust
Company and the Registrant dated September 19, 1995 as amended
10.13(c) Acknowledgment Letter to Flemington National Bank and Trust
Company and the Registrant dated September 19, 1995
10.13(d) Acknowledgment Letter between United Jersey Bank (formerly
Flemington National Bank and Trust Company) and the Registrant
dated March 5, 1996
10.14 Key Person Life Insurance Policies, National Life of Vermont
10.15 Marketing Agreement between Drew Field/Direct Public Offerings
and the Registrant dated April 12, 1995
10.16 Lease Agreement between the Ruth Group and the Registrant dated
as of December 1, 1995
10.17 Form of Escrow Agreement by and between the Registrant,
Jennifer Barclay and Flemington National Bank
10.18 Form of Lock-in Agreement for the Shares of the Registrant's
Common Stock
10.19 Lease agreement dated November 15, 1995 with G. Holdings
Corporation and Blue Fish Clothing, Inc.
10.20 Letter agreement dated December 6, 1995 with Anne Haag and Blue
Fish Clothing, Inc.
10.21 Promissory Note between the Registrant and Jennifer Barclay
dated January 2, 1996
10.22 Lease Agreement between Tangmere Ltd. and the Registrant dated
January 5, 1996
10.23 Employment Agreement by and between the Registrant and Richard
Swarttz dated April 29, 1995, and effective May 20, 1996
* 10.24 Lease Agreement dated December 16, 1996, between William I.
Roberts and the Registrant
* 10.25 Lease Agreement dated December 19, 1996, between 150 Greene
Street Corp. and the Registrant
* 27 Financial Data Schedule
BLUE FISH CLOTHING, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
BALANCE SHEET F-3
STATEMENTS OF OPERATIONS F-4
STATEMENTS OF STOCKHOLDERS' EQUITY F-5
STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Blue Fish Clothing, Inc.:
We have audited the accompanying balance sheet of Blue Fish Clothing, Inc. (a
Pennsylvania corporation) as of December 31, 1996, and the related statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Blue Fish Clothing, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Philadelphia, Pa.
March 4, 1997
F-2
BLUE FISH CLOTHING, INC.
BALANCE SHEET (Note 1)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,887,994
Restricted cash 40,346
Receivables, net of allowance of $33,000 526,157
Inventories 3,005,717
Other current assets 63,013
Deferred income taxes 222,119
---------------
Total current assets 5,745,346
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of
$472,343 1,113,411
OTHER ASSETS:
Noncompete and consulting agreement, net 56,667
Security deposits 197,884
Deferred income taxes 15,876
---------------
$ 7,129,184
===============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Line of credit $ 1,000,000
Current portion of long-term debt 193,698
Receivable purchase line of credit 403,464
Accounts payable 849,667
Accrued expenses 432,099
---------------
Total current liabilities 2,878,928
---------------
LONG-TERM DEBT 482,982
---------------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 11,000,000 shares authorized, 6,647,896
shares issued and 4,599,200 shares outstanding 6,648
Additional paid-in capital 4,027,766
Retained earnings (deficit) (37,140)
Less- Treasury stock, 2,048,696 common shares, at cost (230,000)
---------------
Total stockholders' equity 3,767,274
---------------
$ 7,129,184
===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
BLUE FISH CLOTHING, INC.
STATEMENTS OF OPERATIONS (Note 1)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
1995 1996
--------------- ----------
<S> <C> <C>
SALES $ 9,657,842 $ 11,610,855
COST OF GOODS SOLD 4,257,813 5,371,707
--------------- --------------
Gross margin 5,400,029 6,239,148
OPERATING EXPENSES 4,593,779 6,356,986
COMPENSATION RELATING TO
STOCK GRANT 873,309 --
--------------- --------------
(Loss) from operations (67,059) (117,838)
INTEREST EXPENSE, net of interest income
of $4,275 and $90,062 167,127 157,297
--------------- --------------
(LOSS) BEFORE INCOME TAXES (234,186) (275,135)
INCOME TAX PROVISION (BENEFIT) 13,527 (237,995)
--------------- --------------
NET (LOSS) $ (247,713) $ (37,140)
=============== ==============
PRO FORMA DATA (Note 3)
(unaudited):
Historical (loss) before
income taxes $ (234,186) $ (275,135)
Pro forma income tax (benefit) (72,363) (81,990)
--------------- --------------
PRO FORMA NET (LOSS) $ (161,823) $ (193,145)
=============== ==============
PRO FORMA NET (LOSS) PER SHARE $ (.04) $ (.04)
============== ==============
PRO FORMA WEIGHTED AVERAGE
SHARES OUTSTANDING 3,800,000 4,362,366
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
BLUE FISH CLOTHING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 1)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
----- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $5,849 $23,151 $1,101,574 $(230,000) $900,574
Stockholder distributions,
$0.037 per share -- -- (142,042) -- (142,042)
Stock contribution to
Company -- 480,320 -- (480,320) --
Stock grant (Note 10) -- -- -- 480,320 480,320
Net (loss) -- -- (247,713) -- (247,713)
------- -------- --------- --------- ---------
BALANCE, DECEMBER 31, 1995 5,849 503,471 711,819 (230,000) 991,139
Sale of common stock in initial
public offering, net of
expenses 787 3,214,597 -- -- 3,215,384
S corporation distribution -- -- (454,109) -- (454,109)
Reclassification of S
corporation earnings -- 257,710 (257,710) -- --
Exercise of common stock
options 12 51,988 -- -- 52,000
Net (loss) -- -- (37,140) -- (37,140)
------- -------- --------- --------- ---------
BALANCE, DECEMBER 31, 1996 $6,648 $4,027,766 $(37,140) $(230,000) $3,767,274
======= =========== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
BLUE FISH CLOTHING, INC.
STATEMENTS OF CASH FLOWS (Note 1)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1995 1996
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) $ (247,713) $ (37,140)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities-
Non-cash stock grant 480,320 --
Deferred tax benefit -- (237,997)
Depreciation and amortization 167,192 214,776
Provision for losses on accounts receivable 93,397 (1,452)
(Gain) on disposal of property and equipment (1,918) --
(Increase) decrease in assets-
Accounts receivable (183,771) 293,361
Inventories (561,144) (978,729)
Other current assets 4,050 (42,329)
Security deposits (9,920) (177,681)
Increase (decrease) in liabilities-
Accounts payable 367,098 109,115
Accrued expenses (163,068) 105,812
Accrued bonus 402,989 (402,989)
----------- -----------
Net cash provided by (used in) operating activities 347,512 (1,155,253)
----------- -----------
INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 7,639 --
Payments for purchases of property and equipment (295,223) (425,476)
----------- -----------
Net cash used in investing activities (287,584) (425,476)
----------- -----------
FINANCING ACTIVITIES:
Net borrowings on line of credit 300,000 500,000
Increase (decrease) in receivable purchase line of credit, net 131,431 (406,699)
Borrowing on long-term debt 63,313 450,000
Repayments on long-term debt (88,387) (173,766)
Payments on capital lease obligations -- (24,052)
Stockholder distributions paid (419,381) (556,266)
Net proceeds from initial public offering (246,590) 3,461,974
Exercise of employee stock options -- 52,000
----------- -----------
Net cash provided by (used in) financing activities (259,614) 3,303,191
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (199,686) 1,722,462
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 405,564 205,878
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 205,878 $ 1,928,340
=========== ===========
CASH PAID DURING THE PERIOD FOR:
Interest $ 168,434 $ 244,438
=========== ===========
Income taxes $ 13,527 $ 3,452
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
BLUE FISH CLOTHING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. COMPANY BACKGROUND AND BASIS OF PRESENTATION:
Business
Blue Fish Clothing, Inc. is a designer, manufacturer, wholesaler and retailer of
specialty block-printed merchandise sold to upscale department and specialty
stores throughout the United States and through four Company-owned specialty
stores.
Basis of Combination
The financial statements of Blue Fish Clothing, Inc. (the "Company") include the
accounts of Blue Fish Clothing, Inc. ("Blue Fish") and Blue Fish Taos, Inc.
("Taos"), which were wholly owned and managed by the same stockholder. All
material intercompany transactions and balances have been eliminated in
combination. In connection with the consummation of the Company's initial public
offering (the "Offering"), Blue Fish and Taos, were merged into Blue Fish
Clothing, Inc. (a newly-formed Pennsylvania corporation) in September 1995. This
combination has been accounted for similar to a pooling-of-interest whereby all
historical financial statements have been combined.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less, amounts due from bank card sales,
restricted cash and amounts in transit from bank for factored receivables to be
cash equivalents for the purpose of determining cash flows.
F-7
Accounts Receivable
Accounts receivable are transferred with recourse to a third party for
processing under a business manager receivable purchase line of credit. The
Company borrows against these receivables for working capital purposes (see Note
7).
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories manufactured by the Company include the cost of materials, freight,
direct labor and manufacturing overhead.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
calculated using the straight-line method based on the estimated useful lives of
the assets as follows:
Automobiles 3-5 years
Fixtures and equipment 5-7 years
Leasehold improvements Lesser of useful life or lease term
Repair and maintenance costs are charged to operations, while additions and
betterments are capitalized. The cost and related accumulated depreciation of
assets sold or retired are eliminated from the accounts, and any gains or losses
are reflected in operations.
Preopening Costs
Costs incurred prior to opening a store are charged to expense over a six-month
period after the store commences operations. Preopening costs of approximately
$54,200 are included in other current assets at December 31, 1996.
Accrued Expenses
Accrued expenses include payroll, bonus and related costs of $278,464 as of
December 31, 1996.
Income Taxes
Effective January 1, 1993, the Company adopted the Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes." The
effect of this statement is to take principally a balance sheet approach to
providing deferred income taxes. Deferred tax balances will be adjusted through
the income statement to reflect the current year estimate of future tax
payments. In May 1996, the Company elected to terminate its S Corporation status
and become a C Corporation. A deferred tax asset of approximately $174,000 was
recorded by the Company in May 1996, to record the future tax benefits that will
accrue to the C Corporation for tax differences that existed at the date of the
C Corporation election.
F-8
Prior to May 1996, the Company had elected not to be taxed as a corporation and
the shareholders had consented to include the income or loss in their individual
federal and state income tax returns. In 1995 and 1996, the Company made cash
distributions to shareholders for their estimated tax liability. Prior to May
1996, the Company recorded a provision for state income taxes for those states
that did not recognize or partially recognize S Corporations.
Major Customers and Concentration of Credit Risk
The Company has one significant customer that accounted for 18.9% and 10.4% of
net sales for the years ended December 31, 1995 and 1996, respectively. This
same customer accounted for 6.3% of net accounts receivable at December 31,
1996.
The Company manufactures and retails specialty block-printed merchandise and
accessories, and has four specialty stores located in Frenchtown, New Jersey;
Taos and Santa Fe, New Mexico and Austin, Texas. In addition, the Company sells
manufactured merchandise to other retailers. The Company grants credit to
substantially all its wholesale customers, the majority of whom are in the
apparel industry. Prior to December 31, 1996, the decision to close the Taos
store was made and appropriate accruals recorded.
Stock Split
In September 1995, the Board of Directors authorized a 3304.34783-for-1 split of
the Company's common stock and authorized 11,000,000 shares of common stock at
$.001 par value. All common stock and per share amounts included in the
accompanying financial statements have been adjusted retroactively to give
effect to this split.
Net Income (Loss) Per Share
Net income (loss) per share is calculated utilizing the treasury stock method.
All per share amounts are based upon weighted average common shares outstanding
during the period including the dilutive effect of common stock options and
warrants, if any.
Adoption of New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that full
recoverability is questionable. Management evaluates the recoverability of
goodwill and other long-lived assets and several factors used in the valuation
including, but not limited to, management's future operating plans, recent
operating results and projected cash flows. The impact of adopting this SFAS had
no impact on the Company's operating results.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which the Company was required to adopt in the first quarter of
fiscal 1996. SFAS No. 123 establishes accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee
compensation plans. Under SFAS No. 123, the Company may either adopt the new
fair-value-based accounting method or
F-9
continue the intrinsic-value-based method under APB 25, "Accounting for Stock
Issued to Employees," and provide pro forma disclosures of net earnings and
earnings per share as if the accounting provisions of SFAS No. 123 had been
adopted. The Company adopted only the disclosure requirements of SFAS No. 123;
therefore, such adoption had no effect on the Company's consolidated operating
results.
3. PUBLIC OFFERING AND PRO FORMA INFORMATION:
Public Offering
On May 15, 1996, the Company sold 787,200 shares of common stock in a public
offering at a price of $5 per share. The offering was registered under the
Securities Act of 1933. Net proceeds to the Company, after deducting offering
expenses, were approximately $3,215,000. Upon the closing of the offering,
offering costs deferred prior to the offering were reclassified to stockholders'
equity and the Company converted to C Corporation status and recorded deferred
income tax assets of $173,566 (see Note 12). All S Corporation earnings were
reclassified to additional paid-in capital.
Pro Forma Income Statement Data
For informational purposes, the accompanying statements of operations for the
two years in the period ended December 31, 1996, include an unaudited pro forma
adjustment for the income taxes that would have been recorded if the Company had
not been an S Corporation, based on the tax laws in effect during the respective
period.
The differences between the federal statutory income tax rate and the pro forma
income tax rate for all periods presented are as follows:
Year Ended
December 31
------------------------
1995 1996
---------- ----------
Federal statutory tax rate (34.0)% (34.0)%
State income taxes, net of federal benefit (5.0) (5.1)
Non-deductible expenditures 4.7 4.2
Valuation allowance for state net
operating losses -- 5.1
Other 3.4 --
-------- --------
(30.9)% (29.8)%
======== ========
Pro Forma Net (Loss) Per Share
Pro forma net (loss) per share was calculated by dividing pro forma net (loss)
by the weighted average number of shares of common stock outstanding for the
respective periods, adjusted for the dilutive effect of common stock equivalents
that consist of stock options. Pursuant to the requirements of the Securities
and Exchange Commission, common stock issued by the Company during the twelve
months immediately preceding the initial public offering, plus the number of
common equivalent shares that were authorized and will become issuable during
the same period pursuant to the grant of common stock options, have been
included in the calculation of the shares used in
F-10
computing pro forma net (loss) per share as if they were outstanding for all
periods presented using the treasury stock method and the public offering price
of $5.00 per share.
4. STATEMENT OF CASH FLOWS INFORMATION:
The following noncash transactions are reflected in the Company's financial
statements as noted below:
Year Ended December 31
----------------------------
1995 1996
------------ ---------
Stockholder distributions declared but not paid $ 102,157 $ --
Deferred offering costs incurred but not paid 266,180 --
Capital lease obligation -- 125,469
5. INVENTORIES:
December 31
1996
------------
Raw materials $ 304,361
Work-in-process 709,302
Finished goods 1,992,054
-------------
$ 3,005,717
=============
6. PROPERTY AND EQUIPMENT:
Property and equipment is made up of the following at December 31, 1996:
Automobiles $ 58,303
Fixtures and equipment 1,038,944
Leasehold improvements 488,507
-------------
1,585,754
Less- Accumulated depreciation
and amortization (472,343)
-------------
Net property and equipment $ 1,113,411
=============
Depreciation and amortization expense was $133,192 and $180,776 for the years
ended December 31, 1995 and 1996, respectively.
F-11
7. FACTORING AND FINANCING AGREEMENTS:
During 1995, the Company utilized a business manager receivable purchase line of
credit agreement with a bank which permitted borrowings against receivables of
up to $1 million for a term of one year. On February 9, 1996, the Company
entered into a one-year business manager agreement with another bank. The
agreement provides for the assignment of all receivables held by the previous
bank up to $1 million and was increased to $1.5 million in July 1996. This line
has been extended through December 1997.
Borrowings are collateralized by a stockholder guarantee and a first lien on all
accounts receivable, inventory, equipment, fixtures and deposit accounts. The
Company can borrow up to 90% of these receivables. This amount can be adjusted
at the discretion of the bank. The remainder is held in escrow until collected.
Restricted cash of $40,346 was held in escrow at December 31, 1996. Interest is
charged at 1.75% of all receivables assigned to the bank for collection.
Interest expense under these agreements was $107,247 and $116,681 during 1995
and 1996, respectively. The Company is responsible to reimburse the bank for all
uncollectible accounts previously assigned to the bank for collection. The
accounts receivable assigned to the bank for collection and amounts borrowed
from the bank are included in accounts receivable and receivable purchase line
of credit, respectively, until collected by the bank.
8. LINE OF CREDIT:
In December 1994, the Company obtained a $300,000 line of credit from a bank.
Borrowings on the facility bore interest at prime plus .75%. In February 1995,
the Company entered into a new agreement with the bank for a $500,000 line that
expired March 9, 1996, and the $300,000 line of credit was repaid. Borrowings on
this new facility bore interest at prime plus .75% (9.25% at December 31, 1995).
On February 9, 1996, the Company entered into a $1 million revolving note with
the bank for the purchase of inventory. Borrowings are limited to 50% of
finished goods and 25% of work in process inventory levels. Borrowings on this
facility bear interest at prime plus .75% (9.0% at December 31, 1996). Interest
is payable monthly and principal is payable on demand or in full on February 9,
1997, if no demand has been made. In 1997, this line was extended through April
1998.
At December 31, 1996, $1,000,000 was outstanding under this line and interest
expense under these lines of $44,700, and $62,239 was incurred during 1995, and
1996, respectively. The weighted average interest rate was 9.59%, and 9.18% in
1995 and 1996, respectively. See Note 7 for guarantee and collateral, also,
applicable to this line of credit.
F-12
9. LONG-TERM DEBT:
December 31
1996
----------
Note payable to a current stockholder of the Company $ 450,000
Note payable to a former stockholder of the Company, for
treasury stock purchased, due in 1997 24,557
Obligations under capital leases 152,537
Other 49,586
----------
676,680
Less- Current portion 193,698
----------
Long-term debt, net of current portion $ 482,982
============
In January 1996, the Company's majority stockholder withdrew $450,000 of the
taxed but undistributed S corporation earnings. The stockholder loaned these
funds back to the Company on an unsecured basis and has waived the right to
receive any further distributions of S corporation earnings other than to pay
taxes on S corporation earnings. The Company borrowed these funds from the
stockholder and issued a promissory note in the amount of $450,000 and bearing
interest at 7%. Interest is payable monthly, and the principal is due on demand
subject to certain limitations, as defined, including limiting payment to
$100,000 in any 12-month period.
The Company has entered into capital leases for various pieces of equipment that
expire in 1998 and 1999, with aggregate monthly payments of $6,070 at December
31, 1996. The capitalized costs of $206,780 are included in fixtures and
equipment with accumulated amortization of $51,615 at December 31, 1996. The
present value of the minimum lease payments is as follows:
December 31
1996
------------
Total minimum lease payments $ 184,424
Less- Amount representing interest (31,887)
------------
Present value of net minimum lease payments $ 152,537
============
F-13
Maturities as of December 31, 1996, are as follows:
Long-Term Capital
Debt Leases
------------ -----------
1997 $ 139,765 $ 53,933
1998 113,911 58,659
1999 111,377 39,945
2000 109,090 --
2001 50,000 --
------------ -----------
$ 524,143 $ 152,537
=========== ===========
10. STOCKHOLDERS' EQUITY:
In September 1995, the sole stockholder contributed 304,000 shares of common
stock to the Company, and the Company granted 304,000 shares of common stock to
an officer. The market value of the common stock on the date of grant was $1.58
per share, which resulted in $480,320 compensation expense charged. The Company
also recorded an increase in paid-in capital for the compensation expense. In
addition, the Company agreed to reimburse the officer for any and all taxes that
may be imposed as a result of this grant. This reimbursement of $392,989 was
deemed additional compensation expense at the date of grant. The reimbursement
was paid in 1996. All shares granted were restricted and are subject to purchase
by the Company for total consideration of $1.00 in the event the officer
voluntarily terminates his employment or is terminated for cause within two
years.
11. SAVINGS PLAN AND STOCK OPTIONS PLAN:
In March 1995, the Company established the Blue Fish 401(k) Savings and
Investment Plan. All employees who have attained age 21 and completed 1,000
hours of service in a plan year are eligible to participate. Employees can
contribute up to 10% of their compensation subject to certain limitations.
Employer contributions are discretionary. During 1995 and 1996, the Company
accrued $43,722 and $45,667 as estimated contributions.
In September 1995, the Company adopted the Blue Fish Clothing, Inc. 1995 Stock
Option Plan. A total of 570,000 shares of common stock have been reserved for
issuance to the Company's employees, officers, directors (who are employees) and
consultants. Qualified and nonqualified stock options will be granted at the
discretion of the Compensation Committee (subject to certain plan limitations)
at exercise prices at least equal to the fair market value of the common stock
for qualified incentive stock options. The Company issued nine-year options to
purchase 209,000 shares of common stock to certain officers and key employees
during 1995 and 26,300 to employees and consultants during 1996.
F-14
Information with respect to the 1995 Stock Option Plan is as follows:
<TABLE>
<CAPTION>
Aggregate Option Price
Shares Price Per Share
-------------- -------------- ------------------
<S> <C> <C> <C>
Outstanding, January 1, 1995 -- $ --
Granted 209,000 876,000 $ 4.00 - $5.00
Exercised -- -- --
Canceled -- -- --
-------------- --------------
Outstanding, December 31, 1995 209,000 876,000 4.00 - 5.00
Granted 26,300 187,100 7.00 - 7.25
Exercised (12,000) (52,000) 4.00 - 5.00
Canceled (42,000) (184,000) 4.00 - 5.00
-------------- --------------
Outstanding, December 31, 1996 181,300 $ 827,100 4.00 - 7.25
============== ==============
</TABLE>
At December 31, 1996, there were 322,700 options available for future grant
under the 1995 Stock Option Plan. In addition, there were 62,460 exercisable
options at prices ranging from $4.00 to $7.00 per share. The aggregate exercise
price of these options was $266,420. The weighted average remaining contractual
life of these options is approximately 8 years.
In September 1995, the Company adopted the Blue Fish Clothing, Inc. 1995
Non-Employee Directors' Stock Option Plan. A total of 75,000 shares of common
stock have been reserved for issuance to directors who are not employees of the
Company. Non-employee directors will receive non-qualified stock options to
purchase an amount of shares equal to $7,500 at the then fair market value on
January 1 of each year commencing January 1, 1996, and options to purchase
shares equal to $2,500 at the then prevailing fair market value for each
committee on which they serve. On January 1, 1996 and 1997, the Company granted
options to purchase 2,500 shares and 2,700, respectively to each of the
nonemployee directors at $5 and $4.63, respectively per share. The options
were fully vested on date of grant. No options have been exercised through
December 31, 1996.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), in accounting for its
stock options granted to employees and directors. Under APB No. 25, no
compensation expense is recognized because the exercise price of the Company's
stock options equals the market price of the underlying stock on the date of the
grant. If compensation cost for these plans had been determined under SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net loss per share
for 1995 and 1996 would have been reduced to the following pro forma amounts:
1995 1996
------------ -----------
Pro forma net loss--as reported $ (161,823) $ (193,145)
Pro forma net loss--as adjusted (268,367) (295,670)
Pro forma net loss per share--as reported (.04) (.04)
Pro forma net loss per share--as adjusted (.07) (.07)
F-15
The fair value of the options were estimated on the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: risk-free interest
rates of 5.9% and 6.6%; no dividend yield for both years; expected volatility of
52% for both years; and a weighted average expected life of the options of 7
years.
Because the accounting under SFAS No. 123 has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
12. INCOME TAXES:
Reference is made to footnotes 2 and 3 which discuss the Company's accounting
policies for income taxes, the termination of its S corporation election in May
1996 and the pro forma income tax disclosure as a result of the public offering.
Income tax (benefit) for the year ended December 31, 1996, is comprised of the
following:
Current provision (benefit) $ --
Deferred provision (benefit) (64,429)
-----------
(64,429)
Reinstatement of deferred income tax assets (173,566)
-----------
$ (237,995)
===========
The reconciliation of the statutory federal rate to the Company's effective
income tax rate on the (loss) for the year ended December 31, 1996, is as
follows:
Year Ended
December 31,
1996
--------------
Statutory tax rate (34.0)%
Reinstatement of deferred income tax assets (63.1)
Loss allocated to S corporation 12.8
State taxes, benefit (13.0)
Valuation allowance 8.2
Other 2.6
--------------
(86.5)%
==============
F-16
The deferred tax effects of temporary differences giving rise to the Company's
deferred income tax assets at December 31, 1996, are as follows:
Deferred tax assets:
Net operating loss carryforward $ 230,997
Depreciation 17,804
Accruals and reserves not currently deductible
for tax 54,091
Valuation allowance-state tax (47,323)
----------
255,569
Other deferred tax liabilities (17,574)
----------
$ 237,995
==========
A valuation allowance has been provided for a portion of the net deferred tax
assets relating primarily to the state net operating loss carryforwards. Based
on the Company's historical levels of taxable income, as adjusted for the
nonrecurring charges in 1995 and future projections, management believes it is
more likely than not that the Company will realize the benefit of the net
deferred tax assets, including the Federal net operating loss carryforward,
existing at December 31, 1996. Furthermore, management believes the existing net
deductible temporary differences will reverse during periods in which the
Company generates net taxable income. There can be no assurance, however, that
the Company will generate taxable earnings or any specific level of continuing
earnings in the future. The Federal net operating loss carryforward expires in
2011.
13. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases its retail, production, office facilities and other equipment
under various noncancelable operating leases. Operating leases generally range
from 5 to 10 years.
Rental expense, including certain maintenance expenditures, was $203,635 and
$395,151 for the years ended December 31, 1995 and 1996, respectively. Future
minimum rental payments due under noncancelable operating leases (including one
store scheduled to open in 1997) are as follows:
1997 $ 655,506
1998 600,620
1999 509,538
2000 404,165
2001 308,368
Thereafter 1,403,292
------------
Total minimum lease payments $ 3,881,489
============
In addition to the above commitment, one store location is currently operating
under a month-to-month lease.
In December 1996, the Company entered into a lease for a new Corporate facility.
The lease obligation is scheduled to begin in January 1998 once construction is
completed and the
F-17
facility is ready for occupancy. The lease is a 15-year lease with an option to
buy. Minimum lease payments are due monthly and begin at $267,120 per year and
increase 3% per year throughout the term. The option to buy can be exercised
during 2003 for $4,000,000 as adjusted by the change in the consumer price
index.
Employment Agreement and Covenant Not to Compete
Effective January 1, 1994, the Company entered into a three-year employment
agreement and covenant not to compete with an officer that provides for annual
compensation of $105,000 per year plus a 3% annual bonus based on Company net
after tax profits (as defined) plus an additional 1% bonus that is calculated
annually and due in five annual installments beginning January 1, 1999, if still
an employee of the Company at that date.
Other
From time to time the Company is named as a defendant in legal actions arising
from its normal business activities. Although the amount of any liability that
could arise with respect to currently pending actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material adverse effect on the financial position or operating results of the
Company.
14. RELATED-PARTY TRANSACTIONS:
The Company leases one of its store locations from the father of the principal
stockholder under a ten-year operating lease for approximately $35,000 per year.
The Company also leases additional office space from this individual on a month
to month basis for approximately $11,000 per year.
F-18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 2, 1997.
BLUE FISH CLOTHING, INC.
By: /s/ Jennifer Barclay
---------------------------------
Jennifer Barclay
Chairman of the Board of Directors
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Jennifer Barclay Chairman of the Board of Directors May 2, 1997
- ----------------------------- (Principal Executive Officer)
Jennifer Barclay
/s/ Marc Wallach President and Chief Executive Officer May 2, 1997
- ------------------------------ (Principal Executive Officer and Director)
Marc Wallach
/s/ Richard Swarttz Vice President of Finance, Chief Financial May 2, 1997
- ------------------------------ Officer, and Treasurer
Richard Swarttz (Principal Financial Officer and Principal
Accounting Officer)
/s/ Gary Hirshberg Director May 2, 1997
- ------------------------------
Gary Hirshberg
/s/ Ben Cohen Director May 2, 1997
- ------------------------------
Ben Cohen
</TABLE>
EXHIBIT INDEX
10.24 Lease Agreement dated December 16, 1996, between William I.
Roberts and the Registrant
10.25 Lease Agreement dated December 19, 1996, between 150 Greene
Street Corp. and the Registrant
27 Financial Data Schedule
LEASE AGREEMENT
Dated December 16, 1996
By and Between
WILLIAM I. ROBERTS,
as Lessor
and
BLUE FISH CLOTHING, INC.,
as Lessee
RE:
2035 Edgewood Avenue
Palmer Township, Northampton County, Pennsylvania
LEASE AGREEMENT
THIS AGREEMENT made this 16th day of December, 1996, between WILLIAM I.
ROBERTS, an individual (with his heirs and assigns, hereinafter called "Lessor),
with offices at 99 South Cameron Street, Harrisburg, PA 17101, and BLUE FISH
CLOTHING, INC. (hereinafter called "Lessee"), whose present address is #3 Sixth
Street, Frenchtown, NJ 08825.
WHEREAS, Lessor is the owner of that certain parcel of property
consisting of approximately 7.5 acres, situated in the Township of Palmer,
Northampton County, Pennsylvania, known as 2035 Edgewood Avenue, as specifically
depicted on Exhibit A attached hereto (the "Land"), being improved with four
buildings, i.e., building "1A" containing 11,440 square feet, building "2"
containing 33,600 square feet, building "3" containing 23,042 square feet, and
building "10" containing 27,900 square feet, together with parking facilities
for approximately 175 vehicles and related appurtenances (the "Improvements"),
which Land and Improvements collectively herein are referred to as the
"Property"; and
WHEREAS, Lessee desires to lease from Lessor a portion of the Property
consisting of building "2", building "3", building "1a", the fifth floor and
parking facilities for 160 vehicles and related appurtenances, as specifically
depicted on Exhibit B attached hereto and hereby made a part hereof (the
"Demised Premises"); and
WHEREAS, Lessor has agreed, among other things, to lease to Lessee the
Demised Premises in accordance with the terms and conditions of this Lease
Agreement.
NOW THEREFORE, in consideration of the mutual covenants herein set
forth and intending to be legally bound, Lessor and Lessee agree, as follows:
ARTICLE 1 - LEASE OF DEMISED PREMISES
1.1 Lease of Demised Premises. Lessor hereby leases the Demised
Premises to Lessee, and Lessee hereby leases the Demised Premises from Lessor,
for the Term herein described, at the rent and upon the mutual covenants and
conditions set forth in this Lease Agreement.
ARTICLE 2 - TERM; DELIVERY OF DEMISED PREMISES
2.1 Term; Delivery of Demised Premises. Term: Fifteen (15) years,
commencing on the earlier of (i) the date upon which the renovations to the
Premises (the "Renovations") have been substantially completed in accordance
with the plans and specifications (the "Plans and Specifications") set forth on
Exhibits B & C (other than responsibility and work that cannot be completed on
such date provided such completion will not substantially interfere with
Tenant's use of the Premises) or (ii) the date on which Tenant takes possession
of, or commences the operation of its business in, any or all of the Premises
(the "Commencement Date") and ending oat 5:00 PM, EST, on the last day
-2-
of the calendar month in which falls the fifteenth (15th ) anniversary of the
Commencement Date, unless sooner terminated in accordance with the provisions
hereof. Tenant, however, shall have the right to enter the Premises prior to the
Commencement date in order to perform those items of Tenant fit-out and
completion of construction which are to be completed by Tenant and such entry
and construction shall not be deemed to be taking of possession of the Premises
by Tenant. Landlord shall notify Tenant in writing as soon as Landlord deems the
Renovations to be substantially completed. In the event of any dispute as to
when and whether the work performed or required to be performed by Landlord has
been substantially completed, the certificate of an A.I.A. registered architect
or a temporary of final certificate of occupancy issued by the local governing
authority shall be conclusive evidence of such completion, effective on the date
of the delivery of a copy of any such certificate to Tenant. The taking of
possession by Tenant shall be deemed conclusively to establish that the
Renovations have been completed in accordance with the Plans and Specifications
and the Premises are in good and satisfactory condition as of when possession
was so taken (except for such items as Landlord is permitted to complete at a
later date, which items shall be specified by Landlord to Tenant in writing).
Upon the Commencement Date, Tenant shall execute and deliver to Landlord a
letter of acceptance of delivery of the Premises, such letter to be on
Landlord's standard form therefor. Notwithstanding the foregoing, however, the
parties agree that the Commencement Date shall be September 1, 1997.
ARTICLE 3 - RENT AND COST REIMBURSEMENT PAYMENT
3.1 Lessee shall pay the Basic Rent in the minimum annual amounts, as
follows:
(a) Year 1; the sum of Two Hundred Sixty-Seven Thousand One
Hundred Twenty Dollars ($267,120.00);
(b) Year 2; the sum of Two Hundred Seventy-Five Thousand One
Hundred Thirty-Three Dollars and Sixty Cents ($275,133.60); and
(c) Each year thereafter during the term hereof, a sum equal to
the minimum annual amount for the immediately preceding year plus three percent
(3%) of such amount.
Each minimum annual amount shall be payable in twelve, equal monthly
installments in advance, without demand, on or before the last day of each
calendar month during the Term. If the Commencement Date or Expiration Date
falls on a day other than the first or last day of a calendar month,
respectively, then the Basic Rent (as well as the Cost Reimbursement Payment for
such month as described in Section 3.2, below) for the fraction of a month at
the beginning or the end of the Term shall be prorated for the number of days
during such calendar month which this Lease Agreement was in effect based on the
actual number of days in such month.
-3-
3.2 Cost Reimbursement Payment. Beginning with the Commencement Date
and during the Term of this Lease Agreement, Lessee shall pay to Lessor with
respect to the Demised Premises, the following:
(a) All garbage and/or trash collection charges assessed or
imposed on the Demised Premises during the term of this Lease Agreement;
(b) Any and all other costs reasonably incurred by Lessor in the
operation and maintenance of the Demised Premises, including but not limited to
water and sewer rentals, repairs, management fees, cleaning, maintenance or
mechanical systems and service contracts, the costs of heat, light, power,
steam, fuel, labor, supplies, tools, equipment and insurance, and all items
properly constituting direct operating costs, which items are or may be deducted
(and not capitalized) for Federal income tax purposes, according to standard
accounting practices as determined by the Lessor's accountant; and
(c) A common area maintenance charge of Fifteen Thousand and
00/100 dollars ($15,000.00) or Five percent (5%) of the Basic Rent, whichever is
greater.
With respect to operation and maintenance costs referenced in Section
3.2(b), on Lessee's occupancy of the Demised Premises, and at the commencement
of each lease year thereafter, Lessor shall provide Lessee with an estimate of
operation and maintenance costs for such upcoming year. Such amount shall be pro
rated over such upcoming year, with Lessee making equal monthly installments of
such amount as Additional Rent. Within thirty (30) days after the last day of
each lease year, Lessor shall provide Lessee with an accounting of operation and
maintenance expenses for such just completed lease year. If actual operation and
maintenance expenses for such year exceeded the projected amount by up to five
percent (5%), Lessee shall pay such amount to Lessor within thirty (30) days of
Lessee's receipt of such accounting. Lessee shall not be required to pay
operation and maintenance expenses greater than five percent (5%) above the
amount projected for any applicable year. If actual operation and maintenance
expenses for any lease year are less than the amount projected by Lessor for
such year, then the amount by which projected operation and maintenance expenses
that have be paid by Lessee during such year exceeds actual operation and
maintenance expenses for such year shall be credited against Lessee's payment of
operation and maintenance expenses for the next lease year. The foregoing
provisions of this Section 3.2 notwithstanding, in accordance with Section 15.1
hereof, Lessee shall be responsible for the payment of all of its own utilities.
3.3 Additional Rent. All sums of money due to Lessor hereunder that are
not specifically characterized as Basic Rent, including the Cost Reimbursement
Payment, shall constitute Additional Rent, and if any such sum is not paid when
due it shall nevertheless be collectible as Additional Rent with the next
installment of Basic Rent thereafter due, but nothing contained herein shall be
deemed to suspend or delay the payment of any amount of money at the time it
becomes due and payable hereunder, or to limit any other remedy of Lessor.
-4-
3.4 Late Charges and Interest.
(a) Lessee hereby acknowledges that late payment of Rent (after
the expiration of any applicable grace period) will cause Lessor to incur costs
not contemplated by this Lease Agreement, the exact amount of which will be
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Demised Premises. Accordingly,
if any payment of Rent is not made when due, at Lessor's election Lessee shall
pay to Lessor a late charge equal to 5% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to an overdue amount or prevent Lessor from exercising any
of its other rights and remedies provided for herein.
(b) If Rent payment due hereunder is not paid in full when due,
the amount due shall bear interest from the due date until paid at a rate equal
to the greater of fifteen (15%) per annum or the rate of interest announced from
time to time in the Wall Street Journal as the "prime rate" plus 2% per annum;
provided, however, that interest shall not be payable on late charges payable by
Lessee pursuant to subsection (a), above; and further provided that in no event
shall interest and/or late charges payable hereunder be payable to the extent
that such payments would exceed the maximum amounts payable under applicable
law. Payment of interest shall not excuse or cure any default hereunder by
Lessee. The calculation of interest charges shall be made on an actual days
elapsed basis with a 365 or 366 day year, whichever may be applicable.
3.5 Manner of Payment. All payments due from Lessee to Lessor shall be
paid to Lessor, absolutely net, without deduction or offset whatsoever, in
lawful money of the United States of America at the Lessor's offices, or to such
other person or at such other place as Lessor may from time to time designate in
writing to Lessee. If more than one check given in payment of any sum due
hereunder is dishonored by the bank on which it is written, at Lessor's election
Lessee shall thereafter pay any sums due hereunder by cashier's check.
ARTICLE 4 - TAXES AND ASSESSMENTS
4.1 Impositions. Lessee shall pay as additional rent for the Demised
Premises, all taxes and assessments, general and special, water and sewer rates
and all other impositions (herein "Impositions"), ordinary and extraordinary, of
every kind and nature whatsoever, which may be levied, assessed, or imposed upon
the Demised Premises, or any part thereof, or upon any improvements at any time
situated thereon, accruing or becoming due and payable during the term hereof;
provided, however, that the general taxes levied against the Demised Premises
shall be prorated between Lessor and Lessee as of the Commencement Date for the
first year of the term and as of the Expiration Date for the last year of the
term, all on the basis of the then most recently ascertainable real estate tax
bills. Lessee may take the benefit of the provisions of any statute or ordinance
-5-
permitting any assessment to be paid over a period of years, and Lessee shall be
obligated to pay only those installments falling due during the term hereof.
4.2 Alternative Taxes. If at any time during the term hereof the method
of taxation prevailing at the Commencement Date shall be altered so that any new
tax, assessment, levy, imposition, or charge, or any part thereof, shall be
measured by or be based in whole or in part upon the Lease Agreement or Demised
Premises, or the rent, additional rent or other income therefrom and shall be
imposed upon Lessor, then all such taxes, assessments, levies, impositions, or
charges, or the part thereof, to the extent that they are so measured or base,
shall be deemed to be included within the term "Impositions" for the purposes
hereof, to the extent that such impositions would be payable if the Demised
Premises were the only property of Lessor subject to such Impositions, and
Lessee shall pay and discharge the same as herein provided in respect of the
payment of Impositions. There shall be excluded from Impositions all federal
income taxes, federal excess profit taxes, franchise, capital stock, and federal
estate or state inheritance taxes of Lessor.
4.3 Lessee's Payment of Impositions. In the month prior to the month in
which Impositions described in Sections 4.1 and 4.2 hereof are due, Lessor shall
provide notice to Lessee of nature of such Impositions and of the amount due by
Lessee in accordance with Sections 4.1 and 4.2 hereof. Lessee shall make payment
of all such Impositions prior to the due date for payment thereof.
4.4 Evidence of Payment. Lessee shall deliver to Lessor duplicate
receipts or photostatic copies thereof showing the payment of all said taxes,
assessments, and all other Impositions, within thirty (30) days after the
respective payments evidenced thereby.
4.5 Right To Contest. Lessee shall have the right to contest the
validity and amount of any taxes and assessments, provided title to the Property
shall not be endangered or the Lessor penalized. Lessor agrees to cooperate with
Lessee in any action, at no cost or expense to Lessor.
ARTICLE 5 - USE OF THE PREMISES
5.1 General. The Demised Premises shall be used solely for
manufacturing and related office and other uses normally incident thereto and
for no other purpose; provided, however, that, on Lessor's prior written consent
(which consent shall not be unreasonably withheld), the Demised Premises may by
used for other related purposes and activities as may be permitted by applicable
zoning ordinances.
5.2 Standards of Operation. Lessee covenants and agrees as follows:
(a) Lessee will not do or permit to be done in, on, or about the
Property, nor bring, or keep, or permit to be brought or kept therein, anything
which (i) is prohibited by or will in any way violate or conflict with any
applicable law, statute,
ordinance or governmental rule or regulation now in force or which may hereafter
be enacted or promulgated, (ii) is prohibited by, or will in any way increase
the existing rate of, otherwise adversely affect, or cause a cancellation of any
fire or other insurance policy covering the Property or any part thereof or any
of its contents, or (iii) will in any way injure, obstruct or interfere with the
rights of other occupants of the Property.
(b) Lessee will not store or place any materials of any kind
whatsoever outside the boundaries of the Demised Premises.
(c) Lessee shall provide to Lessor, at least ten (10) days prior
to Commencement Date, a comprehensive listing of all materials proposed to be
used or stored by Lessee at the Demised Premises that are explosive, highly
flammable, noxious in odor, or that may be otherwise dangerous in order that
Lessor can insure that such materials are properly stored and/or used by Lessee;
Lessor retains the right to require Lessee to move, remove, or otherwise alter
the storage of such materials due to concerns regarding safety and health of
other occupants of the Property and the surrounding neighborhood.
(d) With the exception of ornamental fish, no animals, including
without limitation, dogs, cats, monkeys, rats and mice, shall be brought into or
kept in or about the Demised Premises.
5.3 Lessor's Rules and Regulations. Lessee and Lessee's employees,
agents, customers, invitees and licensees shall observe and comply with all
reasonable rules and regulations established by Lessor with respect to the
manner of conducting business in the Premises and the upkeep and the use
thereof, including reasonable changes and additions to, and modifications
thereof which may be announced by Lessor from time to time. Any such rules and
regulations shall be deemed a part of this Lease Agreement, as conditions, with
the same effect as though written herein, and Lessee also covenants that said
rules and regulation will be faithfully observed by Lessee, Lessee's employees,
and all persons visiting the Demised Premises or claiming under Lessee.
5.4 Security. Lessee shall, at its sole cost and expense, be
responsible for providing security services for the Premises and Lessee shall
take such steps as may reasonably be necessary to control its employees, agents,
customers and others in the Premises so as not to present security problems to
other areas of the Property. Lessee, Lessee's employees, agents and others shall
be subject to security policies and procedures and rules and regulations as may
be established by the Lessor, but Lessor shall not be, in any way, responsible
for providing any security services to the Premises or for the benefit of Lessee
or Lessee's agents, employees or customers.
5.5 Signs. Lessee shall not place any signs in windows or any other
areas visible from the exterior of the Premises unless approved by Lessor, which
approval may be granted or withheld by Lessor at its sole option for any reason
or for no reason. All exterior signage is subject to the prior written approval
of Lessor. Any sign or related
-7-
item must be in conformance with existing ordinances of Palmer Township or other
ordinances or regulations, as applicable.
ARTICLE 6 - INSURANCE
6.1 Kinds of Insurance. As additional rent for the Demised Premises,
Lessee shall procure (unless otherwise provided herein) and maintain policies of
insurance, at Lessee's own cost and expense, insuring the following:
(a) The improvements situated upon the Demised Premises against
loss or damage by fire, lightning, wind storm, hail storm, aircraft, vehicles,
smoke, explosion, riot, or civil commotion as provided by the standard fire and
extended coverage policy and all other risks of direct physical loss as insured
against under special extended coverage endorsement, which insurance coverage
shall be obtained by Lessor and shall be for not less than 100 percent of the
full replacement cost of such improvements with all proceeds of insurance
payable to Lessor, Lessee shall be responsible for the payment, as additional
rent, of all premiums attributable to such insurance coverage of improvements at
the Demised Premises;
(b) Lessor and Lessee from all claims, demands, or actions for
injury to or death of any person in an amount of not less than $1,000,000 for
injury to or death of more than one person in any one occurrence to the limit of
$3,000,000, and for damage to property in amount of not less than $1,000,000
made by or on behalf of, any person or persons, firm, or corporation arising
from, related to or connected with the Demised Premises, including any period
during which Lessee is engaged in making any repairs or alterations to the
premises and including all damage to or from signs, glass, awnings, fixtures, or
other appurtenances now or thereafter erected by, on or about the Property
during the term hereof. Such insurance shall comprehend full coverage of the
indemnity set forth in Article 17 hereof;
(c) Lessor and Lessee with the same limits of coverage as
provided in subsection (b) of this Section for loss or damage by boiler or
internal explosion or breakdown of boilers;
(d) Lessee from all workers' compensation claims;
(e) Lessor and Lessee against breakage of all plate glass
utilized in the improvements on the Demised Premises; and
(f) Lessor from loss of rents during the period while the Demised
Premises are untenantable due to fire or other casualty (for the maximum period
for which such insurance is available), but the purchase of such rent insurance
shall not relieve Lessee from the primary obligation to pay rent during any such
period of untenantability.
6.2 Form. The aforesaid insurance shall be by companies and in form,
substance and amount (where not stated above) satisfactory to Lessor and any
mortgagee of Lessor, and shall contain standard mortgage clauses satisfactory to
Lessor's mortgagee. The aforesaid insurance shall not be subject to cancellation
except after at least thirty days' prior written notice to Lessor and any
mortgagee of Lessor. The original insurance policies (or certificates thereof
satisfactory to Lessor) together with satisfactory evidence of payment of the
premiums thereon shall be deposited with Lessor at the Commencement Date and not
less than thirty days prior to the end of the term of each such coverage. Lessee
shall make monthly deposits to apply toward insurance premiums in the same
manner as made and provided in the case of real estate taxes in Article 4. If
Lessor is a trust, the insurance referred to in subsections 6.1(b), 6.1(c), and
6.1(e) hereof shall also insure the beneficiary or beneficiaries thereof.
6.3 Mutual waiver of subrogation rights. Whenever (1) any loss, cost,
damage, or expense resulting from fire, explosion, or any other casualty or
occurrence is incurred by either of the parties to this Lease Agreement in
connection with the Demised Premises and (2) such party is then covered in whole
or in part by insurance with respect to such loss, cost, damage, or expense,
then the party so insured hereby releases the other party from any liability it
may have on account of such loss, cost, damage, or expense to the extent of any
amount recovered by reason of such insurance and waives any right of subrogation
that might otherwise exist in or accrue to any person on account thereof,
provided that such release of liability and waiver of the right of subrogation
shall not be operative in any case where the effect thereof is to invalidate
such insurance coverage or increase the cost thereof (provided that in the case
of increased cost the other party shall have the right, within twenty days
following written notice, to pay such increased cost, thereupon keeping such
release and waiver in full force and effect).
ARTICLE 7 - ASSIGNMENT AND SUBLETTING
7.1 Consent Required. Lessee shall not, without Lessor's prior written
consent, or mortgagee's consent
(a) Assign, convey, or mortgage this Lease Agreement or any
interest under it;
(b) Allow any transfer thereof or any lien upon Lessee's interest
by operation of law;
(c) Sublet the Demised Premises or any part thereof; or
(d) Permit the use or occupancy of the Demised Premises or any
part thereof by anyone other than Lessee.
Lessor agrees that he will not unreasonably withhold his consent to any
assignment or sublease, provided that if Lessee requests Lessor's consent to a
sublease of the entire Demised Premises, Lessor may, in lieu of granting such
consent or reasonably
-9-
withholding the same, terminate this Lease Agreement, effective on the
commencement date specified in the sublease to which Lessor's consent was
requested. No permitted assignment or subletting shall relieve Lessee of
Lessee's covenants and agreements hereunder and Lessee shall continue to be
liable as a principal and not as a guarantor or surety, to the same extent as
though no assignment of subletting had been made.
7.2 Merger or Consolidation. Lessee may, without Lessor's consent,
assign this Lease Agreement to any corporation resulting from a merger or
consolidation of Lessee upon the following conditions:
(a) That the total assets and net worth of such assignee after
such consolidation or merger shall be equal to or more than that of Lessee
immediately prior to such consolidation or merger;
(b) That Lessee is not at such time in default hereunder; and
(c) That such successor shall execute an instrument in writing
fully assuming all of the obligations and liabilities imposed upon Lessee
hereunder and deliver the same to Lessor.
If the aforesaid conditions are satisfied, Lessee shall be discharged from any
further liability hereunder.
7.3 Other transfer of lease. Lessee shall not allow or permit any
transfer of this Lease Agreement, or any interest hereunder, by operation of
law, or convey, mortgage, pledge, or encumber this Lease Agreement or any
interest herein.
ARTICLE 8 - ALTERATIONS
8.1 Lessor Approval. No alterations, additions or improvements to the
Demised Premises shall be made without first submitting a detailed description
thereof to Lessor and obtaining Lessor's written approval, such approval not to
be unreasonably withheld. All alterations, additions or improvements made by
Lessee and all fixtures attached to the Demised Premises shall become the
property of Lessor and remain at the Demised Premises unless otherwise agreed in
writing. Any item under this section must be in conformance with existing
ordinances of Palmer Township or other ordinances or regulations, as applicable.
8.2 Weight Limitation. Lessee shall not place items anywhere on the
Demised Premises having weight in excess of the safe bearing capacity of the
improvements.
8.3 Removal of Fixtures. The fixtures and other alterations which are
made on the Demised Premises on behalf of Lessee which are capable of removal
must be removed at the option of the Lessor at the termination of this Lease
Agreement. Lessee shall remove the fixtures and repair the damage to the
premises, if any, caused by such
-10-
removal at Lessee's expense. Lessor shall notify Lessee of its desire regarding
removal within sixty (60) days from the expiration of the then current term.
8.4 Initial Lessor Renovations. Renovations undertaken for and on
behalf of the Lessee by the Lessor shall be undertaken, at Lessor's expense, in
accordance with the approved plans and specifications attached hereto as Exhibit
C.
ARTICLE 9 - DAMAGE FROM FIRE OR OTHER CASUALTY
9.1 Termination. If, during the term of this Lease Agreement, or any
renewal or extension thereof, any building is so damaged by fire or other
casualty that the Demised Premises cannot be used for the purposes for which the
premises were leased, as described in Article 5 (whether or not the Demised
Premises are damaged), then, at Lessor's option, the term of this Lease
Agreement upon written notice from Lessor, given within thirty days after the
occurrence of such damage, shall terminate as of the date of the occurrence of
such damage; provided, however, that if, on the occurrence of such damage or
destruction, Lessor does not provide notice of termination as hereinabove
provided, but elects to repair the damaged building, either party may terminate
this Lease Agreement, effective as of the date of such damage, if such repairs
and restoration cannot be completed within 270 days after the date of occurrence
of such damage so as to reasonably restore the Demised Premises to the use for
which they were leased hereunder. In either such case, Lessee shall pay the rent
to the time of such termination and Lessor may enter upon and repossess the
Demised Premises without further notice and with the right to break in forcibly
to take possession.
9.2 Suspension of Rent. If Lessor does not elect to terminate the term
of this Lease Agreement, Lessor may repair the damaged building, and Lessor may
enter and possess the Demised Premises for that purpose, and the rent shall be
apportioned and suspended if and when Lessee is deprived of the Demised
Premises; provided, however, that if Lessee is only deprived of a portion of the
Demised Premises only an equitable portion of the rent shall be suspended.
9.3 Continued Use by Lessee. If the Demised Premises shall be only
slightly damaged so that such damage or the damage to any building a part of the
Demised Premises does not render the Demised Premises unfit for the purposes for
which the premises were leased as described in Article 5, Lessor will repair
whatever portion, if any, of the Demised Premises which may have been damaged
and Lessee will continue in possession and no rent will be apportioned or
suspended.
9.4 Disputed Rent Payment. If a dispute arises as to the amount of rent
due under this Article 9, Lessee agrees to pay the full amount claimed by
Lessor. Lessee shall, however, have the right to proceed by law to recover the
excess payment, if any.
9.5 No Obligation to Restore. In no event shall Lessor be obligated to
repair, restore or replace any fixtures, improvements, alterations or other
property for or on
-11-
which Lessee carries or should have carried appropriate insurance, regardless of
whether or not Lessee receives any insurance settlement on its claim or claims
thereunder.
ARTICLE 10 - LESSOR'S RIGHT TO ENTER; INSPECTION
10.1 Permitted Entry. Lessee will permit Lessor, Lessor's agent or
employees or any other person or persons authorized by Lessor, in writing, to
inspect the Demised Premises at any time, and to enter the Demised Premises if
Lessor shall so elect, for the purpose of making alterations, improvements or
repairs to any building or for any purpose in connection with the operation or
maintenance of any building, without depriving Lessee of the use of the Demised
Premises unreasonably, and, also, for the purpose of showing the Demised
Premises to persons wishing to purchase the same, or at any time within one year
prior to the expiration of the Lease term, to persons wishing to rent the
Demised Premises. Lessee shall, within one year prior to the expiration of the
term hereof, permit the usual notice of "To Let" or "For Sale" to be placed on
the Demised Premises and to remain thereon without molestation.
ARTICLE 11 - CONDITION OF DEMISED PREMISES; MAINTENANCE
11.1 Condition of Demised Premises. At the expiration or other
termination of this Lease Agreement, Lessee shall leave the Demised Premises,
and during the term hereof will keep the same, in good order and condition,
ordinary wear and tear and damage by fire or other casualty alone excepted; and
for that purpose and except as stated, Lessee will make all necessary repairs
and replacements. All fixtures at the Demised Premises, including any and all
fixtures that are part of improvements made to the Demised Premises, shall be a
part of the Demised Premises and shall not be removed by Lessee. On Lessee's
removal of improvements other than fixtures, Lessee shall be responsible for the
repair of any and all damages to the Demised Premises occasioned by such
removal. Lessee will use every reasonable precaution against fire and will give
Lessor prompt notice of any damage to or accident upon the Demised Premises.
Lessee will also at all times remove all dirt, rubbish, waste and refuse from
the Demised Premises and at the termination of the term will also have had
removed all its property therefrom, to the end that Lessor may again have and
repossess the Demised Premises. Lessee acknowledges that the Demised Premises
are now in good order and condition. Except as expressly otherwise provided in
this Lease Agreement, Lessor shall have no obligation to make any repairs,
improvements or alterations to the Demised Premises at any time.
11.2 Lessor's Responsibility. Lessor shall keep the structural
supports, exterior surfaces, and structural elements of the exterior walls and
roof of the buildings that are a part of the Demised Premises in good order and
repair at Lessor's expense. Lessor shall not, however, be under any obligation
to maintain windows, doors, or glass wherever located. Lessor shall also operate
and maintain the common areas and facilities as hereafter provided. Lessor shall
have no responsibility to make any repairs hereunder until a reasonable time
after receipt of written notice of the need for such repairs.
11.3 Lessor's Responsibility. Lessee shall, at all times during the
term hereof and upon surrender or termination, keep and maintain in good and
substantial order and repair and make all necessary repairs, renewals,
replacements, and decorations upon or in connection with all other parts of the
Demised Premises, not explicitly the responsibility of Lessor, at Lessee's sole
cost and expense. These parts of the Demised Premises include, but are not
limited to, all doors, windows, window wall assembly and door frames, glass,
walls and wall coverings, floors and floor coverings, electrical installations,
plumbing installations and fixtures, heating, ventilating, and air-conditioning
equipment and systems, pipes, wiring, gas, steam, and electrical equipment and
fixtures, dock bumpers, seals, and dock equipment and facilities, and all other
installations, equipment, fixtures, and appurtenances.
ARTICLE 12 - COMMON AREAS
12.1 Definition. The term "common areas and facilities" shall mean all
parking areas, access roads, drives, and sidewalks, lawns and landscaping,
including lawn sprinkler systems, if any, exterior lighting, building sprinkler
systems, if any, and all other space and facilities used in common or available
for use in common by all tenants of the Property, their employees, customers, or
invitees.
12.2 Operation and Maintenance. Lessor shall operate and maintain, and
may impose reasonable rules for the use of the common areas and facilities of
the Property of which the Demised Premises are a part. Operating and maintaining
the common areas and facilities shall include operating, furnishing,
maintaining, repairing, and replacing parking, access, and drive areas, exterior
building and parking area lighting, cleaning, painting, and striping, snow, ice,
and debris removal, landscaping areas, utility services to the Demised Premises
not separately metered and common area utility services, if any, building
sprinkler systems, if any, and such other services and facilities for use or
benefit of all tenants of the Property. This provision shall not require the
Lessor to furnish any common area or facility not in place at the execution of
this Lease Agreement nor shall it impede or restrict the alteration, removal, or
conversion of use of any existing common areas or facilities.
ARTICLE 13 - HOLDING OVER BEYOND END OF LEASE TERM
13.1 Termination or Continuation; Notice. Either party hereto may
terminate this Lease Agreement at the end of the term set forth in Section 2.1
by giving to the other party written notice of termination at least ninety (90)
days prior to the end of said term. But, in default of such notice, this Lease
Agreement shall continue at the same rate of rent, without any allowances, and
upon the same covenants and conditions in force immediately prior to the
expiration of said term for a further term of one (1) year and so on from year
to year unless or until terminated by either party hereto by giving to the other
at least ninety (90) days written notice of termination prior to the expiration
of the then current term; provided, however, that if Lessor, on or prior to the
last day permitted as aforesaid for giving notice of termination at the end of
the then current term, shall have given Lessee, instead of a termination notice,
a written notice setting forth proposed
-13-
changes to the covenants or conditions of this Lease Agreement, and if Lessee
shall not within ten (10) days from the giving of Lessor's notice, notify Lessor
of Lessee's intention to vacate the Demised Premises at the end of the then
current term, Lessee shall be considered as having accepted the changes and as
electing to continue as Lessee under the terms of this Lease Agreement as
modified by the terms and conditions mentioned in such notice from Lessor, for a
further term as above provided or for such other term as may be stated in
Lessor's notice. Upon receipt of notice of termination as provided above, Lessee
agrees to vacate the Demised Premises no later than the end of the then current
term and expressly waives the benefits of all laws, statutes or ordinances, now
or hereafter enforced, providing for additional notice. Lessee expressly shall
pay to Lessor as liquidated damages an the amount equal to two times the then
applicable monthly installment of Basic Rent, for each month or portion of a
month Lessee retains possession of the Demised Premises beyond the term of this
Lease Agreement.
ARTICLE 14 - COMPLIANCE WITH LAW
14.1 Lessee Compliance. Lessee agrees to comply promptly with all laws
and ordinances and other notices, requirements, orders, regulations and
recommendations (whatever the nature thereof may be) of any and all the Federal,
State, County or Municipal authorities or the Board of Fire Underwriters or any
insurance organizations, association or companies, with respect to the Demised
Premises and any property appurtenant thereto.
ARTICLE 15 - SERVICES
15.1 Utilities. Lessor shall not be required to furnish to Lessee any
utilities or services of any kind. Lessee shall pay all charges for gas,
electricity, water, sewer, light, heat, power, and telephone used or supplied
upon or in connection the Demised Premises and shall indemnify Lessor against
any liability on account thereof. Lessee shall also pay to Lessor, upon demand,
as additional rent hereunder, the cost of any excessive use of utility services
upon the Demised Premises that are not separately metered to the Demised
Premises. Excessive use shall mean the use of utility services from such common
utility service in an amount greater than the average use of the other tenants
of the Property of which the Demised Premises are a part.
ARTICLE 16 - NOTICE OF ACCIDENT, ETC.
16.1 Required Notice. Lessee shall give Lessor prompt written notice of
any accident or breakage or defects in the wires, plumbing or heating, elevators
or other apparatus.
ARTICLE 17 - INDEMNIFICATION; RELEASE OF LESSOR
17.1 Indemnification. Lessee will protect, indemnify, and save harmless
Lessor and Lessor's agents (and Lessor's beneficiary or beneficiaries if Lessor
is a trustee) from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs,
-14-
and expenses (including, without limitation, reasonable attorney fees and
expenses) imposed upon or incurred by or asserted against Lessor by reason of
any of the following:
(a) Any accident, injury to, or death of persons or loss of or
damage to property occurring on the Demised Premises;
(b) Any failure on the part of Lessee to perform or comply with
any of the terms of this Lease; or
(c) Performance of any labor or services or the furnishing of any
materials or other property in respect of the Demised Premises or any part
thereof.
In case any action, suit or proceeding is brought against Lessor and/or Lessor's
agents (and/or Lessor's beneficiary or beneficiaries if Lessor is a trustee) by
reason of any such occurrence, Lessee will, at Lessee's expense, resist and
defend such action, suit, or proceeding, or cause the same to be resisted and
defended by counsel approved by Lessor.
17.2 Liability of Lessor. Lessor shall not be held responsible for, and
is hereby expressly relieved from, any and all liability by reason of any
injury, loss or damage to any person or property in the Demised Premises or the
building whether the same be due to fire, breakage, leakage, water flow, steam,
gas, use, misuse, abuse of elevators or defects therein, hatches, openings,
defective construction or condition anywhere in the building, failure of water
supply, or light or power defects in electric wiring, plumbing or other
equipment or mechanism, wind, lighting storm or any other cause whatever whether
the loss, injury or damage be to the person or property of Lessee or any other
person, and whether or not due to any oversight, neglect or negligence of
Lessor, occurring before or after the execution of this Lease Agreement,
provided that the same is not occasioned by the gross negligence of willful
misconduct of Lessor. Lessee further agrees to indemnify, defend and save Lessor
harmless from and against all claims by any employee or invitee of Lessee made
on account of such injury, loss or damage, including but not limited to
reasonable attorney's fees and other legal expenses.
ARTICLE 18 - REMEDIES LESSOR
18.1 Defaults; Remedies. If Lessee does any of the following, which
shall constitute an event of default under this Lease Agreement:
(a) Shall be in default in the payment of any installment of rent
for a period of ten (10) days and the Lessor has provided to Lessee by
telephone, with written confirmation thereof, at least forty-eight (48) hours
notice that its payment has not been received, and if Lessee does not make
prompt and complete payments as are required, upon receipt of such notice; or
(b) Defaults in any of the covenants or conditions herein
contained for ten (10) days following written notice to the Lessee of the
default/ and if Lessee does not
-15-
remedy the default within thirty (30) days of notification of such default or
diligently pursue remedy of the default; or
(c) Abandons the Demised Premises or removes or attempts to
remove Lessee's goods or property therefrom other than in the ordinary course of
business without having first paid to Lessor in full all rent and charges that
may have become due as well as all which will become due thereafter; or
(d) Becomes insolvent in any sense or makes an assignment for the
benefit of creditors or offers a composition or settlement to creditors or calls
a meeting of creditors for any such purpose, or if a petition in bankruptcy or
for reorganization or for an arrangement with creditors under any Federal or
State act is filed by or against Lessee, or if a bill in equity or other
proceeding is filed by any court for the appointment of a receiver, trustee,
liquidator, custodian, conservator or similar official for any of Lessee's
assets, or if any of the real or personal property of Lessee shall be levied
upon by any sheriff, marshal, or constable, provided that any such proceeding
shall not have been dismissed within sixty days (60) after the commencement of
any such actions;
then, and in any such event, at the sole option of Lessor;
(1) The whole balance of rent and charges, whether or not payable as
rent, for the entire balance of the term herein reserved and any renewal or
extension thereof, or any part of such rent and charges, and also all or any
costs and sheriff's, marshall's or constable's commissions, whether chargeable
to Lessor or Lessee, including watchman's wages, shall be taken to be due and
payable and in arrears as if by the terms of this Lease Agreement said balance
of rent and such other charges and expenses were on that day payable in advance;
and/or
(2) The term created by this Lease Agreement shall terminate and become
absolutely void, without notice and without any right on the part of Lessee to
save the forfeiture by payment of any sum due or by other performance of any
condition, term or covenant broken, and upon such termination, or, also if there
be no termination, Lessor may, without notice or demand, enter the Demised
Premises breaking open locked doors, if necessary, to effect entrance, without
liability for damages for such entry or for the manner thereof, for the purpose
of distraint or execution or to take possession of the Demised Premises to
minimize the loss by reason of Lessee's default, and to take possession of and
sell under distraint the goods or chattels found upon said premises (subject
only to any written waiver executed by Lessor in accordance with Section 27.6
hereof). Whether or not any rent be due or unpaid, should Lessee at any time
remove, or attempt or indicate an intention to remove, the goods or chattels
from the premises other than in the ordinary course of business, Lessee
authorizes Lessor to follow the same for a period of ninety days after such
removal or attempted or intended removal and to take possession of and cause to
be sold sufficient of such goods and chattels to meet the rent and charges in
arrears, as well as payable for the balance of the full term then remaining or
any part thereof; and in addition to the above remedies or in connection
therewith,
-16-
18.2 Mitigation. After reentry or retaking or recovering of the Demised
Premises, whether by way of termination of this Lease Agreement or not, Lessor
may lease the Demised Premises or any part or parts thereof to such person or
persons upon such terms as may in Lessor's discretion seem best for a term
within or beyond the term of this Lease Agreement, and Lessee shall be liable
for any loss of rent for the balance of the term plus the costs and expenses of
reletting and balance of the term plus the costs and expenses of reletting and
of making repairs and alterations to the Demised Premises. Further, Lessee, for
itself and its successors and assigns, hereby irrevocably constitutes and
appoints Lessor as Lessee's agent to collect the rents due and to become due
from all subleases and apply the same to the rent due hereunder without in any
way affecting Lessee's obligation to pay any unpaid balance of rent due or to
become due hereunder.
ARTICLE 19 - REMEDIES CUMULATIVE
19.1 Remedies Cumulative and Concurrent. All remedies available to
Lessor hereunder and at law and in equity shall be cumulative and concurrent. No
determination of this Lease Agreement nor taking or recovering possession of the
Demised Premises shall deprive Lessor of any remedies or actions against Lessee
for rent, for charges or for damages for the breach of any covenant or condition
herein contained, nor shall the bringing of any such action for rent, charges or
breach of covenant or condition, nor the resort to any other remedy or right for
the recovery of rent, charges or demands for such breach be construed as a
waiver of release of the right to insist upon the forfeiture and to obtain
possession. No reentering or taking possession of the Demised Premises, or
making of repairs, alterations or improvements thereto, or reletting thereof,
shall be construed as an election on the part of Lessor to terminate this Lease
Agreement unless written notice of such intention be given by Lessor to Lessee.
The failure of Lessor to insist upon strict and/or prompt performance of the
term, agreements, covenants and conditions of this Lease Agreement or any of
them, and/or the acceptance of such performance thereafter shall not constitute
or be construed as a waiver of Lessor's right to thereafter enforce the same
strictly according to the tenor thereof in the event of a continuing or
subsequent default.
ARTICLE 20 - INABILITY OF LESSOR TO DELIVER POSSESSION
20.1 Lessor Liability. Lessor shall not under any circumstances be
liable to Lessee for its inability to deliver possession of the Demised Premises
to Lessee as of the Commencement Date by reason of (a) the retention of the
Demised Premises or any part thereof by any other person; (b) the fact that the
renovation of any buildings included in the Demised Premises is not complete and
ready for occupancy; or (c) any cause beyond Lessor's immediate control.
ARTICLE 21 - LEASE SUBORDINATED
21.1 Mortgage or Deed of Trust. The rights and interest of Lessee under
this Lease shall be subject and subordinate to any mortgage or trust deed that
may be placed
-17-
upon the Demised Premises and to any and all advances to be made thereunder, and
to the interest thereon, and all renewals, replacements, and extensions thereof,
if the mortgagee or trustee named in said mortgages or trust deeds shall elect
to subject and subordinate the rights and interest of Lessee under this Lease
Agreement to the lien of his mortgage or deed of trust and shall agree to
recognize this Lease Agreement of Lessee in the event of foreclosure if Lessee
is not in default. Any mortgagee or trustee may elect to give the rights and
interest of Lessee under this Lease priority over the lien of its mortgage or
deed of trust. In the event of either such election and upon notification by
such mortgagee or trustee to Lessee to that effect, the rights and interest of
Lessee under this Lease shall be deemed to be subordinate to, or to have
priority over, as the case may be, the lien of the mortgage or trust deed,
whether this Lease Agreement is dated prior to or subsequent to the date of the
mortgage or trust deed. Lessee shall execute and deliver whatever instruments
may be required for such purposes, and in the event Lessee fails so to do within
ten (10) days after demand in writing, Lessee does hereby make, constitute and
irrevocably appoint Lessor as his attorney in fact and in his name, place, and
stead so to do. Provided that the same shall not adversely affect Lessor's
ability to obtain financing from a lender of its choice under terms and
conditions acceptable to Lessor, Lessor shall request any lender becoming a
mortgagee of the Property to enter into a non-disturbance and attornment
agreement containing substantially the terms and conditions set forth in Exhibit
_____ hereto.
ARTICLE 22 - LIENS AND ENCUMBRANCES
22.1 Encumbering Title. Lessee shall not do any act that shall in any
way encumber the title of Lessor in and to the Demised Premises, nor shall the
interest or estate of Lessor in the Demised Premises be in any way subject to
any claim by way of lien or encumbrance, whether by operation of law or by
virtue of any express or implied contract by Lessee. Any claim to, or lien upon,
the, Demised Premises arising from any act or omission of Lessee shall accrue
only against the leasehold estate of Lessee and shall be subject to and
subordinate to the paramount title and rights of Lessor in and to the Demised
Premises.
22.2 Liens and Rights to Contest. Lessee shall not permit the Demised
Premises to become subject to any mechanic's, laborer's, or materialman's lien
on account of labor or material furnished to Lessee or claimed to have been
furnished to Lessee in connection with work of any character performed or
claimed to have been performed on the Demised Premises by, or at the direction
or sufferance of, Lessee, provided that Lessee shall have the right to contest
in good faith and with reasonable diligence the validity of any such lien or
claimed lien if Lessee shall give to Lessor such security as may be deemed
satisfactory to Lessor to insure payment thereof and to prevent any sale,
foreclosure, or forfeiture of the Demised Premises b,( reason of nonpayment
thereof, and provided further that, on final determination of the lien or claim
for lien, Lessee shall immediately pay any judgment rendered, with all proper
costs and charges, and shall have the lien released and any judgment satisfied.
-18-
ARTICLE 23 - CONDEMNATION
23.1 Whole or Partial Taking. In the event that any of the buildings
included in the Demised Premises or any part thereof is taken or condemned for a
public or quasi-public use, this Lease Agreement shall terminate as of the date
when possession is surrendered to the condemnor, and the rent reserved hereunder
shall abate and cease proportionately for the balance of the term hereof. In any
such event, Lessee waives all claims for leasehold damages against Lessor and
against the condemning authority or party and assigns the same, if any, to
Lessor.
ARTICLE 24 - LESSEE'S OPTION TO PURCHASE PROPERTY
24.1 Option Period; Purchase Price. Lessee shall have the right and
option, during the period beginning January 1, 2003 and ending January 5, 2004,
to purchase the Property for the purchase price calculated, as follows:
Purchase price = $4,000,000 x [Index for December, 2002 / Base Year Index].
For purposes of this Option, for any given calendar year, the term "Index" shall
mean the All Items Figure of the Consumer Price Index for All Urban Consumers,
as published by the Bureau of Labor Statistics of the United States Department
of Labor; provided, however, that, in the event that the Bureau of Labor
Statistics or its successor discontinues publication of such index, then a
comparable index shall be selected by Lessor exercising reasonable business
judgment. And, the term "Base Year Index" shall mean the Index for the calendar
month in which the Commencement Date occurs. Real estate taxes, insurance, and
any other prepaid or accrued charges customarily prorated shall be prorated as
of the date of transfer according to the applicable fiscal year.
24.2 Notice Period; required deposit. Lessee may exercise this option
by giving written notice to Lessor at any time during the period beginning
January 1, 2003 and ending February 28, 2003.
23.3 Settlement; Title. If Lessee shall exercise this option,
settlement shall occur no later than January 5, 2004 at which time Lessor, as
against receipt of said purchase price, shall give Lessee a good, clear, and
marketable title to the Property, free and clear of all liens, encumbrances,
encroachments, restrictions, reservations, conditions of record, and easements,
except then existing leases, usual and customary easements such as utility
services, taxes due but not yet payable, and zoning ordinances, if any. Transfer
of the Property shall be made by special warranty deed conveying title therein
to Lessee, in fee simple. If there is any lien or encumbrance of record against
the Property, Lessee may elect to take the Property subject to any such lien or
encumbrance.
24.4 Change in Commencement Date. If for any reason Lessor cannot
deliver possession of the Demised Premises to Lessee on or before the
Commencement Date, the dates set forth in this Article shall be reset so that
each date is moved forward in time by
-19-
the number of days which passed between the Commencement Date and the date upon
which Lessor delivered possession to Lessee.
ARTICLE 25 - ENVIRONMENTAL COMPLIANCE
25.1 Definitions.
(a) As used herein, the term "Environmental Laws" means any and
all federal, state or local laws, statutes, rules, regulations, ordinances,
interstate compacts, or judicial or administrative decrees, orders, decisions or
permits relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants or Hazardous Substances into the environment (including
ambient air, surface water, ground water or subsurface strata), or otherwise
relating to the use, storage, treatment, transportation, manufacture,
refinement, handling, production or disposal of such pollutants, contaminants or
any Hazardous Substances, including the following statutes, as amended and
judicially and administratively interpreted, and all regulations promulgated
thereunder, including all comparable statutes, regulations and interpretations
by the Commonwealth of Pennsylvania: Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C ss.ss.9601 et seq.
("CERCLA"); Federal Water Pollution Control Act, 42 U.S.C ss.ss. 1251 et seq.;
Clean Air Act, 42 U.S.C ss.ss. 7401 et seq.; Resource Conservation and Recovery
Act, 42 U.S.C ss.ss. 4901 et seq.; Safe Drinking Water Act, 42 U.S.C ss.ss. 300f
et seq.; Toxic Substance Control Act, 15 U.S.C ss.ss. 2601 et seq.; Clean Water
Act, 33 U.S.C. ss. 1251 et seq.; National Environmental Policy Act 42 U.S.C. ss.
4321 et seq.; Hazardous Substances Cleanup Act, 35 Pa. C.S.A. ss. 6020.101 et
seq. ("HSCA"); Clean Streams Law, 35 Pa. C.S.A. ss.691.1 et seq.; Solid Waste
Management Act, 35 Pa. C.S.A. ss. 6018.101 et seq.; Pennsylvania Storage Tank
and Spill Prevention Act, Pa. Act No. 1989-32; and Pennsylvania Air Pollution
Control Act, 35 Pa. C.S.A. ss.ss. 4001 et seq.
(b) As used herein, the term "Hazardous Substances" means any and
all elements, compounds, chemical mixtures, contaminants, pollutants or other
substances identified as "hazardous substances" under CERCLA or HSCA or any
comparable statutes and regulations of the Commonwealth of Pennsylvania, or any
petroleum or petroleum products, or asbestos.
(c) As used herein, the term "release" means any spilling,
leaking, pumping, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, discarding, burying, abandoning or disposing into the
environment at or about the Property on or prior to the termination or
expiration of this Lease.
25.2 Lessee's Obligations. Lessee shall:
(a) not cause or permit any Hazardous Substances to be placed,
held, located, released, spilled, transported or disposed of on, under, at or
from the Demised Premises, or any real estate contiguous thereto, in
contravention of any Environmental Law;
-20-
(b) if Lessee violates clause (a) of this paragraph (2), at
Lessee's sole cost and expense, contain at or remove from the Property or
perform any other remedial action regarding any Hazardous Substance, at Lessee's
sole cost and expense, whether or not such containment, removal or other
remedial action is required under any Environmental Law (such containment,
removal or other remedial action to occur as and when required by Environmental
Law or upon termination or expiration of this Lease, whichever first occurs)
and, whether or not so required, perform any containment, removal or remediation
of any kind of any Hazardous Substance in compliance with all requirements of
law;
(c) not permit any subtenant or occupant of the Demised Premises
to engage in any activity that could result in any liability, cost or expense to
any such subtenant or occupant, or to Lessee, Lessor or any other owner of the
Property or any portion thereof or the creation of a lien on the Property under
any Environmental Law or under any similar applicable law or regulation;
(d) provide Lessor with written notice (and a copy as may be
applicable) of any of the following within 10 days thereof: (i) Lessee's
obtaining knowledge or notice of any kind of the presence, or any actual or
threatened release, of any Hazardous Substance on, under, at or from the
Property not authorized or permitted under Environmental Laws; (ii) Lessee's
receipt or submission, or Lessee's obtaining knowledge or notice of any kind, of
any report, citation, notice or other communication from or to any federal,
state or local governmental or quasi-governmental authority regarding any
Hazardous Substance in any way materially adversely affecting the Property; or
(iii) Lessee's obtaining knowledge or notice of any kind of the incurrence of
any cost or expense by any federal, state or local government or
quasi-governmental authority or any private party in connection with the
assessment, monitoring, containment, removal or mediation of any kind of any
Hazardous Substance on, under, at or from the Property, or of the recording of
any lien on the Property in connection with any such action or Hazardous
Substance on, under or at the Property; and
(e) defend all actions arising out of Lessee's occupancy of the
Demised Premises during the Term against Lessor and pay, protect, indemnify and
save harmless Lessor from and against any and all liabilities, losses, damages,
costs, expenses (including reasonable attorneys' fees and expenses), causes of
action, suits, claims, demands or judgments of any nature arising from Lessee's
failure to comply with this section. The indemnity contained in this section
shall survive the expiration or earlier termination of this Lease with respect
to the obligations and liabilities of Lessee hereunder, actual or contingent,
which have arisen on or prior to such expiration or earlier termination.
ARTICLE 26 - CONFESSION OF JUDGMENT
26.1 Money Judgment. For value received and upon the occurrence of an
event of default hereunder, lessee does hereby empower any attorney of any court
of record within the commonwealth of Pennsylvania, to appear for lessee and,
with or without complaint filed, confess judgment against lessee and in favor of
lessor, its successors or
-21-
assigns, in the commonwealth of Pennsylvania, for the sum due by reason of said
default in the payment of rent and other sums, including accelerated rent, and
for the sum due by reason of any breach of covenant or condition broken by
lessee, with costs of suit and attorney's commission of 10 percent for
collection, and forthwith issue a writ or writs of execution thereon with
release of all errors and without stay of execution. Such authority shall not be
exhausted by one exercise thereof, but judgment may be confessed from time to
time as often as any rent in arrears or rent treated as if in arrears or charges
fall due and are not paid. Such powers may be exercised during as well as after
the expiration or termination of the original term and during and at any time
after any extension or renewal of the term.
26.2 Judgment in Ejectment. For value received and upon the occurrence
of an event of default hereunder, or upon expiration or earlier termination of
the term of this lease and the failure of lessee to deliver possession to
lessor, lessee further authorizes and empowers any such attorney (either in
addition to or without such judgment for the amount due according to the terms
of this lease) to appear for lessee and any other person claiming under, by or
through lessee, and confess judgment forthwith against lessee and such other
persons and in favor of lessor in an amicable action of ejectment for the
premises filed in the Commonwealth of Pennsylvania, with release of all errors.
Lessor may forthwith issue a writ or writs of execution for possession of the
premises and at lessor's option, for the amount of any judgment, and all costs,
without lease of court, and lessor may, by legal process, without notice reenter
and expel lessee from the premises, and also any persons holding under lessee.
ARTICLE 27 - MISCELLANEOUS
27.1 Zoning. Anything herein contained to the contrary notwithstanding,
this Lease Agreement and all the terms, covenants and conditions hereof are in
all respects subject and subordinate to all zoning laws and ordinances affecting
the Demised Premises and/or the building and Lessee agrees to be bound by the
game. Further, Lessee does not agree or represent that any licenses or permits
which may be required for the business to be carried on by Lessee in the Demised
Premises will be granted, or if granted will be continued in effect or renewed.
Any failure to obtain such licenses or permits, or any revocation thereof, or
failure to continue or renew the same, shall not release Lessee from any
obligations of this Lease Agreement or reduce the save, and nothing shall
obligate Lessor to assist in obtaining any such permit or license.
27.2 Brokers. The parties represent and warrant that this Lease
Agreement was negotiated directly and not through or with any broker or other
intermediary purporting to act either for either party. The parties agree to
indemnify, protect, defend and save each other harmless from and against any and
all claims, costs, damages or expenses to which each may be subjected as the
result of any broker or other intermediary claiming to have negotiated or
brought about this Lease Agreement.
27.3 Conveyance by Lessor. Lessee agrees that on the occasion of each
sale or exchange of Lessor's estate in the building, Lessee will look to each
respective succeeding
-22-
grantee or assignee for the performance of the obligations of Lessor hereunder.
Lessee further agrees that each respective grantor and assignor so selling or
exchanging shall be and is hereby released and discharged from any and all
liability and obligation under this Lease Agreement as Lessor or otherwise,
except liabilities in respect to the period up to the date of such sale or
exchange. Lessee further agrees that Lessor's liability under this Lease
Agreement shall be limited to and include only the interests of Lessor in the
building of which the Demised Premises are a part.
27.4 Notices. All notices required to be given under this Lease
Agreement shall be given by registered mail, sent to the place specified below.
LESSOR:
William I. Roberts
99 South Cameron Street
Harrisburg, PA 17101
LESSEE:
Blue Fish Clothing, Inc.
No. 3 Sixth Street
Frenchtown, NJ 08825
As against Lessor the only admissible evidence that notice has been given shall
be a registered return receipt signed by Lessor.
27.5 Successors and Assigns. All rights and liabilities herein given
to, or imposed upon, the respective parties hereto shall extend to and bind the
several and respective heirs, executors, administrators, successors and assigns
of said parties; and if there shall be more than one Lessee, they shall be bound
jointly and severally by the terms, covenants and agreements herein, and the
word "Lessee" shall be deemed and taken to mean each and every person or party
mentioned as a Lessee herein, be the same one or more; and if there shall be
more than one Lessee, any notice required or permitted by the terms of this
Lease Agreement may be given by or to any one thereof, and shall have the same
force and effect as if given by or to all thereof. No rights, however, shall
inure to the benefit of any assignee of Lessee unless the assignment to such
assignee has been approved by Lessor in writing as aforesaid.
27.6 Lessor's Waiver. Lessor shall, upon written request from Lessee,
execute a waiver of its right to distrain upon or secure a lien against any
equipment, machinery or other personal property acquired or leased by Lessee, if
such property becomes subject to a perfected security interest by any lending
institution or equipment lessor. Lessee shall, in its written request for this
waiver, specifically enumerate the equipment, machinery or other personal
property for which the waiver is requested as well as the length of time for
which the perfected security interest shall be in full force and effect.
-23-
27.7 Estoppel Certificate. Lessee shall, upon demand from Lessor,
execute and deliver to Lessor an Estoppel Certificate in such form and content
as requested by Lessor, attesting to the compliance to date of Lessor with the
terms and conditions of this Lease Agreement and such other matters as requested
by Lessor concerning the tenancy of Lessee hereunder. In the event that Lessee
asserts any default by Lessor that would prevent Lessee from attesting to such a
certificate, Lessee shall set forth such alleged default or defaults in the
certificate in detail and attest to the fact that those listed defaults are the
only defaults by Lessor hereunder.
27.8 Headings. The headings appearing in connection with various
sections herein are for convenience only. They are not intended to indicate all
of the subject matter in the text and they are not to be used in interpreting
this Lease Agreement nor for any other purpose in the event of any controversy.
27.9 Whole Agreement. It is expressly understood and agreed by and
between all the parties hereto that this Lease Agreement and the riders attached
hereto and forming a part hereof set forth all the promises, agreements,
conditions, warranties, representations and understandings between Lessor and
Lessee relative to the Demised Premises and this leasehold, and that there are
no promises, agreements, conditions, warranties, representations on
understandings, either oral or written, between them other than as herein set
forth. It is further understood and agreed that, except as herein otherwise
provided, no subsequent alteration, amendment, understanding or addition to this
Lease Agreement shall be binding upon Lessor or Lessee unless reduced to writing
and signed by them.
IN WITNESS WHEREOF, the parties hereto have executed this Lease
Agreement the day and year aforesaid.
LESSOR: LESSEE:
William I. Roberts Blue Fish Clothing, Inc.
By: By:
--------------------- ---------------------
(Name/Title) (Name/Title)
By: By:
--------------------- ---------------------
(Name/Title) (Name/Title)
WITNESS ATTEST
- ------------------------ ---------------------
(Name/title) (Name/Title)
-24-
5/5/80 B
- --------------------------------------------------------------------------------
STANDARD FORM OF STORE LEASE
The Real Estate Board of New York, Inc.
- --------------------------------------------------------------------------------
AGREEMENT OF LEASE, made as of this 19th day of December 1996, between 150
Greene Street Corp., 146-148 Greene Street, New York, New York 10012 party of
the first part, hereinafter referred to as OWNER, and Blue Fish Clothing, Inc.,
P.O. Box 36, #3 Sixth Street, Frenchtown, New Jersey 08825 party of the second
part, hereinafter referred to as TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner
ground floor and part of the basement consisting of approximately 6,500 square
feet of space as shown on the floor plans attached hereto as Exhibit "A" in the
building known as 148 Greene Street, New York, New York, a/k/a 150 Green Street
in the Borough of Manhattan, City of New York, for the term of ten (10) years
(or until such term shall sooner cease and expire as hereinafter provided) to
commence on the 1st day of January nineteen hundred and ninety-seven, and to end
on the 31st day of December two thousand and six, both dates inclusive, at an
annual rental rate of - See attached rider, paragraph R42 - 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 set off or deduction whatsoever, except that Tenant shall pay the first
monthly installment(s) on the execution hereof (unless this lease be a renewal).
All payments of rent and additional rent shall be made payable to Owner or as
otherwise specified by Owner.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
1. RENT. Tenant shall pay the rent as above and as hereinafter provided.
2. OCCUPANCY. Tenant shall use and occupy demised premises for Retail store,
wholesale showroom and office for clothing and home furnishing designer and for
no other purpose. Tenant shall at all times conduct its business in a high grade
and reputable manner, shall not violate Article 37 hereof, and shall keep show
windows and signs in a neat and clean condition.
3. ALTERATIONS. Tenant shall make no changes in or to be 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 by using
contractors or mechanics first approved by Owner. Tenant shall, before making
any alterations, additions, installations or improvements, at its expense,
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 and Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman'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 done for, or materials furnished to, Tenant, whether or not done pursuant
to this article, the same shall be discharged by Tenant within ten days
thereafter, at Tenant's expense, by filing the bond required by law. All
fixtures and all paneling, partitions, railings and like installations,
installed in the 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 days prior to the date fixed as the termination of
this lease, elects to relinquish Owner's rights thereto and to have them removed
by Tenant, in which event the same shall be removed from the 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
any such from the premises or upon removal of other installations as may be
required by Owner, Tenant shall immediately and at its expense, repair and
restore the premises to the condition existing prior to installation 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 premises after Tenant's removal shall be deemed abandoned and
may, at the election of Owner, either be retained as Owner's property or may be
removed from the premises by Owner at Tenant's expense. Alterations and
additions made by Tenant shall be owned by Tenant for depreciation purposes.
4. REPAIRS. Owner shall maintain and repair the public portions of the building,
both exterior and interior, except that if Owner allows Tenant to erect on the
outside of the building a sign or signs, or a hoist, lift or sidewalk elevator
for the exclusive use of Tenant, Tenant shall maintain such exterior
installations in good appearance and shall cause the same to be operated in a
good and workmanlike manner and shall make all repairs thereto necessary to keep
same in good order and condition, at Tenant's own cost and expense, and shall
cause the same to be covered by the insurance provided for hereafter in Article
8. Tenant shall, throughout the term of this lease, take good care of the
demised premises and the fixtures and appurtenances therein, and the sidewalks
adjacent thereto, and at its sole cost and expense, make all non-structural
repairs thereto as and when needed to preserve them in good working order and
condition, reasonable wear and tear, obsolescence and damage from the elements,
fire or other casualty, excepted. If the demised premises be or become infested
with vermin, Tenant shall at Tenant's expense, cause the same to be exterminated
from time to time to the satisfaction of Owner. Except as specifically provided
in Article 9 or elsewhere in this lease, there shall be no allowance to the
Tenant for the diminuation 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 including the erection or
operation of any crane, derrick or sidewalk shed, or in or to the demised
premises or the fixtures, appurtenances or equipment thereof. The provisions of
this article 4 with respect to the making of repairs shall not apply in the case
of fire or other casualty which are dealt with in article 9 hereof.
5. WINDOW CLEANING. 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 Labor Law or any other applicable law or any
other applicable law or of the Rules of
-2-
the Broad of Standards and Appeals, or of any other Board of body having or
asserting jurisdiction.
6. REQUIREMENTS OF LAW, FIRE INSURANCE. Prior to the commencement of the lease
term, if Tenant is then in possession, and at all times thereafter, Tenant, at
Tenant's sole cost and expense, shall 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 or the 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, and with respect to the portion of the sidewalk
adjacent to the premises, if the premises are on the street level, whether or
not arising out of Tenant's use of manner of use thereof, or with respect to the
building if arising out of Tenant's use or manner of use of the premises or the
building (including the use permitted under the lease). Except as provided in
Article 29 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 or 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 pay all costs, expenses, fines, penalties or
damages, which may be imposed upon Owner by reason of Tenant's failure to comply
with the provisions of this article. If the fire insurance rate shall, at the
beginning of the 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, to comply with the terms of
this article. In any action or proceeding wherein Owner and Tenant are parties,
a schedule or "make-up" of 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 rate then applicable to said premises.
7. SUBORDINATION. 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 demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be selfoperative 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 execute promptly any certificate that Owner may request within ten
(10) business days.
8. TENANT'S LIABILITY INSURANCE PROPERTY LOSS, DAMAGE, INDEMNITY. Owner or its
agent shall not be liable for any damage to property of Tenant or of others
entrusted to employees of the building, nor for loss or damage to any property
of Tenant by theft or otherwise, nor for any injury of 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 will not be liable for any such damage caused by other tenants or persons
in, upon or
-3-
about said building or caused by operations in construction of any private,
public or quasi public work. Tenant agrees, at Tenant's sole cost and expense,
to maintain general public liability insurance in standard form in favor of
Owner and Tenant against claims for bodily injury or death or property damage
occurring in or upon the demised premises, effective from the date Tenant enters
into possession and during the term of this lease. Such insurance shall be in an
amount and with carriers acceptable to the Owner. Such policy or policies shall
be delivered to the Owner. On Tenant's default in obtaining or delivering any
such policy or policies or failure to pay the charges therefor, Owner may secure
or pay the charges for any such policy or policies and charge the Tenant as
additional rent therefor. 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 attorneys fees, paid, suffered or incurred as a result of any breach
by Tenant, Tenant's agent, contractors, employees, invitees, or licensees, of
any covenant on condition of this lease, or the carelessness, negligence or
improper conduct of the Tenant. 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.
9. DESTRUCTION, FIRE AND OTHER CASUALTY. (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, until
such repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly usable by
fire or other casualty, then the rent shall be proportionately paid up to the
time of the casualty and thenceforth shall cease until the date when the
premises shall have been repaired and restored to substantially the same
condition as existed when Owner originally delivered possession of the Premises
to Tenant by Owner, subject to Owner's right to elect not to restore the same as
hereinafter provided. (d) If the demised premises are rendered wholly unusable
for Tenant's use and business and the Premises cannot be restored within 180
days of the casualty, 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 rebuilt it, then, in any of such events, Owner or Tenant may
elect to terminate this lease by written notice to the other given within 90
days after such fire of casualty upon the serving of 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 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
-4-
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 premises as promptly as reasonable 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 premises are substantially ready for Tenant's
occupancy. (e) Nothing contained hereinabove or anywhere else in this Lease
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, 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 extend
permitted by law, Owner and Tenant each hereby releases and waives all right of
recovery against the other or any one claiming through or under each of them by
way of subrogation or otherwise. The foregoing release and waiver shall be in
force only if both releasors' insurance policies contain a clause providing that
such a policy can be obtained without additional premiums. 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. (f) 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.
10. EMINENT DOMAIN. 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, except Tenant
may make an independent claim to the condemning authority for the value of
Tenant's moving expenses, personal property, trade fixtures and equipment.
11. ASSIGNMENT, MORTGAGE, ETC. 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. 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, under-tenant or occupant, and
apply the net amount collected to the rent herein reserved, but no such
assignment, under-letting, occupancy or collection shall be deemed a waiver of
the covenant, or the acceptance of the assignee, under-tenant 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 nay further assignment
or underletting.
12. ELECTRIC CURRENT. 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
-5-
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 electrical service shall in no wise make Owner
liable or responsible to Tenant, for any loss, damages or expenses which Tenant
may sustain.
13. ACCESS TO PREMISES. Upon reasonable notice, 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 premises, following 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 and maintain and
replace pipes and conduits in and through the demised premises and to erect new
pipes and conduits therein, 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 the 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, upon notice to Tenant, to enter the demised
premises at reasonable hours for the purpose of showing the same to prospective
purchasers or mortgages of the building, and during the last six months of the
term for the purpose of showing the same to prospective tenants and may, during
said six months period, place upon the premises the usual notice "To Let" and
"For Sale" which notices Tenant shall permit to remain thereon without
molestation. If during the last month of 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 obligations hereunder.
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.
Owner shall indemnify Tenant for loss or damage from Owner's negligence with
respect to access to the premises.
14. VAULT. Vault Space, Area: No vaults, vault space or area, whether or not
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 not withstanding..
Owner makes no representation as to the locations 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 ore 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 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.
-6-
15. OCCUPANCY: Tenant will not at any time use or occupy the demised premises in
violation of, Articles 2 or 37 hereof, or of the certificate of occupancy issued
for the building of which the demised premise are a part. Tenant has inspected
the 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 premises and Tenant agrees to accept the same subject to
violations whether or not of record.
16. BANKRUPTCY: (a) Anything elsewhere in this lease to the contrary not
withstanding, this lease may be canceled by Landlord by the 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 Tenant shall not be deemed in
default if a case or proceeding in bankruptcy or pursuant to any state
debtor/creditor statute is dismissed within sixty (60) days of commencement of
such case proceedings. 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
statue or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provision 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 rent 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 such premises or any
part thereof be re-let by the Owner for the unexpired term of said leas, 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 relenting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the 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 an
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 time when,
and governing the proceeding 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
referenced to above.
17. DEFAULT: (1) If Tenant defaults in fulfilling any of the covenant of this
lease other than the covenants for the payment of rent or additional rent; or of
the demised premises become vacant or deserted; or if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the demise premises shall be taken or occupied by someone other than Tenant; or
if this lead be rejected under Section 365 of Title II of the U.S. Code
(Bankruptcy Code); or if Tenant shall fail to move into or take possession of
the premises within fifteen (15)
-7-
days after the commencement of the term of this lease, of which fact Owner shall
be sole judge.; then, if any one or more of such events, upon Owner serving a
written twenty (20) days notice upon Tenant specifying the nature of said
default and upon the expiration of said 20 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 complete cured or remedied with
said 20 days period, and if Tenant shall not have diligently commenced curing
such default with such 20 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 three (3) days notice of cancellation of this lease upon
Tenant, an upon the expiration of said three (3) days, this lease and the term
thereunder shall end and expire as fully and completely as if the expiration of
such three (3) 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 the 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 it Tenant shall make 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 required and
Tenant fails to cure such default within three (3) days after notice of such
default from owner, then and in any such events Owner may without 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 demised premises and remove their effects and hold
the 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.
18. REMEDIES OF OWNER AND WAIVER OF REDEMPTION. In case of any such default,
re-entry, expiration and/or dispossess by summary proceedings or otherwise, (a)
the rent, and additional rent, shall become due thereupon and be paid up to the
time of such reentry, dispossess and/or expiration. (b) Owner may re-let the
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 terms on this
lease and may grant concessions or free rent or charge a higher rental than that
in this lease, and/or (c) Tenant or the legal representative of Tenant shall
also pay 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 covenanted 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 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, attorneys' fees, brokerage, adverting 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. 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
-8-
demised premises, and the making of such alterations, repairs, replacements,
and/or decorations shall not operate or be construed to release Tenant from
liability. 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 rent
collected over the sums payable by Tenant to Owner hereunder. In the event of a
breach or threatened breach by Tenant or 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.
19. FEES AND EXPENSES. 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, 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, and if Owner, in connection therewith 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
attorney's fees, instituting, prosecuting or defending any actions or
proceeding, such sums so paid or obligations incurred with interest and costs
shall be deemed to be additional rent hereunder and shall be paid by Tenant to
Owner within five (5) days of rendition of any bill or statement to Tenant
therefor, and 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.
20. NO REPRESENTATIONS BY OWNER. 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 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 acquired by Tenant by implication or otherwise except as otherwise
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" 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.
21. END OF TERM. 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 expected, and Tenant shall
remove all its property. Tenant's obligation
-9-
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.
22. QUIET ENJOYMENT. 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 33 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
23. FAILURE TO GIVE POSSESSION. 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 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 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 the inability
to obtain possession) until after Owner shall have given Tenant written notice
that the premises are substantially ready for Tenant's occupancy. If permission
is given to Tenant to enter into the 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 occupancy shall be deemed to be under all the terms, covenants, conditions
and provisions of this lease, except as to the covenant to pay rent. 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.
24. NO WAIVER. 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. No act or thing done by Owner or Owner's
agents during the term hereby demised shall be deemed in 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
-10-
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 premises.
25. WAIVER OF TRAIL BY JURY. It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall and they hereby do waive trail
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)
in 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
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary proceeding
for possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding except Tenant may
interpose statutory, mandatory counterclaims.
26. INABILITY TO PERFORM. 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 repair, additions,
alterations or decorations or is unable to supply or is delayed in supplying any
equipment or fixtures if Owner is prevented or delayed from so doing by reason
of strike or labor troubles, government preemption in connection with a National
Emergency 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 of
the supply and demand which have been or are affected by war or other emergency,
or when, in the judgment of Owner, temporary interruption of such services is
necessary by reason of accident, mechanical breakdown, or to make repairs,
alterations or improvements.
27. BILLS AND NOTICES. 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 or 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.
28. WATER CHARGES. If Tenant requires, uses or consumes water for any purpose in
addition to ordinary lavatory purposes (of which fact Tenant constitutes Owner
to be the sole judge) Owner may install a water meter and thereby measures
Tenant's water consumption for all purposes. Tenant shall pay Owner for the cost
of the meter and the cost of the installation thereof and 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.
Tenant agrees to
-11-
pay for water consumed, as shown on said meter as and when bills are rendered.
Tenant covenants and agrees to pay the sewer rent, charge or any other tax,
rent, levy or charge which now or hereafter is assessed, imposed or a lien upon
the demised premises or the realty of which they are part pursuant to law, order
or regulation made or issued in connection with the use, consumption,
maintenance or supply of water, water system or sewage or sewage connection or
system. The bill rendered by Owner shall be payable by Tenant as additional
rent. 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.
See Attached Rider, Paragraph 49
29. SPRINKLERS. Anything else where in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the Insurance
Services Office or any bureau, department or official of the federal, state or
city government require or recommend the installation of a sprinkler system by
reason of Tenant's business, or the location of partitions, trade fixtures, or
other contents of the demised premises, 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.
30. HEAT, CLEANING. As long as Tenant is not in default under any of the
covenants of this lease, Owner shall, if and insofar as existing facilities
permit furnish heat to the demised premises, when and as required by law, on
every day from 10:00 a.m. to 8:00 p.m. Tenant shall at Tenant's expense, keep
demised premises clean and in order, to the satisfaction to Owner, and if
demised premises are situated on the street floor, Tenant shall, at Tenant's own
expense, make all repairs and replacements to the sidewalks and curbs adjacent
thereto, and keep said sidewalks and curbs free from snow, ice, dirt and
rubbish. 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 times as Owner may elect and shall be due and payable when
rendered, 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 and 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.
31. SECURITY. Tenant has deposited with Owner the sum of $38,000 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
-12-
but not limited to, and damages or deficiency in the re-letting of the 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 within sixty (60) days 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 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 such assignment, encumbrance, attempted
assignment or attempted encumbrance.
See Attached Rider, Paragraph 43
32. CAPTIONS. 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.
33. DEFINITIONS. The term "Owner" as used in this lease means only the Owner, 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 and 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 of
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 "Business days" as used in this lease shall exclude Saturdays
(except such portion thereof as is covered by specific hours in Article 30
hereof), Sundays and all days designated as holidays by the applicable building
service union employees service contract or by the applicable Operating
Engineers contract with respect to H V A C service.
34. ADJACENT EXCAVATION -- SHORING. 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 of authorized to cause such excavation,
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.
-13-
35. RULES AND REGULATIONS. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with the
Rules and Regulations 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 Rule or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation 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 Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within ten (10) 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.
36. GLASS. 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.
37. PORNOGRAPHIC USES PROHIBITED. Tenant agrees that the value of the demised
premises and the reputation of the Owner will be seriously injured if the
premises are used for any obscene or pornographic purposes or any sort of
commercial sex establishment. Tenant agrees that Tenant will not bring or permit
any obscene or pornographic material on the premises, and shall not permit or
conduct any obscene, nude, or semi-nude live performances on the premises, nor
permit use of the premises for nude modeling, rap sessions, or as a so-called
rubber goods shops, or as a sex club of any sort, or as a "massage parlor."
Tenant agrees further that Tenant will not permit any of these uses by any
sublessee or assignee of the premises. This Article shall directly bind any
successors in interest to the Tenant, Tenant agrees that if at any time Tenant
violates any of the provisions of this Article, such violation shall be deemed a
breach of a substantial obligation of the terms of this lease and objectionable
conduct. Pornographic material is defined for purposes of this Article as any
written or pictorial matter with prurient appeal or any objects of instrument
that are primarily concerned with lewd or prurient sexual activity. Obscene
material is defined here as it is in Penal law ss.235.00.
38. ESTOPPEL CERTIFICATE. Owner or Tenant, at any time, and from time to time,
upon at least 10 days prior notice by the other shall execute, acknowledge and
deliver to the other and/or to any other person, firm or corporation specified
by the other 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
which the rent and additional rent have been paid, and stating whether or not
there exists any defaults by the other under this lease, and, if so, specifying
each such default.
-14-
39. SUCCESSORS AND ASSIGNS. 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.
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 150 GREENE STREET CORP.
By:
- -------------------------- ---------------------------
Corporate Seal:
Witness for Tenant BLUE FISH CLOTHING, INC.
By:
- ------------------------- ---------------------------
Corporate Seal:
-15-
ACKNOWLEDGMENTS
CORPORATE OWNER
STATE OF NEW YORK, SS.:
COUNTY OF _____________
On this ____ day of __________, 19__ before me personally came
________________ ______________ to me known, who being duly sworn, did depose
and say that he resides ______ _______________________________ in
____________________ that he is the _____________ of the corporation described
in and which executed the foregoing instrument, as OWNER; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by like order.
___________________________
INDIVIDUAL OWNER
STATE OF NEW YORK, SS.:
COUNTY OF _____________
On this ____ day of __________, 19__ before me personally came
________________ ______________ to me known to be the individual
_______________________ described in and who, as OWNER, executed the foregoing
instrument and acknowledged to me that ______ _______________ he executed same.
___________________________
CORPORATE TENANT
STATE OF NEW YORK, SS.:
COUNTY OF _____________
On this ____ day of __________, 19__ before me personally came
________________ ______________ to me known, who being duly sworn, did depose
and say that he resides ______ _______________________________ in
____________________ that he is the _____________ of the corporation described
in and which executed the foregoing instrument, as TENANT; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation, and that he signed his name thereto by like order.
____________________________
INDIVIDUAL TENANT
STATE OF NEW YORK, SS.:
COUNTY OF _____________
On this ____ day of __________, 19__ before me personally came
________________ ______________ to me known to be the individual
_______________________ described in and who, as OWNER, executed the foregoing
instrument and acknowledged to me that ______ _______________ he executed same.
____________________________
-16-
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 35.
1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
Tenant or used for any purpose other than for ingress to and egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designed for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any tenant or by jobbers, or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and safeguards.
2. If the premises are situated on the ground floor of the building, Tenant
thereof shall further, at Tenant's expense, keep the sidewalks and curb in front
of said premises clean and free from ice, snow, etc.
3. 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.
4. 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 building by reason of noise, odors and/or vibrations
or interfere in any way with other Tenants or those having business therein.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any 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 premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Signs on interior
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall 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 the prior written consent
of Owner, and as Owner may direct. No Tenant shall 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. Freight, furniture, business equipment, merchandise and bulky matter of any
description shall be delivered to and removed from the premises only on the
freight elevators and through the
-17-
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 or the lease of which these Rules and Regulations
are a part.
8. Owner reserves the right to exclude from the building between the hours of 6
P.M. and 8 A.M. and at all hours on Sundays, and holidays all persons who do not
present a pass to the building signed by the Owner. Owner will furnish passes to
persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such person.
9. Owner shall have the right to prohibit any advertising by any Tenant which,
in Owner's opinion, tends to impair the reputation of Owner or its desirability
as a building for stores or offices, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
10. Tenant shall not bring or permit to be brought or kept in or on the demised
premises, any inflammable, combustible or explosive 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.
11. Tenant shall not place a load on 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 setting sufficient in
Owner's judgment to absorb and prevent vibration, noise and annoyance.
GUARANTY
The undersigned Guarantor guarantees to Owner, Owner's successors and
assigns, the full performance and observance of all the agreements to be
performed and observed by Tenant in the attached Lease, including the "Rules and
Regulations' as therein provided, without requiring any notice to Guarantor or
nonpayment or nonperformance, or proof, or notice of demand, to hold the
undersigned responsible under this guaranty, all of which the undersigned hereby
expressly waives and expressly agrees that the legality of this agreement and
the agreements of the Guarantor under this agreement shall not be ended, or
changed by reason of the claims to Owner against Tenant of any of the rights or
remedies given to Owner as agreed in the attached Lease. The Guarantor further
agrees that this guaranty shall remain and continue in full force and effect as
to any renewal, change or extension of the Lease. As a further inducement to
Owner to make the Lease Owner and Guarantor agree that in any action or
proceeding brought by either Owner or the Guarantor against the other on any
matters concerning the Lease or of this guaranty that Owner and the undersigned
shall and do waive trial by jury.
_________________________
Guarantor
-18-
RIDER AGREEMENT TO THE LEASE ("RIDER") DATED
DECEMBER 19, 1996 BY AND BETWEEN
150 GREENE STREET CORP. ("OWNER")
AND BLUE FISH CLOTHING, INC. ("TENANT")
R40. This Rider is annexed to and part of the printed form lease by and between
150 Greene Street Corp., as Owner, and Blue Fish Clothing, Inc., as Tenant. In
the event of any conflict between the printed form and this Rider, this Rider
shall control.
R41. This Lease and Rider shall have no force or effect unless and until both
Tenant and Owner sign it and a duly executed counterpart is delivered to each of
the parties or their respective attorney.
R42. BASE RENT: The Base Rent for the demised premises shall be paid as follows:
Monthly
Period Annual Rent Installment
------ ----------- -----------
1/1/97-12/31/97 $228,000.00 $19,000.00
1/1/98-12/31/98 $234,840.00 $19,570.00
1/1/99-12/31/99 $241,885.20 $20,157.10
1/1/2000-12/31/2000 $249,141.75 $20,761.81
1/1/2001-12/31/2001 $256,616.00 $21,384.67
1/1/2002-12/31/2002 $264,314.48 $22,026.20
1/1/2003-12/31/2003 $272,243.91 $22,686.99
1/1/2004-12/31/2004 $280,411.23 $23,367.60
1/1/2005-12/31/2005 $288,823.57 $24,068.63
1/1/2006-12/31/2006 $297,488.28 $24,790.69
R43. SECURITY: Supplementing and modifying paragraph 31, Tenant shall at all
times provide Owner with security in an amount equal to two months' Base Rent in
effect at the time. Owner agrees to maintain the security in an interest-bearing
account. Tenant shall sign all forms required by the bank to deposit the
security in an interest-bearing account.
R44. RENT CONCESSION: Tenant shall receive a rent concession totaling three
months Base Rent as follows: the first month's rental due under this lease shall
be waived. Beginning with the second month of the lease term and for 23 months
thereafter, Tenant's Base Rent shall be reduced by $1,583.33.
R45. ADDITIONAL RENT:
(a) For the purpose of this article, the term "lease year" shall mean
for subparagraph (b) and (d) the period of twelve (12) months from July
1st to June 30th and for subparagraph (e) shall mean the period of
twelve (12) months commencing with the term commencement date and each
successive period of twelve (12) months thereafter during the term. The
term "base year" as applied to real estates taxes, shall mean the City
tax year July 1, 1996 to June 30, 1997 and for fuel oil expenses shall
mean the calendar year 1996.
(b) In the event that the real estate taxes payable with respect to the
building and the land on which it is located, (148 Greene Street,
sometimes referred to as 150 Greene Street) during any lease year (on a
pro-rated basis for the first and last lease years) shall be greater
than the amount of such taxes due and payable during the base year,
whether by reason of an increase in either the tax rate or the assessed
valuation or by reason of the levy, assessment or imposition of any tax
on real estate as such, not now levied, assessed or imposed or for any
other reason, Tenant shall pay to Owner within thirty (30) days after
notice such tax or installment thereof shall be due and payable, as
additional rent for lease year in which such date occurs, an amount
equal to twenty-one (21%) percent of the difference between the amount
of such tax or installment and the corresponding amount of the base
year. The amount of such taxes actually paid by Owner during the base
year shall determine the amount of additional rent payable under this
paragraph (b) until, as the result of a final determination in legal
proceedings or otherwise, the amount of such taxes shall be reduced. In
the event of such a final determination, the reduced amount of such
taxes shall thereafter determine the amount of additional rent payable
by Tenant pursuant to this paragraph (b), the additional rent
theretofore payable hereunder shall be recomputed on the basis of such
reduction, and Tenant shall pay to the Owner within thirty (30) days
after being billed therefor, any deficiency between the amount or such
additional rent as computed and the amount due as the result of such
recomputation.
(c) If the amount of additional rent payable by term pursuant to the
foregoing paragraph (b) shall be affected by any application filed by
or on behalf of Owner for a reduction in the assessed valuation of the
said building and land or by any proceedings instituted by or on behalf
of Owner in a court of competent jurisdiction for judicial review of
said assessed valuation, Tenant shall pay to Owner, as additional rent
hereunder twenty-one (21%) percent of the reasonable expense (including
reasonable attorney's and appraiser's fees) incurred by Owner in
connection with any such application or proceeding. If, after Tenant
shall have made a payment of additional rent under said paragraph (b)
Owner shall receive a refund of any portion of the real estate taxes on
which such payment shall have been based on the result of any such
application or proceeding, Owner shall pay to Tenant twenty-one (21%)
percent of that refund for the tax year reviewed to the extent Tenant
has made complete payment of its pro rata portion thereof, less any
amount owing by Tenant for expenses in connection therewith as provided
in the preceding sentence provided, however, that such payment to
Tenant shall not exceed the additional rental paid by Tenant for such
year pursuant to paragraph (b)
hereof. Nothing in this paragraph (c) contained shall be deemed or
construed to require Owner to pay to Tenant any portion or a refund of
taxes paid by Owner during the base year.
(d) Tenant shall pay to Owner within thirty (30) days after the date
when the same shall be payable by Owner and as additional rent for the
lease year in which the same shall be so payable, an amount equal to
twenty-one (21%) percent of any assessment or installment thereof for
public betterments or improvements which may be levied upon the said
land and building and which is not deductible from any condemnation
award, provided, however, in no event shall Tenant pay more than .21
times the amount of the assessment or installment times six (6) years
divided by the useful life of the betterments as determined by the
Owner for Internal Revenue Service purposes. Owner shall take benefit
of the provisions of any statute or ordinance permitting any such
assessment to be paid over a period of time and Tenant shall be
obligated to pay only the said percentage of the installments of any
such assessment which shall become due and payable during the term of
this lease.
(e) In the event that the gas expenses incurred by Owner during any
lease year (on a pro-rated basis for the first lease year) shall be
greater than the gas expenses incurred by Owner during the base year,
Tenant will pay to Owner as additional rent for the year in question,
on or before the first day or the month next succeeding the submission
of a bill therefor, an amount equal to sixteen (16%) percent of the
increase. Owner, together with such bill, shall furnish Tenant with a
summary schedule of such gas expenses for such lease year if there
shall occur therein an increase in gas expenses as aforesaid.
(f) Tenant's obligation to pay additional rent as provided in this
Lease for the final lease year shall survive the expiration of the term
of this Lease, and any additional rent due for any partial year shall
be pro rated.
(g) Notwithstanding the foregoing, after the rendition by the Owner of
the first bill for real estate or gas escalation and in each year
thereafter Tenant shall pay the Owner each month one-twelfth (1/12) of
the amount shown due as an estimated payment on account of anticipated
escalations during the then current year. The Owner shall render
appropriate statements of actual escalation at the end of each lease
year. If additional money is owed, Tenant shall promptly pay it, but in
no event less than 5 business days after demand. Any overpayment shall
be credited against estimated escalation payments for the succeeding
lease year except the last year, in which case such credit shall be
paid to Tenant within 60 days after determination thereof..
R46. TIMELY RENT PAYMENT.
(a) Tenant recognizes and agrees that TIME IS OF THE ESSENCE for the
payment of all rents and additional rents that are due pursuant to this
Lease. If Owner fails to receive from Tenant rents or additional rents
by the fifth business day after such payments shall be due, Tenant
shall pay to Owner as additional rent upon demand, a late charge of
R-3
six (6%) percent of the amount of the rents and additional rents due.
Late charges are cumulative. This late charge provision shall not be
interpreted in such a way that will permit Tenant to make late
payments. If payment of the rent or additional rent is not received by
Owner on or before such fifth business day, Tenant shall be in default
under this Lease and shall be subject to the initiation of summary
proceedings and any other remedies available to Owner. Nothing herein
shall be deemed as permission to delay or suspend payment of rent or
additional rent or limit, in any way, the Owner's remedies. In the
event that Tenant gives to the Owner a check for rent or for other
payment due under this Lease and said check is dishonored or otherwise
not paid by the bank upon which it is drawn, Tenant shall pay to Owner
a service charge of $200.00 for each such check that is not paid or is
otherwise not honored.
(b) The word "rent" shall include the monies specifically reserved as
rent, additional rent, other taxes and liens, late charges, service
charges, all costs and expenses and damages which the Owner may suffer
or incur by reason of any default of the Tenant or failure on Tenant's
part to comply with the covenants, terms or conditions of this Lease,
and all other sums of money which by virtue of this Lease shall at any
time or times become due and owing by Tenant to Owner, whether by way
of rent, additional rent, or otherwise.
(c) The receipt by the Owner of any installment of the regular
stipulated rent hereunder or any of said additional rent shall not be a
waiver of any other additional rent then due.
(d) No payment by Tenant or receipt by Owner of a lesser amount than
the base monthly rent and any and all additional rent due and payable
pursuant to this lease, shall be deemed to be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement on
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 provided in this lease or
otherwise.
(e) Acceptance by Owner of a check or checks in payment of any
installment of rent made by any person or corporation other than Tenant
shall not be deemed an acceptance of such person, corporation or other
entity as Tenant nor as a consent or acquiescence to an assignment of
this lease or subletting of the premises nor construed as a waiver by
the Owner.
(f) In addition to all of the Owner's other rights and remedies, if and
so long as Tenant shall, at any time, be in default in the payment to
Owner of two months or more of the Annual Base Rent, Owner shall have
the right to enter the Premises at reasonable hours for the purpose of
showing the same to prospective tenants and may place upon the Premises
the usual "To Let" and "For Sale" which notices Tenant shall permit to
remain without molestation.
R47. HOLDING OVER. Tenant acknowledges that possession of the demised premises
must be surrendered at the expiration or sooner termination of the term of this
Lease. Tenant agrees to
R-5
indemnify and hold the Owner harmless against any and all costs, claims, loss or
liability resulting from delay by Tenant in so surrendering the demised premises
including, without limitation, any claims made by any succeeding Tenant found on
such delay. The parties recognize and agree that the damage to Owner resulting
from any failure by Tenant timely to surrender possession of the demised
premises as aforesaid will be extremely substantial, will exceed the amount of
monthly rent theretofore payable hereunder and will be impossible of accurate
measurement. Tenant therefore agrees that if possession of the demised premises
is not surrendered to Owner within seven (7) days after the date of the
expiration or sooner termination of this Lease, then Tenant agrees to pay Owner
as liquidated damages for each month and for each portion of any month during
which Tenant holds over in the premises after the expiration or termination of
this Lease, a sum equal to two and one-half (2.5) times the average rent and
additional rent which was payable per month under this Lease during the last six
(6) months of the term thereof as well as reasonable costs and attorneys' fees
incurred due to Tenant's failure to timely vacate the demised premises. The
aforesaid provisions of this article shall survive the expiration or sooner
termination of the term of this Lease.
R48. Notwithstanding anything to the contrary provided in this Lease, regardless
of the nature or ground of any summary proceeding brought by Owner to recover
possession of the demised premises, Tenant will not interpose any counterclaim
of whatever nature or description in any such proceeding except that Tenant may
interpose statutory, mandatory counterclaims. Nothing herein shall be deemed to
prohibit Tenant from bringing a separate action against Owner on account of any
claim which Tenant may have against Owner, provided, however, that Tenant agrees
that Tenant, in the prosecution of any such claim shall make no motion or
otherwise request any Court in which such claim is sought to be asserted, to
join any such claim and any proceeding instituted by Owner to recover possession
of the demised premises in any such trial, or make any motion or otherwise seek
to have any such proceeding instituted by Owner and any action or proceeding
commenced by Tenant by reason of such claim of Tenant tried simultaneously in
any court.
R49. Prior to installing new or additional air conditioning unit or units in the
premises, the Tenant shall first obtain the written consent of the Owner, which
Owner agrees to not unreasonably withhold or delay, both parties acknowledging
the landmark status of the building. Tenant understands that the building in
which the premises is located (148 Greene Street) and 146 Greene Street are
occupied by residential shareholders and occupants. Tenant shall not create any
noise which interferes with the quiet enjoyment of the shareholders and
occupants of 150 Greene Street Corp. nor produce any odors or light that
negatively effect said shareholders or occupants. Any air-conditioning equipment
installed by Tenant must be located, installed and maintained so as not to
create any noise, heat or vibrations that interfere with any shareholder's or
occupant's use or enjoyment of their Unit. Notwithstanding anything to the
contrary provided in the Lease, Tenant shall pay directly to Consolidated Edison
for all electrical current consumed in the operation thereof. In the event such
unit or units utilize circulating water, they shall be equipped with an approved
water conserving device and in connection therewith, Tenant shall install and
maintain in good working order, at its own cost and expense, a water meter which
shall meter all make-up water used in such air conditioning equipment and shall
pay for such water as per meter reading and in addition thereto, sewerage or any
other charge, tax or levy
R-5
which now or hereafter is imposed by the City of New York in connection with
said use of water. Any charge for water consumed as herein provided, shall be in
addition to any other such charges as may be specified elsewhere in this Lease
and shall be deemed to be additional rent and payable as such.
R50. IMPROVEMENTS AND ALTERATIONS. With reference to alterations to be made
pursuant to Paragraph Third hereof, Tenant agrees to use licensed electrical and
plumbing contractors.
(a) Tenant shall obtain Owner's prior written consent before making
non-structural alterations, and to other minor installations, additions
or improvements which Owner shall not unreasonably withhold or delay.
Owner shall not unreasonably withhold its consent to nonstructural
Tenant Alterations which do not impair the functioning of any Building
equipment, violate any legal requirements or insurance requirements,
impair the character, appearance, usefulness or rentability of the
Building or any part thereof, temporarily or permanently weaken or
impair the structure or lessen the value or size of the Premises or the
Building outside of the Premises.
(b) Tenant shall obtain Owner's prior written consent before making
structural alterations and/or installations, additions or improvements
not of a minor nature ("structural alterations"). The denial by the
Owner of consent to structural alterations shall not be deemed to be
unreasonable. Tenant, at its own cost and expense, shall submit to
Owner for approval, plans and specifications regarding such
alterations, and Tenant shall not process any plans for the Department
of Building's approval until Owner approves them. If Owner consents, in
writing, to said structural alterations, Owner agrees to cooperate with
Tenant on the signing of necessary forms and applications for the
Department of Buildings or similar agency.
(c) Tenant agrees to and hereby does indemnify and save harmless Owner
against and from all liabilities, obligations, damages, penalties,
claims, costs, charges and expenses which may be imposed upon, or
incurred by or asserted against the Owner, resulting from or by reason
of, the making of any installations, additions, improvements or
alterations by Tenant. In the event any action or proceeding is brought
against the Owner by reason of any such claim, Owner shall notify
Tenant thereof in writing, and Tenant shall, upon Owner's demand,
resist or defend such action in the name of Owner at the reasonable
cost and expense of Tenant with counsel of Owner's choice.
(d) Tenant shall cause each contractor employed by Tenant to carry
contractor's liability coverage in limits of at least $1,000,000.00
which limits shall include completed operations for a one-year period
and, in addition, shall carry statutory workmen's compensation and
coverage.
(e) The Owner shall not be liable for any labor or materials furnished
or to be furnished to Tenant on credit, and no mechanic's or other lien
for any such labor or materials shall attach to, or affect the estate
or interest of the Owner in and to the Leased
R-6
Premises. Whenever any mechanic's lien shall have been filed against
the Leased Premises based upon any act or interest of the Tenant or of
anyone claiming through the Tenant, or if any security agreement shall
have been filed for or affecting any materials, machinery, or fixtures
used in the Tenant's alterations, the construction, repair or operation
thereof or annexed thereto by the Tenant, the Tenant shall immediately
take such action by bonding, deposit, or payment as will remove the
lien or security agreement. If Tenant has not removed the lien within
thirty (30) days after notice to the Tenant, the Owner may pay the
amount of such mechanic's lien or security agreement or discharge the
same by deposit, and the amounts paid or deposited, with interest
thereon, shall be deemed additional rent reserved under this Lease, and
shall be payable forthwith with interest at the rate of two percent
(2%) in excess of the then prime rate of Citibank, N.A., from the date
of such advance, and with the same remedies to the Owner as in the case
of default in the payment of rent as in this Lease provided.
(f) (i) Tenant, at its own cost and expense, shall obtain Building
Department and other governmental agency permits that may be required
for any of Tenant's Alterations.
(ii) Tenant shall not commence alterations or demolition until
delivery to the Owner of written permit from the Building Department or
other such governmental agency permits as may be required for Tenant's
alterations.
(g) All alterations, replacements, additions or improvements (including
air conditioning equipment and ducts, plumbing, electrical
installations, meter and gauges, paneling, partitions, railings and the
like), except movable fixtures, shall become the property of the Owner
except that Owner may elect to demand the removal of any or all of the
improvements by Tenant upon no less than thirty (30) days' notice
before the end of the term of this Lease, in which event Tenant shall
remove them before the last day of the term of the Lease. Any removable
fixtures remaining after the Tenant has vacated become the property of
the Owner.
(h) All work performed by Tenant shall be done in a manner which will
not unreasonably interfere with or disturb other Tenants or occupants
of the building. Such work shall only be performed during the hours of
8:00 a.m. to 6:00 p. m. Monday through Friday and 9:00 a. m. to 5:00 p.
m. Saturday.
(i) Notwithstanding anything heretofore set forth, Tenant covenants and
agrees at or before the end of the term of this Lease to repair all
injury done by the installation or removal of furniture, fixtures or
property and at the expiration of the demised term, or at the sooner
termination thereof, to surrender and yield up to Owner the said
premises and improvements with the appurtenances erected thereon or any
part thereof in good order and condition, ordinary wear and tear
excepted; and in no event shall Tenant make any charge to or claim for
compensation, or otherwise, from Owner notwithstanding that any such
improvements or appurtenances shall have been constructed, erected or
installed by Tenant.
R-7
(j) Upon demand, Tenant shall pay all of Owner's costs relating to the
consideration, approval, performance, supervision and final approval by
the City or any governmental agency of Tenant's Alterations including,
without limitation, the fees of the Owner's Professionals, including
Owner's architect, engineer and attorney. Prior to consideration of
Tenant's Alterations, Owner, at Owner's option, may demand that Tenant
place in escrow with Owner's attorney sufficient monies to assure
payment of Owner's expenses. All Alterations must be performed at times
and in a manner satisfactory to Owner, in its discretion, at Tenant's
sole cost and expense, in a safe, careful and first-class manner,
without injury to the Premises or the Building, expeditiously, using
new first class materials and in compliance with approved Tenant's
Plans and all legal or insurance requirements without creating any
labor dispute with other workers in the Building and without causing
any lien. Tenant, at its expense, shall immediately correct, to Owner's
satisfaction, any damage due to the making of any of Tenant's
Alterations and any Tenants Alterations that do not comply with this
Lease. Tenant shall provide to Owner, upon completion of any Tenant
Alterations (and for initial Alterations prior to Tenant's occupancy of
the Premises) evidence of compliance with the Legal and Insurance
Requirements satisfactory to Owner.
(k) Subject to the terms and conditions set forth in this Lease, Owner
approves Tenant's alterations as set forth in Exhibit "B" attached
hereto and made a part hereof.
R51. Tenant, at its own cost and expense, shall install and maintain in good
working order three (3) smoke detectors and three (3) fire extinguishers in the
ground floor store of the demised premises and three (3) smoke detectors and
three (3) fire extinguishers in the basement. Tenant shall confer with Owner
regarding both the smoke detectors and fire extinguishers to be installed as
well as the place and manner of installations.
R52. SUBLET/ASSIGNMENT.
(a) Except as specifically set forth in Paragraph 52 hereof, Owner may,
in connection with any proposed assignment or subletting or any part
thereof or any mortgage, pledge or encumbrance, withhold its consent
for any or no reason, or may condition its consent on such terms as
Owner may deem appropriate, in its discretion. Tenant shall pay Owner's
processing fees and professional fees and disbursements in connection
therewith, on demand. If Tenant charges or receives any rent or other
monies from an assignee or subtenant in excess of the amount charged to
Tenant as set forth in this Lease, Tenant shall pay Owner fifty (50%)
percent of said rent or monies as additional rent under this Lease. In
the event said rent or monies are not paid to Owner, Owner may, in
addition to any other remedies Owner has, at its option, terminate this
Lease and/or collect said rent or monies directly from the assignee or
subtenant.
(b) Under no circumstances shall Tenant rent, sublet or allow the
demised premises to be used for filming, photography "shoots," parties
or openings.
R-8
(c) Owner shall not unreasonably withhold its consent to an assignment
of this lease or to a subletting by Tenant of all of the Premises for a
term equal to the balance of the Term, less one day, on the following
terms and conditions.
(i) At least 90 days prior to any proposed assignment or
sublease, Tenant shall submit to Owner a statement containing
the name and address of the proposed assignee or subtenant and
all of the principal terms and conditions of the proposed
assignment or sublease including, but not limited to, the
proposed commencement and expiration dates of the sublease,
the nature of the proposed assignee's or subtenant's business,
the prior two (2) year history of the proposed assignee or
subtenant and its principals, together with satisfactory proof
of financial responsibility and personal references to
substantiate the required financial statements and such
financial and other information as Owner may request.
(ii) Owner shall not be deemed unreasonable in withholding its
consent to any sublease or assignment if Owner determines, in
Owner's discretion, that:
(1) the character, reputation or nature of the
business of the proposed assignee or subtenant is not
in keeping with that of the Building or its
tenancies;
(2) Tenant listed or publicly advertised the Premises
for subletting or assignment, whether through a
broker or otherwise, at a rental rate that is less
than the rent payable hereunder or less than the rent
which Owner is offering to lease comparable space in
the Building; but Tenant may negotiate and consummate
a sublease or assignment at a lesser rate of rent
insofar as permitted under the provisions of this
Article;
(3) the proposed occupancy may impose an extra burden
on the Building's systems or Building's services;
(4) the proposed sublease fails to prohibit any
further assignment or subletting;
(5) Tenant is in default under this Lease either at
the time Owner's consent to such subletting or
assignment is requested or at the commencement of any
proposed sublease or effective date of any
assignment;
(6) Tenant shall fail to reimburse Owner for Owner's
costs incurred in connection with said sublease or
assignment, including, without limitation, Owner's
professional's fees and disbursements, investigation
as to the acceptability of a proposed subtenant or
assignee and the preparation and review of documents
and plans relating to such transaction;
R-9
(7) the proposed subtenant or assignee (or related
corporation or other entity) is a tenant of other
space in the Building or is then negotiating with
Owner to rent space in the Building;
(8) the proposed subtenant or assignee has diplomatic
or sovereign immunity or is not subject to service of
process in or to the jurisdiction of the courts of
New York State;
(9) the proposed assignee fails to deliver to Owner a
limited personal guaranty and guaranty of completion
executed by an individual of a character and
financial worth reasonably acceptable to Owner,
guaranteeing to Owner the performance of all the
terms and conditions of this Lease by the proposed
assignee;
(10) the proposed subtenant or assignee (or any
principal thereof) has been indicted for any crime;
(11) the proposed subtenant or assignee has not been
engaged in business for at least two (2) years;
(12) the proposed subtenant or assignee does not have
a net worth of at least five (5) times the Annual
Base Rent for the last year of the Term, or (ii)
$200,000.00, as set forth on its latest audited
financial statement prepared by a certified public
accountant in accordance with generally accepted
accounting principles; or
(13) Tenant fails to deliver to Owner the information
and documents required by Paragraph 52 or the form
and substance of the assignment or sublease and all
ancillary documents shall not have been approved by
Owner.
(iii) Tenant shall, at least thirty (30) days prior to the
effective date thereof, deliver to Owner a fully executed
counterpart of the assignment or sublease and all ancillary
documents thereto, in form and substance satisfactory to the
Owner, and in which, in the case of an assignment, the
assignee assumes Tenant's obligations under this Lease.
(iv) Upon Tenant's receipt of an offer from a third party for
the purchase of any interest of Tenant in the Lease,
including, without limitation, any assignment or sublease (as
evidenced by a writing executed by the proposed purchaser)
which Tenant shall give notice of such offer to Owner and
shall deliver to Owner, simultaneously with the delivery of
such notice, an executed copy of the writing. Within 60 days
after Owners receipt of the writing, Owner by notice to
Tenant,
R-10
may elect to purchase the interest proposed to be conveyed on
the same terms and conditions as set forth in the writing. If
Owner fails to notify Tenant of its intention to exercise such
right of first refusal, or elects not to purchase the interest
proposed to be conveyed, the proposed sale shall be deemed an
assignment and shall be subject to the provisions of Article
52, including without limitation, obtaining the consent of the
Owner, and if Owner consents, may be consummated with the
proposed purchaser who executed the writing on the same terms
and conditions as was set forth therein.
(v) If Owner fails to exercise any of its options under this
Paragraph and Tenants fails to execute and deliver the
assignment or sublease to which Owner consented within ninety
(90) days after the giving of such consent, then, Tenant shall
again comply with all the provisions of Paragraph 52 before
effecting any assignment or sublease.
(iv) Upon the effective date of each assignment or sublease
which is consented to by Owner, an additional one month's
security shall be payable to Owner upon the effective date of
any assignment or sublease and the number "two" in Paragraph
43 shall be increased by "one" for each such assignment or
sublease.
(d) For purposes of Article 52, each modification, amendment or
extension of any sublease to which the Owner has consented shall be
deemed an new sublease.
(e) Paragraph 11 of the form portion of the Lease shall be amended to
reflect that Owner shall in no event consent to a sublease or
assignment in which the proposed subtenant or assignee is engaged in
any of the following businesses, and such refusal to consent shall not
be deemed unreasonable:
(i) Restaurant of any kind;
(ii) Bar, tavern, cocktail lounge or "pub" of any kind;
(iii) Any store or business involving food, liquor or beverages;
(iv) Medical or dental clinic or office;
(v) Health club, exercise studio or gym of any kind;
(vi) Dance or music school or studio;
(vii) Discotheque or supper club;
(viii) Theater or cinema;
(ix) Sound studio;
(x) Rehearsal studio;
(xi) Funeral home;
(xii) Adult entertainment facility;
(xiii) Pet shop or veterinarian's office;
(xiv) Martial arts studio or school;
(xv) Methadone clinic;
(xvi) Dry cleaning or laundry service;
(xvii) Bicycle messenger service;
(xviii) Motel/Hotel/Hostel or any transient use;
R-11
(xix) Sweatshop;
(xx) Adult bookstore or video shop;
(xxi) Liquor store;
(xxii) Abortion clinic;
(xxiii) Billiard parlor; and
(xxiv) Manufacturing of any kind.
R53. UTILITIES. Owner reserves the right to stop service of the mechanical,
electric, sanitary, plumbing, utility and other service systems ("services"),
when necessary, in the event of accident or emergency, or for repairs,
additions, alterations, replacements, decorations or improvements, which in the
judgment of the Owner, are desirable or necessary to be made, until said
repairs, alterations, replacements or improvements shall have been completed.
Owner shall not be liable to Tenant in any way for any claims, damages, costs or
expenses, directly or indirectly incurred, resulting from any use, interruption,
curtailment or failure, or defect in the supply of gas or electric energy and/or
water when prevented by exercising its right to stop service or by strikes,
labor troubles or accidents or by any cause whatsoever beyond Owner's control,
or by failure of any public utility or any other company or the failure of
independent contractors to perform or by laws, orders, rules and regulations of
any Federal, state, county or municipal authority, or failure of suitable fuel
supply, or inability by exercise of reasonable diligence to obtain suitable fuel
supply or by exercise of reason of government preemption in connection with a
national emergency or by reasons of the conditions of supply and demand which
have been or are affected by war or other emergency or by reason of any
requirement, act or omission of Owner or others or for any other reason except
Owner's gross negligence. The exercise of such right or such failure by Owner
shall not constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any compensation or any abatement or diminution or rent, or
relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Owner or its agents by reason of inconvenience, lost business or
annoyance to Tenant, or injury to or interruption of Tenant's business. Nothing
state herein to the contrary, in the event of interruption of services to
Tenant, Owner agrees to give Tenant reasonable notice of any interruption of
services and to use diligent efforts to complete the repairs, alterations,
replacement, decorations or improvements expeditiously so as to minimize
interruption of Tenant's business.
R54. EXTENSION OF TERM.
(a) Subject to the provisions of this Paragraph 54, Tenant, at Tenant's
sole option, shall have the right to extend the term of this lease for
an additional five years commencing on the day following the expiration
of the initial term of this Lease (hereinafter referred to as the
"Commencement Date of the Extension Term") and ending on the day
preceding the fifth anniversary of the Commencement Date of the
Extension Term (such additional term is hereinafter called the
"Extension Term" and the last day of such Extension Term is hereinafter
called the "Extension Expiration Date") provided that:
(i) Tenant shall give Owner notice (hereinafter called the
"Extension Notice") of its election to extend the term of the
Lease not later than the day occurring
R-12
twelve (12) months and not earlier than twenty-four (24)
months prior to the last day of the initial term of this
Lease.
(ii) Tenant shall not be in default under this lease either as
of the time of giving the extension notice or the Commencement
Date of the Extension Term.
(iii) The Tenant named herein shall, as of the Commencement
Date of the Extension Term, be in actual occupancy of the
Premises.
(b) Effective as of the Commencement Date of the Extension Term, the
Base Tax Year shall be the tax year during which the Commencement Date
of the Extension Term occurs.
(c) The fixed Annual Base Rent payable by Tenant to Owner during the
Extension Term shall be ninety (90%) of the fair market rent for the
Premises as determined by the Owner and set forth in a written notice
to Tenant, which determination shall be as of the date (hereinafter
called the "Determination Date") occurring twelve (12) months prior to
the Commencement Date of the Extension Term and which determination
shall be made by Owner and given in writing to Tenant within ninety
(90) days after the occurrence of the Determination Date, but in no
event shall such fixed Annual Base Rent be less than the Annual Base
Rent with respect to the Premises for the last full year of the initial
term of the Lease. In addition, the Annual Base Rent payable during the
Extension Term shall increase no less than three (3%) percent annually.
(d) Arbitration.
(i) In the event Tenant gives the Extension Notice in
accordance with the provisions of Paragraph 54(a) hereof and
Tenant disputes the fair market rent as determined by Owner
pursuant to Paragraph 54(c) hereof, then at any time on or
before the date occurring thirty (30) days after Tenant has
been notified by Owner of Owner's determination of fair market
rent, Tenant may initiate an arbitration process provided for
herein, by giving notice to that effect to the Owner and if
Tenant so initiates the arbitration process, such notice shall
specify the name and address of the person designated to act
as an arbitrator on its behalf. If Tenant fails to initiate
the arbitration process as provided above, time being of the
essence, then Owner's determination of the fair market rent
shall be conclusive. Within thirty (30) days after the Owner's
receipt of notice of the designation of Tenant's arbitrator,
Owner shall give notice to Tenant specifying the name and
address of the person designated to act as an arbitrator on
its behalf. If Owner fails to notify Tenant of the appointment
of its arbitrator within the time above specified, then Tenant
shall provide an additional notice to Owner requiring Owner's
appointment of an arbitrator within twenty (20) days after
Owner's receipt thereof. If Owner fails to notify Tenant of
the appointment of its arbitrator within the time specified by
the second notice, the appointment of the second arbitrator
shall be made in the same manner hereinafter provided for the
appointment of a third arbitrator in a case where the two
arbitrators appointed
R-13
hereunder and the parties are unable to agree upon such
appointment. The two arbitrators shall meet within ten (10)
days after the second arbitrator is appointed, and if, within
sixty (60) days after the second arbitrator is appointed, the
two arbitrators shall not agree upon a determination of the
fair market rent for the Extension Term, they shall together
appoint a third arbitrator. In the event of their being unable
to agree upon such appointment within sixty (60) days after
the appointment of the second arbitrator, the third arbitrator
shall be selected by the parties themselves if they can agree
thereon within a further period of fifteen (15) days. If the
parties do not so agree, then either party, on behalf of both
and on notice to the other, may request such appointment by
the American Arbitration Association (or any organization
successor thereto) in accordance with its rules then
prevailing or if the American Arbitration Association (or such
successor organization) shall fail to appoint said third
arbitrator within fifteen (15) days after such request is
made, then either party may apply on notice to the other, to
the Supreme Court, New York County, New York (or any other
court having jurisdiction and exercising functions similar to
those now exercised by said Court) for the appointment of such
third arbitrator. The majority of the arbitrators shall
determine the fair market rent of the Premises for the
Extension Term and render a written report of their
determination to both Owner and Tenant within sixty days of
the appointment of the first two arbitrators or sixty days of
the appointment of the third arbitrator, if such third
arbitrator is appointed pursuant to this paragraph 54(d)
(I)and the fair market rent, so determined, shall be applied
to determine the fixed Annual Base Rent for the Premises
during the Extension Term; provided however that in no event
shall the fixed Annual Base Rent for the Extension Term shall
be less than 103% the Original Term Escalated Rent.
(ii) Each party shall pay the fees and expenses of the one of
the two original arbitrators appointed by and for such party,
and the fees and expenses of the third arbitrator and all
other expenses (not including the attorney's fees, witness
fees and similar expenses of the parties which shall be borne
separately by each of the parties) of the arbitration shall be
borne by the parties equally.
(iii) Each of the arbitrators selected herein provided shall
have at least ten (10) years experience in the leasing and
renting (as broker, agent or owner) of retail space in
Manhattan.
(iv) In the event the Tenant initiates the aforesaid
arbitration process and as of the Commencement Date of the
Extension Term the amount of the fair market rent has not been
determined, Tenant shall pay ninety (90%) percent of the
amount determined by Owner to be the fair market rent for the
Premises and when the determination has been actually made, an
appropriate retroactive adjustment shall be made as of the
Commencement Date of the Extension Term. In the event such
determination shall result in an overpayment by Tenant of any
fixed Annual Base Rent, such overpayment shall be paid by
Owner to Tenant promptly after such determination.
R-14
(v) Provisions of paragraph 54 (d) (i), (ii), (iii) (iv) and
(vi) shall be inapplicable and have no force or effect in the
event Owner notifies Tenant that the fixed Annual Base Rent
for the Extension Term shall be the Original Term Escalated
Rent.
(vi) The determination of fair market rent (1) shall take into
account the rentals which could be obtained with respect to
the Premises or portions thereof, consistent with the
operation and maintenance of the premises as a first-class
commercial retail space and (2) shall be made without giving
consideration to the economic effect of savings which will
inure to the Owner by reason of the renewal of this Lease in
contrast with new or original tenancies, such as savings in
brokerage commissions, rent concessions, construction credits
or allowances and the like.
(e) Except as provided in paragraph 54(a) hereof, Tenant's occupancy of
the Premises during the Extension Term shall be on the same terms and
conditions as were in effect immediately prior to the expiration date
of the initial term of this Lease
(f) If Tenant does not timely send the Extension Notice pursuant to
provisions of paragraph 54(a) hereof, this paragraph 54 shall have no
force or effect and shall be deemed deleted from this Lease. Time shall
be of the essence with respect to the giving of the Extension Notice.
The termination of this Lease during the initial term hereof shall also
terminate and render void any option or right on Tenant's part to
extend the term of this Lease pursuant to this paragraph 54 whether or
not such option or right shall have theretofore been exercised.
(g) Except as otherwise provided in paragraph 54 hereof, if Tenant
exercises its right to extend the term of this Lease for the Extension
Term pursuant to this paragraph 54, the phrases "the term of this
Lease" or "the term thereof" as used in this Lease shall be construed
to include the Extension Term, and the Expiration Date shall be
construed to be the date of the Extension Expiration Date.
(h) Notwithstanding anything contained in this paragraph 54 to the
contrary, the Annual Base Rent payable during each Extension Term shall
increase periodically as determined by the arbitrators but in no event
less that three (3%) percent annually.
(i) This Lease and all rights of the Tenant hereunder are and shall be
subject and subordinate to the lien of any and all mortgages or
consolidated mortgages which may now or hereafter affect the demised
premises, or any part thereof, of the demised premises and other
premises, and to any and all renewals, modification, consolidations,
replacements and extensions of any such mortgage or mortgages. Tenant
shall within ten (10) day of demand at any time or times execute,
acknowledge and deliver to Owner, without expense to Owner, any and all
instruments that may be necessary or proper to subordinate this Lease
and all rights hereunder to the lien of any such mortgage or mortgages
and to each such renewal, modification, consolidation, replacement and
R-15
extension. If Tenant shall fail at any time to execute, acknowledge and
deliver any such subordinate instrument, Owner, in addition to any
other remedies available to it in consequence thereof, may execute,
acknowledge and deliver the same as the attorney in fact of Tenant and
in Tenant's name, place and stead, and Tenant hereby irrevocably makes,
constitutes and appoints Owner, its successors and assigns, such
attorney in fact for that purpose. Owner agrees to request from any
subsequent mortgagee or ground or underlying lessors a written
agreement that the rights to the Tenant shall remain in full force and
effect during the term of the Lease so long as Tenant has and shall
continue to recognize and perform all the covenants and conditions of
the Lease.
R55. Owner represents and warrants it is the owner of the land and building
containing the demised premises and has full power and authority to enter into,
execute and deliver this Lease.
R56. Neither Owner nor its agents have made any representations with respect to
the leased property including, but not limited to, the condition of the demised
premises, the condition of the Building in which the demised premises is located
and whether the demised premises may, pursuant to the Zoning Resolution, be used
for the purposes set forth in paragraph 2. In the event that the City or other
governmental agency enforces the Zoning Resolution or any other law pertaining
to the use and occupancy of the Building or of the Premises and Tenant, after
using best efforts, is unable to comply with the Zoning Resolution or any other
law pertaining to the use and occupancy of the Building or the Premises, then,
in such event, either Tenant or Owner may terminate this Lease upon notice
setting forth a termination date which shall be no less than 120 days from the
service of said notice and Tenant shall vacate on or before the termination
date.
R57. Owner shall deliver the premises broom clean and in its "as is" condition,
reasonable wear and tear excepted. Owner agrees to install radiators, as needed,
in the premises and to replace the broken glass panel in the skylight at the
back of the Premises and repair any damage resulting from said broken glass
panel in the skylight.
R58. The Tenant shall look solely to the estate and property of the Owner in the
leased premises for the satisfaction of Tenant's remedies for the collection of
a judgment (or other judicial process) requiring the payment of money by
Landlord in the event of any default or breach of or by the Owner with respect
to any of the terms, covenants and conditions of this Lease.
R59. In the event Tenant shall be in default in the payment of rent reserved
herein, or any item of additional rent herein mentioned, or a part of either, or
in making any other payment herein required for a total of three (3) months,
whether or not consecutive, in any twelve (12) month period, and Owner shall
have served upon Tenant a petition and notice of petition to dispossess Tenant
by summary proceedings, then, notwithstanding that such defaults have been cured
prior to the entry of a judgment against Tenant, any further similar default
shall be deemed to be deliberate and Owner may serve a written three (3) days'
notice of cancellation of this Lease upon Tenant and upon expiration of said
three (3) days, this Lease and the term thereunder shall end and expire as fully
and completely at the expiration of such three (3) day period as if the
R-16
expiration of the three-day period was the day herein definitively 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 elsewhere provided in this Lease.
R60. With respect to any provision of this Lease, which provides, in effect that
Owner shall not unreasonably withhold or unreasonably delay any consent or
approval, the Tenant, in no event, shall be entitled to make, nor shall Tenant
make any claim for, and Tenant hereby waives any claim for money damages.
R61. This Lease shall be deemed to have been made in New York County, New York,
and shall be construed in accordance with the Laws of the State of New York. All
actions or proceedings relating, directly or indirectly to this Lease shall be
litigated only in courts located with the County and State of New York.
R62. Whenever any default, request, action or inaction by Tenant causes Owner to
incur attorney's fees and other costs and expenses, Tenant agrees that it shall
pay Owner for such fees, costs and expenses within ten (10) days of being billed
therefor, which shall be deemed "additional rent." In the event Tenant is the
prevailing party in any legal action initiated by Owner, Tenant shall be
permitted to recoup its reasonable attorney's fees, costs and disbursements from
Owner.
R63. One or more waivers of any covenant or condition by Landlord or Tenant
shall not be construed as a waiver of the further breach of the same covenant or
condition, or of any other covenant or condition herein contained.
R64. Owner shall not be in default under this Lease in any respect unless the
Tenant shall have given the Owner written notice of the breach by certified or
registered mail, return receipt requested, or by personal delivery and within
twenty (20) days after notice, Owner has not cured the breach or if the breach
is such that it cannot reasonably be cured under the circumstances within twenty
(20) days, has not commenced to proceed to cure the breach.
R65. The Tenant covenants and agrees to obtain and maintain, at its sole cost
and expense, all licenses and permits from the governmental authorities having
jurisdiction thereof, necessary for the conduct of Tenant's business in the
demised premises and, Tenant will comply with all applicable laws, resolutions,
or governmental authority having jurisdiction over the operation, occupancy,
maintenance or use of the demised premises. The Tenant will indemnify and save
Owner harmless from and against any claims, penalty, loss, damage or expense
including reasonable attorney's fees of the Owner imposed by reason of violation
of any such applicable law or the rules and regulations of any such governmental
authority having jurisdiction thereof pertaining to the proposed use by Tenant
of the demised premises.
R66. Upon reasonable notice, Tenant shall permit Owner and/or its designees to
erect, use maintain and repair pipes, cables, conduits, plumbing, vents and
wires, in, to and through the Premises (the "work"), as and to the extent that
Owner may reasonably now or hereafter deem to be reasonably necessary or
reasonably appropriate for the proper operation and maintenance of
R-17
the Building in which the Premises are located, and to comply with any and all
requirements of Law. Owner agrees to use diligent efforts to complete said work
expeditiously.
R67. HOURS OF OPERATION: Tenant may operate its business between the hours of
10:00 a. m. to 8:00 p. m. with the understanding that the demised premises is
located in a building containing residential units and that the level of noise,
including but not limited to, the playing of music, and hours of operation shall
not interfere with the residential owners' quiet enjoyment.
R68. BROKER. Tenant warrants that no broker introduced Tenant to the Premises,
proposed the making of the Lease, or initiated, further or perpetuated the
negotiations between the parties hereto other than SINVIN Realty Corp. by Bruce
Sinder and Winick Realty Group by Tricia Rosen and Tenant indemnifies, defends
and holds Owner harmless from any and all loss, cost or damage as a result of
the claims of other brokers or agents claiming to have dealt with Tenant in
connection with this Lease. Owner agrees to indemnify, defend and hold Tenant
harmless from any and all loss, cost or damage as a result of the claims of any
broker claiming to have dealt with Owner in connection with this Lease.
R69. ACCESS. Upon reasonable notice, Tenant shall grant access for the purposes
of inspection, repair or replacement of utility meters, sprinkler pumps and
plumbing located in the basement of the premises. Owner shall be liable for
Owner's negligence with respect to such access. Tenant agrees to provide access
to representatives of the utility companies for meter readings and the like.
R70. SIDEWALK HATCH. Tenant may use the sidewalk hatch adjacent to the premises
for purposes of deliveries. All deliveries shall take place during the hours of
operation as set forth in this Lease, i.e. 10:00 a. m. to 8:00 p. m. Tenant
shall closely supervise any deliveries and instruct any delivery vehicle to keep
any vehicle off of the sidewalk. Tenant will not allow delivery trucks to idle
in front of the building. Tenant shall be responsible for and shall indemnify
and defend 150 Greene Street Corp. against any and all loss, cost or damage
relating to or arising from deliveries made to Tenant or the Premises.
150 GREENE STREET CORP.
By: ______________________________
BLUE FISH CLOTHING, INC.
By: ______________________________
R-18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,928,340
<SECURITIES> 0
<RECEIVABLES> 559,157
<ALLOWANCES> 33,000
<INVENTORY> 3,005,717
<CURRENT-ASSETS> 5,745,346
<PP&E> 1,585,754
<DEPRECIATION> 472,343
<TOTAL-ASSETS> 7,129,184
<CURRENT-LIABILITIES> 2,878,928
<BONDS> 482,982
0
0
<COMMON> 6,648
<OTHER-SE> 3,760,626
<TOTAL-LIABILITY-AND-EQUITY> 7,129,184
<SALES> 11,610,855
<TOTAL-REVENUES> 11,610,855
<CGS> 5,371,707
<TOTAL-COSTS> 5,371,707
<OTHER-EXPENSES> 6,356,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157,297
<INCOME-PRETAX> (275,135)
<INCOME-TAX> 237,995
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,140)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> 0
</TABLE>
