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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year ended: January 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from __________________ to ________________.
Commission File No. 0-21597
MAZEL STORES, INC.
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(Exact name of Registrant as specified in its charter)
Ohio 34-1830097
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
31000 Aurora Road
Solon, Ohio 44139
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(Address of principal executive offices)
(Zip Code)
440-248-5200
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par Value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $53,987,000 at April 1, 1999. The number of common
shares outstanding at April 1, 1999 was 9,141,798.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be mailed to
stockholders in connection with the registrant's 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III, Items 10-13.
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TABLE OF CONTENTS
PART I
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Page
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Item 1. Business 4
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosures 24
PART III
Item 10. Directors and Executive Officers of the Company 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 26
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PART I
ITEM 1. BUSINESS
GENERAL
The Company consists of two complementary operations: (i) a major
regional closeout retail business; and (ii) the nation's largest closeout
wholesale business. The Company sells quality, value-oriented consumer products
at a broad range of price points offered at a substantial discount to the
original retail or wholesale price. The Company's merchandise primarily consists
of new, frequently brand-name products that are available to the Company for a
variety of reasons, including overstock positions of a manufacturer, wholesaler
or retailer; the discontinuance of merchandise due to a change in style, color,
shape or repackaging; a decrease in demand for a product through traditional
channels; or the termination of business by a manufacturer, wholesaler or
retailer. At January 30, 1999 (1998 fiscal year-end), the Company operated a
chain of 47 closeout retail stores, including 25 in New York (seven of which are
in Manhattan), 18 in New Jersey and two each in Pennsylvania and Connecticut.
The Company had fiscal 1998 sales of $237.1 million, including retail sales of
$156.2 million and wholesale sales, net of intercompany sales, of $80.9 million.
The Company was founded in 1975 as a wholesaler of closeout
merchandise. Management's business strategy has expanded from a primary focus on
wholesale operations to an emphasis on growth of its Odd Job stores, the initial
12 of which were acquired in 1995. The Company's goal is to establish itself as
the leading closeout retailer in its Northeast and MidAtlantic markets.
The Company believes that the combination of its wholesale operations
and the Odd Job retail operations have resulted in significant synergies that
have enabled the Company to expand its retail operations and increase sales and
net income of both the wholesale and retail operations.
INDUSTRY OVERVIEW
Closeout retailing is one of the fastest-growing segments of the
retailing industry in the United States. Closeout retailers and wholesalers
provide a valuable service to manufacturers by purchasing excess products.
Closeout merchandisers also take advantage of generally lower prices in the
off-season by buying and warehousing seasonal merchandise for future sale. As a
result of acquiring merchandise at a deeper discount, closeout merchandisers can
offer merchandise at prices significantly lower than those offered by
traditional retailers and wholesalers.
The closeout sector has benefited from several recent industry trends.
Consolidation in the retail industry and the expansion of just-in-time inventory
requirements have generally had the effect of shifting inventory risk from
retailers to manufacturers. In addition, a trend toward
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shorter product cycles, particularly in the consumer goods sector, has increased
the frequency of new product and new product packaging introductions. These
factors have increased the reliance of manufacturers on closeout retailers and
wholesalers like the Company, who frequently are able to purchase larger
quantities of excess inventory and successfully control the distribution of such
goods.
RETAIL OPERATIONS
General. The Company's chain of 47 retail stores operating under the
names "Odd Job" and "Odd Job Trading" are located in New York (25, including
seven in Manhattan), New Jersey (18), Connecticut (2) and Pennsylvania (2). Odd
Job opened its first store in 1974. The retail stores generated sales in fiscal
1998 of $156.2 million.
Expansion Plans. The Company plans to expand upon stores currently
operating by opening new stores in the Northeast and Mid-Atlantic markets, which
are serviceable from the Company's South Plainfield, New Jersey warehouse and
distribution facility and other storage facilities used on an as needed basis.
Stores may be opened in other geographic areas if favorable conditions exist.
The Company anticipates opening or acquiring 16 to 18 new stores through the end
of fiscal 1999. In addition, the Company may add stores through the acquisition
of other closeout businesses if favorable opportunities are presented.
In choosing specific sites for expansion, the Company considers
numerous factors including demographics, traffic patterns, location of
competitors and overall retail activity. The Company's standards for evaluating
these factors are flexible and are based on the nature of the market. The
Company will seek to expand in both suburban and urban markets. Due to its
broader selection of closeout merchandise than other closeout retailers, the
Company seeks areas with a concentration of middle and upper middle-class
households for its suburban store locations.
Merchandising and Marketing. The Company believes that its customers
are attracted to its stores principally because of the availability of a large
assortment of quality consumer items, which are frequently brand-name, at
attractive prices. The Company offers certain general categories of merchandise
on a continual basis, although specific lines, products and manufacturers change
frequently. Inventories depend primarily on the types of merchandise which the
Company is able to acquire at any given time. The Company believes that this
changing variety of merchandise from one day to the next results in customers
shopping at the stores more frequently than they might otherwise. The Company
refers to such frequent shoppers as "treasure hunters" due to their regular
visits to the Odd Job stores in an effort to seek out bargains. The Company's
stores offer substantial savings on housewares, stationery, books, party
supplies, health and beauty aids, food, toys, hardware, giftware, electronics
and garden supplies. Brands carried by the Company's stores may include, at any
given time, Black and Decker, Enesco, Hershey, Keebler, Mars, Mattel, Mikasa,
Newell/Rubbermaid and Sony. In addition, the Company has increased the breadth
and quality of its seasonal merchandise and has sought to promote these items
through in-store displays designed around specific holidays.
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The Company believes its large selection of brand-name products often
attracts a customer seeking a particular brand or product, who will check the
Company's stores in search of the lowest price before resorting to a large
discount store where the customer assumes the product is in stock. In addition,
Odd Job stores carry, on a consistent basis, selected goods manufactured to the
Company's specifications. The Company is able to negotiate competitive prices
with manufacturers of these products, many of whom are located outside the
United States. Such products provide cost-effective merchandise on certain items
for which continuity is important to customers.
Management believes the presentation of its merchandise is critical to
communicating value and quality to its customers. The Company uses a variety of
adaptable merchandising fixtures and displays, including mobile racks that allow
flexibility in the presentation of a merchandise mix which changes daily. Some
merchandise is displayed in its initial packaging, stacked floor-to-ceiling. A
message board appears in every store, indicating both new arrivals and coming
merchandise, in an effort to appeal to the "treasure hunters." The Company
relies on attractive exterior signage and in-store merchandising as its primary
form of advertising. The Company's advertising program uses mailers and in-paper
circulars, on a periodic basis, to promote up to 40 value-oriented, easily
recognizable items. Additionally, the Company utilizes targeted radio spots
several times per year to promote the Odd Job name and concept. As a result of
its merchandise mix, visual merchandising methods and high-traffic store
locations, the retail operation's average inventory turn rate is approximately
four times per year, which the Company believes is greater than the average for
other major closeout retailers.
Purchasing. The Company believes that the primary factor contributing
to the success of its business is its ability to locate and take advantage of
opportunities to purchase large quantities of quality brand-name merchandise at
prices which allow the Company to resell the merchandise at prices that are
substantially below traditional retail prices. Its retail operations maintain a
buying staff in Columbus, Ohio and New York City. The retail purchasing staff
works closely with the wholesale operation to identify the most attractive
closeout purchasing opportunities available. Synergies created through the
combined buying power and expertise of the retail and wholesale purchasing
staffs enable the Company to identify and purchase large quantities of quality,
brand-name closeout merchandise and then sell the merchandise through its retail
stores, its wholesale distribution channels or both. The Company believes the
combined wholesale and retail operations enable the retail buying staff to
broaden the scope and the quantities of quality merchandise that it purchases
and offer better value to its customers. The Company's retail buyers purchase
merchandise from approximately 2,000 suppliers throughout the world.
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Store Operations. Each store is staffed with section managers who have
primary responsibility for helping customers and monitoring sales floor
inventory in several merchandise categories. Section managers continually
replenish the shelves, communicate information as to fast-selling items to store
managers and identify slow-moving products for clearance. Each store has between
six and 14 check-out stations and provides sales personnel for customer
assistance. Sales are primarily for cash, although personal checks and bank
credit cards are accepted. The Company's Manhattan stores offer free daily
storage, which enables customers to pick up items purchased during the day on
their way home from work, and UPS shipment for larger purchases. The Odd Job
stores have seven day-a-week operations and have extended weekend hours. The
Company has created an infrastructure consisting of Regional Vice Presidents and
Regional Managers responsible for the operations of approximately 12 stores,
reporting directly to the Senior Vice President-Store Operations.
Store Locations. The Company's 40 suburban stores are located in strip
shopping centers. The seven Manhattan stores are located in high-traffic urban
corridors (e.g. near Grand Central Station, Rockefeller Center, Port Authority,
Wall Street, Penn Station, Empire State Building and Union Square) which provide
access to large numbers of commuters. As a result, the Manhattan stores generate
higher sales volumes during the work week. The Company's suburban stores are
generally near a major highway or thoroughfare, making them easily accessible to
customers. The suburban stores generate higher sales volumes during the
weekends. The Company attempts to tailor its merchandising and marketing
strategies to respond to the differences in its urban and suburban stores. The
Company's stores range in size from 6,500 to 25,000 square feet. On average,
approximately 60% of the area of each store represents selling space. All of the
stores are located in leased facilities.
In selecting its new store locations, the Company seeks suitable
existing structures which it can refurbish in a manner consistent with its
merchandising concept. This strategy, which typically requires minimal leasehold
improvements by the Company, enables the Company to open stores in new locations
generally within six to twelve weeks following occupancy of the space.
Warehousing and Distribution. Merchandise is distributed to the retail
stores from the Company's 450,000 square foot South Plainfield, New Jersey
warehouse and distribution facility. The Company relocated to this facility in
the third quarter of 1998 from its former 253,000 square foot facility located
in Englewood, New Jersey. The Company believes the South Plainfield facility has
the capacity to support its longer-term retail expansion plans. The Company also
utilizes public warehouse space to store inventory on an as needed basis.
Substantially all of the Company's retail inventory is shipped directly
from suppliers to the Company's South Plainfield, New Jersey warehouse and
distribution facility or the Company's Solon, Ohio warehouse and distribution
facility. Since the South Plainfield, New Jersey warehouse and distribution
facility maintains back-up inventory and provides delivery several times per
week to each store, in-store inventory requirements are reduced and the Company
is able to operate with smaller stores. Off-hours stocking and off-site storage
space are
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utilized to support the store's inventory turnover, particularly during the busy
fourth quarter. The majority of the Company's inventory is delivered to the
stores by a contract carrier, as well as by direct vendor shipments.
Distribution to the stores is controlled by the Company's product
allocator, buyers and senior management. The Company's merchandise is
distributed based on variables such as store volume and certain demographic and
physical characteristics of each store. Each store has monthly budgeted
inventory levels based on its projected sales and available storage. Stores
receive shipments of merchandise several times per week based on budgeted
inventory requirements and direct communications between store managers, product
allocator and the Company's buyers and senior management.
WHOLESALE OPERATIONS
General. The Company is the nation's largest wholesaler of closeout
merchandise, with fiscal 1998 sales of $80.9 million, excluding intercompany
sales to Odd Job. The Company's wholesale operations purchase and resell many of
the same lines of merchandise sold through the Company's retail operations. The
wholesale operations acquire closeout merchandise at prices substantially below
traditional wholesale prices and sell such merchandise through a variety of
channels. In general, the Company does not have long-term or exclusive
arrangements with any manufacturer or supplier for the wholesale distribution of
specified products. Rather, the Company's wholesale inventory, like its retail
inventory, consists primarily of merchandise obtained through specific purchase
opportunities.
Purchasing. The Company's wholesale buyers purchase merchandise from
more than 1,000 suppliers throughout the world and continually seek
opportunities created by manufacturers and other closeout circumstances such as
packaging changes, the overstock inventory of wholesalers and retailers,
buybacks, receiverships, bankruptcies and financially distressed businesses, as
well as other sources. The Company's experience and expertise in buying
merchandise from such suppliers has enabled it to develop relationships with
many manufacturers and wholesalers who offer some or all of their closeout
merchandise to the Company prior to attempting to dispose of it through other
channels. By selling their inventories to the Company, suppliers can reduce
warehouse expenses and avoid the sale of products at concessionary prices
through their normal distribution channels. In addition to closeout merchandise
purchased from suppliers, approximately 35% of the Company's wholesale purchases
for fiscal years 1997 and 1998 consisted of selected items manufactured to the
Company's specifications by domestic and foreign suppliers.
The Company's primary sources of merchandise are manufacturers, barter
agents, distributors and retailers. The Company accommodates the needs of its
vendors by (i) making rapid purchasing decisions; (ii) taking immediate delivery
of larger quantities of closeout merchandise than many of its competitors; (iii)
purchasing the entire product assortment offered by a particular vendor; (iv)
minimizing disruption to the supplier's ordinary distribution
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channels; and (v) making prompt and reliable payments. The Company believes that
its flexibility and expertise has established the Company as a preferred
customer of many key sources of closeout merchandise. In many cases, the Company
has developed valuable sources from which it obtains certain lines of
merchandise on a continuing basis.
The Company's wholesale and retail buyers work closely together to
identify attractive purchasing opportunities and negotiate and complete the
purchase of significant quantities of closeout consumer items. The Company
believes the expertise and resources of the retail operations have enabled the
wholesale operations to broaden the categories and quantities of merchandise
offered to its customers.
Sales and Marketing. The Company maintains a direct sales force of 11
people in its wholesale operations and also sells its merchandise through 9
independent representatives. In addition to a showroom at its Solon, Ohio
facility, the Company maintains showrooms in New York City, Columbus, Chicago,
Boston and Philadelphia. The Company sells to over 2,000 wholesale customers,
which include a wide range of major regional and national retailers as well as
smaller retailers and other wholesalers and distributors. Sales to the Company's
single largest wholesale customer accounted for approximately 7.4% of total
sales in fiscal 1998 and 14.9% of total sales in fiscal 1997. No other customer
accounted for more than 10% of total sales in either fiscal year.
Warehousing and Distribution. The Company conducts its wholesale
operations primarily from a 740,000 square foot leased warehouse and
distribution facility in Solon, Ohio. In addition, the Company leases space at
public warehouses on an as needed basis. Generally, the Company does not have a
prospective customer prior to purchasing merchandise, although in some cases a
customer willing to purchase part or all of the goods will be found immediately
prior to, or soon after, a purchase. In the latter case, the Company attempts,
whenever possible, to drop ship the goods directly to the customer from the
point of purchase. In other cases, the Company ships the merchandise to its
warehouse and distribution facility via back haulers and common carriers. For
fiscal 1998, approximately 70.3% of the Company's wholesale sales were of
merchandise shipped through its warehouse and distribution facility, with the
remainder drop shipped directly to customers.
VALUE CITY JOINT VENTURE
On August 3, 1997, the Company commenced operation of VCM, Ltd.
("VCM"), a 50 percent owned joint venture with Value City Department Stores. VCM
operates the toy, sporting goods, and health and beauty care departments in the
Value City department store chain. The Company coordinates merchandise
purchasing on behalf of VCM, some of which is sourced from the Company's
wholesale segment. The Company's initial investment in VCM was $9,637,000. In
addition to its 50 percent share of VCM's net profit or loss, the Company
receives a management fee equal to three percent of sales.
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MANAGEMENT INFORMATION SYSTEMS
The Company's retail and wholesale operations are supported by an IBM
AS400-based computer system. The system utilizes proprietary software which
allows the Company to monitor and integrate its distribution, order entry,
showroom, product management, purchasing, inventory control, shipping, and
accounts receivable systems. The Company uses a vendor purchased general ledger
accounting system. The Company has successfully installed radio frequency
equipment in its wholesale warehouse and showrooms to expedite order processing.
The Company has installed point-of-sale (POS) systems in all suburban
retail locations to fully capture store transactions and provide updated data to
its purchasing staff and other corporate personnel, and for transfer into the
Company's accounting, merchandising and distribution systems. The addition of
POS scanning in all of its retail stores is scheduled to be completed in fiscal
1999.
COMPETITION
In its retail operations, the Company competes with other closeout
retailers, discount stores, deep discount drugstore chains, supermarkets and
other value-oriented specialty retailers. In its wholesale operations, the
Company competes with numerous national and regional wholesalers, retailers,
jobbers, dealers and others which sell many of the items sold by the Company.
Certain of these competitors have substantially greater financial resources and
wider distribution capabilities than those of the Company, and competition is
often intense. Competition is based primarily on product selection and
availability, price and customer service. The Company believes that by virtue of
its ability to make purchases of closeout, bulk and surplus items, its prices
compare favorably with those of its competitors.
In addition to competition in the sale of merchandise at wholesale and
retail, the Company encounters significant competition in locating and obtaining
closeout, overproduction and similar merchandise for its operations. There is
increasing competition for the purchase of such merchandise. However, the
Company believes that it will have sufficient sources to enable it to continue
purchasing such merchandise in the future. Furthermore, the Company believes
that as the number and capacity of its stores grow, its ability to take
advantage of purchase opportunities of larger quantities of merchandise at
favorable prices will increase accordingly.
TRADEMARKS
The Company has registered "Odd Job" as a trademark in the United
States. The Company has registered or has filed registration applications for
certain other trademarks and trade names.
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EMPLOYEES
At January 30, 1999, the Company had 1,376 employees. Retail employees
included 1,118 in direct retail and warehouse operations, and 91 in support
operations. Wholesale employees included 152 in direct wholesale, support and
warehouse operations. Corporate employees included 15 in general management and
administrative positions. The Company considers its relationship with its
employees to be good. Approximately 73 of the Company's Solon, Ohio hourly
warehouse employees are subject to a five year collective bargaining agreement
expiring December 31, 1999. The warehouse employees in South Plainfield, New
Jersey, approximately 93 individuals, are subject to a 42 month collective
bargaining agreement expiring January 28, 2001. The Company is not a party to
any other labor agreements.
ITEM 2. PROPERTIES
The Company leases its offices, warehouse and distribution facility in
Solon, Ohio from a corporation in which certain of the Company's executive
officers are minority owners. The Company currently occupies approximately
740,000 square feet at such facility, of which approximately 22,000 square feet
is used as office and showroom space and the remainder of which is used as
warehouse space for the Company's wholesale operations. The lease for the
facility, as amended, expires December 31, 2008. The Company leases a 475,000
square foot facility in South Plainfield, New Jersey from a limited liability
company which certain of the Company's executive officers are minority owners.
Housing the Company's retail operations, approximately 450,000 square feet of
the facility is utilized by the warehouse and distribution operation, with the
remainder used for office space. The lease for the facility expires November 30,
2010. In addition, the Company leases space at several public warehouses
depending on its needs at a particular point in time. The Company believes its
facilities will be generally adequate for its retail and wholesale operational
requirements for the foreseeable future.
The Company leases its offices and showrooms in Columbus, Ohio, Chicago
and New York City. The Chicago lease expires on October 21, 2002 and the New
York City lease expires on December 31, 2001.
The Company leases all of its stores. Store leases generally provide
for fixed monthly rental payments, plus the payment, in most cases, of real
estate taxes, utilities, liability insurance and common area maintenance. In
certain locations, the leases provide formulas requiring the payment of a
percentage of sales as additional rent. Such payments are generally only
required when sales reach a specified level. The typical store lease is for an
initial term of five or ten years, with certain leases having renewal options.
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ITEM 3. LEGAL PROCEEDINGS
The U.S. Consumer Product Safety Commission has sent notice to the
Company that a certain product distributed by the Company known as "Teddy
Precious Indian Girl and Boy" (Teddy Bears") were banned hazardous substances
and were then under recall. Pursuant to the notice, the Company immediately
ceased distribution and notified all purchasers of Teddy Bears of the recall. A
Federal Grand Jury is investigating the circumstances surrounding the purchase,
sale and distribution of the Teddy Bears.
On October 8, 1998, the Company filed a complaint in the U.S. District
Court for the Northern District of Ohio against DanDee International, Inc.
("DanDee") for breach of contract and fraud. Mazel Stores, Inc. v. DanDee
International, Inc., et al., 1:98 CV 2308, U.S. District Court-N.D. Ohio.
Pursuant to the purchase of the Teddy Bears referenced in the above paragraph,
DanDee has filed a counterclaim against Mazel claiming that the sale of the
Teddy Bears within the United States by Mazel breached Mazel's purchase
agreement with DanDee.
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The Company is subject to various other legal proceedings and claims
that arise in the ordinary course of business. The Company believes that the
amount of any ultimate liability with respect to all actions, including those
described above, will not have a material adverse effect on the Company's
liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4A. DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages as
of April 1, 1999 are as follows:
NAME AGE POSITION
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Reuven D. Dessler 51 Chairman of the Board and Chief
Executive Officer
Brady Churches 40 President, Director
Jacob Koval 51 Executive Vice President-Wholesale,
Director
Jerry Sommers 48 Executive Vice President-Retail,
Director
Susan Atkinson 48 Senior Vice President - Chief Financial
Officer and Treasurer
Charles Bilezikian 62 Director
Phillip Cohen 80 Director
Robert Horne 40 Director
Ned L. Sherwood 49 Director
Marc H. Morgenstern 49 Secretary
Reuven Dessler is Chairman of the Board and Chief Executive Officer of
the Company since November 1996. Mr. Dessler co-founded the Company in 1975 and
served as its President until November 1996.
Brady Churches has served as the Company's President and a Director
since November 1996 and served as President - Retail from August 1995 until such
date. From 1978 until April 1995, Mr. Churches held various senior management
positions at Consolidated Stores, Inc., a large national retailer, including
President from August 1993 until April 1995.
Jacob Koval is Executive Vice President - Wholesale and a Director of
the Company. Mr. Koval co-founded the Company in 1975.
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Jerry Sommers has served as Executive Vice President - Retail of the
Company since November 1995, and as a Director since November 1996. From 1984
through April 1995, Mr. Sommers held various senior management positions with
Consolidated Stores, including Executive Vice President from August 1993 until
April 1995.
Susan Atkinson has served as Senior Vice President-Chief Financial
Officer and Treasurer of the Company since January 1993. From August 1988
through December, 1992, she was employed by Harris Wholesale Company, a
pharmaceutical wholesaler, serving as Chief Financial Officer and Vice President
- - Finance/Administration from January 1991 until
December 1992.
Charles Bilezikian, has served as Director since January, 1997. Mr.
Bilezikian has been the President of Christmas Tree Shops, Inc., a specialty New
England retailer, since its formation in 1971.
Phillip Cohen has served as a Director of the Company since November
1996. From 1947 to his retirement in 1989, Mr. Cohen was Chairman and CEO of
Wisconsin Toy and Novelty, Inc., a Midwest distributor of closeout toy and
novelty items.
Robert Horne has served as a Director of the Company since November
1996. Mr. Horne has been a principal of ZS Fund L.P., a Company engaged in
making private investments, for over five years. Prior to joining ZS Fund L.P.,
Mr. Horne was employed by Salomon Brothers, Inc. as a Vice President in its
Mergers and Acquisitions Group.
Ned L. Sherwood has served as a Director of the Company since November
1996. Mr. Sherwood has been a principal and President of ZS Fund L.P. for more
than five years. Mr. Sherwood is currently a member of the Boards of Directors
of Kaye Group, Inc. and Market Facts, Inc.
Marc H. Morgenstern has served as Secretary of the Company since
November 1996. He has been a principal in the Cleveland, Ohio law firm of Kahn,
Kleinman, Yanowitz & Arnson Co., L.P.A. serving as President of the firm and
Chairman of its Executive Committee, for more than five years.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq Stock Market(sm) under
the symbol "MAZL". The following table shows the quarterly high and low closing
sale prices of the Common Stock since the Company began trading publicly on
November 21, 1996, at an IPO price of $16.00 per share.
<TABLE>
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Fiscal Year 1998 Fiscal Year 1997
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Fiscal Quarter High Low High Low
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<S> <C> <C> <C> <C>
First Quarter 20.250 13.875 28.250 12.625
Second Quarter 17.500 15.750 20.250 11.750
Third Quarter 15.625 8.875 25.250 19.000
Fourth Quarter 16.000 8.375 19.250 12.500
</TABLE>
As of April 2, 1999, the Company believes that there were 1,500
beneficial owners of the Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain its future earnings, to finance
the expansion of its business and for general corporate purpose and currently
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. Any payment of cash dividends in the future will be at the
discretion of the Board of Directors and will depend upon, among other things,
the Company's earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to the payment of dividends
and other factors that the Company's Board of Directors deems relevant. In
addition, the Company's credit facility prohibits declaring or paying any
dividends without the prior written consent of the Lender.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data of the Company presented under
the captions Statement of Operations Data and Balance Sheet Data as of January
31, 1995 and 1996 (fiscal years 1994 and 1995, respectively) have been derived
from the financial statements of Mazel Company L.P. ("Partnership"), which
during 1996 was restructured as the Company. The financial statements of the
Partnership include the operations of the Peddlers Mart retail store from
December 9, 1994 and the Odd Job operations from December 7, 1995. The selected
historical financial data presented under the captions Statement of Operations
Data and Balance Sheet Data for the fiscal years ended January 25, 1997, January
31, 1998 and January 30, 1999 (fiscal years 1996, 1997 and 1998, respectively)
were derived from the financial statements of the Company. The selected data
referred to above should be read in conjunction with the financial statements
and related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this filing.
15
<PAGE> 16
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------------------------
Pro Forma,
As Adjusted
1994 1995 1996 1996(1) 1997 1998
---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (DOLLARS IN THOUSANDS):
Net sales $76,254 $98,106 $179,877 $179,877 $208,326 $237,134
Cost of sales 55,183 70,208 121,382 121,382 136,446 152,792
------- ------- ------- ------- ------- -------
Gross profit 21,071 27,898 58,495 58,495 71,880 84,342
SG & A expense 15,317 20,753 45,802 44,567 55,839 71,643
Special charges - 2,203 4,243 - - 1,387
------- ------- ------- ------- ------- -------
Operating profit 5,754 4,942 8,450 13,928 16,041 11,312
Interest expense (income) 894 1,265 2,254 (206) 943 2,062
Other expense (income) (26) 559 (34) (34) 662 627
------- ------- ------- ------- ------- -------
Income before
income taxes 4,886 3,118 6,230 14,168 14,436 8,623
Income tax expense
(benefit) 71 19 (1,987) 5,667 5,919 3,450
------- ------- ------- ------- ------- -------
Net income $ 4,815 $ 3,099 $ 8,217 $ 8,501 $ 8,517 $ 5,173
======= ======= ======= ======= ======= =======
Net income per share (basic) $ 0.93 $ 0.93 $ 0.57
Net income per share (diluted) $ 0.91 $ 0.92 $ 0.57
Shares outstanding (basic) 9,170,100 9,162,100 9,141,600
Shares outstanding (diluted) 9,386,000 9,265,400 9,146,800
BALANCE SHEET DATA (DOLLARS IN THOUSANDS):
Working capital $17,439 $26,193 $44,473 $44,473 $55,862 $53,960
Total assets 31,129 56,634 86,361 86,644 113,884 130,995
Long term debt 10,649 27,382 70 70 19,781 24,002
Total liabilities 19,567 43,764 21,599 21,599 41,045 52,965
Stockholders' equity and
partners' capital 11,562 12,870 64,762 65,045 72,839 78,030
SELECTED RETAIL OPERATIONS DATA:
Number of stores 12 13 23 32 47
Total square footage 164,386 188,361 336,905 466,716 689,750
Total store sales growth 12.8% 6.3% 40.2% 34.4% 38.0%
Comparable store net sales 7.9% -4.4% 15.8% 1.8% 0.1%
Avg. net sales per gross sq. ft. $344 $319 $354 $294 $258
</TABLE>
(1) Pro forma as adjusted data gives effect to the Company's IPO as of the
beginning of all period presented, and includes the combination of: (i)
the Mazel wholesale operations and (ii) the Odd Job retail operations,
as if the combination of entities had occurred at the beginning of all
periods presented. Pro forma as adjusted data excludes certain
non-recurring charges, and gives effect to the use of proceeds
resulting from the Company's IPO, as well as certain adjustments to
compensation expense.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company consists of two complementary operations: (i) a major regional
closeout retail business; and (ii) the nation's largest closeout wholesale
business. The Company sells quality, value-oriented consumer products at a
broad range of price points offered at a substantial discount to the
original retail or wholesale price. The Company's merchandise primarily
consists of new, frequently brand-name, products that are available to the
Company for a variety of reasons, including overstock positions of a
manufacturer, wholesaler or retailer; the discontinuance of merchandise due
to a change in style, color, shape or repackaging; a decrease in demand for
a product through traditional channels; or the termination of business by a
manufacturer, wholesaler or retailer.
The Company was founded in 1975 as a wholesaler of closeout merchandise. In
fiscal 1996, the Company purchased the established Odd Job retail business,
consisting of 12 retail stores and a warehouse and distribution facility,
from an affiliate of ZS Fund L.P., a shareholder of the Company. The
Company's business strategy has expanded from a primary focus on wholesale
operations to an emphasis on the growth of its Odd Job retail operations.
At the end of fiscal 1998, the Company operated 47 closeout retail stores,
including 25 in New York (seven of which are in Manhattan), 18 in New
Jersey, and two each in Pennsylvania and Connecticut.
The growth of the Company's retail operations, coupled with the fiscal 1997
investment in VCM, Ltd., has transformed the Company into a "retailer",
with quarterly sales and earnings patterns similar to other retail
operations. The Company's Odd Job expansion plan is to open 16 to 18 stores
in fiscal 1999 and 18 to 20 stores in fiscal 2000.
17
<PAGE> 18
MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
The results of operations set forth below describe the Company's retail and
wholesale segments and the Company's combined corporate structure.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Fiscal 1998 Fiscal 1997 Fiscal 1996
--------------------- ---------------------- --------------------
Percent of Percent of Percent of
Amount Net Sales Amount Net Sales Amount Net Sales
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales
Retail $156,242 65.89% $113,205 54.34% $84,202 46.81%
Wholesale 80,892 34.11% 95,121 45.66% 95,675 53.19%
------- ----- ------ ----- ------- ------
237,134 100.00% 208,326 100.00% 179,877 100.00%
Gross profit
Retail 61,153 39.14% 44,608 39.40% 32,903 39.08%
Wholesale 23,189 28.67% 27,272 28.67% 25,592 26.75%
------ ----- ------ ----- ------ ------
84,342 35.57% 71,880 34.50% 58,495 32.52%
Segment operating profit
Retail 3,618 2.31% 5,393 4.76% 3,817 4.53%
Wholesale 9,600 11.87% 12,821 13.48% 14,015 14.65%
Corporate (519) -0.22% (2,173) -1.04% (5,139) -2.86%
Special charges (1,387) -0.58% - - (4,243) -2.36%
------- ------ ------ ------ ------- ------
11,312 4.77% 16,041 7.70% 8,450 4.70%
Interest expense, net 2,062 0.87% 943 0.45% 2,254 1.25%
Other (income) expense 627 0.26% 662 0.32% (34) -0.02%
Income tax expense (benefit) 3,450 1.46% 5,919 2.84% (1,987) -1.10%
----- ---- ----- ----- ------- ------
Net income
As reported $ 5,173 2.18% $ 8,517 4.09% $ 8,217 4.57%
Pro forma as adjusted $ 8,501 4.73%
Net income per share
As reported
Basic $ 0.57 $ 0.93
Diluted $ 0.57 $ 0.92
Pro forma as adjusted
Basic $ 0.93
Diluted $ 0.91
</TABLE>
18
<PAGE> 19
RETAIL SEGMENT
Fiscal 1998 Results versus Fiscal 1997
Net sales were $156.2 million for fiscal 1998 (52 weeks), compared to $113.2
million for fiscal 1997 (53 weeks), an increase of $43.0 million, or 38.0%.
Comparable store (23 stores for fiscal 1998) net sales increased approximately
0.1% on a 52 week basis. The increase in net sales was attributable to the full
year impact of the nine stores opened during fiscal 1997, as well as the partial
year sales from the 15 stores opened during fiscal 1998.
Gross profit was $61.2 million for fiscal 1998, compared to $44.6 million for
fiscal 1997, an increase of $16.6 million, or 37.1%. Gross margin decreased to
39.1% in fiscal 1998, from 39.4% in fiscal 1997, due to increased promotional
activity and a reduction in commission and allowances.
Selling, general and administrative expense was $57.5 million for fiscal 1998,
compared to $39.2 million for fiscal 1997, an increase of $18.3 million, or
46.8%. The increase resulted primarily from a $14.6 million increase in store
level and distribution costs, $3.6 million of which was attributable to the full
year operation of nine stores opened in fiscal 1997, plus expenses relating to
the 15 stores opened during fiscal 1998. Additionally, warehouse costs increased
$1.6 million, due to costs and inherent start-up inefficiencies resulting from
the third quarter 1998 relocation of the Company's retail distribution facility
to South Plainfield, New Jersey. Store level expenses include preopening costs,
which are expensed as incurred, and totaled $1.9 million in fiscal 1998,
compared to $1.0 million in fiscal 1997. Also included in store level costs is
advertising expense, which increased $1.4 million as the Company expanded its
advertising program during fiscal 1998, to include a targeted radio campaign.
Administrative support expenses increased $2.2 million reflecting the impact of
salary, fringe benefits and personnel costs for key individuals added to the
back office and field support infrastructure. Selling, general and
administrative expense, as a percentage of net sales, increased to 36.8% in
fiscal 1998, from 34.6% in fiscal 1997.
Operating profit decreased to $3.6 million for fiscal 1998, from $5.4 million
for fiscal 1997. As a percentage of net sales, operating profit decreased to
2.3% from 4.8%. This decrease was primarily due to the factors described above.
Fiscal 1997 Results versus Fiscal 1996
Net sales were $113.2 million for fiscal 1997, compared to $84.2 million for
fiscal 1996, an increase of $29.0 million, or 34.4%. Comparable store (13 stores
for fiscal 1997) net sales increased approximately 3.3%. Adjusting for the
additional week in fiscal 1997, comparable store net sales increased 1.8%. The
increase in net sales was attributable to the full year impact of the 10 stores
opened during fiscal 1996, as well as the partial year sales from the nine
stores opened during fiscal 1997.
19
<PAGE> 20
Gross profit was $44.6 million for fiscal 1997, compared to $32.9 million for
fiscal 1996, an increase of $11.7 million, or 35.6%. Gross margin increased to
39.4% in fiscal 1997, from 39.1% in fiscal 1996. Better store controls resulting
in reduced inventory shrink results together with promotions and rebate income,
all reducing cost of sales, were largely responsible for the increase.
Selling, general and administrative expense was $39.2 million for fiscal 1997,
compared to $29.1 million for fiscal 1996, an increase of $10.1 million, or
34.8%. The increase resulted primarily from a $9.2 million increase in store
level and warehouse and distribution expenses, reflecting the addition of nine
stores during fiscal 1997 and the full year effect of the 10 stores opened in
fiscal 1996. Store preopening costs, which are expensed as incurred, totaled
$1.0 million in fiscal 1997, compared to $850,000 in fiscal 1996. The Company
also expanded its advertising program during fiscal 1997, resulting in $1.1
million of additional expenses. In addition, administrative support expenses
increased $650,000. Selling, general and administrative expense, as a percentage
of net sales, increased slightly to 34.6% in fiscal 1997, from 34.5% in fiscal
1996.
Operating profit increased to $5.4 million for fiscal 1997, from $3.8 million
for fiscal 1996. As a percentage of net sales, operating profit increased to
4.8% from 4.5%. This increase was primarily due to the factors described above.
WHOLESALE SEGMENT
Fiscal 1998 Results versus Fiscal 1997
Net sales, excluding intercompany sales, for fiscal 1998 were $80.9 million,
compared to $95.1 million for fiscal 1997, a decrease of $14.2 million, or
15.0%. The decline was primarily attributable to a decrease in sales to a large
wholesale customer which was acquired early in 1998. The Company expects further
declines in sales to this customer.
Gross profit was $23.2 million for fiscal 1998, compared to $27.3 million for
fiscal 1997, a decrease of $4.1 million, or 15.0%. Gross margin was unchanged at
28.7%.
Selling, general and administrative expense was $13.6 million for fiscal 1998,
compared to $14.5 million for fiscal 1997, a decrease of $862,000, or 6.0%. The
decrease in selling, general and administrative expense was attributable to
lower levels of payroll and bonus payments, sales commissions, and product sales
program development costs, partially offset by higher warehouse rent expense
attributable to the 100,000 square foot addition
20
<PAGE> 21
completed in third quarter 1997. As a percentage of net sales, selling, general
and administrative expense increased to 16.8% in fiscal 1998, from 15.2% in
fiscal 1997.
Wholesale operating profit was $9.6 million for fiscal 1998, compared to $12.8
million for fiscal 1997, a decrease of $3.2 million, or 25.1%. As a percentage
of net sales, operating profit decreased to 11.9% in fiscal 1998, from 13.5% in
fiscal 1997, due to the factors described above.
Fiscal 1997 Results versus Fiscal 1996
Net sales, excluding intercompany sales, for fiscal 1997 of $95.1 million were
virtually unchanged from fiscal 1996 despite a 15% decline in sales to the
Company's largest wholesale customer.
Gross profit was $27.3 million for fiscal 1997, compared to $25.6 million for
fiscal 1996, an increase of $1.7 million, or 6.6%. Gross margin increased to
28.7% in fiscal 1997, from 26.8% in fiscal 1996. The increase in gross margin
was attributable to a higher percentage of stock sales which typically present a
higher gross margin.
Selling, general and administrative expense was $14.5 million for fiscal 1997,
compared to $11.6 million for fiscal 1997, an increase of $2.9 million, or
24.8%. The increase in selling, general and administrative expense was
attributable to higher warehouse expenses, including rent and costs related to
the repackaging of products, additional sales commission expenses, and higher
administrative costs primarily related to the development of new product sales
programs. As a percentage of net sales, selling, general and administrative
expense increased to 15.2% in fiscal 1997, from 12.1% in fiscal 1996.
Wholesale operating profit was $12.8 million for fiscal 1997, compared to $14.0
million for fiscal 1996, a decrease of $1.2 million, or 8.5%. As a percentage of
net sales, operating profit decreased to 13.5% in fiscal 1997, from 14.6% in
fiscal 1996, due to the factors described above.
CORPORATE EXPENSES AND SPECIAL CHARGES
Fiscal 1998 Results versus Fiscal 1997
Corporate expenses consist of the cost of senior management and shared
administrative resources which are utilized by both segments of the business.
Corporate expense also includes management fee revenue received from VCM, Ltd.,
the 50% owned joint venture with Value City Department Stores, which commenced
operation on August 3, 1997. Corporate expense for fiscal 1998 was $0.5 million,
compared to $2.2 million for fiscal 1997. The decrease was due to
21
<PAGE> 22
higher VCM management fee revenue, which increased to $3.1 million for fiscal
1998, from $1.8 million in fiscal 1997, and lower expense levels, particularly
in bonus expense. As a result, net corporate expense decreased as a percentage
of total Company sales to 0.2% in fiscal 1998 from 1.0% in fiscal 1997.
Special charges for fiscal 1998 totaling $1.4 million resulted from the
relocation of the Company's retail warehouse and distribution facility to South
Plainfield, New Jersey. The charges reflect the estimated costs of exiting the
former retail warehouse located in Englewood, New Jersey, and related long-lived
asset write-offs and employee severance.
Interest expense was $2.1 million for fiscal 1998, compared to $943,000 for
fiscal 1997, primarily reflecting higher average borrowings in support of retail
store growth and management information system initiatives. Other expense was
$627,000 for fiscal 1998, compared to $662,000 for fiscal 1997. Other expense
includes the Company's 50% share in the net loss of VCM, Ltd., $477,000 for
fiscal 1998 and $758,000 for fiscal 1997, and for fiscal 1998, a $150,000 charge
relating to contingent obligations for retail operations disposed of in 1995.
Fiscal 1997 Results versus Fiscal 1996
Corporate expense was $2.2 million for fiscal 1997, compared to $5.1 million for
fiscal 1996. The decrease was attributable to salary reductions effected at the
time of the initial public offering ("IPO"), offset by the addition of expenses
attributed to being a public company. In addition, fiscal 1997 corporate expense
is net of $1.8 million management fee revenue from VCM, Ltd. As a result, net
corporate expense decreased as a percentage of total Company sales to 1.0% in
fiscal 1997 from 2.9% in fiscal 1996.
Special charges for fiscal 1996 totaling $4.2 million resulted from compensation
and other charges arising at the time of the Company's IPO. There were no
special charges for fiscal 1997.
Interest expense decreased $1.3 million to $943,000 for fiscal 1997, compared to
$2.3 million for fiscal 1996, primarily reflecting lower post-IPO net
borrowings. Other expense includes a $758,000 net loss which reflects the
Company's 50% interest in VCM, Ltd. for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital consist of inventory purchases,
expenditures related to new store openings, existing store remodeling, MIS
initiatives, and other working capital needs. The Company takes advantage of
closeout and other special situation purchasing opportunities which frequently
result in large volume purchases, and as a consequence, its cash requirements
are not constant or predictable during the year and can be affected by the
timing and size of its purchases. The Company's high level of
22
<PAGE> 23
committed credit allows it to take immediate advantage of special
situation purchasing opportunities. Having such credit availability provides the
Company with a competitive advantage measured against many of its competitors.
The Company's growth has been financed through cash flow from operations,
borrowings under its revolving credit facility and the extension of trade
credit. In March 1998, the Company entered into a new $60.0 million credit
facility. This facility is comprised of a $50.0 million revolving line of credit
and a $10.0 million term loan. The facility expires on November 15, 2002. The
term loan requires 20 consecutive quarterly payments of $500,000 plus accrued
interest commencing May 1, 1998. Borrowings under the facility bear interest, at
the Company's option, at either the banks' prime rate less 50 basis points or
LIBOR plus a spread. Availability on the facility is the lesser of the total
credit commitment or a borrowing base calculation based upon the Company's
accounts receivable and inventories. The facility contains restrictive covenants
which require minimum net worth levels, maintenance of certain financial ratios
and limitations on capital expenditures and investments. At January 30, 1999,
the Company had availability of $23.2 million.
For fiscal year 1998, cash provided by consolidated operating activities was
$5.6 million, compared to cash used in fiscal 1997 of $9.1 million. A decrease
in accounts receivable and an increase in accounts payable, partially offset by
increases in inventory and other assets, comprised the majority of the cash
provided for fiscal 1998. Increases in trade receivables, inventories, and a
decrease in trade payables comprised the majority of cash used for fiscal 1997.
Cash used in investing activities decreased to $9.4 million in fiscal 1998, from
$17.4 million in fiscal 1997. Fiscal 1998 investing activities primarily
comprised capital expenditures of $8.1 million and the investment in lease
acquisitions of $1.3 million. Cash generated by financing activities of $4.2
million for fiscal 1998 was the result of additional borrowings from the
Company's credit facility.
Total assets increased 15.0% to $131.0 million at fiscal year end 1998, from
$113.9 million at year end 1997. Working capital decreased to $54.0 million in
fiscal 1998, from $55.9 million at the prior year end, primarily as a result of
increases in accounts payable and current portion of long term debt, and a
decrease in accounts receivable, partially offset by an increase in inventory.
The current ratio was 2.9 to 1 at year end 1998, from 3.9 to 1 at year end 1997.
Net fixed assets were $17.3 million at the end of fiscal 1998, an increase of
$6.4 million over fiscal year end 1997, primarily related to capital
expenditures for fixtures, equipment, and leasehold improvements related to new
store openings, improvements to the new retail warehouse and distribution
facility, and investment in management information systems initiatives.
The Company currently anticipates opening new stores in each of the next few
years. In addition to new store openings, the Company may increase the number of
stores it operates
23
<PAGE> 24
through acquisitions. Management believes that from time to time, acquisition
opportunities will arise. Possible acquisitions will vary in size and the
Company will consider larger acquisitions that could be material to the Company.
In order to finance any such possible acquisitions, the Company may use cash
flow from operations, may borrow additional amounts under its revolving credit
facility, may seek to obtain additional debt or equity financing or may use its
equity securities as consideration. The availability and attractiveness of any
outside sources of financing will depend on a number of factors, some of which
will relate to the financial condition and performance of the Company, and some
of which will be beyond the Company's control, such as prevailing interest rates
and general economic conditions.
SEASONALITY
The Company, with the growth of its retail operations and the retail orientation
of the VCM, Ltd. joint venture, has shifted its business mix more toward retail.
This shift will also effect the net sales and earnings pattern of the Company,
with a greater weighting toward the second half of the fiscal year.
YEAR 2000 DISCLOSURE
The Company has completed a review of its internal management information
systems regarding Year 2000 issues. The Company's planned systems initiatives
will resolve the majority of the issues as current systems are converted to Year
2000 compliant systems. For other legacy systems, the Company has developed an
action plan and begun implementing remedial measures. All internal management
information systems are expected to be in Year 2000 compliance by mid-fiscal
1999. The Company estimates that costs associated with making internal
management information systems Year 2000 compliant will not be material, and
thus will not have a material impact on the Company's financial position,
results of operations, and cash flows. The Company also relies, directly and
indirectly, on external systems of business enterprises such as suppliers,
creditors, and financial organizations, both domestic and international. Many of
these external business partners have not, as of yet, advised the Company as to
the status of their Year 2000 program. The Company's operations could also be
effected if its external business partners do not successfully implement Year
2000 compliant systems.
24
<PAGE> 25
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 requires public business
enterprises to report certain information about operating segments, as well as
certain information about products and services, geographic areas in which an
enterprise operates, and any major customers. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997. The Company adopted SFAS No. 131
for the fiscal 1998 financial statements.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosure about
Pensions and Other Postretirement Benefits. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997. In June, 1998, the FASB issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
is effective for fiscal years beginning after June 15, 1999. SFAS No. 132 and
SFAS No. 133 are currently not applicable to the Company.
In April 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-5, Reporting on the Costs of Start-up Activities.
SOP 98-5 requires that the cost of start-up activities be expensed as incurred.
SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The
Company has not fully analyzed the effect of SOP 98-5, but does not believe it
will have a significant impact on its consolidated financial statements.
FORWARD LOOKING STATEMENTS
Forward looking statements in this report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected. Such risks and
uncertainties include, but are not limited to: the successful implementation and
timing of the Company's retail expansion plans; the ability to purchase quality
closeout merchandise at prices that allow the Company to maintain or exceed
expected margins on sales; the effect of comparable store sales and the
disproportionate impact caused by individual buying transactions; any
unanticipated problems at the Company's distribution facilities or in
transportation of merchandise in general; and the operating and financial
results of the Value City joint venture. Please refer to the Company's
subsequent SEC filings under the Securities Exchange Act of 1934, as amended,
for further information.
25
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Part IV, Item 14 of this Form 10-K for the
information required by Item 8.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this Item (other than the information
regarding executive officers set forth at the end of Item 4(a) of Part I of this
Form 10-K) will be contained in the Company's definitive Proxy Statement for its
1999 Annual Meeting of Shareholders, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders, and is
incorporated herein by reference.
26
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of January 30, 1999 and
January 31, 1998.
Consolidated Statements of Operations for the Years Ended
January 30, 1999, January 31, 1998 and January 25, 1997.
Consolidated Statements of Stockholders' Equity and Partners'
Capital for the Years Ended January 30, 1999, January 31,
1998 and January 25, 1997.
Consolidated Statements of Cash Flows for the Years Ended
January 30, 1999, January 31, 1998 and January 25, 1997.
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or
because required information is included in the financial
statements or notes thereto.
(a) (3) Exhibits
See the Index to Exhibits included on page 47.
(b) Reports on Form 8-K
None
27
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mazel Stores, Inc.:
We have audited the consolidated financial statements of Mazel Stores, Inc. and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mazel Stores, Inc.
and subsidiaries as of January 30, 1999 and January 31, 1998 and the results of
their operations and their cash flows for each of the years in the three-year
period ended January 30, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Cleveland, Ohio
March 16, 1999
28
<PAGE> 29
MAZEL STORES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,668 1,240
Accounts receivable-trade, less allowance for doubtful
accounts of $195 in both periods 12,819 15,507
Notes and other receivables 223 334
Inventories 60,789 53,676
Prepaid expenses 3,140 1,194
Deferred income taxes (note 8) 3,389 2,837
------- -------
Total current assets 82,028 74,788
Equipment, furniture, and leasehold improvements, net (note 4) 17,268 10,889
Other assets 4,205 3,183
Investment in VCM, Ltd. (note 16) 8,401 8,879
Notes and accounts receivable-related parties (notes 6 and 16) 6,953 3,952
Goodwill, net 10,388 10,701
Deferred income taxes (note 8) 1,752 1,492
------- -------
$130,995 113,884
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt (note 5) $ 2,017 17
Accounts payable 21,882 14,362
Accrued expenses 3,432 4,036
Other current liabilities 737 511
------ ------
Total current liabilities 28,068 18,926
Revolving line of credit (note 5) 15,448 19,716
Long-term debt, net of current portion (note 5) 6,537 48
Other liabilities 2,912 2,355
------- -------
Total liabilities 52,965 41,045
Stockholders' equity
Preferred stock, no par value; 2,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, no par value; 14,000,000 shares authorized;
9,141,800 and 9,144,200 shares issued and
outstanding, respectively 64,320 64,302
Retained earnings 13,710 8,537
------- -------
Total stockholders' equity 78,030 72,839
Commitments and contingencies (note 9) ------- -------
$130,995 113,884
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
29
<PAGE> 30
MAZEL STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $237,134 208,326 179,877
Cost of sales 152,792 136,446 121,382
------- ------- -------
Gross profit 84,342 71,880 58,495
Selling, general, and administrative expense 71,643 55,839 45,802
Special charges (note 11) 1,387 - 4,243
------- ------ ------
Operating profit 11,312 16,041 8,450
Other income (expense)
Interest expense, net (2,062) (943) (2,254)
Other (notes 9 and 16) (627) (662) 34
------- ------ ------
Income before income taxes 8,623 14,436 6,230
Income tax expense (benefit) (note 8) 3,450 5,919 (1,987)
------ ------ -------
Net income $ 5,173 8,517 8,217
====== ====== =======
Pro forma as adjusted data (unaudited) (note 13)
Income before income taxes $ 6,230
Supplemental pro forma adjustments
Management compensation adjustments 1,235
Special charges 4,243
Reduction in interest expense, net 2,460
Provision for income taxes (5,667)
------
Pro forma as adjusted net income $ 8,501
======
Net income per share (note 17)
As reported - basic $ 0.57 0.93
As reported - diluted $ 0.57 0.92
Pro forma as adjusted (unaudited) - basic $ 0.93
Pro forma as adjusted (unaudited) - diluted $ 0.91
Average shares outstanding - basic 9,141,600 9,162,100 9,170,100
Average shares outstanding - diluted 9,146,800 9,265,400 9,386,000
</TABLE>
See accompanying notes to consolidated financial statements
30
<PAGE> 31
MAZEL STORES, INC.
Consolidated Statements of Stockholders' Equity and Partners' Capital
(Dollars in thousands)
<TABLE>
<CAPTION>
Mazel
Retained Company
Common Common Earnings Partners'
Shares Stock (Deficit) Capital Total
------ ----- --------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance as of January 31, 1996 $ 100 (204) 12,974 12,870
Capital contributed - - 4,000 4,000
Net proceeds from issuance and sale of
common shares in connection with the
initial public offering, net of issuance
costs of $1,038 (note 2) 2,960,100 43,008 - - 43,008
Stock issued pursuant to compensation
arrangements 206,900 3,646 - - 3,646
Conversion of debt 312,500 1,000 - - 1,000
Partners' withdrawals - - - (7,979) (7,979)
Net income - - 224 7,993 8,217
Exchange of partnership equity for stock 5,690,600 16,988 - (16,988) -
--------- ------- ------- -------- ------
Balance as of January 25, 1997 9,170,100 64,742 20 - 64,762
Stock retirement (25,900) (440) - - (440)
Net income - - 8,517 - 8,517
--------- ------- ------- -------- ------
Balance as of January 31, 1998 9,144,200 64,302 8,537 - 72,839
Stock retirement (3,800) (4) - - (4)
Sale of common shares 1,400 22 - - 22
Net income - - 5,173 - 5,173
--------- ------- ------- -------- ------
Balance as of January 30, 1999 9,141,800 $ 64,320 13,710 - 78,030
========= ======= ======= ======== ======
</TABLE>
See accompanying notes to consolidated financial statements
31
<PAGE> 32
MAZEL STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,173 8,517 8,217
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation and amortization 2,514 1,519 1,075
Deferred income taxes (812) 379 (2,304)
Equity in net loss from VCM, Ltd. 478 758 -
Noncash compensation expense - - 2,928
Noncash retirement of shareholder loans,
stock options, and restricted stock (4) (440) -
Changes in operating assets and liabilities
Accounts receivable - trade 2,688 (4,942) (2,077)
Notes and other receivables 111 (238) 256
Inventories (7,113) (13,277) (10,735)
Prepaid expenses (1,946) (8) (704)
Other assets (3,178) (1,633) (31)
Accounts payable 7,520 (1,085) 3,627
Accrued expenses and other liabilities 179 1,383 626
----- ----- -----
Net cash provided by (used in) operating activities 5,610 (9,067) 878
----- ----- -----
Cash flows from investing activities:
Capital expenditures (8,155) (5,832) (3,923)
Investment in VCM, Ltd. - (9,637) -
Cash paid for lease acquisitions (1,270) (1,950) -
Cash paid for acquisitions, net of cash acquired - - (266)
Cash received at acquisition, net of cash expenses - - 70
Issuance of notes receivable - related parties - - (2,936)
----- ------ -----
Net cash used in investing activities (9,425) (17,419) (7,055)
----- ------ -----
Cash flows from financing activities:
Repayment of debt (70,534) (44,065) (33,414)
Net borrowings under credit facility 74,755 63,781 7,102
Equity contributions - - 4,000
Partners' withdrawals - - (7,979)
Net proceeds from sale of common shares 22 - 43,008
----- ------ ------
Net cash provided by financing activities 4,243 19,716 12,717
----- ------ ------
Net increase (decrease) in cash and cash equivalents 428 (6,770) 6,540
Cash and cash equivalents at beginning of year 1,240 8,010 1,470
----- ----- ------
Cash and cash equivalents at end of year $ 1,668 1,240 8,010
======= ===== ======
Supplemental disclosures
Cash paid for interest $ 2,085 1,883 2,503
Cash paid for income taxes $ 4,892 5,441 278
====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements
32
<PAGE> 33
MAZEL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
The Company consists of two complementary operations: (i) a major
regional closeout retail business; and (ii) the nation's largest
closeout wholesale business. The Company sells quality,
value-oriented consumer products at a broad range of price points
offered at a substantial discount to the original retail or wholesale
price. The Company operates a chain of 47 closeout retail stores,
including 25 in New York (seven of which are in Manhattan), 18 in New
Jersey, and two each in Pennsylvania and Connecticut.
(B) ORGANIZATION
The Company was incorporated as a wholly owned subsidiary of Mazel
Company L.P. ("Partnership") in preparation for an initial public
offering ("IPO") that occurred as of November 21, 1996 (see note 2).
The Partnership was controlled by ZS Mazel L.P. ("ZS"), a limited
partnership that was also the sole stockholder of Odd-Job Holdings,
Inc. ("Holdings"), which owned all of the common stock of Odd-Job
Acquisition Corp., which had been organized to acquire the retail
business of a commonly owned group of corporations and partnerships
(collectively, "Odd Job"). Immediately prior to the IPO, the
Partnership then exercised its option to acquire the stock of
Holdings from ZS for $1,400, which included the cancellation of a
$1,350 note from ZS. Then the Partnership contributed all of its
assets and liabilities to the Company in exchange for 5,690,600
shares of common stock.
(C) BASIS OF PRESENTATION
The consolidated financial statements of the Company give effect to
the common control of the Partnership and Odd Job prior to the IPO
and are comprised of the operations of the Partnership for all years
presented including the Odd Job operations as of December 7, 1995.
The transfer of assets and liabilities among these commonly
controlled entities has been accounted for at historical cost in a
manner similar to a pooling of interests.
33
<PAGE> 34
(D) PRINCIPLES OF CONSOLIDATION
The financial statements of the Company are presented on a
consolidated basis to reflect the economic substance of activities
arising from their common management and control. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(E) CASH AND CASH EQUIVALENTS
For financial reporting purposes, the Company considers all
investments purchased with an original maturity of three months or
less to be cash equivalents.
(F) INVENTORIES
Wholesale inventories are valued at the lower of cost or market, with
cost determined by the first-in, first-out (FIFO) method, and retail
inventories are valued by use of the retail method.
(G) EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS
Depreciation and amortization are provided for the cost of
depreciable properties at rates based on their estimated useful
lives, which range from 3 to 10 years for furniture and equipment, or
for leasehold improvements, extending to the life of the related
lease. The rates so determined are applied on a straight-line basis.
(H) GOODWILL
Goodwill represents the excess of cost over the fair value of net
assets acquired and is amortized using the straight-line method
over periods not exceeding 40 years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can
be recovered through undiscounted future operating cash flows of
the acquired businesses.
At January 30, 1999 and January 31, 1998, accumulated amortization
amounted to $981 and $668, respectively.
(I) INCOME TAXES
The Company accounts for income taxes by the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
any operating loss, deduction, or tax credit carryforwards.
Deferred tax assets and liabilities
34
<PAGE> 35
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date.
Income taxes attributable to the operations of the Partnership
were obligations of individual partners and have not been
reflected in the historical amounts shown in the accompanying
consolidated financial statements. The consolidated financial
statements as of January 25, 1997 reflect a one-time tax benefit
of $1,489 arising from cumulative differences between the net book
and tax basis of the Partnership's assets and liabilities upon
their transfer to the Company.
(J) ADVERTISING
The Company expenses advertising costs as incurred. Advertising
expense was $3,107, $1,724, and $598 for the fiscal years ended
January 30, 1999, January 31, 1998, and January 25, 1997,
respectively.
(K) FISCAL YEAR
The Company's fiscal year end is on the last Saturday in January
nearest to January 31. Fiscal years 1998, 1997 and 1996 are defined
as the fiscal years ended January 30, 1999, January 31, 1998 and
January 25, 1997, respectively. Fiscal years 1998 and 1996 were 52
week years, while fiscal 1997 was a 53 week year.
(L) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 the 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.
(M) RECLASSIFICATIONS
Certain reclassifications were made to the Company's prior period
financial statements to conform to the January 30, 1999 presentation.
(2) INITIAL PUBLIC OFFERING
On November 21, 1996, the Company completed its IPO of 2,574,000
shares of common stock, no par value, at $16.00 per share, generating net
proceeds of $37,398, after deducting
35
<PAGE> 36
underwriting fees and offering expenses. On December 13, 1996, the
underwriters exercised their over-allotment option to purchase an
additional 386,100 common shares, generating an additional $5,610 of cash
proceeds to the Company. The net proceeds were used to repay $33,414 of
indebtedness to a senior institutional lender and $4,000 of partners'
notes and to fund $2,936 in tax loans and $900 in compensation buyouts to
certain executives, with the remainder used for the Company's general
corporate purposes.
(3) ODD JOB ACQUISITION
On December 7, 1995, the Odd Job retail operations were acquired by
ZS Fund L.P. for $10,500 and an additional $1,013 in related expenses, in
a transaction accounted for by the purchase accounting method. In
connection with this acquisition, the Company recorded $8,801 of excess
purchase price over the fair value of the net identifiable assets
acquired.
(4) EQUIPMENT, FURNITURE, AND LEASEHOLD IMPROVEMENTS
The major classes of equipment, furniture, leasehold improvements,
and construction in progress are summarized at cost, as follows:
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Furniture, fixtures, and equipment $ 11,003 7,295
Leasehold improvements 9,501 5,457
Construction in progress 2,393 1,892
-------- ------
22,897 14,644
Less accumulated depreciation and amortization 5,629 3,755
-------- ------
$ 17,268 10,889
======== ======
</TABLE>
(5) LONG-TERM DEBT
The Company's long-term debt as of January 30, 1999 and January 31, 1998
consisted of the following:
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Revolving credit facility $ 15,448 19,716
Other debt 8,554 65
Less current portion (2,017) (17)
------- ------
$ 21,985 19,764
======= ======
</TABLE>
36
<PAGE> 37
At January 31, 1998, the Company maintained a $40,000 revolving line of
credit with its bank secured by substantially all of its assets and with
a maturity date of April 30, 1999. On March 10, 1998, the Company entered
into a $60,000 credit facility with a bank syndicate providing for a
$50,000 revolving line of credit and a $10,000 term loan. The credit
facility is secured by substantially all of the Company's assets and
expires on November 15, 2002. The term loan requires 20 consecutive
quarterly payments of $500 plus accrued interest, commencing May 1, 1998.
Both loans call for interest at the banks' prime rate less 50 basis
points or LIBOR plus a spread, and are subject to a commitment fee on the
unused portion. Availability on the facilities is the lesser of the total
credit commitment or a borrowing base calculation based primarily on the
Company's accounts receivable and inventories. The facilities contain
restrictive covenants which require minimum net worth levels, maintenance
of certain financial ratios and limitations on capital expenditures and
investments. At January 30, 1999 and January 31, 1998, the Company was in
compliance with all restrictive covenants.
(6) RELATED PARTY TRANSACTIONS
As of January 30, 1999 and January 31, 1998, notes receivable consists
primarily of $2,663 and $2,531, respectively, relating to tax loans
provided to certain key executives related to stock issued in lieu of
compensation reductions and to former shareholders of the Company in
payment of indebtedness at the time of the Company's IPO. Such amounts
include accrued interest of $257 and $99, respectively, at a rate of 6.6
percent.
During the year ended January 25, 1997, the Partnership paid its managing
partner a management fee of $289, including a one-time management fee
buyout of $200.
(7) FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable,
notes and other receivables, accounts payable, and accrued expenses is
considered to approximate their fair value due to their short maturity.
The interest rates on debt instruments and notes receivable are
considered to approximate market rates, and accordingly, their cost is
reflective of fair value.
37
<PAGE> 38
(8) INCOME TAXES
Income tax expense (benefit) attributable to income from operations is as
follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal
Current $3,819 4,612 -
Deferred (772) 375 (1,975)
------ ----- ------
3,047 4,987 (1,975)
State and local
Current 443 868 316
Deferred (40) 64 (328)
------ ----- ------
403 932 (12)
------ ----- ------
$3,450 5,919 (1,987)
====== ===== ======
</TABLE>
The income tax expense (benefit) differed from the "expected" amount
computed by applying the U.S. federal tax rate of 35 percent to pretax
income from operations as a result of the following:
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" tax expense $3,018 5,060 2,181
Corporate state and local taxes,
net of federal benefit 262 606 159
Non-recurring tax benefit - - (1,489)
Partnership period earnings taxed
to respective partners - - (2,797)
Partnership local taxes - - 72
Other 170 253 (113)
------ ----- -------
$3,450 5,919 (1,987)
====== ===== =======
</TABLE>
38
<PAGE> 39
The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and liabilities are
presented below:
<TABLE>
<CAPTION>
January 30, January 31,
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets
Current
Inventory capitalization and reserve $2,112 1,941
Accrued expenses 579 522
Net operating loss carryforward 34 34
Other 664 340
----- -----
3,389 2,837
Noncurrent
Equipment, furniture, and leasehold
improvements basis differences 1,472 1,356
Accrued lease obligations 1,165 966
----- -----
2,637 2,322
----- -----
Total gross deferred tax assets 6,026 5,159
Noncurrent deferred tax liabilities - goodwill (885) (830)
------ -----
Net deferred tax asset $5,141 4,329
====== =====
</TABLE>
A net operating loss of $84 from fiscal year ended January 31, 1996
is available to offset future taxable income. The loss carryforward
expires in 11 years.
A valuation allowance is established to reduce the deferred tax
asset if it is more likely than not that the related tax benefit
will not be realized. In management's opinion, it is more likely
that the tax benefits will be realized; consequently, no valuation
allowance has been established as of January 30, 1999 and January
31, 1998.
(9) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company is obligated for office, warehouse, and retail space
under operating lease agreements which expire at various dates
through fiscal 2017. Some of these leases are subject to certain
escalation clauses based upon real estate taxes and other occupancy
expense, and several leases provide for additional rent based on a
percentage of sales. Three of the lessors are organizations that
certain executives of the Company have a minority ownership
interest.
39
<PAGE> 40
At January 30, 1999, minimum annual rental commitments under
noncancelable leases for the Company as a whole are as follows, for
the fiscal year ending:
2000 $ 15,046
2001 14,531
2002 13,793
2003 11,892
2004 9,973
Thereafter 40,933
------
$106,168
========
Rent expense under all operating leases for the fiscal years ended
January 30, 1999, January 31, 1998, and January 25, 1997 was $13,006,
$9,311, and $7,199, respectively. These amounts include rent paid to
a related party lessor of $1,967, $1,533, and $1,471, respectively.
In conjunction with the Odd Job acquisition, a portion of the
purchase price was assigned to leases based on the excess of the
contractual lease payments over the estimated current market rentals
in the amount of $1,583. This amount is shown with other liabilities
and will be reduced as lease payments are made.
(B) LETTERS OF CREDIT
The $50,000 revolving line of credit includes a letter of credit
facility totaling $15,000 for use in the normal operations of the
business. At January 30, 1999 and January 31, 1998, the Company had
outstanding letters of credit issued to various parties aggregating
$5,370 and $3,083, respectively.
(C) CONTINGENT SUBORDINATED NOTES
The Company has two subordinated notes due to a former owner of a
retail store acquired as part of the Odd Job acquisition, both of
which mature on December 31, 2002. Payments are to be made annually
to a maximum of $675 and $275, based on the store's distribution
profits, as defined. No amounts have been paid or are payable on
these notes through January 30, 1999.
(D) LITIGATION
At January 30, 1999, the Company was a party to certain lawsuits
incurred in the normal course of business, none of which individually
or in the aggregate is considered material by management in relation
to the Company's consolidated financial position or results of
operations.
40
<PAGE> 41
(E) RETAIL LEASE OBLIGATIONS
In connection with the sale of the Ohio retail stores in October
1995, the Company remains contingently liable for the retail store
lease obligations in the event that the buyer should default on its
lease payments. The lease obligations for the remaining fiscal years
are as follows: 2000 $191; 2001 $81; 2002 $47. In 1998, the buyer
ceased operation, therefore, the Company has recorded a charge of
$150,000 representing expected future obligations related to the
operation, net of amounts due from the buyer.
(10) RETIREMENT AND SAVINGS PLAN (DOLLARS AS STATED)
The Company maintains separate contributory savings plans, under
Section 401(k) of the Internal Revenue Code, for its non-union and union
employees who meet certain age and service requirements. In early fiscal
1998, the Company amended its Section 401(k) plan covering non-union
employees. The Company's contribution for the non-union plan is equal to
25 percent of employee contributions up to three percent of employee
compensation, with the Company's contributions vesting ratably over five
years. The Company contribution to the union plan is equal to 25 percent
of the contributions to an annual maximum of $300 per employee, and vests
immediately. Contributions to these plans by the Company have not been
material.
(11) SPECIAL CHARGES
Special charges for the fiscal year ended January 30, 1999 resulted from
the relocation of the Company's retail warehouse and distribution
facility to South Plainfield, New Jersey. The charges totaling $1,387
reflect the estimated costs of exiting the former retail warehouse
located in Englewood, New Jersey, and related long-lived asset write-offs
and employee severance.
Special charges totaling $4,243 for the fiscal year ended January 25,
1997 resulted from compensation and other charges arising at the time of
the Company's IPO.
(12) COMPENSATORY PLANS
(A) STOCK OPTION PLAN
The Mazel Stores, Inc. 1996 Stock Option Plan ("Stock Option Plan")
was adopted by the Board of Directors and approved by the
shareholders of the Company effective October 1, 1996. The Stock
Option Plan, which was amended with a shareholder vote at the 1998
Annual Meeting of Shareholders, increased the shares for issuance by
600,000 to 1,500,000 stock options ("Options") to acquire common
stock of the Company. Pursuant to the provisions of the Stock Option
Plan, employees of the Company may be granted Options, including both
incentive stock options and nonqualified stock options ("NQSO").
Consultants may receive only NQSO under the Stock Option Plan.
Non-employee directors automatically receive, upon the date they
first become Directors, a grant of Options to purchase 15,000 shares
of common stock
41
<PAGE> 42
of the Company. The purchase price of a share of common stock
pursuant to an Option shall not be less than the fair market value at
the grant date. The Options vest in five equal annual installments of
20 percent of the grant, and have a term of 10 years.
The Company applies the intrinsic value method to account for stock
based compensation. Accordingly, no compensation expense has been
recognized. The following table provides net income and net income
per share reduced to the pro forma amounts calculating compensation
expense consistent with the fair value method. The fair value of each
option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in the fiscal years ended January
30, 1999, January 31, 1998 and January 25, 1997, respectively:
expected volatility of 40 percent for all fiscal years, risk-free
interest rates of 5.0, 6.0 and 6.5 percent, expected lives of 8.2,
9.6 and 8.8 years, and a dividend yield of zero percent for all
fiscal years.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
Pro forma
as adjusted
-----------
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income
As reported $ 5,173 8,517 8,501
Pro forma 4,907 7,819 7,839
Basic net income per share
As reported $ 0.57 0.93 0.93
Pro forma 0.54 0.85 0.85
Diluted net income per share
As reported $ 0.57 0.92 0.91
Pro forma 0.54 0.84 0.84
</TABLE>
The above results may not be representative of the effect of the fair
value method on net income for future years.
The following is a summary of option activity for the fiscal years
ended January 30, 1999 and January 31, 1998 and related
weighted-average exercise price:
<TABLE>
<CAPTION>
January 30, 1999 January 31, 1998
------------------------ --------------------------
Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of fiscal year 748,450 $16.30 718,350 $16.00
Granted at market 223,975 15.14 55,000 20.07
Exercised (1,400) 16.00 - -
Expired or forfeited (44,900) 20.30 (24,900) 16.00
------- ------ ------- ------
Outstanding at end of fiscal year 926,125 $15.85 748,450 $16.30
======= ====== ======= ======
Options available for grant at end of year 573,875 151,550
Weighted average fair value of options
granted during the year $8.20 $7.19
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- -------------------------------
Weighted Avg.
No. of Options Remaining Weighted Avg. No. of Options Weighted Avg.
Outstanding Contractual Life Exercise Price Exercisable Exercise Price
----------- ---------------- -------- ----- ----------- --------------
<S> <C> <C> <C> <C> <C>
Range of exercise prices:
Fiscal year 1996 grants at $16.00 671,150 7.81 $16.00 279,710 $16.00
Fiscal year 1997 grants at $13.87-25.75 31,000 8.67 20.07 6,200 16.83
Fiscal year 1998 grants at $10.00-17.50 223,975 9.29 15.14 10,000 17.25
------- ---- ------ ------- ------
926,125 8.20 $15.85 295,910 $16.06
======= ==== ====== ======= ======
</TABLE>
(B)RESTRICTED STOCK PLAN (DOLLARS AS STATED)
The Company's Restricted Stock Plan ("Restricted Stock Plan") was
adopted by the Board of Directors and approved by the Company's
shareholders effective October 1, 1996. The Restricted Stock Plan
serves as the successor to the Partnership's Employee Equity Plan
("Equity Plan"). The Restricted Stock Plan relates to 72,351 unvested
shares of common stock issued, initially as partnership units under
the Equity Plan. Shares have the same vesting terms as provided in
the Equity Plan.
The Equity Plan provided for the purchase of partnership units by key
executives of the Company, with exercisability subject to vesting
restrictions, generally over a five-year period. Employees of the
Company purchased a total of 1,730 units (representing 550,711 shares
of common stock) under the Equity Plan. A total of 1,038 units were
vested prior to, and as a result of, the effectiveness of the IPO. In
conjunction with the IPO, all vested units (aggregating 330,426
shares of common stock) were distributed to Equity Plan participants
and all unvested units (aggregating 220,285 shares of common stock)
were being held pursuant to the Restricted Stock Plan. As of January
30, 1999, 72,351 shares are being held pursuant to the Restricted
Stock Plan. The Company has recorded compensation expense in
accordance with the vesting provisions of the Restricted Stock Plan
at a value of $225 per unit, which represents the difference between
the purchase price and the fair value of each unit at the grant date
as established by an independent appraisal.
(13) PRO FORMA INFORMATION (UNAUDITED)
The unaudited pro forma as adjusted data, as shown on the accompanying
consolidated statements of operations, gives effect to the IPO and the
combination of the Partnership and Odd Job as if such transaction would
have occurred at the beginning of the fiscal year ended January 25, 1997.
Such data excludes certain one-time charges (principally compensation
adjustments) incurred at the time of the IPO and organization of the
Company, provides for income taxes at an effective rate of 40 percent,
and excludes the one-time tax benefit of $1,489 attributable to the
change in the Company's tax status.
43
<PAGE> 44
(14) BUSINESS SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. The Company adopted this standard,
as required, for its January 30, 1999 consolidated financial statements.
The Company's business segments are: retail, wholesale and corporate.
Both retail and wholesale purchase quality, frequently brand name,
value-oriented consumer products. Retail sells its product through its
Odd Job store chain (47 at year-end) while wholesale sells to retailers,
including Odd Job, wholesalers and distributors. Corporate includes
shared administrative expenses and management fee revenue from VCM, Ltd.
Summarized financial information by business segment as of the fiscal
years ended January 30, 1999, January 31, 1998 and January 25, 1997, is
as follows:
<TABLE>
<CAPTION>
Capital Depreciation
Operating Total Expen- and
Net Sales Profit Assets ditures Amortization
--------- ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C>
January 30, 1999
Retail $ 156,242 3,618 63,225 7,730 2,114
Wholesale 90,709 9,600 52,416 425 400
Intersegment revenues (9,817)
Corporate - (519) 15,354 - -
Special charges - (1,387) - - -
--------- ------ ------- ----- -----
$ 237,134 11,312 130,995 8,155 2,514
========= ====== ======= ===== =====
January 31, 1998
Retail $ 113,205 5,393 44,598 4,786 1,102
Wholesale 107,535 12,821 56,455 1,046 417
Intersegment revenues (12,414)
Corporate - (2,173) 12,831 - -
--------- ------ ------- ----- -----
$ 208,326 16,041 113,884 5,832 1,519
========= ====== ======= ===== =====
January 25, 1997
Retail $ 84,202 3,817 31,680 2,726 706
Wholesale 104,732 14,015 51,745 1,197 369
Intersegment revenues (9,057)
Corporate - (5,139) 2,936 - -
Special charges - (4,243) - - -
--------- ----- ------ ----- -----
$ 179,877 8,450 86,361 3,923 1,075
========= ===== ====== ===== =====
</TABLE>
Sales to the Company's largest customer accounted for 7.4 percent, 14.9
percent and 20.0 percent of total sales for fiscal years 1998, 1997 and
1996, respectively. Corporate operating profit is shown net of VCM Ltd.
management fee revenue of $3,085 and $1,789 for fiscal years 1998 and
1997, respectively.
44
<PAGE> 45
(15) UNAUDITED QUARTERLY FINANCIAL DATA
The following is a summary of unaudited quarterly results of operations
for the fiscal years ended January 30, 1999, January 31, 1998 an
January 25, 1997:
<TABLE>
<CAPTION>
Quarter
---------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Year ended January 30, 1999
Net sales $48,907 53,333 60,324 74,570
Gross profit 17,321 19,071 20,856 27,094
Net income 922 881 26 3,344
Net income per share - basic $ 0.10 0.10 0.00 0.37
Net income per share - diluted 0.10 0.10 0.00 0.37
Year ended January 31, 1998
Net sales $43,128 49,053 48,820 67,325
Gross profit 14,844 16,160 17,342 23,534
Net income 1,531 2,002 1,558 3,426
Net income per share - basic $0.17 0.22 0.17 0.37
Net income per share - diluted 0.16 0.22 0.17 0.37
Year ended January 25, 1997
Net sales $42,454 42,711 44,387 50,325
Gross profit 12,899 13,752 14,718 17,126
Net income 2,338 2,194 2,416 1,269
</TABLE>
Net income per share for the fiscal 1996 quarters is not meaningful due
to the Company's IPO in November 1996.
(16) INVESTMENT IN VCM, LTD.
On August 3, 1997, the Company commenced operation of VCM, Ltd.
("VCM"), a 50 percent owned joint venture with Value City Department
Stores, whereby VCM operates the toy, sporting goods, and expanded
health and beauty care departments for the Value City department store
chain. The Company coordinates merchandise purchasing on behalf of VCM,
some of which is sourced from the Company's wholesale segment. The
Company's initial investment in VCM, which is accounted for under the
equity method, was $9,637. In addition to its 50 percent equity share
of VCM's net profit or loss, the Company receives a management fee
equal to three percent of net sales. Sales to VCM were $3,132 million
for fiscal 1998 and $4,539 for fiscal 1997. The Company recorded an
account receivable from VCM of $4,182 and $1,421 at January 30, 1999
and January 31, 1998, respectively, representing sales, management fees
and invoices paid on behalf of VCM.
45
<PAGE> 46
(17) EARNINGS PER SHARE
The following data shows the amounts used in computing earnings per
share and the effect on the weighted-average number of shares of
dilutive potential common stock.
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------------
Pro forma
as adjusted
January 30, January 31, January 25,
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
NUMERATOR:
Net income available to common
shareholders used in basic and
diluted net income per share $ 5,173 8,517 8,501
======= ===== =====
DENOMINATOR:
Weighted-average number of
common shares - basic 9,141,600 9,162,100 9,170,100
Net dilutive effect of stock options 5,200 103,300 215,900
--------- --------- ---------
Weighted-average number of
common shares - diluted 9,146,800 9,265,400 9,386,000
========= ========= =========
Net income per share - basic $ 0.57 0.93 0.93
Net income per share - diluted $ 0.57 0.92 0.91
</TABLE>
46
<PAGE> 47
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.
MAZEL STORES, INC.
By: /s/ Reuven D. Dessler
------------------------------------
Reuven D. Dessler
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on April 16, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ Reuven D. Dessler Chairman and Chief Executive Officer
- ------------------------------------------- (Principal Executive Officer) and Director
Reuven D. Dessler
/s/ Susan Atkinson Chief Financial Officer (Principal Financial
- ------------------------------------------- and Accounting Officer)
Susan Atkinson
/s/ Charles Bilezikian Director
- -------------------------------------------
Charles Bilezikian
/s/ Brady Churches Director
- -------------------------------------------
Brady Churches
/s/ Phillip Cohen Director
- -------------------------------------------
Phillip Cohen
/s/ Robert Horne Director
- -------------------------------------------
Robert Horne
/s/ Jacob Koval Director
- -------------------------------------------
Jacob Koval
/s/ Ned L. Sherwood Director
- -------------------------------------------
Ned L. Sherwood
/s/ Jerry Sommers Director
- -------------------------------------------
Jerry Sommers
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ -----------------------
<S> <C>
3.1 Amended and Restated Articles of Incorporation*
3.2 Amended and Restated Code of Regulations*
4.1 Asset Based Loan and Security Agreement dated March 10, 1998 by and among
the lending institutions and registrant and subsidiaries***
10.1 Amended and Restated Employment Agreement of Reuven Dessler dated
September 30, 1996*
10.2 Amended and Restated Employment Agreement of Jacob Koval dated September
30, 1996*
10.3 Employment Agreement of Brady Churches dated November 1, 1995*
10.4 Amendment to Brady Churches Employment Agreement dated
September 30, 1996*
10.5 Employment Agreement of Jerry Sommers dated November 1, 1995*
10.6 Amendment to Jerry Sommers Employment Agreement dated September 30, 1996*
10.7 Amended and Restated Employment Agreement of Susan Atkinson dated
September 30, 1996*
10.8 Amendment to Susan Atkinson Employment Agreement dated
February 1, 1998***
10.10 1996 Stock Option Plan*
10.11 Restricted Stock Plan*
10.12 Solon, Ohio Facility Lease, dated as of January 1, 1989, including three
amendments thereto*
10.13 South Plainfield, New Jersey Facility Lease
10.17 VCM, Ltd. Agreement dated July 14, 1997**
21 List of Subsidiaries
23 Consent of Independent Auditors
24.1 Powers of Attorney
27 Financial Data Schedule
</TABLE>
* Incorporated by reference to exhibit with same exhibit number included in
the Registrant's Registration Statement on Form S-1 (File #333-11739) as
amended.
** Incorporated by reference to an exhibit included in the Quarterly
Statement on Form 10-Q for the quarter ended October 26, 1996.
*** Incorporated by reference to an exhibit included in the Annual
Statement on Form 10-K for the fiscal year ended January 31, 1998.
48
<PAGE> 1
EXHIBIT 10.13
South Plainfield, New Jersey Facility Lease
LEASE
BY AND BETWEEN
200 HELEN STREET LLC, A
DELAWARE LIMITED LIABILITY COMPANY
"LANDLORD"
and
ODD JOB ACQUISITION CORP.,
a Delaware corporation
"TENANT"
November 10, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
ARTICLE I PREMISES...............................................................................1
1.1 Premises. ...........................................................................1
1.2 Common Areas. ......................................................................1
ARTICLE II TERM..................................................................................1
2.1 Term. ...................................................1
2.2 Commencement Date. ...................................................................2
2.3 Date of Delivery of Possession. .......................................................2
2.4 Lease Year. ..........................................................................2
2.5 Options. .............................................................................2
ARTICLE II RENT..................................................................................2
3.1 Fixed Rent. .........................................................................2
3.2 Additional Charges - Tenant's Proportionate Share. ...................................2
3.3 Late Payment. ........................................................................3
3.4 Place of Payment. ....................................................................3
ARTICLE IV TAXES.................................................................................3
4.1 Personal Property Taxes. .............................................................3
4.2 Real Estate Taxes......................................................................3
ARTICLE V CONDITION OF PREMISES..................................................................4
5.1 Landlord's Work. ......................................................................4
5.2 Delayed Completion of Landlord's Work. [INTENTIONALLY DELETED].........................4
ARTICLE VI REPAIRS AND MAINTENANCE...............................................................4
6.1 Landlord's Repairs and Maintenance. ..................................................4
6.2 Tenant's Repairs and Maintenance. ....................................................5
6.3 Tenant's Alterations. ................................................................5
6.4 Mechanics Liens. .....................................................................5
6.5 Common Area Costs......................................................................6
ARTICLE VII COMPLIANCE WITH LAWS.................................................................7
ARTICLE VIII UTILITIES...........................................................................7
ARTICLE IX USE...................................................................................7
9.1 Use of Premises. ....................................................................7
9.2 Tenant's Covenants. .................................................................7
ARTICLE X ASSIGNMENT AND SUBLETTING..............................................................8
10.1 Assignment and Subletting. ........................................................8
10.2 Permitted Assignment or Sublease. ...................................................8
ARTICLE XI FIXTURES..............................................................................9
ARTICLE XII INSURANCE............................................................................9
12.1 Indemnity; Waiver. ...................................................................9
12.2 Tenant's Insurance. .................................................................9
12.3 Landlord's Insurance. ................................................................9
12.4 Waiver of Subrogation. ..............................................................10
12.5 Tenant's Contribution. ..............................................................10
ARTICLE XIII DAMAGE AND DESTRUCTION.............................................................10
13.1 Abatement or Adjustment of Rent. ....................................................10
13.2 Repairs and Restoration of Premises...................................................10
13.3 Delivery of Premises. ...............................................................12
13.4 Repairs and Restoration of Property. ................................................12
ARTICLE XIV CONDEMNATION........................................................................12
14.1 Total Taking. ......................................................................12
14.2 Partial Taking. ...................................................................12
14.3 Restoration. .......................................................................13
</TABLE>
(ii)
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
14.4 Release. ............................................................................13
14.5 The Award. .........................................................................13
ARTICLE XV EVENTS OF DEFAULT....................................................................13
15.1 Events of Default by Tenant; Remedies. ..............................................14
15.2 Landlord's Obligation to Mitigate. ..................................................14
15.3 Other Remedies. .....................................................................14
15.4 Waiver of Lien. ...................................................................14
15.5 Landlord's Right to Remove Chattels. ...............................................15
15.6 Landlord's Default. .................................................................15
15.7 Default Interest. ...................................................................15
ARTICLE XVI SELF-HELP RIGHTS....................................................................15
16.1 Landlord's Self-Help. ...............................................................15
16.2 Tenant's Self-Help. .................................................................15
ARTICLE XVII TITLE..............................................................................16
17.1 Subordination. ......................................................................16
17.2 Quiet Enjoyment. ....................................................................16
17.3 Landlord's Assurances. ..............................................................16
ARTICLE XVIII SIGNS.............................................................................17
ARTICLE XIX HAZARDOUS SUBSTANCES...............................................................17
19.1 Hazardous Substances. ...............................................................17
19.2 Tenant's Obligations..................................................................17
19.3 Landlord's Obligations................................................................18
ARTICLE XX EXPANSION RIGHTS; RIGHT OF FIRST REFUSAL.............................................18
20.1 Options...............................................................................18
20.2 Right of First Refusal................................................................23
ARTICLE XXI MISCELLANEOUS.......................................................................23
21.1 Holding Over..........................................................................23
21.2 Waivers...............................................................................24
21.3 Notices...............................................................................24
21.4 Attorneys' Fees......................................................................24
21.5 Unavoidable Delays....................................................................24
21.6 Estoppel Certificates.................................................................24
21.7 Invalidity of Particular Provision....................................................25
21.8 Captions and Definitions..............................................................25
21.9 Entire Agreement.....................................................................25
21.10 No Partnership........................................................................25
21.11 Memorandum of Lease...................................................................25
21.12 Brokers...............................................................................25
21.13 Guaranty..............................................................................25
ARTICLE XXII DISPUTE RESOLUTION.................................................................25
22.1 Arbitration...........................................................................25
</TABLE>
Legal Description
Exhibit "B" - Site Plan
Exhibit "C" - Landlord's Work
Exhibit "D" - Title Exceptions
Exhibit "E" - Guaranty
(iii)
<PAGE> 4
LEASE
THIS LEASE made as of the 10th day of November, 1998 by and between
200 HELEN STREET, LLC, a Delaware limited liability company having a principal
office at 241 37th Street, Brooklyn, New York (the "Landlord") and ODD JOB
ACQUISITION CORP., a Delaware Corporation, having a principal office at 4310
East Fifth Avenue, Columbus, Ohio 43219 and 31000 Aurora Road, Solon, Ohio 44139
(the "Tenant").
W I T N E S S E T H:
--------------------
ARTICLE I
---------
PREMISES
--------
1.1 PREMISES Landlord, in consideration of the rents to be paid and the
covenants and agreements to be performed and observed by Tenant, does hereby
lease unto Tenant, and Tenant does hereby lease and take from Landlord, a
portion of the office/warehouse building (which includes the "covered storage"
area shown on EXHIBIT "B") (the "Building") located at 200 Helen Street,
Plainfield, New Jersey, located on the real property more particularly described
in EXHIBIT "A" attached hereto and made a part hereof (the "Land"). The Land and
the Building are hereinafter sometimes jointly referred to as the "Property".
The portion of the Building being leased by Tenant hereunder contains
approximately three hundred seventy-five thousand (375,000) square feet of gross
floor area (the "Premises"), containing approximately three hundred fifty
thousand (350,000) square feet of warehouse space and twenty-five thousand
(25,000) square feet of office space, as more particularly depicted on the site
plan attached hereto as EXHIBIT "B" and made a part hereof. Tenant shall have
the exclusive right to use (a) those parking spaces adjacent to Tenant's
warehouse space and designated as "Tenant's Exclusive Warehouse Spaces" on
Exhibit "B" attached hereto, and (b) those parking spaces adjacent to Tenant's
office space and designated as "Tenant's Exclusive Office Spaces" on Exhibit
"B". Notwithstanding the foregoing, if the Building is expanded pursuant to
Section 20.1.1 below, Landlord and Tenant acknowledge that Tenant's Exclusive
Warehouse Spaces may need to be relocated in accordance with the reconfiguration
of the Building pursuant to Section 20.1.1 below, and in such event Landlord and
Tenant shall reasonably agree upon such relocated spaces, provided that to the
extent permitted by local ordinances, such relocated space shall contain the
same number of spaces as originally contained in Tenant's Exclusive Warehouse
Spaces.
1.2 COMMON AREAS Tenant, its employees, customers, licensees and
invitees, shall have a non-exclusive license and right to use, in common with
Landlord and all tenants of the Building and their respective employees,
customers, licensees and invitees, all other parking areas, access roads, truck
ways, driveways, loading docks and areas, sidewalks, ramps, landscaped areas,
hallways, stairways and other areas, facilities and improvements which may be
provided by Landlord for the general use in common of tenants of the Building
and their employees, customers, licensees and invitees (collectively, the
"Common Areas"). Without Tenant's prior written consent, (a) Landlord shall not
make any changes within that portion of the Common Areas designated on EXHIBIT
"B" as Tenant's exclusive parking area, and (b) Landlord shall make no other
changes in the Common Areas and/or in the Building which would materially and
adversely affect Tenant's access to and from the Premises and/or Tenant's use of
the Common Areas.
ARTICLE II
1
<PAGE> 5
TERM
2.1 TERM. The term of this Lease shall be for a period of twelve (12)
years commencing on the Commencement Date (as hereinafter defined) and ending on
the last day of the twelfth (12th) Lease Year (as hereinafter defined)
thereafter.
2.2 COMMENCEMENT DATE. Landlord and Tenant acknowledge that Tenant is
presently in possession of Premises as of the date hereof, and therefore the
"Commencement Date" of this Lease shall be December 1, 1998.
2.3 DATE OF DELIVERY OF POSSESSION.[Intentionally Deleted]
2.4 LEASE YEAR. The first "Lease Year" shall be a period of twelve (12)
calendar months from the Commencement Date, except that if the Commencement Date
shall be other than the first day of a calendar month, the first Lease Year
shall include the period from the Commencement Date to the end of the calendar
month in which the Commencement Date occurs plus the immediately succeeding
twelve (12) calendar months. Each Lease Year after the first Lease Year shall be
a successive period of twelve (12) consecutive calendar months.
2.5 OPTIONS. Tenant shall have the right to extend the initial term of
this Lease for two (2) successive option periods of five (5) years each,
commencing immediately upon the expiration of the immediately preceding term,
upon the following terms and conditions:
2.5.1 Tenant shall give Landlord written notice of such
election to extend the term hereof no sooner than nine (9) months and
not later than six (6) months prior to the expiration of the then
current term; and
2.5.2 Each such option period shall be upon the same terms and
conditions as set forth herein for the initial term, except that Fixed
Rent during each option period shall be as set forth in Section 3.1
below.
If Tenant elects to exercise any such option, the term of this Lease shall be
automatically extended for the period of such option period without the
necessity for the execution of any instrument to effect the same, and in such
event the "term" of this Lease shall include such option period. If Tenant fails
to exercise any option as provided herein, Tenant shall be deemed to have waived
such option and all subsequent options thereafter; provided, however, that
Landlord shall endeavor to, but shall not be required, to provide a reminder
notice to Tenant prior to the date by which the option provided to Tenant herein
shall expire.
2
<PAGE> 6
ARTICLE III
RENT
3.1 FIXED RENT. Tenant agrees to pay Landlord, without demand, notice
or set-off (except as permitted under this Lease), as a fixed rent (the "Fixed
Rent") the following sums:
<TABLE>
<CAPTION>
LEASE YEARS ANNUAL
----------- ------
<S> <C> <C>
RENT MONTHLY RENT PSF
1-5
$1,312,500.00 $109,375.00 $3.50
6-10
$1,443,750.00 $120,312.50 $3.85
11-12
$1,586,250.00 $132,187.50 $4.23
13-15
$1,586,250.00 $132,187.50 $4.23
16-20
$1,747,500.00 $145,625.00 $4.66
21-22
$1,920,000.00 $160,000.00 $5.12
</TABLE>
Fixed Rent and additional charges payable by Tenant hereunder shall be prorated
for any partial month during the term of this Lease.
3.2 ADDITIONAL CHARGES - TENANT'S PROPORTIONATE SHARE. During the term
of this Lease, Tenant shall pay, as additional rent, Tenant's Proportionate
Share (as hereinafter defined) of all (i) Taxes (as defined in Section 4.2
hereof), (ii) Common Area Costs (as defined in Section 6.5 hereof), and (iii)
Insurance (as defined in Section 12.5 below). For purposes hereof, "Tenant's
Proportionate Share" shall mean a fraction, the numerator of which shall be the
gross leasable area of the Premises and the denominator of which shall be the
gross leasable area of the Building. Tenant's initial Proportionate Share shall
be forty-seven percent (47%).
3.3 LATE PAYMENT. If Tenant fails to pay Fixed Rent or any other
charges payable hereunder, within ten (10) days of the date when the same are
due hereunder, such late payment shall bear interest from the original date when
due at a rate per annum equal to the Default Rate or, if less, the maximum rate
permitted by law; provided, however, that any default interest hereunder shall
not be applicable until the second and all subsequent payments within any Lease
Year are received by Landlord more than ten (10) days after the date when due.
3.4 PLACE OF PAYMENT. All payments of Fixed Rent, and other payments
required to be made to Landlord, shall be in lawful money of the United States
of America and shall be paid to Landlord at its principal place of business
stated on Page 1 of this Lease, or to such other person and/or at such other
place as Landlord may designate from time to time in writing to Tenant.
ARTICLE IV
TAXES
-----
4.1 PERSONAL PROPERTY TAXES. Tenant shall be liable for and shall pay
all taxes levied against personal property and trade fixtures placed by Tenant
in and upon the Premises.
3
<PAGE> 7
4.2 REAL ESTATE TAXES.
4.2.1 Tenant shall pay, as additional rent, Tenant's Proportionate
Share of all Taxes levied or assessed against the Property during the
term hereof.
4.2.2 For purposes of this Lease, the term "Taxes" shall include ad
valorem taxes and assessments imposed upon the Property, during the
term hereof, less any abatements, refunds, or rebates made thereof or
any discounts received by Landlord with respect thereto. In addition,
if Landlord shall receive a credit with respect to any taxes to which
Tenant shall have paid Tenant's Proportionate Share herein, including
any credit available as a result of early payment of such taxes
(provided that Tenant pays its Proportionate Share of such taxes on
such early basis), Landlord shall repay to Tenant Tenant's
Proportionate Share of such credit. Notwithstanding the foregoing,
"Taxes" shall not include:
(i) Any special assessment for improvements heretofore
installed or in the process of installation in connection with the
initial development of the Property (unless such special
assessments are due to improvements constructed by Tenant within
the Premises), or for improvements installed in the Property after
the date hereof; provided, however, that "Taxes" shall include any
special assessments imposed upon the Property for improvements made
on-site or off-site by the city or other governmental entity in
connection with the inclusion of the Property as part of a special
improvement district, including for example special assessments for
the installation of sewers, sidewalks, and/or for road widening
purposes;
(ii) Any interest or penalties payable by Landlord as a
result of Landlord's failure to pay any such Taxes prior to
delinquency, provided that Tenant shall have paid Tenant's
Proportionate Share of all Taxes required to be paid by Tenant
herein as and when the same are due and payable by Tenant herein;
(iii) Any tax payable by Landlord on rentals, unless (A) such
taxes are imposed on owners of real property only and (B) such
taxes are either in lieu of the Taxes required to be paid by Tenant
hereunder or in addition to the Taxes required to be paid by Tenant
hereunder, but in the nature of real estate taxes and assessments,
in which event Tenant shall pay such Taxes only to the extent the
same are applicable to the rent payable by Tenant hereunder; or
(iv) Any estate, inheritance, succession, capital levy,
corporate franchise, gross receipt, transfer or income tax of
Landlord.
To the extent Tenant is required to pay for any special assessment for
improvements, Tenant's obligation shall be determined by treating the
assessment as payable in as many installments as is lawful (including
any interest which would be payable to the taxing authority as a result
of such assessment being paid in installments), and charging Tenant with
Tenant's Proportionate Share thereof during the Lease Year corresponding
to an annual payment of the assessment. Any annual assessment deemed
payable after the term of this Lease shall not be Tenant's obligation.
4.2.3 Tenant shall pay its Proportionate Share of Taxes to
Landlord within thirty (30) days after receipt of (i) Landlord's written
notice that such Taxes are due
4
<PAGE> 8
and payable, (ii) a copy of the applicable tax bill, and (iii) a written
calculation of Tenant's Proportionate Share of such Taxes.
4.2.4 Provided Landlord does not elect to do so, Tenant may, after
written notice to Landlord, contest the validity or amount of any Taxes
by appropriate legal proceedings; provided, however, that (i) Tenant
shall pay Tenant's Proportionate Share of such Taxes when due unless
such legal proceedings shall operate to suspend the collection of Taxes;
or shall deposit Tenant's Proportionate Share of such Taxes in escrow if
required to do so by the taxing authority in connection with such
contest; and (ii) there shall be no risk that any portion of the
Property shall be subject to forfeiture or foreclosure as a result
thereof. Landlord and Tenant shall cooperate with each other in the
prosecution of any such tax contest. If a reduction or abatement of
Taxes is obtained as a result of any such contest, the party pursuing
such contest may deduct its reasonable expenses (including reasonable
attorneys' and appraisers fees and costs) from any reduction or
abatement obtained, and Tenant shall be entitled to receive that portion
of such abatement or refund which applies to Tenant's Proportionate
Share of Taxes previously paid by Tenant.
ARTICLE V
CONDITION OF PREMISES
---------------------
5.1 LANDLORD'S WORK. Landlord and Tenant acknowledge that Landlord has
performed the work set forth on EXHIBIT "C" ("Landlord's Work") except for those
items of Landlord's Work set forth on Exhibit C which are specifically
designated as remaining to be done. Landlord shall warranty and guaranty
Landlord's Work against any defects in materials, workmanship or design for a
period of one (1) year after the date hereof.
5.2 DELAYED COMPLETION OF LANDLORD'S WORK. [Intentionally deleted]
ARTICLE VI
REPAIRS AND MAINTENANCE
-----------------------
6.1 LANDLORD'S REPAIRS AND MAINTENANCE. Throughout the term hereof,
Landlord shall maintain in good condition and make all repairs and replacements:
6.1.1 To the exterior and demising walls, the roof, floor slab,
foundation, any canopies and the structural portions of the Premises;
6.1.2 To all utility and building systems which do not serve the
Premises exclusively and/or which extend beyond the exterior walls of
the Premises or beneath the floor of the Premises, including without
limitation, the sprinkler system and all sewer lines; and
6.1.3 Required as a result of the act, default, omission or
negligence of Landlord, its employees, agents, licensees or contractors.
Landlord shall promptly commence and diligently complete all such repairs upon
notice thereof from Tenant.
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6.2 TENANT'S REPAIRS AND MAINTENANCE.
6.2.1 Throughout the term hereof, Tenant shall repair and maintain
the interior of the Premises in good order and condition, including
window glass, interior walls, floor coverings, doors, all utility and
building systems which are within and exclusively serve the Premises
(excluding sprinkler system), and the heating, ventilating and air
conditioning (HVAC) system exclusively serving the Premises. Landlord
agrees to assign to Tenant (or enforce for Tenant's benefit) all
warranties, extended warranties and guarantees with respect to the HVAC
system, and all other systems, of any kind or nature, serving the
Premises and which Tenant is required to repair hereunder. Tenant shall
also monitor the sprinkler system serving the Premises and the remainder
of the Building, which Tenant shall have the right to have done on a
monthly basis. In the event of any emergency (e.g., activation of the
sprinkler head), Landlord shall provide access to Tenant (as Tenant's
representative) to the remainder of the Building to determine the nature
of such emergency. Tenant shall contract with the contractor to provide
such monitoring service, and Landlord and Tenant shall share in the cost
of such monitoring service as follows:
(i) whether or not the monitoring contract used by Tenant
requires inspections on a monthly basis, Landlord
shall not be required to contribute to the cost of any
such inspections which are provided on more than a
quarterly basis;
(ii) within thirty (30) days after receipt of Tenant's
written demand therefor, Landlord shall pay to Tenant
Landlord's "proportionate share" of such monitoring
service contract, calculated on the lesser of (A) the
actual number of service calls provided per year or
(B) inspections provided on a quarterly basis, with
such "proportionate share" being the difference
between one hundred percent (100%) and Tenant's
Proportionate Share; and
(iii) Tenant shall pay all other costs of such monitoring
contract.
6.2.2 Landlord represents and warrants that all utility, mechanical,
plumbing, and other systems serving the Premises shall be in good
operating condition and repair as of the Commencement Date, and Landlord
shall pay for any replacements required for such systems during the
first full Lease Year.
6.3 TENANT'S ALTERATIONS. Tenant shall have the right, at its sole
expense, from time to time, to make such non-structural interior alterations,
additions, improvements and changes in such parts thereof as Tenant shall deem
expedient or necessary for its purposes; provided, however, that such
alterations, additions, improvements and changes when completed shall neither
impair the structural soundness nor diminish the value of the Building. Tenant
shall not make any structural or exterior alterations, additions, or changes
without Landlord's prior written consent, which consent shall not be
unreasonably withheld. If Tenant shall desire to make any alterations, additions
or changes which are subject to Landlord's consent herein, Tenant shall deliver
the proposed plans and specifications for such work to Landlord, to the extent
such plans and specifications are required to be prepared in order to obtain all
necessary governmental approvals and permits for such work. Landlord shall
approve or disapprove such proposed plans and specifications within twenty (20)
days after receipt thereof from Tenant. All permanent alterations, additions, or
changes to the Premises shall be the property of Landlord and shall be
surrendered with the Building upon the expiration or termination of this Lease,
and Tenant shall have the right to remove
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all other alterations, additions, improvements, or changes, provided that
subject to Section 12.4 below, Tenant shall repair any damage to the Building
resulting from such removal. All such alterations, additions, or improvements
shall be done in accordance with all applicable laws, rules, regulations, and
orders, including applicable building codes; provided, however, that if any such
applicable laws, rules, regulations, orders, or building codes shall require any
alterations, additions, or improvements to portions of the Premises which are
not included within the alterations, additions, or improvements to be performed
by Tenant hereunder, including without limitation any required compliance with
environmental laws, rules, regulations, or orders (including any asbestos
remediation or removal) or any required compliance with applicable laws
concerning accommodations for disabled or handicapped persons, Landlord, at its
sole cost and expense, shall perform all such alterations, additions, or
improvements. Landlord shall execute and deliver upon request of Tenant such
instrument or instruments embodying the approval of Landlord which may be
required by any public or quasi public authority for the purpose of obtaining
any licenses or permits for the making of such alterations, additions,
improvements, changes and/or installations in, to or upon said Premises.
6.4 MECHANICS LIENS. Tenant shall not suffer any mechanics' lien to be
filed against any portion of the Property by reason of work, labor, services or
materials performed or furnished to Tenant in connection with Tenant's Work or
any alterations, additions, or improvements to the Premises by Tenant hereunder.
If any such mechanics' lien shall at any time be filed against the Property,
Tenant shall have the right to contest any and all such liens; provided,
however, that Tenant shall cause the same to be discharged of record by payment,
bond, order of a court of competent jurisdiction or otherwise within thirty (30)
days after the date Tenant receives notice of such filing. If Tenant shall fail
to cause such lien to be discharged within such thirty (30) day period, then, in
addition to any other right or remedy, Landlord may, but shall not be obligated
to, discharge the same by paying the amount claimed to be due or by bonding or
other proceeding deemed appropriate by Landlord, and the amount so paid by
Landlord and/or all reasonable costs and expenses, including reasonable
attorneys' fees, incurred by Landlord in procuring the discharge of such lien,
together with interest thereon at the Default Rate from the date paid until
repaid by Tenant to Landlord, shall be deemed to be additional rent for the
Premises and shall be due and payable by Tenant to Landlord on the first day of
the next following month.
6.5 COMMON AREA COSTS.
6.5.1 The term "Common Area Costs" shall mean all actual direct
maintenance and repair costs and expenses reasonably paid or incurred by
Landlord during each calendar year during the term hereof in repairing,
maintaining, and operating the Common Areas (excluding building areas),
including and limited to cleaning, striping and minor patching of the
parking areas snow and ice removal from the Common Areas; maintenance
and replacement of landscaped areas; maintenance and replacement of
bulbs and light standards; wages and salaries of personnel employed for
such operation and maintenance (to the extent such charges directly
apply to the operation and maintenance of the Common Areas); charges for
utilities consumed in connection with such work; and depreciation (on a
straight line basis) of all equipment or machinery used in such
maintenance and which reduces such Common Area Costs. Notwithstanding
the foregoing, "Common Area Costs" shall exclude:
(i) Capital improvements;
(ii) Depreciation (except as set forth above);
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(iii) Interest, late charges, and penalties on any charges
payable by Landlord which are included within Common Area Costs;
(iv) Attorneys' fees and costs;
(v) Common Area Costs to the extent the same are reimbursed by
insurance proceeds and/or condemnation awards;
(vi) Any costs and expenses of removing, maintaining or
replacing any substance or matter which may be deemed hazardous
under any federal, state, or local environmental law, rule,
regulation, ordinance, or order, or any costs and expenses of
complying with such federal, state, or local environmental law,
rule, regulation, ordinance, or order, including without limitation
any cost of maintaining or removing asbestos containing materials or
any underground storage tanks, or any cost of complying with
applicable wetlands statutes;
(vii) Any costs of complying with any law, rule, regulation,
statute, or order with respect to the Common Areas, including
without limitation any required compliance with any applicable laws
concerning accommodations for handicapped and/or disabled persons;
and
(viii) Any administrative fee and/or management fee to
Landlord or any other party.
6.5.2 Tenant's Proportionate Share of Common Area Costs shall
be paid in monthly installments on or before the first day of each
calendar month, in advance, in an amount equal to one-twelfth (1/12th)
of Tenant's Proportionate Share of Common Area Costs based upon the
actual cost of Common Area Costs incurred by Landlord during the
previous calendar year and any reasonably anticipated increases in such
costs. If any portion of the term hereof shall include only a partial
calendar year, then for such purposes Tenant's Proportionate Share shall
be adjusted so that such Proportionate Share relates only to those
Common Area Costs incurred by Landlord during the term hereof. Within
ninety (90) days after each calendar year during the term hereof,
Landlord shall deliver to Tenant a written statement setting forth all
Common Area Costs incurred by Landlord during such previous calendar
year and the anticipated Common Area Costs for the present calendar
year, including a detailed calculation of Tenant's Proportionate Share.
If the total amount paid by Tenant during such previous calendar year
for such items shall be less than Tenant's Proportionate Share of the
actual amount due from Tenant for such calendar year, Tenant shall pay
Landlord the actual amount due within thirty (30) days after receipt of
such statement. If the total amount paid by Tenant for such items during
such previous calendar year shall exceed Tenant's Proportionate Share of
any such items, such excess shall be credited against the next
installments due from Tenant to Landlord hereunder.
6.5.3 Upon not less than ten (10) days prior written notice to
Landlord, Tenant shall have the right to audit Landlord's books and
records relating to the common area expenses payable by Tenant
hereunder. Such examination shall be made at Landlord's offices during
normal business hours, and Tenant shall not be permitted to conduct more
than one such audit during each calendar year during the term of this
Lease (unless errors are found in connection with the original audit),
and all information examined by Tenant shall be maintained on a
confidential basis. If it is determined
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pursuant to such audit that Tenant shall have overpaid any charges
hereunder, Landlord shall promptly refund to Tenant the amount of such
overpayment unless Landlord in good faith disputes the results of such
audit, and in such event the respective accountants of Landlord and
Tenant shall attempt to reconcile such dispute within thirty (30) days
after receipt by Tenant of Landlord's written notice that Landlord has
disputed the results of Tenant's audit. If the respective accountants of
Landlord and Tenant are unable to resolve such dispute within thirty
(30) days after their selection, then such accountants shall jointly
select a third accountant, and the decision of such third accountant
shall be binding upon Landlord and Tenant. The fees of the third
accountant shall be paid by the party against whom such accountants'
decision is rendered. If it is determined that Tenant's previous
payments exceeded Tenant's actual share of such charges by five percent
(5%) or more, Landlord shall reimburse Tenant for the reasonable costs
of such audit. All records shall be maintained by the Landlord in
accordance with generally accepted accounting methods, consistently
applied.
6.6 Guard Shed. Tenant shall have the right to contact with a third
party to provide for monitoring of ingress and egress to and from the
Property at the entrance located on Helen Street as shown on Exhibit B
(the "Access Person"), provided that Landlord shall have the right to
reasonably approve the Access Person. If Landlord shall reasonably
disapprove the Access Person, Landlord shall have the right to designate
a different Access Person, provided that (a) the cost of such Access
Person is less than the cost of the Access Person originally proposed by
Tenant, and (b) Tenant reasonably approves such substitute Access
Person. Upon the selection of the Access Person, the Access Person shall
contract with Tenant to monitor ingress and egress from the Property
through the entrance to Helen Street as shown on Exhibit B. Tenant shall
be responsible for paying to the Access Person Tenant's Proportionate
Share of all costs of the Access Person, and within thirty (30) days
after receipt of Tenant's written demand therefor, Landlord shall
reimburse Tenant the remaining portion of all costs and expenses payable
to the Access Person. Landlord and Tenant acknowledge that the purpose
of the Access Person is solely to monitor ingress and egress to the
Property, and in no event shall Landlord or Tenant have any obligation
or liability to each other, or to any other tenant or occupant of the
Property, for the negligence or intentional acts of the Access Person.
All other occupancy agreements and or leases for any portion of the
Building and/or the Property shall require that (a) such other occupant
or tenant shall be responsible for paying its proportionate share of all
costs and expenses incurred by tenant with respect to the Access Person,
(b) such other tenant or occupant shall jointly contract with Tenant to
employ the Access Person, and (c) such other tenant or occupant shall
waive any claim against Tenant or Landlord with respect to any
intentional acts or negligence of the Access Person. Upon written
request by Tenant, Landlord shall provide to Tenant copies of the
applicable provisions contained in any leases or occupancy agreements
evidencing Landlord's compliance with this Section 6.6.
ARTICLE VII
COMPLIANCE WITH LAWS
Tenant shall comply with any and all laws, rules, regulations,
ordinances, and orders with respect to Tenant's use (and not occupancy) of the
Premises, provided that Tenant shall have the right to contest the legality of
any law, order, rule, regulation or requirement applicable to Tenant's use of
the Premises, provided that any such contest shall not subject the Property to
any risk of forfeiture and/or any penalty, and Tenant shall comply with any such
law, order, rule, regulation or requirement during the pendency of such contest
to the
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extent necessary to avoid such risk of forfeiture and/or penalty. Upon the final
termination of any such contest, Tenant shall comply with any such law, order,
ordinance, rule, regulation or requirement to the extent held to be valid or
legal. Notwithstanding anything to the contrary as set forth herein, to the
extent compliance with any such law, order, ordinance, rule, regulation or
requirement requires either (i) any structural alteration of the Premises or
(ii) any other change in any portion of the Premises for reasons unrelated to
Tenant's particular use thereof, then Landlord, at its sole expense, shall
promptly comply with any such law, order, ordinance, rule, regulation or
requirement. Landlord, at its sole cost and expense, shall comply with any and
all applicable laws, rules, regulations, ordinances and orders with respect to
the Property and the Premises, except to the extent such compliance is the
obligation of Tenant herein with respect to the Premises.
ARTICLE VIII
UTILITIES
Tenant shall pay all charges for water, gas, heat, electricity, sewer
and any other utility used upon or furnished to the Premises. Tenant shall keep
the Premises sufficiently heated to avoid the freezing or bursting of all pipes
therein. The obligation of Tenant to pay for such utilities shall commence as of
the earlier of the Commencement Date or the date Tenant occupies the Premises.
ARTICLE IX
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USE
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9.1 USE OF PREMISES. Tenant may use and occupy the Premises for office
and warehouse purposes, and for any other lawful purpose.
9.2 TENANT'S COVENANTS. In addition to the other covenants of Tenant
contained in this Lease, Tenant covenants and agrees as follows:
9.2.1. Tenant shall procure any and all licenses and permits
required for Tenant's use of the Premises, and upon the expiration or
termination of this Lease, Tenant shall remove its goods and effects and
those of all persons claiming under it and shall yield up the same
peaceably to Landlord in good order repair and condition in all
respects, except for reasonable wear and tear.
9.2.2 Tenant shall permit Landlord and its agents on reasonable
notice (which notice shall be written, once the Building has been fully
leased) and at reasonable times to examine the Premises and to show the
Premises to prospective purchasers, mortgagees and/or tenants.
9.2.3 Tenant shall use and occupy the Premises in a careful, safe
and proper manner and shall keep the Premises in a clean, safe and
healthy condition in accordance with all applicable laws, and Tenant
shall not permit the Premises to be used for any unlawful purpose,
commit any waste thereof or commit any nuisance.
ARTICLE X
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ASSIGNMENT AND SUBLETTING
-------------------------
10.1 ASSIGNMENT AND SUBLETTING. Except as set forth herein, Tenant shall
not assign this Lease without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. Landlord shall deliver
written notice to Tenant of Landlord's consent, or refusal to consent, to any
proposed assignment which is subject to
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Landlord's consent herein within thirty (30) days after receipt of written
request therefor from Tenant. If Tenant does not receive such written notice
from Landlord within such thirty (30) day period, then Landlord shall be
conclusively deemed to have approved such assignment.
10.2 PERMITTED ASSIGNMENT OR SUBLEASE. Notwithstanding anything to the
contrary set forth in Section 10.1 above, Landlord's consent shall not be
required for (a) an assignment of this Lease and/or a sublease of all or any
portion of the Premises in connection with a merger, consolidation or sale of
all or substantially all of the assets of Tenant (or of Tenant's parent
corporation), (b) an assignment of this Lease or a sublease of all or any
portion of the Premises to an affiliate of Tenant (or of Tenant's parent
corporation), or (c) any sublease of all or any portion of the Premises. For
purposes of this Section 10.2, an "affiliate" shall be an entity which controls,
is controlled by, or which is under common control with Tenant (or with Tenant's
parent corporation).
10.3 EXCESS RENT. If, in connection with an assignment of this Lease
and/or a sublease of all or any portion of the Premises (other than an
assignment of this Lease or a sublease of all or any portion of the Premises
pursuant to 10.2(a)-(b) above), the assignee or subtenant pays to Tenant rent or
other sums in excess of the Fixed Rent and other sums required to be paid by
Tenant to Landlord hereunder (calculated on a pro rata basis with respect to any
partial sublease of the Premises), then Landlord and Tenant shall each receive
one-half (1/2) of such excess amount, as and when paid to Tenant, after
reimbursement to Tenant of (a) all reasonable cost and expenses incurred by
Tenant in connection with such assignment and/or sublease (including reasonable
brokerage commissions, reasonable attorneys' fees and costs, reasonable costs of
alterations to the Premises, etc.) and (b) the unamortized portion of all tenant
improvements constructed by Tenant in the Premises, which improvements shall be
depreciated on a straightline basis (without interest), over Tenant's
depreciation schedule (not to exceed one hundred twenty (120) months) commencing
from and after the date such improvements are completed. For purposes of this
Section 10.3, Landlord shall have the right, upon not less than ten (10) days
prior written notice to Tenant, to examine Tenant's books and records with
respect to any assignment or sublease which is subject to the terms and
conditions of this Section 10.3.
ARTICLE XI
FIXTURES
Except as provided in Section 6.3 hereof, all equipment and all other
trade and light fixtures installed by or at the expense of Tenant (other than
any fixtures originally installed by Landlord in connection with the original
construction of the Building), in or on the Building shall remain the property
of Tenant and Tenant may, but shall not be obligated to, remove the same or any
part thereof prior to the end of the term hereof, and provided that Tenant, at
its sole cost and expense (but subject to Section 12.4 below), shall make any
repairs occasioned by such removal. Any equipment and all other trade and light
fixtures not removed by Tenant prior to the expiration of the term may, at
Landlord's option, be deemed abandoned and become the property of Landlord.
ARTICLE XII
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INSURANCE
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12.1 INDEMNITY; WAIVER. Subject to Section 12.4 below:
12.1.1 Tenant shall indemnify and hold Landlord harmless from
any claims, damages, liabilities and expenses (including attorneys' fees
and costs) for
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damage or injury to any person or any property occurring on the
Premises, or any part thereof, unless caused by the acts or omissions of
Landlord, its agents, employees, or independent contractors, Landlord's
failure to perform its repair obligations hereunder, or any latent
defects in the Premises.
12.1.2 Landlord shall indemnify and hold Tenant harmless from
any and all claims, damages, liabilities and expenses (including
attorneys' fees and costs) for damage or injury to Tenant or any other
person or any property occurring on the Property, or any part thereof,
unless caused by the acts or omissions of Tenant, its agents, employees,
or independent contractors.
12.2 TENANT'S INSURANCE. Except as set forth below, during the term of
this Lease, Tenant shall maintain comprehensive public liability insurance,
including insurance against the assumed or contractual liability of Tenant
hereunder, to afford protection to the limit for each occurrence of not less
than Two Million Dollars ($2,000,000.00) combined single limit for bodily
injury, death and property damage. Such policy shall name Landlord as an
additional insured, and such policy shall also contain a provision by which the
insurer agrees that such policy shall not be canceled except after thirty (30)
days written notice to Landlord. Such insurance may be carried under blanket or
umbrella insurance policies. Such policy, or a certificate thereof, shall be
deposited with Landlord by Tenant not later than such date as Tenant or its
agents, employees or contractors shall enter the Premises. Prior to the
expiration or termination of such policy, Tenant shall deliver to Landlord a new
or renewal policy (or a certificate thereof). Notwithstanding anything to the
contrary set forth above, so long as the consolidated net worth of Tenant (and
its guarantor) is equal to or greater than Seventy-Five Million and No/100ths
Dollars ($75,000,000.00), Tenant shall not be obligated to maintain such
insurance.
12.3 LANDLORD'S INSURANCE. During the term of this Lease, Landlord shall
maintain the following insurance policies:
12.3.1 Comprehensive public liability insurance, including
insurance against the assumed or contractual liability of Landlord
hereunder, with respect to the Property to afford protection to the
limit for each occurrence of not less than Five Million Dollars and
No/100ths Dollars ($5,000,000.00) combined single limit for bodily
injury, death and property damage; and
12.3.2 Special form insurance, written at replacement cost value
and with replacement cost endorsement, covering the Building and all
other improvements in the Property.
The policy carried by Landlord under Section 12.3.1 above shall name Tenant as
an additional insured, and both such policies shall provide that no
cancellation, reduction or other material changes therein shall be effective
until at least ten (10) days after mailing of written notice thereof to Tenant.
Certificates evidencing all such insurance shall be delivered to Tenant prior to
the Commencement Date, and prior to the expiration of any such policies Landlord
shall deliver renewal certificates thereof to Tenant.
12.4 WAIVER OF SUBROGATION. Landlord and Tenant hereby release each
other from any and all liability or responsibility (to the other or anyone
claiming through or under them by way of subrogation or otherwise) for any loss
or damage to property caused by fire or any other casualties insured against or
required to be insured against hereunder (including deductible portions), even
if such fire or other casualty shall have been caused by the fault or negligence
of the other party, or anyone for whom such party may be responsible, and
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each party hereby waives any right of subrogation for all or any insurance
maintained by either party. Each party shall cause each insurance policy carried
by it hereunder to be written in such manner to provide that the insurer waives
all right of recovery by way of subrogation against the other party hereunder in
connection with any loss or damage covered by such policy.
12.5 TENANT'S CONTRIBUTION. Tenant shall pay Tenant's Proportionate
Share of all premiums for the insurance required to be maintained by Landlord
under Section 12.3 above within thirty (30) days after receipt of (a) the
applicable premium statement therefor, together with (b) a calculation of
Tenant's Proportionate Share.
ARTICLE XIII
DAMAGE AND DESTRUCTION
13.1 ABATEMENT OR ADJUSTMENT OF RENT. If the Premises shall be damaged
or destroyed by fire or other casualty after the execution of this Lease and
before the termination hereof, then Fixed Rent and any other charges payable
hereunder, shall be abated as set forth herein. If the whole of the Premises
shall be damaged or destroyed, or if a substantial portion thereof shall be
damaged or destroyed to the extent that Tenant, in its reasonable judgment,
determines that it cannot conduct business in the Premises, then Fixed Rent and
any other charges payable hereunder shall be abated entirely until such
restoration is completed by Landlord.
If less than such substantial part of the Premises shall be damaged or
destroyed, then Fixed Rent and any other charges payable hereunder shall be
abated in proportion to that portion of the Premises of which Tenant shall be
deprived on account of such damage or destruction until the repair, restoration,
rebuilding or replacement or any combination thereof, of the improvements so
damaged or destroyed.
13.2 REPAIRS AND RESTORATION OF PREMISES.
13.2.1 Subject to Section 13.2.2 below, upon any damage or
destruction of the Premises, Landlord shall promptly proceed to repair,
restore, replace or rebuild the Premises, including those tenant
improvements made by Landlord to the Premises under ARTICLE V above to
substantially the condition in which the same were immediately prior to
such damage or destruction and Landlord thereafter shall diligently
prosecute said work to completion without delay or interruption, subject
to Section 21.5 below. Notwithstanding the foregoing, if Landlord does
not either (i) obtain a building permit for any repairs, rebuilding or
restoration required hereunder within six (6) months of the date of such
damage or destruction, or (ii) complete such repairs, rebuilding or
restoration in accordance with Section 15.3 below within twelve (12)
months of such damage or destruction, then, in either event, Tenant may
at any time thereafter terminate this Lease upon thirty (30) days
written notice thereof to Landlord; provided, however, that such notice
of cancellation shall not be effective if Landlord, within such thirty
(30) day period, shall obtain such permit or complete and comply as
aforesaid, as the case may be. Upon the occurrence of any damage or
destruction to the Premises, if Landlord reasonably anticipates that
Landlord shall not be able to obtain a building permit within six (6)
months after the date of such damage or destruction and/or that Landlord
shall not be able to complete all required repairs and restoration
within twelve (12) months of the date of such damage or destruction,
Landlord shall deliver written notice thereof to Tenant, and such notice
shall set forth the dates by which Landlord reasonably anticipates
obtaining such permits and/or completing such restoration ("Landlord's
Notice").
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Within fifteen (15) days after receipt of Landlord's Notice, Tenant
shall have the right to elect either (i) to terminate this Lease upon
thirty (30) days written notice to Landlord, or (ii) to maintain this
Lease in full force and effect, in which event Landlord shall obtain
such permits and/or complete such restoration in accordance with the
dates set forth in Landlord's Notice. If Landlord does not receive such
written notice from Tenant within such fifteen (15) days period, then
Tenant shall be conclusively deemed to have elected to terminate this
Lease. If Tenant shall elect to maintain this Lease in full force and
effect, then Landlord shall obtain such permits and/or complete such
restoration in accordance with the dates set forth in Landlord's Notice,
and if Landlord does not either obtain such permits and/or complete such
restoration in accordance with such dates, then Tenant shall have the
right to terminate this Lease at any time thereafter upon thirty (30)
days written notice to Landlord; provided, however, that notice of
termination shall not be effective if Landlord, within such thirty (30)
day period, shall obtain such permit and/or complete such restoration,
as the case may be.
13.2.2 Notwithstanding anything to the contrary set forth in
Section 13.2.1 above if any such damage or destruction to the Premises
shall amount to eighty percent (80%) or more of the replacement cost of
the Premises (exclusive of the land and foundations), then this Lease
may be terminated at the election of either Landlord or Tenant upon
written notice to the other party within thirty (30) days after the
occurrence of such damage or destruction. Notwithstanding the foregoing,
if, prior to the date which is two (2) years after the date of
termination of this Lease pursuant to this Section 13.2.2 by Landlord,
Landlord shall either (1) rebuild all or any portion of the Premises, or
(2) commence the rebuilding of a like-kind building within any portion
of the Property, Landlord shall deliver written notice thereof to
Tenant, and upon written notice to Landlord within thirty (30) days
after receipt of such written notice, Tenant shall again have the right
to lease space within the Building (if Landlord is rebuilding all or a
portion of the Premises) and/or within such building (if Landlord is
constructing a new building) upon the terms and conditions set forth in
this Lease, with an appropriate adjustment of the size of the Premises,
if the restored Building and/or new building to be constructed by
Landlord contains floor area less than the floor area contained within
the "Premises" pursuant to this Lease as of the date of termination of
this Lease pursuant to this Section 13.2.2. In such event, Landlord, at
its sole cost and expense, shall construct the premises to be occupied
by Tenant in the restored Building and/or the new building, which
improvements shall be comparable or better in quality to the condition
of the Premises existing as of the date this Lease is terminated
pursuant to this Section 13.2.2
13.2.3 If this Lease is terminated under this Section 13.2, any
Fixed Rent or other charges paid in advance by Tenant shall be refunded
to Tenant, and upon payment in full of all sums due Landlord or Tenant
by the other party through the date of such fire or casualty, the
parties shall be released hereunder, each to the other, from all
liability and obligations hereunder thereafter arising.
13.3 DELIVERY OF PREMISES. If this Lease has not been canceled hereunder
as a result of any damage or destruction of the Premises, Tenant shall not be
required to accept delivery or possession of the Premises and recommence paying
Fixed Rent and other charges (or such abated portion thereof) until all of the
following shall have occurred:
13.3.1 The damaged or destroyed portion of the Premises shall
have been completed as nearly as practicable to the condition existing
immediately prior to such destruction or damage and in compliance with
all laws, ordinances,
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regulations and requirements of governmental authorities having
jurisdiction thereof; and
13.3.2 If required, a certificate of occupancy or an equivalent
use permit, and all other requisite permits, if any, including an
inspection certificate of approval by the National Board of Fire
Underwriters and/or ISO (if required) shall have been issued by the
appropriate legal authorities issuing same, and Landlord shall have
delivered to Tenant such certificate(s) or photostatic copies thereof.
13.4 REPAIRS AND RESTORATION OF PROPERTY. If the Building, Common Areas
or other improvements in the Property (exclusive of the Premises) shall be
damaged or destroyed by fire or other casualty or any cause whatsoever, either
in whole or in part, then if this Lease is not terminated under Section 13.2.2
above, Landlord shall with due diligence remove any resulting debris and repair
and/or rebuild the damaged or destroyed Building, Common Areas, and improvements
in accordance with the plans pursuant to which they were originally constructed
to the extent then permitted by the applicable governmental laws and
regulations.
ARTICLE XIV
CONDEMNATION
14.1 TOTAL TAKING. If the whole of the Premises shall be taken under
power of eminent domain by any public or private authority, or conveyed by
Landlord to said authority in lieu of such taking, then this Lease shall
terminate as of the date of such taking.
14.2 PARTIAL TAKING.
14.2.1 Tenant may, at its election, terminate this Lease upon the
occurrence of any condemnation, or conveyance in lieu of condemnation,
which affects:
(i) Twenty percent (20%) or more of the floor area of the
Premises;
(ii) Twenty percent (20%) or more of the parking areas of
the Property shown on EXHIBIT "B" annexed hereto; or
(iii) Any portion of the Common Areas whose condemnation
would materially affect ingress to and egress from the Premises.
Tenant shall give Landlord notice of Tenant's election within thirty
(30) days after Tenant shall receive notice of such pending
condemnation. If Tenant fails to give Landlord such written notice
within such thirty (30) day period, Tenant shall be conclusively deemed
to have elected not to terminate this Lease. Notwithstanding any
termination of this Lease by Tenant hereunder, Tenant, at its election,
may continue to occupy the Premises, subject to the terms and provisions
of this Lease, for all or such part, as Tenant may determine, for the
period between the date of such taking and the date when possession of
the Premises shall be taken by the appropriate authority.
14.2.2 Notwithstanding anything to the contrary set forth herein,
if any portion of the Premises is condemned or conveyed in lieu of such
condemnation during the last two (2) years of the term hereof, then
either Tenant or Landlord may terminate this Lease upon thirty (30) days
written notice to the other party; provided,
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however, that any such notice of termination by Landlord shall be
ineffective, and this Lease shall remain in full force and effect, if
Tenant, within thirty (30) days after receipt of such notice from
Landlord, shall give notice to Landlord of its intention to extend the
term of this Lease in accordance with ARTICLE III above. If Tenant gives
Landlord such notice of such renewal, Landlord shall repair and/or
restore the Premises in accordance with the terms and conditions of this
ARTICLE XIV. Notwithstanding any termination of this Lease pursuant to
the terms and conditions of this Section 14.2.2, Tenant, at its
election, may continue to occupy the Premises, subject to the terms and
conditions of this Lease, for the period between the date of such taking
and the date when possession of the property to be condemned shall be
taken by the appropriate authority.
14.3 RESTORATION. If this Lease is not terminated under Section 14.2
above, Landlord, at Landlord's sole cost and expense, shall promptly restore the
remaining portions of the Premises and/or the Property, as the case may be,
including any and all improvements made theretofore, together with the remaining
portions of the parking areas, to an architectural whole in substantially the
same condition that the same were in prior to such taking. If Landlord does not
either (i) obtain a building permit for any repairs or restoration required
hereunder within six (6) months of the date of taking, or (ii) complete such
repairs or restoration in accordance with this Section 14.3 within nine (9)
months of such taking, then, in either event, Tenant may at any time thereafter
terminate this Lease upon thirty (30) days written notice thereof to Landlord;
provided, however, that such notice of cancellation shall not be effective if
Landlord, within such thirty (30) day period, shall obtain such permit or
complete and comply as aforesaid, as the case may be. Fixed Rent and any other
charges payable by Tenant hereunder shall be suspended or abated until the
completion of such restoration according to the nature and extent of the injury
to the Premises and, in the event of injury to the Common Areas or the remainder
of the Property, to Tenant's business. Upon any condemnation of a portion of the
Premises, the Fixed Rent and any other charges payable by Tenant hereunder shall
be proportionately reduced based upon the floor area of the Premises remaining
after said taking.
14.4 RELEASE. In the event of any termination of this Lease as the
result of the provisions of this ARTICLE XIV, Fixed Rent and any other charges,
if any, paid in advance by Tenant shall be refunded to Tenant, and the parties,
effective as of such termination, shall be released from all liability and
obligations thereafter arising under this Lease.
14.5 THE AWARD. All compensation awarded for any taking, whether for the
whole or a portion of the Premises, or for any other portion of the Property,
shall be the sole property of Landlord whether such compensation shall be
awarded for diminution in the value of, or loss of, the leasehold or for
diminution in the value of, or loss of the fee, or otherwise, and Tenant hereby
assigns to Landlord all of Tenant's right and title to and interest in any and
all such compensation; provided, however, Landlord shall not be entitled to and
Tenant shall have the sole right to retain any portion of any award made by the
appropriating authority for (a) the unamortized portion of any leasehold
improvements installed by Tenant in the Premises, (b) the cost of removal of
leasehold improvements, fixtures, and other improvements installed in the
Premises by, or at the expense of, Tenant, (c) relocation expenses, and (d) any
separate award made by the appropriating authority directly to Tenant, provided
that any such award to Tenant pursuant to (a) - (d) herein shall not reduce any
award payable to Landlord.
ARTICLE XV
EVENTS OF DEFAULT
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15.1 EVENTS OF DEFAULT BY TENANT; REMEDIES. If Tenant shall at any time
be in default in the payment of rental or any other charges hereunder or in the
performance of any of the covenants of this Lease, and Tenant shall fail to
remedy such default within (a) ten (10) days after receipt of written notice
thereof from Landlord if such default is in connection with the payment of Fixed
Rent or the payment of any other charges, or (b) thirty (30) days after receipt
of written notice thereof from Landlord if such default is nonmonetary (but
Tenant shall not be deemed in default if it commences to remedy such default
within said thirty (30) day period and proceeds therewith with due diligence),
or if Tenant shall be adjudged bankrupt or shall make an assignment for the
benefit of creditors, or if a receiver of any property of Tenant in or upon the
Premises be appointed in any action, suit or proceeding by or against Tenant and
not removed within sixty (60) days after appointment, or if the interest of
Tenant in the Premises shall be sold under execution or other legal process,
Landlord may by notice to Tenant, (i) terminate this Lease, or without
terminating this Lease, re-enter the Premises by summary proceedings,
proceedings in forcible entry and detainer, eviction, or otherwise, and may
dispossess Tenant, if Tenant has defaulted in the payment of Fixed Rent or the
payment of any other charges due and payable to Landlord hereunder, and (ii)
pursue all rights and remedies available to Landlord at law or equity, provided
that Landlord shall have no right to terminate this Lease and/or Tenant's right
of possession if Tenant shall not have defaulted in the payment of Fixed Rent or
the payment of any other charges due and payable to Landlord hereunder.
Notwithstanding the foregoing, if Tenant shall in good faith either claim the
right to reduce Fixed Rent or offset any sum against Fixed Rent, dispute any sum
or obligation for which payment or performance is claimed by Landlord to be due
under this Lease, or otherwise exercise any rights or remedies permitted to be
exercised by Tenant under this Lease, then Tenant shall not be deemed in default
under this Lease unless and until a court of competent jurisdiction shall issue
a final, nonappealable judgment in favor of Landlord and Tenant shall have
failed, within thirty (30) days after the receipt of such final, nonappealable
judgment, to pay all sums and/or perform such obligations which Tenant
previously failed to pay and/or to perform as a result of Tenant's good faith
claim of its right to do so as set forth herein. During the pendency of any such
dispute, Tenant shall deposit, in escrow with a title company, bank, or other
institution mutually acceptable to Landlord and Tenant, all sums for which
Tenant claims the right to reduce Fixed Rent and/or to offset against Fixed Rent
herein, and Tenant shall pay all undisputed sums to Landlord in accordance with
the terms of this Lease. Such sums shall be deposited into an interest-bearing
account, and Landlord and Tenant shall execute such escrow instructions as may
be reasonably required as the escrow holder with respect such funds. Upon the
resolution of such dispute, such funds, together with the interest accrued
thereon, shall be paid to the party entitled to the same.
15.2. REMEDIES.
15.2.1 Upon any default by Tenant under this Lease, Landlord
shall use reasonable efforts to mitigate all damages arising as a
result of such default, but only to the extent required by
applicable law. If Landlord elects to terminate Tenant's right to
possession only without terminating this Lease as above provided,
Landlord shall use reasonable efforts to relet the Premises or any
part thereof to any person, firm or corporation and for such time
and upon such reasonable terms as Landlord may determine, but only
to the extent required by applicable law. Landlord may make
repairs in and to the Premises to the extent necessary to restore
the Premises to good condition and repair, and Tenant, upon demand
in writing, shall pay the reasonable cost thereof together with
Landlord's reasonable expenses of reletting, including any
commissions and attorneys' fees relative thereto (but excluding
any alterations or additions to the Premises or any tenant
improvements to the Premises for a
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replacement tenant). If the rents collected by Landlord upon any
such reletting are not sufficient to pay monthly the full amount
of the monthly rent and other charges reserved herein, together
with the reasonable costs required to be reimbursed by Tenant to
Landlord as set forth herein, Tenant shall pay to Landlord the
amount of each monthly deficiency upon demand in writing.
15.2.2 If Tenant shall have defaulted in the payment of
Fixed Rent or the payment of any other charges payable to Landlord
hereunder, then Landlord shall have the right, after the expiration
of all notice and grace periods as set forth above, upon notice to
Tenant either to terminate this Lease, or without terminating this
Lease, terminate Tenant's right of possession. If Landlord shall
obtain, from a court of competent jurisdiction, both (i) a final,
non-appealable judgment that Tenant has defaulted in the payment of
Fixed Rent and/or other charges due and payable from Tenant to
Landlord hereunder and (ii) a final non-appealable judgment
providing for the termination of this Lease and/or the termination
of Tenant's right of possession of the Premises, then if Tenant
shall fail to pay such sums to Landlord within thirty (30) days
thereafter, this Lease and/or Tenant's right of possession shall
terminate in accordance with such final, non-appealable judgments,
and Fixed Rent and other charges due and payable by Tenant to
Landlord shall be payable in advance as hereinafter set forth. If
Fixed Rent or other charges are required to be paid in advance as
set forth in this Section 15.2.2, then such sums shall be equal to
the Fixed Rent and all other charges required to be paid by Tenant
to Landlord under this Lease which Landlord would have received
under the Lease for the remaining portion of the then current term,
discounted to present value as of the date of such prepayment at a
rate which is one percent (1%) per annum in excess of the prime
rate then in effect at Chase Manhattan Bank. If Fixed Rent and
other charges herein are paid in advance by Tenant as set forth in
this Section 15.2.2, then if Landlord shall relet all or any
portion of the Premises at any time during what would have been the
remaining term of this Lease, then said sums shall (i) first be
applied to any sums remaining due and payable by Tenant to Landlord
under Section 15.2.1 above (if any), and (ii) the balance shall be
paid by Landlord to Tenant, within thirty (30) days after receipt
thereof by Landlord.
15.3 OTHER REMEDIES. The rights and remedies of Landlord set forth in
this ARTICLE XV and in Section 16.1 below shall be in addition to all of the
rights and remedies available to Landlord at law on in equity, provided that no
event shall Landlord be entitled to any damages not permitted herein and in no
event shall Fixed Rent or other charges under this Lease be accelerated or
otherwise be payable in advance of the due dates otherwise set forth in this
Lease, except as set forth in Section 15.2.2 above.
15.4 WAIVER OF LIEN. Landlord waives and releases any and all liens and
every right to institute proceeds to obtain a lien and any other rights to
distraint, levy or execution against any property in which Tenant's lender has a
security interest, all or part of which may be located upon or affixed to the
Premises (the "Collateral") for any rent or other sums due or to become due to
Landlord, whether under the Lease for the Premises or otherwise, and all claims
and demands of Landlord of every kind against the Collateral, during the term of
the aforesaid agreement and any renewal, extension or modification thereof or
substitution therefor. Landlord agrees that the Collateral will remain personal
property and will not become part of the Premises.
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15.5 LANDLORD'S RIGHT TO REMOVE CHATTELS. Any and all property which may
be removed from the Premises by Landlord in accordance with the terms of this
Lease may be handled, removed, stored or otherwise disposed of by Landlord at
the risk and expense of Tenant, and Landlord in no event shall be responsible
for the preservation or safekeeping thereof. Tenant shall pay to Landlord upon
demand in writing, any and all reasonable expenses incurred in connection with
such removal and all storage charges against such property so long as the same
shall be in Landlord's possession or under Landlord's control. If any property
shall remain in the Premises or in the possession of Landlord and shall not be
retaken by Tenant within a period of ten (10) days from and after the time when
the Premises are either abandoned by Tenant or repossessed by Landlord under the
terms of this Lease, said property shall conclusively be deemed to have been
forever abandoned by Tenant.
15.6 LANDLORD'S DEFAULT. Upon any default by Landlord under this Lease
which is not cured within thirty (30) days after receipt of written notice
thereof from Tenant (but Landlord shall not be deemed in default if it commences
to remedy such default within such thirty (30) day period and proceed therewith
with due diligence), Tenant shall have the right, in addition to all other
rights and remedies explicitly set forth in this Lease, to pursue all rights and
remedies available at law or in equity, including the right to terminate this
Lease if such default materially and adversely affects Tenant's use of the
Premises.
15.7 DEFAULT INTEREST. Any sum required to be paid by either party to
the other party hereunder which is not paid within ten (10) days after the date
when due shall (except as otherwise provided in this Lease) bear interest from
the original date due at a rate per annum equal to the prime rate then in effect
at Chase Manhattan Bank, New York, plus four percent (4%) or, if less, the
maximum rate permitted by law (the "Default Rate").
ARTICLE XVI
SELF-HELP RIGHTS
16.1 LANDLORD'S SELF-HELP. If Tenant shall default in the performance or
observance of any agreement or condition in this Lease contained on its part to
be performed or observed and shall not cure such default within any applicable
cure period set forth herein, Landlord may, at its option, without waiving any
other right or remedy permitted to be exercised by Landlord under ARTICLE XV
above, at any time thereafter cure such default for the account of Tenant, and
any amount paid or any contractual liability incurred by Landlord in so doing
shall be deemed paid or incurred for the account of Tenant and Tenant agrees to
reimburse Landlord therefor and save Landlord harmless therefrom; provided that
Landlord may cure any such default as aforesaid prior to the expiration of said
waiting period, without notice to Tenant, if any emergency situation exists, or
after notice to Tenant, if the curing of such default prior to the expiration of
said waiting period is reasonably necessary to protect the Premises or
Landlord's interest therein, or to prevent injury or damage to persons or
property. If Tenant fails to reimburse Landlord upon demand for any amount paid
for the account of Tenant hereunder, said amount, together with interest thereon
at the Default Rate, shall be added to and become due as a part of the next
payment of rent due hereunder.
16.2 TENANT'S SELF-HELP. If Landlord shall breach, or fail to perform or
observe, any agreement or condition in this Lease contained on Landlord's part
to be performed or observed, then if (a) Landlord shall not cure such breach or
failure within thirty (30) days after notice from Tenant specifying such breach
or failure (or, if such breach or failure shall reasonably take more than thirty
(30) days to cure, and Landlord shall not have commenced the same within the
thirty (30) days and diligently prosecuted the same to completion), and
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(b) such breach or failure creates a reasonable risk of damage to Tenant's
property, personal injury, and/or a material and adverse effect on Tenant's use
or occupancy of the Premises, Tenant may, at Tenant's option, without waiving
any other right or remedy permitted to be exercised by Tenant under the express
terms of this Lease with respect to such default, at any time thereafter cure
such breach or failure for the account of Landlord and any amount paid or any
contractual liability incurred by Tenant in so doing shall be deemed paid or
incurred for the account of Landlord and Landlord agrees to reimburse Tenant
therefor and save Tenant harmless therefrom; provided that Tenant may cure any
such breach or failure as aforesaid prior to the expiration of said waiting
period if reasonably necessary to protect the Premises and/or parking for or
access to the Premises, to prevent imminent injury or damage to persons or
property, or in the event of any other emergency (e.g., roof leak). If
"Landlord" is no longer an entity controlled by or affiliated with Bruce
Federman, then any amounts not reimbursed by Landlord within thirty (30) days of
Tenant's written demand therefor may be applied by Tenant, together with
interest thereon at the Default Rate, as a credit against Tenant's next
payment(s) of Fixed Rent or other charges, provided that the aggregate of all
such claims shall not exceed, on a monthly basis, twenty percent (20%) of Fixed
Rent, and if Landlord shall in good faith dispute the right of Tenant to
exercise any offset rights set forth herein, such offset shall not exceed 50% of
any amount claimed due by Tenant and disputed by Landlord herein.
ARTICLE XVII
TITLE
17.1 SUBORDINATION. Tenant hereby subordinates this Lease to the lien of
any deed of trust, mortgage or mortgages now or hereafter placed upon Landlord's
interest in the Premises; provided, however, that Landlord, at its expense,
shall procure from any such mortgagee an agreement, in writing, in form and
substance acceptable to Tenant, providing in substance that (a) so long as
Tenant performs the obligations imposed upon Tenant hereunder, its tenancy will
not be disturbed, nor its rights under this Lease affected by, any default under
such mortgage nor shall Tenant be named as a defendant in any foreclosure
proceeding (unless, in order to obtain jurisdiction of such foreclosure matter
and/or to implement such foreclosure, Tenant is required to be named as a
defendant in such proceeding and) (b) in the event of any foreclosure under any
such mortgage or deed of trust, or a granting of a deed in lieu thereof, any
such mortgagee or purchaser of Landlord's interests through foreclosure sale or
deed in lieu thereof shall permit the insurance proceeds and condemnation awards
to be used for any restoration and repair required under ARTICLES XII and XIV
hereof and shall otherwise assume the obligations of Landlord under this Lease.
Landlord, at its expense, shall procure such executed agreement from any
existing mortgagee of the Property on or before the Commencement Date; if
Landlord fails to deliver such executed agreement to Tenant as required herein,
the Commencement Date shall be extended to such date on which Tenant receives
such executed agreement from such mortgagee.
17.2 QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that
upon Tenant paying the rent and observing and performing all of the terms,
covenants and conditions on Tenant's part to be observed and performed
hereunder, Tenant may peaceably and quietly have, hold, occupy and enjoy the
Premises without hindrance or molestation from Landlord or any persons lawfully
claiming through Landlord.
17.3 LANDLORD'S ASSURANCES. To induce Tenant to execute this Lease, and
in consideration thereof, Landlord warrants, represents, covenants and agrees as
follows:
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17.3.1. Landlord has good fee simple title to the entire Property
free and clear of all easements, restrictions, liens, encumbrances,
leases and the like, except as set forth on EXHIBIT "D", attached hereto
and made a part hereof.
17.3.2. To Landlord's knowledge, there are no restrictions or other
legal impediments either imposed by law (including applicable zoning and
building ordinances) or by any instrument (including the items set forth
on EXHIBIT "D") or any pending governmental actions, which would prevent
the use of the Premises for office and warehouse purposes after
completion of construction thereof by Landlord in accordance with
applicable law and the requirements of applicable governmental
authorities, or the use of the Common Areas, including all access routes
and entrances to the Property, in the manner contemplated by this Lease.
If at any time during the term of this Lease (or any renewal thereof)
applicable law shall not permit the use of the Premises or the Common
Areas for office and warehouse purposes, then Tenant, without waiving
any other rights Tenant may have on account thereof, may terminate this
Lease by giving Landlord notice thereof.
17.3.3 Landlord has no knowledge or notice of any pending
condemnation or eminent domain proceedings with respect to the Property,
nor has Landlord any actual knowledge or notice that the Property, or
any portion thereof, is in violation of any applicable statute, law,
rule, regulation, or order of any governmental authority, including any
zoning ordinances or building codes.
17.3.4 The execution and performance of this Lease by Landlord will
not violate or cause a default under any agreement, instrument, or other
transaction to which Landlord is a party or by which Landlord and/or the
Property are bound.
ARTICLE XVIII
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SIGNS
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Tenant shall not erect or install any ground, building, or roof signs
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed, provided that Tenant shall have the right to
erect identification and directional signage only. All signs installed by Tenant
shall comply with all requirements of appropriate governmental authority, and
all necessary permits or licenses shall be obtained by Tenant.
Tenant shall maintain all signs in good condition and repair at all times. Upon
vacating the Premises, Tenant shall remove all signs and repair all damage
caused by such removal.
ARTICLE XIX
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HAZARDOUS SUBSTANCES
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19.1 HAZARDOUS SUBSTANCES. The term "Hazardous Substances," as used in
this Lease, shall include, without limitation, flammables, explosives,
radioactive materials, asbestos, polychlorinated biphenyls (PCBs), chemicals
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, petroleum and petroleum
products, and substances declared to be hazardous or toxic under any law or
regulation now or hereafter enacted or promulgated by any governmental
authority.
19.2 TENANT'S OBLIGATIONS.
19.2.1 Tenant shall not cause or permit to occur (i) any
violation of any federal, state, or local law, ordinance, or regulation
("Laws") now or hereafter
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enacted, related to Hazardous Substances on, under, or about the
Premises; or (ii) the use, generation, release, manufacture, refining,
production, processing, storage, or disposal of any Hazardous Substances
on, under, or about the Premises in violation of applicable federal or
state laws, or the transportation to or from the Premises of any
Hazardous Substances in violation of applicable federal or state laws.
19.2.2 Tenant shall indemnify, defend and hold harmless the
Landlord from all liabilities, fines, suits, procedures, claims and
actions of every kind, and all costs and expenses associated therewith
(including attorney's and consultants' fees) arising out of or in any
way connected with any violation of any Laws by Tenant, its employees,
agents, independent contractors or invitees that occurs during the term
of this Lease, at or from the Premises or which arises at any time from
Tenant's use or occupancy of the Premises.
19.2.3 Tenant's obligation and liabilities under this Section 19.2
shall survive the expiration or termination of this Lease.
19.3 LANDLORD'S OBLIGATIONS.
19.3.1 Landlord shall not cause or permit to occur (i) any
violation of any Laws now or hereafter enacted, related to Hazardous
Substances on, under, or about the Property; or (ii) the use,
generation, release, manufacture, refining, production, processing,
storage, or disposal of any Hazardous Substances on, under, or about the
Property in violation of applicable Laws, or the transportation to or
from the Property of any Hazardous Substances in violation of applicable
Laws.
19.3.2 Except for matters for which Tenant is obligated to
indemnify Landlord pursuant to Section 19.2 above, Landlord shall
indemnify, defend and hold harmless the Tenant from all fines, suits,
procedures, claims and actions of every kind, and all costs associated
therewith (including attorney's and consultants' fees) arising out of or
in any way connected with any deposit, spill, discharge, or other
release of Hazardous Substances in violation of any Laws that occurs
during the term of this Lease, at or from the Property.
19.3.3 In the event that any Hazardous Substances are discovered
in, on, or about the Property, and such Hazardous Substances were not
caused or permitted to occur by either Tenant or Landlord, then
Landlord, at its sole cost and expense, shall be obligated to comply
with all Laws with respect to such Hazardous Substances, in accordance
with the terms and conditions of this Section 19.3, provided that
Landlord shall be entitled to pursue all rights and remedies against
such other parties as may be responsible for the presence of such
Hazardous Substances in, on or about the Property.
19.3.4 Landlord's obligation and liabilities under this Section
19.3 shall survive the expiration of this Lease.
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ARTICLE XX
EXPANSION RIGHTS; RIGHT OF FIRST REFUSAL
20.1 Options. Tenant is hereby granted the following options to lease an
aggregate of approximately two hundred thousand (200,000) square feet of
additional space within the Property (the "Option Space"):
20.1.1 Upon written notice to the Landlord on or before
December 1, 1999, Tenant shall have the right to lease one hundred
thousand (100,000) square feet of space within the Property (the
"Initial Option Space"). The Initial Option Space shall consist of the
floor area within the Building which is contiguous to the Premises
("Original Space"); provided, however, in the event that (i) prior to
the receipt by Landlord of Tenant's written notice of Tenant's exercise
of the option provided herein, Landlord shall have entered into a bona
fide lease (or leases) with a third party (or parties) renting the
Original Space and (ii) there is no other space available within the
Building which is acceptable to Tenant, the Initial Option Space shall
consist of one hundred thousand (100,000) square feet of floor area to
be contained within an expansion of the Building in an area contiguous
to the Premises (the "New Building Space").
20.1.2 If the Initial Option Space is the New Building Space,
then the New Building Space shall be constructed with similar materials
and with similar improvements as the Premises, unless otherwise agreed
by the Landlord and Tenant. Within thirty (30) days after receipt of
Tenant's written notice of Tenant's exercise of the option provided
herein, Landlord and Tenant shall reasonably cooperate in good faith to
solicit bids for each major portion of the construction to be performed
by Landlord hereunder, including architectural services, engineering
services, general contractor services, and subcontractor services for
each "major subcontract" (hereinafter defined), and Tenant shall have
the right to select an architect, engineer, general contractor, and/or
subcontractors with respect to each "major subcontract" with respect to
all such bids. For purposes of this paragraph, a "major subcontract"
shall mean all subcontracts for portions of the construction to be
performed by Landlord hereunder which individually exceed Twenty Five
Thousand Dollars ($25,000.00). Upon receipt of all bids applicable to
each portion of the construction to be performed by Landlord hereunder,
Landlord and Tenant shall reasonably cooperate to negotiate with such
architects, engineers, general contractors and/or subcontractors to
reduce the Cost of Construction (hereinafter defined) for Landlord's
work, and Landlord shall accept the lowest responsive bid submitted with
respect to each applicable portion of Landlord's work, unless Landlord
and Tenant agree otherwise.
For purposes of this paragraph, the "Cost of Construction"
shall mean all costs incurred by Landlord in the construction of New
Building Space, including without limitation architectural costs,
general contractor costs, subcontractor's costs, costs of materials,
licensing fees, and permitting fees.
Concurrently with the solicitation of bids for the Cost of
Construction, Landlord and Tenant shall reasonably cooperate in good
faith to determine, and obtain, the best financing package then
available for similar projects and properties in New Jersey, to finance
the Cost of Construction. In making such determination, Landlord and
Tenant shall consider the then prevailing terms and conditions required
by lenders for similar projects, including required equity
contributions, prevailing
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rates of interest, and prevailing amortization periods for similar
loans. Both Landlord and Tenant shall have the right to reasonably
approve the proposed financing structure for the Cost of Construction,
provided that in no event shall Landlord's required equity contribution
be permitted to exceed forty percent (40%) of the Cost of Construction.
Subject to the foregoing, if Landlord and Tenant are unable to agree
upon a financing structure for the Cost of Construction within sixty
(60) days after the date the Cost of Construction is determined as set
forth above, then either Landlord or Tenant shall have the right to
terminate the option provided to Tenant herein with respect to the New
Building Space; provided, however, that if either Landlord or Tenant,
within ten (10) days after receipt of the other party's notice of
termination herein, delivers written notice to the other party that it
will accept the proposed financing structure proposed by the
non-terminating party, then such notice of termination shall be of no
further force or effect and Tenant's option with respect to the New
Building Space shall remain in full force and effect. The financing
structure approved by Landlord and Tenant shall be referred to herein as
the "Financing Structure".
Upon the determination of the Cost of Construction and the
Financing Structure, the annual Fixed Rent for the New Building Space
(the "New Building Space Rent') shall be the sum of (i) the annual
payments of principal and interest required to be paid under the
Financing Structure and (ii) the product of (A) the Rate of Return
(hereinafter defined) and (B) the equity required to be contributed by
Landlord as part of the Financing Structure. The "Rate of Return" shall
mean (A) fifteen percent (15%), if Landlord's required equity
contribution under the Financing Structure is twenty percent (20%) or
less of the Cost of Construction, (B) fourteen percent (14%), if
Landlord's required equity contribution under the Financing Structure is
thirty percent (30%) of the Cost of Construction, or (C) thirteen
percent (13%),if Landlord's required equity contribution under the
Financing Structure is forty percent (40%) of the Cost of Construction.
If Landlord's required equity contribution under the Financing Structure
is greater than twenty percent (20%) but less than thirty percent (30%),
or greater than thirty percent (30%) but less than forty percent (40%),
then the "Rate of Return" shall be adjusted proportionately (e.g., if
Landlord's required equity contribution is twenty-five percent (25%),
the "Rate of Return" shall be fourteen and five tenth percent (14.5%)).
Landlord shall construct the New Building Space and shall
deliver possession thereof to Tenant as soon as reasonably possible, but
in no event later than the date which is fifteen (15) months after
Landlord and Tenant approve the Financing Structure. If Landlord shall
fail to deliver possession of the New Building Space to Tenant within
such fifteen (15) month period, then in addition to all other rights and
remedies available at law or equity, Tenant shall have the right either
(i) to terminate this Lease with respect to the New Building Space only,
or (ii) to require Landlord to provide to Tenant, at Landlord's cost and
expense, "like kind" space which is as close to the Premises as
reasonably possible. For purposes of this paragraph, "like kind" shall
mean space with a ceiling height no less than that provided in the
Premises, and otherwise as similar to the Premises as reasonably
possible. If Tenant shall elect to require Landlord to provide such
alternative space to Tenant, then (i) Landlord shall reimburse Tenant
for all reasonable costs incurred by Tenant in relocating merchandise to
such alternative space, (ii) commencing from and after the date of
possession of such alternative space is provided to Tenant, Tenant shall
pay to Landlord Fixed Rent and additional charges for such alternative
space in accordance with the amounts required be paid by Tenant herein
with respect to the Premises, and (iii) Landlord, at its sole cost and
expense, shall pay any rent or
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additional charges required to be paid with respect to such alternative
space in excess of the amounts required to be paid by Tenant herein.
All work to be performed by Landlord in constructing the New
Building Space shall be performed in a good and workmanlike manner,
using new materials, and in accordance with all applicable laws, rules,
regulations and ordinances. All such work shall be performed in a manner
not to unreasonably interfere with Tenant's use of the original
Premises. Landlord shall warranty and guarantee all work performed by
Landlord with respect to the New Building Space against any defects in
materials, workmanship, or design, for a period of one (1) year after
the date Tenant takes possession of the New Building Space. Within
thirty (30) days after written notice thereof from Tenant, Landlord
shall use reasonable efforts to correct all punch list items with
respect to the New Building Space; provided, however, that if any such
items cannot be corrected within such thirty (30) day period, then
Landlord shall commence to correct such items within such thirty (30)
day period, and shall diligently pursue such cure to completion
thereafter.
Upon taking possession of the New Building Space, the
"Premises" herein shall be deemed to include the New Building Space for
all purposes under this Lease, and all terms and conditions of this
Lease shall be applicable to the New Building Space; provided, however,
that the "Fixed Rent" applicable to the New Building Space shall be the
New Building Space Rent, and the New Building Space Rent shall be
increased during the option periods provided under Section 2.5 above by
the same percentage increase as the increase in the Fixed Rent for the
original Premises during such option periods pursuant to Section 3.1
above.
20.1.3 If the Initial Option Space shall consist of the
Original Space and/or other space within the Building, then Landlord
shall perform all work required to enclose the area subject to such
option and to incorporate such area into the existing Premises,
including the construction of all exterior and/or demising walls,
separation and/or consolidation of utilities, and all of the work
required to obtain a certificate of occupancy for the Premises, as so
expanded (if the local jurisdiction requires a certificate of occupancy
for the Premises). All work performed by Landlord hereunder shall be
performed in a good and workmanlike manner, using new materials, in
accordance with all applicable laws, rules, regulations and ordinances,
and in a manner so as to not unreasonably interfere with Tenant's use of
the then existing Premises. Landlord shall perform such work and deliver
possession of the applicable expansion area to Tenant as soon as
reasonably possible, but no later than the date which is one hundred
eighty (180) days after Tenant's acceptance notice. If Landlord shall
fail to deliver possession of the applicable expansion area to Tenant
within such one hundred eighty (180) days, Tenant shall have the right
either (i) to terminate this Lease with respect to the applicable
expansion area only, or (ii) to require Landlord to provide to Tenant,
at Landlord's cost and expense, "like kind" space which is as close to
the Premises as reasonably possible. For purposes of this paragraph,
"like kind" shall mean space with a ceiling height no less than that
provided in the Premises, and otherwise as similar to the Premises as
reasonably possible. If Tenant shall elect to require Landlord to
provide such alternative space to Tenant, then (i) Landlord shall
reimburse Tenant for all reasonable costs incurred by Tenant in
relocating merchandise to such alternative space, (ii) commencing from
and after the date of possession of such alternative space is provided
to Tenant, Tenant shall pay to Landlord Fixed Rent and additional
charges for such alternative space in accordance with the amounts
required be paid by Tenant herein with respect to the Premises, and
(iii) Landlord, at its sole cost and expense, shall pay any rent or
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additional charges required to be paid with respect to such alternative
space in excess of the amounts required to be paid by Tenant herein.
Landlord shall warranty and guarantee all work performed by
Landlord with respect to the applicable expansion area against any
defects in materials, workmanship, or design, for a period of one (1)
year after the date Tenant takes possession of the applicable expansion
area. Within thirty (30) days after written notice thereof from Tenant,
Landlord shall use reasonable efforts to correct all punch list items
with respect to the applicable expansion area; provided, however, that
if any such items cannot be corrected within such thirty (30) day
period, then Landlord shall commence to correct such items within such
thirty (30) day period, and shall diligently pursue such cure to
completion thereafter.
Commencing on the date Landlord substantially completes
Landlord's work hereunder and delivers possession of the applicable
expansion area to Tenant, such expansion area shall be incorporated into
and made a part of the "Premises" for all purposes under this Lease, and
all terms and conditions of this Lease shall be applicable to such
expansion area.
20.1.4 Upon written notice to the Landlord on or before June 1,
2003, Tenant shall have the right to lease one hundred thousand
(100,000) square feet of space within the Option Space (the "Remaining
Option Space"). If Tenant shall desire to take possession of the
Remaining Option Space prior to June 1, 2003, then the Remaining Option
Space shall consist of space within the Building which is contiguous to
the Premises, unless prior to receipt by Landlord of Tenant's exercise
of the option provided herein Landlord shall have executed a bona fide
lease (or leases) with a third party (or parties) renting such space. In
such event, the Remaining Option Space shall be the New Building Space,
as determined in accordance with the terms and conditions of Section
20.1.1 - 20.1.3 above.
If Tenant shall desire to take possession of the Remaining
Option Space as of a date which is from and after June 1, 2003, then the
Remaining Option Space shall be adjacent to the original Premises and
shall be in the location shown on Exhibit "B" attached hereto. Upon the
exercise by the Tenant of the option provided herein, then if the
Remaining Option Space is contained within the Building, Landlord shall
perform all work required to enclose the Remaining Option Space and to
incorporate the Remaining Option Space into the existing Premises within
the Building, including the construction of all exterior and/or demising
walls, separation and/or consolidation of utilities, and all other work
required to obtain a certificate of occupancy for the Premises, as so
expanded (if the local jurisdiction requires a certificate of occupancy
for the Premises). All work performed by Landlord hereunder shall be
performed in a good and workmanlike manner, using new materials, in
accordance with all applicable laws, rules, regulations and ordinances,
and in a manner so as not to unreasonably interfere with Tenant's use of
the then existing Premises. Landlord shall warranty and guarantee all
work performed by Landlord hereunder for a period of one(1) year after
the date possession of the Remaining Option Space is delivered to Tenant
hereunder, and Landlord shall correct all punch list items within thirty
(30) days after Tenant's written notice thereof to Landlord. If Landlord
shall fail to deliver possession of the Remaining Option Space to Tenant
on or before the date which is one hundred eighty (180) days after the
date of Tenant's written notice of Tenant's exercise of the option
provided in this Section 20.1.2, then in addition to all other rights or
remedies available to Tenant at law or in equity, Tenant shall have the
right (i) to terminate this Lease with respect to the Remaining Option
Space, or (ii)
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to require Landlord to provide to Tenant, at Landlord's cost and
expense, "like kind" space which is as close to the Premises as
reasonably possible. For purposes of this paragraph, "like kind" shall
mean space with a ceiling height no less than that provided in the
Premises, and otherwise as similar to the Premises as reasonably
possible. If Tenant shall elect to require Landlord to provide such
alternative space to Tenant, then (i) Landlord shall reimburse Tenant
for all reasonable costs incurred by Tenant in relocating merchandise to
such alternative space, (ii) commencing from and after the date of
possession of such alternative space is provided to Tenant, Tenant shall
pay to Landlord Fixed Rent and additional charges for such alternative
space in accordance with the amounts required be paid by Tenant herein
with respect to the Premises, and (iii) Landlord, at its sole cost and
expense, shall pay any rent or additional charges required to be paid
with respect to such alternative space in excess of the amounts required
to be paid by Tenant herein.
Commencing on the date Tenant takes possession of the Remaining Option
Space, the Remaining Option Space shall be deemed incorporated into and made a
part of the "Premises" for all purposes under this Lease, and all terms and
conditions of this Lease shall be applicable to the Remaining Option Space.
The options provided in this Section 20.1 shall remain in full force and
effect notwithstanding Tenant's right of first refusal under Section 20.2 below.
After exercising any such option, unless such option is otherwise terminated in
accordance with the terms of this Section 20.1, Tenant shall not have the right
to withdraw any option exercised by Tenant herein as a result of the exercise by
Tenant of Tenant's right of first refusal provided under Section 20.2 below.
20.2 RIGHT OF FIRST REFUSAL. In addition to the options provided to
Tenant under Section 20.1 above, Tenant shall have a right of first refusal with
respect to any space within the Building during the term of this Lease;
provided, however, that nothing contained herein shall affect or modify the
option rights provided to Tenant under Section 20.1 above. If Landlord shall
desire to enter into any bonafide lease, license, or other agreement for the use
of any space within the Building, Landlord shall deliver written notice thereof
to Tenant, together with (i) a detailed description of all pertinent terms and
conditions of such proposed lease, license or other agreement and (ii) copies of
all applicable documents in connection with such proposed lease, license or
other agreement, including without limitation any letters of intent, leases,
license agreements, or other agreements (which notice, together with such
information and documents, shall be referred to herein as the "Offer"). Within
fifteen (15) days after receipt of the Offer, Tenant shall have the right to
lease the space within the Building which is the subject of the Offer (the
"Offer Space"), upon written notice to Landlord within such fifteen (15) day
period. If Tenant shall deliver such written notice to Landlord within such
fifteen (15) day period, then Landlord shall lease the Offer Space to Tenant
upon the terms and conditions set forth in the Offer.
If Tenant shall fail to deliver such written notice to Landlord within
such fifteen (15) day period, then Tenant shall be deemed to have rejected the
Offer. If Tenant shall reject the Offer (or shall be deemed to have rejected the
Offer), then Landlord shall have a period of one hundred eighty (180 days to
lease space to such other third party in accordance with the terms and
conditions of the Offer. If either (i) Landlord fails to execute a lease,
license agreement, or other agreement in accordance with the terms and
conditions of the Offer within such one hundred eighty (180) day period, or (ii)
the terms of the Offer shall be changed in any material manner, then Tenant
shall again have a right of first refusal with respect to such space in
accordance with the terms and conditions of this Section 20.2. Without
limitation, for purposes of this Section 20.2, a "material" change in the terms
and
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conditions of the Offer shall include any change which would affect the term,
economic obligations, or square footage, such to the Offer by 10% or more,
provided that absence of any such change shall not be deemed to be
"non-material" if any such other change would otherwise by "material" under the
circumstances. If Tenant shall reject any Offer (or shall be deemed to have
rejected any Offer), then Landlord shall execute a lease with a third party as
permitted herein with respect to the space which is subject to the Offer, then
at such time as such space again becomes vacant, Tenant shall again have a right
of first refusal with respect to such space in accordance with the terms and
conditions of this Section 20.2
ARTICLE XXI
MISCELLANEOUS
21.1 HOLDING OVER. In the event that Tenant or anyone claiming under
Tenant shall continue occupancy of the Premises after the expiration of the
original term of this Lease without any agreement in writing between Landlord
and Tenant with respect thereto, such occupancy shall not be deemed to extend or
renew the term of this Lease, but such occupancy shall continue as a tenancy
from month to month upon the covenants, provisions and conditions herein
contained and at one hundred fifty percent (150%) of the Fixed Rent in effect
upon the expiration of the term, prorated and payable for the period of such
occupancy, and Landlord shall have the right to terminate such tenancy upon five
(5) days written notice to Tenant.
21.2 WAIVERS. Failure of either party to complain of any act or omission
on the other party, no matter how long the same may continue, shall not be
deemed to be a waiver by such party of any of its rights hereunder. No waiver by
either party at any time, express or implied, of any breach of any provision of
this Lease shall be deemed a waiver of a breach of any other provision of this
Lease or a consent to any subsequent breach of the same or any other provision.
If any action by either party shall require the consent or approval of the other
party, such consent to or approval of such action on any one occasion shall not
be deemed a consent to or approval of said action on any subsequent occasion or
a consent to or approval of any other action on the same or any subsequent
occasion.
21.3 NOTICES. All notices and other communications authorized or
required hereunder shall be in writing and shall be given by mailing the same by
certified mail or registered mail, return receipt requested, postage prepaid,
and any such notice or other communication shall be deemed to have been given
when received by the party to whom such notice or other communication shall be
addressed, or on the date noted that the addressee has refused delivery or on
the date that the notice is returned to sender due to the inability of the
postal authorities to deliver. Notices shall be mailed to the address
hereinabove set forth or such other address as either party may hereafter
designate by notice to the other.
21.4 ATTORNEYS' FEES. If either party hereto be made or becomes a party
to any litigation commenced by or against the other party involving the
enforcement of any of the rights and remedies of such party, or arising on
account of the default of the other party in the performance of such party's
obligations hereunder, then the prevailing party in any such litigation, or the
party becoming involved in such litigation because of a claim against such other
party, as the case may be, shall receive from the other party all costs and
reasonable attorneys' fees incurred by such party in such litigation.
21.5 UNAVOIDABLE DELAYS. In the event that Landlord or Tenant shall be
delayed or hindered in or prevented from the performance of any act (other than
Tenant's
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obligation to make payments of Fixed Rent and other charges required hereunder),
by reason of strikes, lockouts, unavailability of materials, failure of power,
restrictive governmental laws or regulations, riots, insurrections, the act,
failure to act, or default of the other party, war or other reason beyond its
control (collectively, "Unavoidable Delays"), then performance of such act shall
be excused for the period for the delay and the period of the performance of
such act shall be extended for a period equivalent to the period of such delay.
Notwithstanding the foregoing, lack of funds shall not be deemed to be a cause
beyond control of either party.
21.6 ESTOPPEL CERTIFICATES. At any time and from time to time upon
either party's written request, the other party will execute, acknowledge and
deliver a certificate certifying that:
21.6.1 The Lease is in full force and effect;
21.6.2 The Lease has not been modified or amended in any
respect or, if modified, submitting copies of such modifications or
amendments;
21.6.3 There are no defaults thereunder (or if there are
defaults) specifying the nature of such defaults); and
21.6.4 Any other matter which Landlord may reasonably be
requested with respect to this Lease.
21.7 INVALIDITY OF PARTICULAR PROVISION. If any term or provision of
this Lease or the application hereto to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
21.8 CAPTIONS AND DEFINITIONS. The captions of the Sections of this
Lease are for convenience only and are not a part of this Lease and do not in
any way limit or amplify the terms and provisions of this Lease. Any pronoun
shall be read in the singular or plural number and in such gender as the context
may require. Except as in this Lease otherwise provided, the terms and
provisions of this Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
21.9 ENTIRE AGREEMENT. This instrument contains the entire and only
agreement between the parties, and no oral statement or representations or prior
written matter not contained in this instrument shall have any force and effect.
This Lease shall not be modified in any way except by a writing executed by both
parties.
21.10 NO PARTNERSHIP. Landlord is not and shall not become by this Lease
or by any rights granted or reserved herein a partner or joint venturer of or
with Tenant in the conduct of Tenant's business or otherwise.
21.11 MEMORANDUM OF LEASE. This Lease shall not be recorded; however,
Landlord and Tenant shall, upon the request of either, execute and deliver a
Memorandum of Lease setting forth such information as may be necessary to
constitute a "short form lease", which Tenant shall, at its sole expense, cause
to be recorded in the County Recorder's Office having jurisdiction over the
Premises within thirty (30) days after the execution of said Memorandum of
Lease.
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21.12 BROKERS. Landlord and Tenant represent and warrant that they have
not dealt with any real estate broker in connection with this Lease.
21.13 GUARANTY. This Lease shall be guaranteed by Mazel Stores, Inc.
pursuant to the Guaranty in the form of Exhibit "E" attached hereto and made a
part hereof.
21.14.1 EXCULPATION. Tenant agrees to look solely to Landlord's then
interest in the Building and the Property (or the proceeds thereof) for recovery
of any judgment from Landlord, it being understood that Landlord's members,
representatives, agents, partners, shareholders, directors, employees,
fiduciaries and officers shall have no personal liability for any such judgment
or for the payment of any monetary obligation.
21.14.2 Except as otherwise provided herein, the individuals that
execute this lease on behalf of Landlord are acting as agent only for Landlord
and shall not in any event be held liable for the fulfillment or non-fulfillment
of any of the terms, covenants, or conditions of this Lease or for any action or
proceeding that may be taken by either party against the other, including, but
not limited to, any such action arising out of the performance or
non-performance by such agent of any act pursuant to either party's direction.
21.14.3 In the event Landlord conveys or transfers its interest in the
Property and/or Building, except as collateral security for a loan, upon such
conveyance or transfer Landlord (and in the case of any subsequent conveyances
or transfer the then grantor or transferor) shall be entirely released and
relieved from all liability with respect to the performance of any terms,
covenants and conditions on the part of Landlord to be performed hereunder from
and after the date of such conveyance or transfer so long as the grantee,
assignee or transferee thereof assumes all of such liability and obligations on
behalf of Landlord.
21.15 GOVERNING LAW. This Lease shall be construed by, and enforced in
accordance with, the laws of the state of New Jersey.
ARTICLE XXII
DISPUTE RESOLUTION
22.1 ARBITRATION. Upon the election of either party under this Lease, in
the event of any dispute, such dispute shall be resolved exclusively and finally
by arbitration conducted in accordance with this Article XXII. Notwithstanding
the foregoing, to the extent that such matter arises out of a claim, third party
claim or cross claim regarding a matter which is already the subject of
litigation in a court of competent jurisdiction in which the party bringing such
claim is already a party defendant, then such claim may be presented in such
court proceeding, and provided further that any dispute which is not
specifically required by any other provision of this Lease to be resolved by
arbitration shall not be subject to arbitration unless agreed in writing by
Landlord and Tenant.
22.1.1 In the event of a dispute subject to arbitration
hereunder, either party may serve written notice upon the other
demanding arbitration and identifying specifically the matters to be
arbitrated and the dispute shall be resolved by an arbitration panel
consisting of three (3) arbitrators. Each arbitrator appointed herein
shall be experienced in the leasing and/or management of properties
similar to the Property. Within ten (10) days after delivery of such
written notice, each party shall appoint one person to act as an
arbitrator, which arbitrator need not be a disinterested person. Once
the first two arbitrators are appointed, they shall appoint a third
arbitrator within ten (10) days of the date the last of them is
appointed, which
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arbitrator shall have no interest in the outcome of the dispute. If
either of the parties fails to appoint an arbitrator or the two
appointed arbitrators are unable to agree on the third arbitrator within
the allotted time, then either of the parties may request the American
Arbitration Association ("AAA") to provide a list of ten (10) names and
each party shall have five (5) days from the date of receipt of such
list within which to select five (5) names from the list of ten (10),
ranking them in order of preference, starting with number one through
five. Each unfilled position as arbitrator shall be filled by a person
selected by both parties and having the lowest number of combined points
in the combination of their total rankings as designated by each.
22.1.2 The third arbitrator selected shall serve as chairperson
of the panel. If more than one arbitrator is selected with the
assistance of the AAA, the arbitrator with the lowest number of combined
points shall serve as chairperson of the panel. All arbitrators selected
with the assistance of the AAA shall be compensated in the same amount
and in the same manner as arbitrators are paid under the rules of the
AAA for commercial arbitrations, which compensation shall be divided
equally between the parties, unless the arbitration panel determines
that equitable considerations require a different division of such
costs. Expenses of arbitrators selected by a party and of preparation
for the arbitration, including the cost of counsel and other expenses,
shall be borne by each party respectively. All other expenses not
specifically relating to the presentation of evidence by either party
shall be divided in the same manner as the compensation of the
arbitrators selected with the assistance of the AAA.
22.1.3 The parties shall cooperate in providing information a
reasonable amount of time before the commencement of the arbitration
hearing, but all such information which is requested by either party
shall be exchanged no later than ten (10) days before the scheduled date
of the commencement of the arbitration hearing. This shall include (i)
the names, addresses and occupations of witnesses or affiants and a
brief statement of the subject matter and nature of the testimony for
which they will be presented; and (ii) identification of and exchange of
all exhibits or documents to be offered or used at the arbitration
hearing. Unresolved discovery disputes may be brought to the attention
of the arbitration panel and such disputes shall be disposed of by the
panel.
22.1.4 There shall be a preliminary administrative conference
which shall be held not less than five (5) nor more than ten (10) days
before the arbitration hearing and at such preliminary conference the
parties shall specify issues to be resolved, stipulate to uncontested
facts, and consider any other matters which will expedite, or, if
unresolved, could delay the arbitration proceedings. In addition, at
this preliminary conference, the arbitration panel shall actively work
to seek out a settlement to the dispute(s) at issue.
22.1.5 The arbitration hearing shall occur not less than
twenty-five (25) days nor more than forty-five (45) days following the
date of the appointment of the third arbitrator unless extended by
mutual agreement of the parties in interest. The arbitrators shall have
complete discretion to establish the time and place of the arbitration.
22.1.6 Any matters regarding the arbitration not specifically
set forth or defined herein shall, to the extent not inconsistent
herewith, be administered pursuant to the Commercial Arbitration Rules
of the AAA. Except as may be
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specifically provided herein or in the Commercial Arbitration Rules of
the AAA, the arbitrators shall have discretion to establish and
determine the conduct and rules of the proceedings.
22.1.7 Both parties shall be permitted to present evidence
without regard to the formalities of the Rules of Evidence as used in
the courts of the State of New Jersey. The arbitrators, with the
guidance and arguments of the parties, may give such weight to the
matters presented as they deem appropriate.
22.1.8 The parties recognize that confidential information in
the nature of trade secrets and proprietary information may be disclosed
during the course of an arbitration proceeding. Except as required by
law, the parties agree to hold such information in confidence during and
following such proceedings. The parties agree that any confidential
information and proprietary information disclosed by one party to the
other before or during the arbitration will not be used for any purpose
other than in conducting the arbitration. Likewise, the arbitrators
shall keep such information confidential and by their acceptance of
appointment as arbitrators shall agree to be bound by this standard. All
confidential information and proprietary information disclosed by one
party to the other party in any form will be returned to the producing
party at the conclusion of the arbitration proceeding.
22.1.9 Subject to any limitation of remedies or damages set
forth in this Lease, the arbitrators shall have the authority to award
any remedy or relief a court of the State of New Jersey could order or
grant, including, without limitation, specific performance of any
obligation created under the agreement, the issuance of an injunction,
or the imposition of sanctions for abuse or frustration of the
arbitration process, but specifically excepting herefrom any punitive
and exemplary damages.
22.1.10 The final decision of the arbitrators as well as all
other decisions of the arbitrators shall be made by a vote of not less
than two-thirds of the arbitrators.
22.1.11 The decision of the arbitrators shall be final and
binding upon, and fully enforceable against, the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above written by their respective officers thereunto duly
authorized.
200 HELEN STREET, LLC
a Delaware limited liability company
- -----------------------
By: 1st & 38th Associates, L.P., Member
By: 1st & 38th Realty Corp., General Partner
- -----------------------
By:
---------------------------------
Its:
---------------------------------
TENANT:
ODD JOB ACQUISITION CORP.,
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a Delaware corporation
By: ______________________________
______________________________ Its:______________________________
STATE OF ___________ )
) ss:
COUNTY OF __________ )
BEFORE ME, a Notary Public in and for said county and state, personally appeared
____________________________, the _______________ of 1st & 38th Realty Corp., a
____________ corporation, the general partner of 1st & 38th Associates, L.P.,
Member of 200 Helen Street, LLC, a Delaware limited liability company, who
acknowledged that ______________________ did sign the foregoing instrument and
that the same is _________ free act and deed of said Partnership and the free
act and deed of 200 Helen Street, LLC..
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
________________, _________________________, this ____________ day of
________________, 1998.
___________________________________
NOTARY PUBLIC
STATE OF OHIO )
) ss:
COUNTY OF CUYAHOGA )
BEFORE ME, a Notary Public in and for said county and state, personally
appeared the above-named Odd Job Acquisition Corporation, by
__________________________, its ____________________________-,who acknowledged
that he did sign the foregoing instrument and that the same is the free act and
deed of said corporation and his free act and deed personally and as such
________________..
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
_____________________, _______________, this _________- day of _______________,
1998.
___________________________________
NOTARY PUBLIC
33
<PAGE> 37
EXHIBIT "A"
-----------
LEGAL DESCRIPTION
-----------------
TO BE ATTACHED
35
<PAGE> 38
EXHIBIT "B"
-----------
SITE PLAN
---------
36
<PAGE> 39
EXHIBIT "C"
-----------
1. Repaired portions of the roof.
2. Repair of heater in back hallway of warehouse.
3. Repair portion of canopy over receiving area.
4. Walls demised by Landlord.
37
<PAGE> 40
EXHIBIT "D"
-----------
TITLE EXCEPTIONS
----------------
38
<PAGE> 41
EXHIBIT "E"
-----------
TENANT'S SIGNAGE
----------------
TO BE ATTACHED
--------------
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name State of Organization Percentage Owned
- ---- --------------------- ----------------
<S> <C> <C>
Odd-Job Holdings, Inc. Delaware 100%
Odd-Job Acquisition Corp. Delaware 100% (1)
ZS Peddlers Mart, Inc. Delaware 100% (2)
Odd Job Trading Corp. New York 100% (2)
HIA Trading Associates New York 100% (3)
VCM, Ltd. Ohio 50%
</TABLE>
- --------------------
(1) Wholly-owned subsidiary of Odd-Job Holdings, Inc.
(2) Wholly-owned subsidiary of Odd-Job Acquisition Corp.
(3) General Partnership with Odd-Job Acquisition Corp.
and Odd Job Trading Corp. as partners.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mazel Stores, Inc.:
We consent to the incorporation by reference in the Registration Statement No.
333-32275 on Form S-8 of Mazel Stores, Inc. of our report dated March 16, 1999,
relating to the consolidated balance sheets of Mazel Stores, Inc. and
subsidiaries as of January 30, 1999 and January 31, 1998 and the related
consolidated statements of operations, stockholders' equity and partners'
capital and cash flows for each of the years in the three-year period ended
January 30, 1999, which report appears in the January 30, 1999 Form 10-K of
Mazel Stores, Inc.
KPMG LLP
Cleveland, Ohio
April 21, 1999
<PAGE> 1
EXHIBIT 24.1
POWERS OF ATTORNEY
MAZEL STORES, INC.
KNOW ALL MEN BY THESE PRESENTS, that MAZEL STORES, INC., an Ohio
corporation, and each person whose name is signed below hereby constitutes and
appoints Reuven Dessler, Brady Churches and Sue Atkinson, and each of them,
their attorneys-in-fact and agents, with full power of substitution and
resubstitution, for and on behalf of Mazel Stores, Inc. and the undersigned
directors and/or officers of Mazel Stores, Inc., and each of such directors and
officers, to sign the Mazel Stores, Inc.'s Annual Report on Form 10-K for the
fiscal year ended January 30, 1999, and any and all amendments thereto, and
related documents, and to file the same, with Exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting such attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary in connection with
such matters and hereby ratifying and confirming all that such attorneys-in-fact
and agents or their substitute or substitutes may do or cause to be done by
virtue hereof.
This Power of Attorney of Mazel Stores, Inc., and the directors and
officers of Mazel Stores, Inc. may be executed in multiple and counterparts,
each of which shall be deemed an original with respect to the person executing
it.
IN WITNESS WHEREOF, this Power of Attorney has been signed this 12th day
of April 1999.
MAZEL STORES, INC. By: /s/ Reuven Dessler
--------------------------
Reuven Dessler,
Chairman of the Board and
Chief Executive Officer
DIRECTORS AND OFFICERS:
/s/ Reuven Dessler /s/ Brady Churches
- ------------------------------ ---------------------------
Reuven Dessler, Brady Churches
Chairman of the Board and
Chief Executive Officer
/s/ Jacob Koval /s/ Jerry Sommers
- ------------------------------ ---------------------------
Jacob Koval Jerry Sommers
/s/ Ned L. Sherwood /s/ Charles Bilezikian
- ------------------------------ ---------------------------
Ned L. Sherwood Charles Bilezikian
/s/ Robert Horne /s/ Phillip Cohen
- ------------------------------ ---------------------------
Robert Horne Phillip Cohen
/s/ Sue Atkinson
-------------------------------------
Sue Atkinson
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 1,668
<SECURITIES> 0
<RECEIVABLES> 13,237
<ALLOWANCES> (195)
<INVENTORY> 60,789
<CURRENT-ASSETS> 82,028
<PP&E> 22,897
<DEPRECIATION> (5,629)
<TOTAL-ASSETS> 130,995
<CURRENT-LIABILITIES> 28,068
<BONDS> 24,002
0
0
<COMMON> 64,320
<OTHER-SE> 13,710
<TOTAL-LIABILITY-AND-EQUITY> 130,995
<SALES> 237,134
<TOTAL-REVENUES> 237,134
<CGS> 152,792
<TOTAL-COSTS> 71,643
<OTHER-EXPENSES> 2,014
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,062
<INCOME-PRETAX> 8,623
<INCOME-TAX> 3,450
<INCOME-CONTINUING> 5,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,173
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
