As filed with the Securities and Exchange Commission on April 3, 1998
REGISTRATION NO. 333-41629
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KASPER A.S.L., LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 2337 22-3497645
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
77 METRO WAY
SECAUCUS, NEW JERSEY 07094
TEL: (201) 864-0328
FAX: (201) 864-7768
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
MR. LESTER E. SCHREIBER
77 METRO WAY
SECAUCUS, NEW JERSEY 07094
TEL: (201) 864-0328
FAX: (201) 864-7768
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
COPIES TO:
MARK ABRAMOWITZ, ESQ.
MARK S. HIRSCH, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
TEL.: (212) 704-6000
FAX: (212) 704-6288
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SECURITY PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C> <C>
Common Stock 1,350,131 $13.125 (1) $17,720,469 $5,227.54
- -------------------------------------------------------------------------------------------------------
Senior Notes (Face Amount) $12,141,438 106%(1) $12,869,924 $3,796.63
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Total $9,024.17*
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</TABLE>
(1) Estimated pursuant to Rules 457(c) and 457(o) solely for the purpose of
computing the amount of the registration fee. The fee for the Common Stock
was based on the average of the bid ($13) and asked price ($13.25) of the
Common Stock on the over-the-counter market on December 1, 1997. The fee for
the Senior Notes was based on the average of the bid ($106) and asked price
($106) of the Senior Notes on the over-the-counter market on December 1,
1997.
* Filing fee has been previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED APRIL 3, 1998
PROSPECTUS
- ----------
Kasper A.S.L., Ltd.
1,350,131 Shares of Common Stock
and
$12,141,438 Principal Amount of 12.75% Senior Notes
This Prospectus relates to the resale by certain stockholders of Kasper
A.S.L., Ltd., a Delaware corporation (the "Company"), of (i) up to 1,350,131
shares of Common Stock, par value $0.01 per share, of the Company; and (ii)
$12,141,438 principal amount of 12.75% Senior Note (the "Senior Notes") issued
to certain creditors of the Company's predecessor under a reorganization plan.
See "Business - Reorganization of Leslie Fay." The Common Stock and the Senior
Notes are sometimes referred to herein as the "Securities." See "Description of
Capital Stock."
The Securities may be offered from time to time by the Selling
Shareholders in the over-the-counter market, in negotiated transactions or
otherwise, at market prices then prevailing at the time of sale or at negotiated
prices. As of April 1, 1998, the Senior Notes are subordinated to $29,442,252 of
secured indebtedness.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS " BEGINNING ON PAGE 5 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------------------
The date of this Prospectus is _________, 1998
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Except for the historical information contained herein, matters discussed or
incorporated by reference in this Prospectus are forward-looking statements that
involve risks and uncertainties. These forward-looking statements include, but
are not limited to, statements about (i) improvements in the markets served by
the Company; and (ii) the consummation of contracts and other transactions
described herein. The Company's actual results, financial and otherwise, could
differ materially from such forward-looking statements because of, among other
things, factors discussed in the section entitled "Risk Factors" as well as
those discussed in this summary and elsewhere in this Prospectus.
THE COMPANY
Kasper A.S.L., Ltd., a Delaware corporation (the "Company"), is one of
the largest manufacturers and marketers of women's suits in the United States.
The Company designs, contracts for the manufacture of, markets and distributes
women's suits, dresses, knitwear and sportswear. From its established position
in the "upper moderate" suit market, under its Kasper for ASL(R) brand name, the
Company has diversified intO the lower price point "moderate" suit market under
its Le Suit(TM) brand name and to a lesser extent, the higher price point
"bridge" and designer women's suit markets under its Albert Nipon(R) and
Nipon(R) brand names. The Company markets and distributes its products under
eight different brands: (i) Kasper for ASL(R) suit, the leading brand name in
"upper moderate" women's suits; (ii) Le Suit(TM), a line of suits introduced to
create A less expensive alternative to Kasper for ASL(R) suits; (iii) Albert
Nipon Suits(R), a line of suits designed and marketed to compete in the bridge
area of the market; (iv) Albert Nipon Evening(TM), a line of beaded and sequined
evening suits; (v) Kasper for ASL(R) dresses, a line of "better" career dresses;
(vi) Kasper and Company(R) ASL Sportswear, a line of sportswear under the Kasper
brand name priced between the moderate and better markets; (vii) Nina
Charles(TM), a better priced knitwear line comprised of two distinct product
classificationS: better knit dresses and better knit sportswear/separates; and
(viii) b. bennett(TM), a line of suits catering to the younger woman seeking an
updated look.
The Company also designs and manufactures suits for sale under private
labels for various department stores. Management believes the Company's primary
strengths are the quality, styling, value and brand name recognition of its
products. The Company's products are sold to approximately 1,400 retail accounts
having approximately 2,000 retail locations throughout the United States and
through the Company's chain of 47 retail outlet stores.
The Company was incorporated in Delaware on March 5, 1997 under the name
Sassco Fashions, Ltd. in connection with the June 4, 1997 reorganization (the
"Reorganization") of the Leslie Fay Companies, Inc. ("Leslie Fay"), the
Company's former parent. The Company changed its name from Sassco Fashions, Ltd.
to Kasper A.S.L., Ltd. on November 5, 1997. As a result of the Reorganization,
the Company emerged from bankruptcy as a separate stand-alone corporation with
its own financing sources. Pursuant to the Amended Joint Plan of Reorganization
(the "Reorganization Plan") approved by the U.S. Bankruptcy Court on April 29,
1997, the former creditors of Leslie Fay received 6,800,000 shares of Common
Stock of the Company and 12.75% Senior Notes in the aggregate principal amount
of $110,000,000. See "Business - Reorganization of Leslie Fay." The Company also
issued options ("Management Options") to certain members of management to
purchase 1,753,459 shares of Common Stock, which upon issuance will represent
approximately 20.5% of the Company's outstanding Common Stock. The Company also
issued options to purchase 100,000 shares of Common Stock to its current
non-employee directors. See "Management."
-3-
<PAGE>
The Company is based in Secaucus, New Jersey and has sales, production
and design offices in New York City, Dallas, London and Montreal and a buying
office in Hong Kong. The Company's executive office is located at 77 Metro Way,
Secaucus, New Jersey 07094, Tel: (201) 864-0328.
Kasper(R), Kasper for ASL(R), Kasper II(R), Kasper for ASL Petite(R),
Kasper and Company(R), Kasper and Company Petite(R), Kasper Dress(R), Kasper
Dress Petite(R), Albert Nipon(R), Nipon Boutique(R), Executive Dress by Albert
Nipon(R), Nipon Night(R), Albert Nipon Suits(R) and Nipon Studio(R) are
registered trademarks of the Company. Le Suit(TM), b. bennett(TM), Nina
Charles(TM) and Albert Nipon Evening(TM) are non-registered tradenames used by
the Company. See "Business--Trademarks". This Prospectus also includes
trademarks, tradenames and service marks of other companies.
In this Prospectus, unless the context otherwise requires, all
references to the "Company" are to Kasper A.S.L., Ltd., a Delaware corporation,
and its wholly owned subsidiaries ASL/K Licensing Corp., ASL Retail Outlets,
Inc. and Kasper A.S.L. Europe, Ltd., each a Delaware corporation, and Asia
Expert, Ltd., Viewmon Ltd. and Tomwell Ltd., each a Hong Kong corporation.
-4-
<PAGE>
THE OFFERING
Securities offered by the Selling Shareholders 1,350,131 shares of Common
Stock and 12.75% Senior Notes in the
aggregate principal amount of
$12,141,438. See "Description of Capital
Stock."
Terms of Senior Notes................ The Senior Notes bear interest at an
annual rate of 12.75%, payable
semi-annually in arrears, and mature on
March 31, 2004. The Senior Notes may be
redeemed starting January 1, 2000 at the
Company's option, in whole or in part,
at a prepayment premium. The Senior
Notes are unsecured obligations of the
Company and rank PARI PASSU with the
Company's other permitted unsecured
indebtedness. See "Description of
Capital Stock - Senior Notes."
Common Stock outstanding
prior to this offering........... 6,800,000 shares
after this offering ............. 6,800,000 shares (1)
Use of proceeds...................... The Company will not receive any
proceeds from the sale of the Securities
subject of this Prospectus. See "Use of
Proceeds".
Risk Factors......................... An investment in the securities offered
hereby involves a high degree of risk.
Prospective investors should carefully
consider the matters set forth herein
under the caption "Risk Factors".
- -----------------
(1) Does not include (i) 2,500,000 shares of Common Stock reserved for
issuance upon the exercise of options available for grant under the
Company's 1997 Management Stock Option Plan, of which 1,753,459 options
have been granted as of the date hereof; and (ii) 100,000 shares reserved
for issuance upon the exercise of options granted to the Company's current
non-employee directors. See "Management."
-5-
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby is speculative in nature
and involves a high degree of risk. In addition to the other information
contained in this Prospectus, prospective investors should carefully consider
the following risk factors before purchasing the Securities offered hereby.
INDUSTRY RISKS
- --------------
CYCLICAL TRENDS IN APPAREL RETAILING; CHANGES IN THE RETAIL INDUSTRY
The apparel industry is a cyclical industry, with purchases of apparel
and related goods tending to decline during recessionary periods when disposable
income is low. In addition, the Company, like many of its competitors, sells to
major retailers, some of whom have engaged in leveraged buyouts or transactions
in which such retailers incurred significant amounts of debt, and some of whom
have in recent years operated under the protection of the federal bankruptcy
laws. In addition, the retail industry periodically has experienced
consolidation and other ownership changes. In the future, other retailers in the
United States and in foreign markets may consolidate, undergo restructurings or
reorganizations, or realign their affiliations, any of which would decrease the
number of stores that carry the Company's products or increase the ownership
concentration within the retail industry which could have a material adverse
effect on the Company's operations, business or financial condition.
CHANGES IN FASHION TRENDS
The Company believes that its success depends in substantial part on its
ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner. For those products that are "fashion
staples," the Company attempts to reduce the risks of changing fashion trends
and product acceptance by holding positions in its inventory to ensure an
uninterrupted supply of finished garments and piece goods inventory. There can
be no assurance, however, that the Company will continue to be successful in
this regard. If the Company misjudges the market for its collections, it may be
faced with a significant amount of unsold finished goods inventory and piece
goods inventory, which could have an adverse effect on the Company's operations,
business and financial condition.
COMPETITION
Competition is strong in the areas of the fashion industry in which the
Company operates. The Company competes with numerous designers and manufacturers
of apparel and accessory products, domestic and foreign, none of which accounts
for a substantially larger percentage of total industry sales than the others,
but some of which are significantly larger and have substantially greater
resources than the Company. The Company's business depends, in part, on its
ability to shape and stimulate consumer tastes and demands by producing
innovative, attractive, and exciting fashion products, as well its ability to
remain competitive in the areas of design, price and quality. No assurance can
be given that the Company will continue to compete favorably in the industries
in which it operates. Such failure or inability to compete could have a material
adverse effect on the Company's operations, business or financial condition. See
"Business -- Competition."
-6-
<PAGE>
BUSINESS RISKS
DEPENDENCE ON FOREIGN SUPPLIERS AND CONTRACTORS
The Company uses a variety of raw materials, principally consisting of
woven and knitted fabrics and yarns. Generally, the raw materials are purchased
by the Company directly from suppliers and sent to contractors to be cut and
sewn. The Company purchases the raw materials required for the production of its
products from more than 100 suppliers. Purchases from the Company's four major
suppliers of raw materials accounted for approximately 19.4%, 15.3%, 9.2%, and
6.8%, respectively, of the Company's total purchases of raw materials for 1997.
The Company's transactions with its suppliers are based on written instructions
issued by the Company from time to time and, except for these instructions, the
Company has no written agreements with its suppliers. To date, the Company has
not experienced any difficulty in obtaining needed raw materials. No assurance
can be given, however, that the Company will continue not to have difficulty
obtaining raw materials and the inability of certain suppliers to provide needed
items on a timely basis could materially adversely affect the operations,
business or financial condition of the Company. See "Business -- Suppliers."
The Company does not own any significant production facilities. The
Company's apparel products are produced for the Company by approximately 30
different contractors. All of the Company's products are manufactured to its
exacting specifications outside of the United States. The Company schedules work
with its contractors so that each factory, or at least multiple floors of each
factory, are entirely dedicated to the Company's products, thereby ensuring
quality control. Purchases of finished goods from the Company's four major
contractors accounted for 29.2%, 13.7%, 13.4% and 11.7% of the Company's total
production during 1997. Although the Company does not have written agreements
with its contractors, it has had long-term relationships with many of them.
However, the termination of the Company's relationship with any one of its four
major contractors and any delays in finding a substitute contractor, could
result in delays in the Company's production plans and have a material adverse
effect on the Company's operations, business and financial condition. See
"Business -- Manufacturing."
RELIANCE ON FOREIGN OPERATIONS; IMPORT RESTRICTIONS
During 1997, 98% of the Company's finished goods and approximately 80%
of the Company's direct purchases of raw materials for its products were
produced in Taiwan, the Philippines, Hong Kong, and the Peoples' Republic of
China and other Asian countries, all through arrangements with independent
suppliers and contractors. As a result of the location of the Company's
suppliers and contractors, the Company's operations may be affected adversely by
political and financial instability resulting in the disruption of trade from
the countries in which such suppliers and contractors operate, the imposition of
additional regulations relating to imports, the imposition of additional duties,
taxes, and other charges on imports, or restrictions on the transfer of funds.
The inability of a supplier or contractor to ship orders of the Company's
products in a timely manner could cause the Company to miss the delivery date
requirements of its customers for those items, which could result in
cancellation of orders, refusal to accept deliveries, or a reduction in sales
prices, thereby having a material adverse effect on the Company's operations,
business or financial condition. The Company has not, to date, suffered any
material adverse effect as a result of the current financial and currency crisis
in Asia. No assurance can be given, however, that such crisis, or any other
similar crises in that region will not have a material adverse effect on the
Company's operations, business or financial condition due to the Company's
dependence on this region for its suppliers and contractors. See "Business --
Manufacturing."
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Taiwan, South Korea, and Hong Kong.
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<PAGE>
These agreements, which have been negotiated bilaterally either under the
Arrangement Regarding International Trade in Textiles, known as the Multifiber
Agreement, and other applicable statutes, impose quotas on the amounts and types
of merchandise which may be imported into the United States from these
countries. These agreements also allow the United States to impose restraints at
any time on the importation of categories of merchandise that, under the terms
of the agreements, are not currently subject to specified limits. The Company's
imported products are also subject to United States customs duties which
comprise a material portion of the cost of the merchandise. A substantial
increase in customs duties could have an adverse effect on the Company's
operating results. The United States and the countries in which the Company's
products are produced or sold may, from time to time, impose new quotas, duties,
tariffs, or other restrictions, or adversely adjust prevailing quota, duty, or
tariff levels, any of which could have a material adverse effect on the
Company's operations, business or financial condition. See "Business--Imports
and Import Restrictions."
RISKS RELATING TO OPERATIONS IN CHINA
At present, a significant portion of the economic activity in China is
export-driven and, therefore, is affected by developments in the economies of
China's principal trading partners. The U.S. Congress considers annually the
renewal of China's current "Most Favored Nation" trading status and may attach
conditions to the renewal of such status which China may decline, or be unable,
to meet. In 1994, President Clinton announced delinkage of such status to
China's achievement of overall significant progress in the area of human rights.
Prior to this announcement, renewal of such status had been contingent on the
achievement of such progress. There can be no assurance that renewal of such
status in the future will not be linked to human rights issues or other
requirements or that, notwithstanding continuing presidential support for such
status, Congress for any reason in the future will not deny such status beyond
the President's ability to veto such denial. Revocation or conditional extension
by the United States of China's "Most Favored Nation" trading status could have
a material adverse effect on the trade and economic development of China and on
the operations, business or financial condition of the Company. See
"Business--Imports and Import Restrictions." The Company primarily transacts its
sales and purchases in U.S. dollars. As a result, the Company does not use any
hedging activities to manage the currency risks involved with working abroad.
The Company's interests may be adversely affected by the political
environment in China. China is a socialist state which since 1949 has been, and
is expected to continue to be, controlled by the Communist Party of China.
Changes in the top political leadership of the Chinese government may have a
significant impact on policy and the political and economic environment in
China. Moreover, economic reforms and growth in China have been more successful
in certain provinces than in others, and the continuation or increase of such
disparities could affect political or social stability. See "Business--Imports
and Import Restrictions."
RISKS RELATING TO OPERATIONS IN HONG KONG
The Company has a buying office that conducts quality control, sourcing,
beading and embroidery and other activities in Hong Kong. Accordingly, the
Company may be materially adversely affected by factors affecting Hong Kong's
political situation and its economy or its international political and economic
relations. Sovereignty of Hong Kong reverted to China on July 1, 1997. The 1984
Sino-British Joint Declaration, the 1990 Basic Law of Hong Kong, the 1992 United
States-Hong Kong Policy Act and other agreements provide some indication of the
business climate the Company believes will exist in Hong Kong after the change
in sovereignty. As of July 1, 1997, Hong Kong became a Special Administrative
Region of China, with certain autonomies from the Chinese government, including
(i) being a separate customs territory from China with separate tariff rates and
export control procedures; and (ii) maintaining a separate intellectual property
registration system. All land leases in effect at the time of the transfer of
sovereignty will be extended for a period of 50 years, except for those
-8-
<PAGE>
leases without a renewal option expiring after June 30, 1997 and before June 30,
2047. Hong Kong will continue to be a member of the World Trade Organization and
the Hong Kong dollar will continue to be legal tender freely convertible into
Reminmbi and not subject to foreign exchange controls. The Hong Kong government,
as set up by China, will have sole responsibility for tax policies, though the
Chinese government must approve all budgets. Notwithstanding the provisions of
these international agreements, there can be no assurance as to the continued
stability of political, economic or commercial conditions in Hong Kong. Changes
affecting Hong Kong's political situation and its economy or its international
political and economic relations may have a material adverse effect on the
Company's operations, business or financial condition. The Company primarily
transacts its sales and purchases in U.S. dollars. As a result, the Company does
not use any hedging activities to manage the currency risks involved with
working abroad.
SEASONALITY OF BUSINESS
The Company's business varies with general seasonal trends that are
characteristic of the apparel industry and it generally experiences higher net
revenues and net income in the first and third quarters of each fiscal year as
compared to the second and fourth quarters of each fiscal year. On a quarter to
quarter basis, the Company's operations may vary with production and shipping
schedules, the introduction of new products, and variations in the timing of
certain holidays from year to year.
The Company historically has experienced lower net revenues and
operating income in the second and fourth quarters than in other quarters due to
(i) lower demand among retail customers typical of the apparel industry, and
(ii) certain expenses that are constant throughout the year being relatively
higher as a percentage of net revenues.
RISKS RELATING TO THE COMPANY'S ABILITY TO MANAGE GROWTH
As part of the Company's growth strategy, the Company plans to increase
sales by increasing the number of outlet stores through which its products are
sold. In addition, the Company's plan has been and continues to be to extend its
existing collections. There can be no assurance that certain of the Company's
collections or any new products or collections that it may add in the future
will achieve the same degree of success as that achieved by the Kasper ASL(R)
suit line, dress line and sportswear line, Albert Nipon(R), Le Suit(TM), AND
Nina Charles(TM) collections of women's apparel or that such collections or
products will be profitable. The introduction of new collections and products
generally is characterized by relatively high start-up costs, as well as
production, distribution, and marketing inefficiencies associated with the
initial limited distribution of such collections and products. There can be no
assurance that any collection or product which the Company has or may introduce
will achieve sales levels sufficient to enable it to generate profits or
positive cash flow. Expansion of the Company's operations or of its collections
or products also could require capital beyond that provided by the Company's
cash flow or available credit facilities. There can be no assurance that such
capital will be available to the Company, or, if available, that it will be
available on terms the Company considers reasonable. The failure or inability of
the Company to obtain such capital on favorable terms could have a material
adverse effect on the Company's operations, business or financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY CUSTOMERS
Certain of the Company's customers have accounted for significant
portions of the Company's net revenues. During 1997, Federated Department
Stores, May Merchandising Co. and Dillards Department Stores accounted for
approximately 18%, 17% and 14% of total sales respectively. A decision by one or
more of such
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<PAGE>
substantial customers, whether motivated by fashion concerns, financial
difficulties, or otherwise, to decrease the amount of merchandise purchased from
the Company or to cease carrying the Company's products could have a material
adverse affect on the Company's operations, business and financial condition.
DEPENDENCE UPON KEY PERSONNEL
The future success of the Company largely is dependent on the talents
and efforts of Mr. Arthur S. Levine, the Company's Chairman of the Board, as
well as on the talents and abilities of key members of the Company's design
teams and other key management executives. No assurance can be given that the
Company's business would not be adversely affected if certain key members of the
Company's design teams or management ceased to be active in the business of the
Company. Mr. Levine is also integral to the Company's marketing efforts. The
Company has entered into a five-year employment agreement dated June 4, 1997
with Mr. Levine but does not maintain a key person life insurance policy on the
life of Mr. Levine. The loss of Mr. Levine could have a material adverse effect
on the Company's operations, business and financial condition. See "Management
- -- Employment Agreements."
DEPENDENCE ON AND PROTECTION OF LICENSED INTELLECTUAL PROPERTY RIGHTS
The Company is the holder of several registered marks in the United
States, including Kasper(R), Kasper for ASL(R), Kasper II(R), Kasper for ASL
Petite(R), Kasper and Company(R), Kasper and Company Petite(R), Kasper Dress(R),
Kasper Dress Petite(R), Albert Nipon(R), Nipon Boutique(R), Executive Dress by
Albert Nipon(R), Nipon Night(R), Albert Nipon Suits(R) and Nipon Studio(R)
(collectively, the "Marks"). Le Suit(TM), b. bennett(TM), Nina Charles(TM) and
Albert Nipon Evening(TM) are non-registered tradenames used by the Company. The
Company relies primarily upon a combination of trademark, copyright, know-how,
trade secrets, and contractual restrictions to protect its intellectual property
rights. The Company believes that such measures afford only limited protection
and, accordingly, there can be no assurance that the actions taken by the
Company to establish and protect its trademarks, including the marks, and other
proprietary rights will prevent imitation of its products or infringement of its
intellectual property rights by others, or prevent the loss of revenue or other
damages caused thereby. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or obtain and use information that the Company regards as proprietary
which could have a material adverse effect on the Company's operations, business
or financial condition. In addition, there can be no assurance that one or more
parties will not assert infringement claims against the Company; the cost of
responding to any such assertion could be significant, regardless of whether the
assertion is valid. See "Business -- Trademarks."
FINANCIAL RISKS
SUBSTANTIAL LEVERAGE
As of the date hereof, the Company has consolidated indebtedness that is
substantial in relation to its stockholders' equity. As of January 3, 1998, the
Company has total debt of approximately $110.0 million (excluding $29.7 million
of trade payables and other accrued liabilities) and stockholders' equity of
approximately $121.0 million. The Company's leveraged financial position poses
substantial consequences to holders of Common Stock, including the risks that
(i) a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of interest on such indebtedness, (ii) the Company's
leveraged position may impede its ability to obtain financing in the future for
working capital, capital expenditures and general corporate purposes, and (iii)
the Company's highly leveraged financial position may make it more vulnerable to
economic downturns and may limit its ability to withstand competitive pressures.
If the Company is unable to generate
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<PAGE>
sufficient cash flow from operations in the future to service its indebtedness
and to meet its other commitments, the Company will be required to adopt one or
more alternatives, such as refinancing or restructuring its indebtedness,
selling material assets or operations, or seeking to raise additional debt or
equity capital. There can be no assurance that any of these actions could be
effected on satisfactory terms, that they would enable the Company to continue
to satisfy its capital requirements or that they would be permitted by the terms
of existing or future debt agreements, including the terms and conditions of the
Senior Notes and the $100 million working capital facility with BankBoston as
the agent bank for a consortium of lending institutions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".
RISKS RELATING TO THE COMPANY'S DEBT COMPLIANCE
The Company is required to meet certain financial covenants under the
terms of the Company's $100 million revolving credit facility with its banks.
The agreement which provides that the banks are secured by all the assets of the
Company, also requires the maintenance of quarterly consolidated EBITDA
(earnings before interest, taxes, depreciation and amortization), a minimum Debt
Service Coverage Ratio (the ratio of consolidated operating cash flow to
consolidated total debt service), a semi-annual Inventory Coverage Ratio (the
ratio of inventory to accounts receivable), an annual limit on capital
expenditures, monthly maximum limitation on levels of piece goods inventory and
a monthly minimum excess availability under the revolving credit facility.
Should the Company be unable to meet any of these tests when required, it will
be necessary to request waivers and/or amendments of the facility from the
banks. There can be no assurance that the necessary waivers and/or amendments
will be granted or that if granted, they will be on terms acceptable or
favorable to the Company. There are no financial covenants under the terms of
the Senior Notes. However, they do provide for default in the event the Company
is not in compliance with its other loan agreements. The inability or failure of
the Company to obtain such necessary waivers or amendments when needed could
have a material adverse effect on the Company's operations, business or
financial condition.
RISKS RELATING TO THE COMPANY'S EMERGENCE FROM CHAPTER 11
The Company emerged from Chapter 11 on June 4, 1997. The Company's
experience in Chapter 11 may affect its ability to negotiate favorable trade
terms with manufacturers and other vendors and to negotiate favorable lease
terms with landlords. The failure to obtain such favorable terms could have a
material adverse effect on the Company's operations, business or financial
condition.
STOCKHOLDER RISKS
- -----------------
ABSENCE OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE;
POSSIBLE VOLATILITY OF MARKET PRICE
Prior to this offering, there has not been an established market for any
of the Securities, and, although the Common Stock and the Senior Notes trade in
the over-the-counter market, there can be no assurance that an active trading
market will develop or be sustained. The Securities may be offered from time to
time by the Selling Shareholders in the over-the-counter market, in negotiated
transactions or otherwise, at market prices then prevailing at the time of sale
or at negotiated prices. The market price of the Securities may be subject to
significant fluctuations in response to variations in the Company's financial
position, operating results, developments concerning acquisitions, government
regulations, general trends in the industry and other factors.
-11-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The prevailing market price of Common Stock after this offering could be
adversely affected by future sales of substantial amounts of Common Stock by
existing shareholders. There will be 6,800,000 shares of Common Stock
outstanding immediately following this offering. Of which 6,774,984 will be
tradeable without restriction and 25,016 of which may be sold subject to the
restrictions of Rule 144 under the Securities Act of 1933 (the "Securities
Act"). The 25,016 shares of Common Stock owned by certain officers and directors
of the Company are "restricted securities" within the meaning of Rule 144 under
the Securities Act, and, together with any Shares which are purchased by
affiliates of the Company, as the term is defined in Rule 144, may be sold only
by the respective holders thereof pursuant to an effective registration
statement under the Securities Act or in accordance with one or more other
exemptions under the Securities Act (including Rule 144). Rule 144, as amended,
permits sales of restricted securities by any person (whether or not an
affiliate) after one year, at which time sales can be made subject to the Rule's
existing volume and other limitations and by non-affiliates without adhering to
Rule 144's existing volume or other limitations after two years. Future sales of
substantial amounts of Shares in the public market, or the perception that such
sales could occur, could adversely affect the price of the Shares in any market
that may develop for the trading of such shares. See "Shares Eligible for Future
Sales."
POSSIBLE EFFECTS OF BLANK CHECK PREFERRED STOCK; ANTITAKEOVER PROVISIONS
The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the relative voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the preferred
stock could be used, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of the Company and could prevent
stockholders from receiving a premium for their shares in the event of a third
party tender offer or change of control transaction. Although the Company has no
present intention to issue any shares of its preferred stock, there can be no
assurance that the Company will not do so in the future. Additionally, if the
Company issues preferred stock, the issuance may have a dilutive effect upon the
holders of the Company's Common Stock, including the purchasers of the shares of
Common Stock offered hereby. In addition, the Company is subject to Section 203
of the Delaware General Corporation Law which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any of a broad range of
business combinations with an "interested stockholder" for a period of three
years following the date that such stockholder became an interested stockholder.
See "Description of Capital Stock - Section 203 of the Delaware General
Corporation Law."
LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains provisions limiting
the liability of directors of the Company for monetary damages to the fullest
extent permissible under Delaware law. This is intended to eliminate the
personal liability of a director for monetary damages in an action brought by or
in the name of the Company for breach of a director's duties to the Company or
its stockholders except in certain limited circumstances. In addition, the
Certificate of Incorporation contains provisions requiring the Company to
indemnify directors, officers, employees and agents of the Company serving at
the request of the Company against expenses, judgments (including derivative
actions), fines and amounts paid in settlement. This indemnification is limited
to actions taken in good faith in the reasonable belief that the conduct was
lawful and in or not opposed to the best interests of the Company. The
Certificate of Incorporation provides for the indemnification of directors and
officers in connection with civil, criminal, administrative or investigative
proceedings when acting in their capacities as agents for the Company. The
foregoing provisions may reduce the
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<PAGE>
likelihood of derivative litigation against directors and officers and may
discourage or deter stockholders or management from suing directors or officers
for breaches of their duties to the Company, even though such an action, if
successful, might otherwise benefit the Company and its stockholders. See
"Description of Capital Stock - Limitations on Liability and Indemnification of
Officers and Directors."
NON-COMPARABILITY OF HISTORICAL FINANCIAL STATEMENTS
The Company's historical combined financial statements prior to the date
the Reorganization Plan was consummated, are not comparable to the financial
statements after such date as a result of the application of "fresh start"
reporting and, therefore, are not indicative of the Company's future
performance.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Securities subject to this Prospectus.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain earnings, if any, to finance the growth of the
Company and repay outstanding debt. In addition, certain of the Company's
agreements with lending institutions limit the Company's ability to declare any
dividends for the duration of such agreements.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 3, 1998. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"and the
Financial Statements and the notes thereto, included elsewhere in this
Prospectus.
January 3,
1998
(in thousands)
---------
Long-Term Debt:
12.75% Senior Notes in the aggregate
principal amount of $110,000,000 ..................... $ 110,000
Bank Revolving Credit Agreement .............................. --
---------
Total Debt ................................................... 110,000
Shareholders' Equity:
Preferred Stock, $0.01 par value,
1,000,000 shares authorized; no shares
issued and outstanding ............................... --
Common Stock, $0.01 par value;
20,000,000 shares authorized; 6,800,000
sharesissued and outstanding ......................... 68
Capital in excess of par value .......................... 119,932
Cumulative translation adjustment ....................... (14)
---------
Retained Earnings ........................................ 972
---------
Total Shareholders' Equity .......................... 120,958
---------
Total Capitalization ................................. $ 230,958
=========
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<PAGE>
SELECTED CONSOLIDATED/COMBINED FINANCIAL DATA
(in thousands, except share and per share data)
The following financial information is qualified by reference to, and
should be read in conjunction with, the Company's Consolidated/Combined
Financial Statements and Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contained elsewhere
in this Prospectus. The selected consolidated financial information for the
seven months ended January 3, 1998 is derived from the Company's audited
Consolidated Financial Statements. The selected consolidated financial
information for each of the four years in the period ended December 28, 1996 and
for the five months ended June 4, 1997 is derived from the Company's audited
Divisional Combined Financial Statements for the fiscal years ended January 1,
1994, December 31, 1994, December 30, 1995 and December 28, 1996 and for the
five months ended June 4, 1997. The following table also includes certain
unaudited pro forma combined statement of operations data for the five months
ended June 4, 1997 which give effect to the Reorganization as if it had occurred
on December 29, 1996.
-14-
<PAGE>
SELECTED CONSOLIDATED/COMBINED FINANCIAL DATA (1)
(in thousands, except per share data)
<TABLE>
<CAPTION>
PRO REORGANIZED
FORMA COMPANY
STATEMENT OF OPERATIONS DATA: (10) (3) PRO FORMA
-------------------------------------------------------------------------------------
| | COMBINED
FIVE FIVE | SEVEN | TWELVE
FISCAL YEARS ENDED (2) MONTHS MONTHS | MONTHS | MONTHS
----------------------------------------- ENDED ENDED | ENDED | ENDED(4)
JAN. 1, DEC. 31, DEC. 30, DEC. 28, JUNE 4, JUNE 4, | JAN. 3,| JAN. 3,
1994 1994 1995 1996 1997 1997 | 1998 | 1998
-------- -------- -------- -------- -------- -------- | --------| --------
(UNAUDITED)| |(UNAUDITED)
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ................................. $254,525 $250,748 $279,974 $311,550 $136,107 $136,107 | $175,602| $311,709
Cost of Goods Sold ........................ 182,381 180,192 207,161 238,268 101,479 101,179 | 127,784| 228,963
Gross profit .............................. 72,144 70,556 72,813 73,282 34,628 34,928 | 47,818| 82,746
Selling, general and administrative | |
expenses (1) ............................. 39,776 42,010 49,604 50,263 23,374 22,255 | 31,802| 54,057
Income before interest, taxes, depreciation | |
and amortization .......................... 32,368 28,546 23,209 23,019 11,254 12,673 | 16,016| 28,689
-------- -------- -------- -------- -------- -------- | --------| --------
Amortization of reorganization asset (5) .. -- -- -- -- -- 1,358 | 1,902| 3,260
Depreciation and amortization (6) ......... 1,318 1,486 2,033 2,238 1,191 2,135 | 2,836| 4,971
Interest and financing costs .............. 450 450 525 1,634 667 6,511 | 9,358| 15,869
Income before taxes ....................... 30,600 26,610 20,651 19,147 9,396 2,669 | 1,920| 4,589
Provision for income taxes (7) ............ 12,240 10,644 8,260 7,659 3,758 1,068 | 948| 2,016
-------- -------- -------- -------- -------- -------- | --------| --------
Net income ................................ $ 18,360 $ 15,966 $ 12,391 $ 11,488 $ 5,638 $ 1,601 | $ 972| $ 2,573
======== ======== ======== ======== ======== ======== | ========| ========
| |
Net income per share (8) .................. -- -- -- -- -- -- | $ 0.14| 0.38
Weighted average number of shares | |
outstanding (8) ........................... -- -- -- -- -- -- | 6,800| 6,800
Ratio of Earnings to Fixed Charges ........ 69:1 60:1 40:1 13:1 15:1 1.4:1 | 1.2:1| 1.3:1
| |
| |
BALANCE SHEET DATA: | |
| |
JAN. 1, DEC. 31, DEC. 30, DEC. 28, JUNE 4, | JAN. 3, |
1994 1994 1995 1996 1997 | 1998 |
-------- -------- -------- -------- -------- | --------|
| |
Working Capital.............................. $ 74,829 $ 87,428 $109,671 $127,900 $101,264 | $100,876|
| |
Reorganization value in excess of | |
identifiable assets ......................... -- -- -- -- -- | 63,279|
| |
Total Assets................................. 115,086 127,931 162,109 172,881 147,050 | 260,656|
Long-term Debt (9)........................... -- -- -- -- -- | 110,000|
| |
Shareholders' Equity (9)..................... $ 97,259 $109,563 $135,601 $157,204 $132,363 | $120,958|
</TABLE>
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<PAGE>
(1) The Selected Consolidated/Combined Financial Data presented above has
been prepared to show the Company as a free standing entity apart from
Leslie Fay. Until 1996, the Company was totally dependent upon Leslie
Fay for all administrative support, including accounting, credit,
collections and legal support. As such, the financial statements reflect
an allocation of Leslie Fay's administrative expenses to the Company.
(2) The change in the fiscal year-end from year to year is based on the
Company's internal policy to close the fiscal year-end on the Saturday
closest to December 31 of each year. As such, data for the fiscal year
ended January 1, 1994, December 31, 1994, December 30, 1995 , December
28, 1996 and January 3, 1998 include the Company's results of operations
for 52, 52, 52, 52 and 53 weeks, respectively.
(3) The Company has accounted for the reorganization using the principles of
"fresh start" reporting as required by AICPA Statement of Position 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy
Code ("SOP 90-7"). Pursuant to such principles, in general, the
Company's assets and liabilities were revalued. Therefore, due to the
restructuring and implementation of "fresh start" reporting, the
consolidated financial statements for the reorganized company (starting
June 4, 1997) are not comparable to the combined financial statements of
the predecessor company.
(4) Provided solely for convenience of the reader in reviewing "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." Results reflect the combination of pro forma results for
the five months ended June 4, 1997 for the predecessor company and for
the seven months ended January 3, 1998 for the reorganized company. As
such, this information, as presented, does not comply with generally
accepted accounting principles applicable to companies upon emergence
from bankruptcy which calls for separate reporting for the reorganized
company and the predecessor company.
(5) For "fresh start" reporting purposes, any portion of the Company's
reorganization value not attributable to specific identifiable assets is
reported as "reorganization value in excess of identifiable assets."
This asset is being amortized over a 20 year period beginning June 4,
1997.
(6) Included in Depreciation and Amortization for the seven month period
ended January 3, 1998 is the amortization of trademarks and bank fees.
(7) As a division of Leslie Fay, the Company was not subject to Federal,
State and Local income taxes. Effective June 4, 1997, the Company became
subject to such taxes. The effective tax rate used for the historical
financial statements reflects the rate that would have been applicable,
had the Company been an independent entity. Provisions for deferred
taxes were not reflected on the Company's books but were reflected on
the books and records of Leslie Fay. Going forward, the Company will
record deferred taxes in accordance with the provision of Statement of
Accounting Standards Number 109, Accounting for Income Taxes.
(8) Due to the implementation of the Reorganization and fresh start
accounting, per share data for the predecessor company have been
excluded as they are not comparable.
(9) Pursuant to the Reorganization Plan, the Company issued $110 million in
Senior Notes and 6,800,000 shares of Common Stock of the Company to the
former creditors of Leslie Fay. Prior to the Reorganization, the Company
operated as a division of Leslie Fay. As such, the Shareholders' Equity
as reported was the Company's divisional equity as of the respective
date.
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<PAGE>
(10) The Company's combined statement of operations for the five months ended
June 4, 1997 has been adjusted to give retroactive treatment to the
Reorganization of the Company, including the amortization relating to
the reorganization asset, trademark and bank fees, interest relating to
the Senior Notes, and excluding royalty expense, the Leslie Fay
administrative expense allocations and other miscellaneous expenses that
the Company would not have incurred had the Reorganization occurred on
December 29, 1996.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "Selected Combined Financial Data" and the Company's combined financial
statements and the related notes thereto which are included elsewhere in this
Prospectus. The Company utilizes a 52-53 week fiscal year ending on the Saturday
nearest December 31. Accordingly, fiscal years 1993, 1994, 1995 , 1996 and 1997
ended on January 1, 1994 ("fiscal 1993"), December 31, 1994 ("fiscal 1994"),
December 30, 1995 ("fiscal 1995") , December 28, 1996 ("fiscal 1996"), and
January 3, 1998 ("fiscal 1997"), respectively.
On June 4, 1997, the Company was separated from Leslie Fay, in
accordance with the Reorganization Plan approved by the U.S. Bankruptcy Court.
On that date, all assets and corresponding liabilities associated with the
operation of the Sassco Fashions Division, including the Nipon Trademarks, were
sold to the Company. Prior to that date, the Company operated as the Sassco
Fashions Division of the Leslie Fay Companies, Inc., from the time it was
acquired by Leslie Fay in 1980. The Company received the assets and liabilities
of the former Sassco Fashions Division of Leslie Fay as part of the
Reorganization Plan of Leslie Fay. In the aggregate, $249.6 million of assets,
subject to $19.6 million of liabilities, were sold by Leslie Fay to the
creditors in satisfaction of creditor claims of like amount. The Company in turn
transferred to the creditors 6,800,000 shares of its common stock with a market
value of $120 million and Senior Notes with an aggregate principal amount of
$110 million in exchange for the net assets. The Company is one of the largest
marketers and manufacturers of career women's suits in the United States. The
Company also markets career dresses, sportswear and knitwear. The Company has
grown through the extension of existing product lines, the introduction of new
brands and the expansion of its retail outlet operations.
The accompanying audited financial statements have been prepared to show
the Company as a free standing entity apart from Leslie Fay. Until 1996, the
Company was totally dependent upon Leslie Fay for all administrative support,
including accounting, credit, collections, legal, etc. As such, the financial
statements reflect an allocation of Leslie Fay administrative expenses to the
Company.
As a division of Leslie Fay, the Company was not subject to Federal,
State and Local income taxes. Effective June 4, 1997, the Company became subject
to such taxes. The effective tax rate used for the historical financial
statements reflects the rate that would have been applicable, had the Company
been independent. Provisions for deferred taxes were not reflected on the
Company's books, but were reflected on Leslie Fay's books and records. Going
forward, the Company will record deferred taxes in accordance with the provision
of Statement of Financial Accounting Standards Number 109, "Accounting for
Income Taxes."
The Company's business is primarily the design, distribution and
wholesale sale of women's career suits, dresses and sportswear to principally
major department stores and specialty shops. Over the last five years, the
Company has increased its share of the wholesale market by expanding into all
markets, including the "lower moderate" (LeSuit), "upper moderate" (Kasper) and
"bridge" (Nipon) markets. The Company has also introduced a career sportswear
label, Kasper and Company(R), and career knitwear under the name Nina
Charles(TM).
In July 1995, the Company started its retail outlet operations by
acquiring 22 lease properties, which were assigned to the Company by Leslie Fay
on June 4, 1997 pursuant to the Plan of Reorganization. As of January 3, 1998,
the Company had 47 retail outlet stores throughout the United States. Sales at
the retail outlet stores totaled $38.6 million in the year ended January 3,
1998. The stores operate under the name Kasper ASL(R),
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<PAGE>
but also sell the Company's other labels, including Nipon(R), Kasper and
Company(R), Nina Charles(TM), Le Suit(TM) and b. bennett(TM).
In connection with the separation from Leslie Fay, Leslie Fay
transferred all rights and title to the Nipon trademarks to the Company. At the
time of the transfer, there were several licensing agreements in effect,
including men's sportswear, dress slacks, ties, ladies coats, etc. In 1997 the
Company received approximately $900,000 in licensing income from licensing
agreements.
On June 4, 1997, the Company acquired the trade name Kasper(R) from
Forecast Designs, Inc., a company owned by Herbert Kasper, for $6 million. Prior
to June 4, the Company paid royalties for the use of the Kasper name to Forecast
Designs, Inc. In accordance with the agreement, Forecast Designs, Inc. will
retain the right to the licensing income from pre-existing licenses, which
licenses will be transferred to the Company upon Mr. Kasper's death. The Company
will be entitled to 50% of the income generated by any new licenses. Pursuant to
the terms of the acquisition agreement, the Company also entered into an
Employment, Consulting and Non-Competition Agreement with Herbert Kasper. Such
agreement, which has a term of ten years, provides for the payment to Mr. Kasper
of $300,000 in annual salary and $7,500 for each 1% by which the gross profits
from the Company's sales of Kasper women's apparel, namely suits, dresses and
sportswear in each of the six years 1998 to 2003 exceeds the total gross profit
derived by the Company from the sale of such products in the year 1995. Under
the terms of the Agreement, Mr. Kasper may and has been dedicating his business
time to the licensing activities of ASL/K Licensing Corp., which includes
meeting with current and prospective licensees of the Kasper brand name. He also
participates in marketing trips and is involved in the Company's ad campaigns,
reviews competitor's products and meets with prospective wholesale buyers on
behalf of the Company. Mr. Kasper may also perform such other tasks as he and
Mr. Levine may agree.
FISCAL 1997 COMPARED TO FISCAL 1996
- -------------------------------------
NET SALES
Net Sales in fiscal 1997 were $311.7 million as compared to $311.6 for
fiscal 1996. Wholesale sales decreased to $273.1 million in fiscal 1997 from
$289.4 million in fiscal 1996, a drop of 5.6%. The extra week's wholesale sales
in fiscal 1997 were $5.2 million, resulting in an overall decrease of $21.5
million on a comparable 52-week basis, which was in line with the Company's
plans to reduce production in 1997 in order to avoid the excess inventory
situation which occurred in 1996. The reductions spanned the Company's product
lines, but were more prevalent in the Dress and Private Label lines which
decreased 22.6% and 39.4%, respectively, from the prior year. In addition, there
were sales of the Nina Charles(TM) knitwear line totaling $4.5 million in the
first half of 1997 and $3.7 million of sales of the b. bennett(TM) line for the
full year of 1997, as compared to no sales in the same respective periods in
1996. The Company has recently decided to discontinue marketing the Nina
Charles(TM) brand name for wholesale in the United States beginning with the
Fall 1998 season.
Retail sales increased to $38.6 million in fiscal 1997 from $22.2
million in fiscal 1996, an increase of 74.1% due primarily to the net addition
of 8 stores in fiscal 1997. The extra week's retail sales in fiscal 1997
amounted to $0.8 million, resulting in an overall increase of $15.6 million on a
comparable 52-week basis. Comparable store sales for fiscal 1997 were $23.4
million as compared to $20.6 million for fiscal 1996, an increase of 13.6%.
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<PAGE>
GROSS PROFIT
Gross Profit as a percentage of net sales increased to 26.4% for Fiscal
1997 , compared to 23.5% for Fiscal 1996. The improvement over fiscal 1996 can
be attributed to the higher percentage of retail sales as well as the improved
performance at the wholesale level. Wholesale gross profit as a percentage of
sales, adjusted for the extra week's sales, increased to 24.2% in fiscal 1997
from 22.0% in fiscal 1996 as a result of lower markdowns given to dispose of
less merchandise at close-out prices . The better margins were primarily
attributed to the Dress and Suit lines, which increased 10.9% and 5.1%,
respectively.
Retail gross profit as a percentage of sales, adjusted for the extra
week's sales, increased to 39.2% in fiscal 1997 from 38.6% in fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $55.2 million
in fiscal 1997 as compared to $50.3 million in fiscal 1996 , an increase of $4.9
million or 9.7%. The increase was primarily attributed to an extra week of
selling, general and administrative expenses, which totaled approximately $1.4
million; and increased selling and occupancy costs related to the net addition
of 8 retail outlet stores of approximately $1.8 million and $1.6 million,
respectively. Wholesale selling, general and administrative expenses remained
relatively flat, with incremental increases relating to occupancy offsetting
decreases in direct expenses as a result of the reduction in sales.
Selling, general and administrative expenses include the following: (i)
design expenses; (ii) production expenses, which includes purchasing of raw
materials, production planning and scheduling and product costing; (iii) selling
and marketing expenses, including showroom sales personnel and sales
representatives outside the showroom; (iv) administrative expenses, which
include all back office functions such as finance, human resources, import
management, accounts receivable and payable, etc.; (v) advertising expenses;
(vi) shipping expenses; and (vii) occupancy expenses, which include costs
related to all owned and or leased facilities, including rent, utilities, etc.
These expenses are expected to remain stable in the near future with the
exception of advertising which is expected to increase by $2 million dollars in
1998.
Prior to the separation from Leslie Fay, Arthur S. Levine was a
principal in two companies, Kerrison Trading Co. ("Kerrison") and Alco Design
Associates, Inc. ("Alco") that provided consulting services with regard to
design, manufacturing and importation of apparel for the Sassco Fashions
Division of Leslie Fay. Those consulting arrangements ceased as of June 4, 1997.
For the 1996 and 1997 fiscal years, Mr. Levine received $3,402,642 and
$1,487,920, respectively, as compensation for such consulting services. Payments
totaling $236,000 were made to the two companies in August 1997 for services
rendered prior to June 5, 1997. Such payments were included in selling, general
and administrative expenses.
AMORTIZATION OF REORGANIZATION ASSET
As a result of the Reorganization, the portion of the Company's
reorganization value not attributable to specific identifiable assets has been
reported as "reorganization value in excess of identifiable assets". This asset
is being amortized over a 20-year period beginning June 4, 1997. Accordingly,
the Company incurred amortization charges for fiscal 1997 totaling $1.9 million
representing seven months amortization of the reorganization asset.
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<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased to $4.0 million in fiscal 1997
from $2.2 million in fiscal 1996 as a result of the amortization charges
associated with the trademarks and bank fees associated with the new financing.
The trademarks are being amortized over 35 years beginning June 4, 1997 and
resulted in amortization charges for fiscal 1997 of $850,000 for the seven
months. The bank fees are being amortized over the life of the financing, which
is three years, and resulted in $471,000 of amortization charges for fiscal
1997. The remaining increase relates to depreciation and amortization associated
with capital expenditures in fiscal 1997.
INTEREST AND FINANCING COSTS
Interest and financing costs increased to $10.0 million in fiscal 1997
from $1.6 million in fiscal 1996 , an increase of approximately $8.4 million.
The increase is primarily attributable to the seven month's interest expense on
the $110 million Senior Notes, which were issued on June 4, 1997. Interest
relating to the Senior Notes for the seven months totaled $8.2 million.
INCOME TAXES
Provision for income taxes was $.9 million for the seven months ended
January 3, 1998. This amount differs from the amount computed by applying the
federal income tax statutory rate of 34% to income before taxes because of state
and foreign taxes, and timing differences relating primarily to customer
reserves and allowances, inventory, depreciation and amortization. Income taxes
for the periods ended June 4, 1997 and prior were computed using the effective
tax rate that would have been applicable, had the Company been an independent
entity.
FISCAL 1996 COMPARED TO 1995
- ----------------------------
NET SALES
Net Sales in fiscal 1996 were $311.6 million, an increase of
approximately $31.6 million or 11.3% , from $280.0 million in fiscal 1995. The
increase is primarily attributable to a $16.0 million increase in both wholesale
and retail sales in fiscal 1996 from fiscal 1995, which reflects the benefit of
a full year of sales for the retail outlet stores plus the addition of 18 new
stores during fiscal 1996. The wholesale sales increase reflects the addition of
the Nina Charles(TM) knitwear line, as well as an increase in sportswear sales.
Unit sales of suits increased, but were relatively equal in dollars at the net
sales level due to increased markdowns and allowances. The Company has decided
to discontinue marketing the Nina Charles(TM) brand name for wholesale in the
United States beginning with the Fall 1998 season.
GROSS PROFIT
Gross profit, as a percentage of net sales, decreased to 23.5% in fiscal
1996 from 26.0% in fiscal 1995. This decrease is primarily attributable to a
decline in wholesale gross margins in fiscal 1996 associated with the sale of
excess inventory. The excess inventory situation was caused by an overly
aggressive sales plan that resulted in too much production of goods that were
not sold in season. The situation was exacerbated by the late shipment of goods
as a result of the fabric problem discussed below. In addition, the
consolidation of certain traditional discount chain stores, where the Company
had historically been able to dispose of excess goods at favorable margins,
resulted in reduced gross profit in fiscal 1996. As mentioned above, for the
first quarter of 1996, gross profit was adversely impacted by the late delivery
of the spring product. The late delivery of product
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was caused primarily by a problem with a certain fabric that resulted in
rescheduling other shipments from the Far East. The fabric, although it passed
initial quality tests, did not meet the Company's strict standards in actual
production. The fabric had to be replaced and other production had to be moved
to take its place, which resulted in late deliveries of early Spring 96 products
to the Company's customers. The late delivery and inventory buildup problems,
however, are not indicative of future trends, although the Company remains
subject to risk regarding late delivery of product. See "Risk Factors-Business
Risks-Dependence on Foreign Supplies and Contractors."
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $50.3 million
for fiscal 1996 from $49.6 for fiscal 1995, an increase of approximately
$700,000 or 1.4%. The decrease was primarily due to the lower allocation of
expenses from Leslie Fay, as the Company provided most of its own administrative
support independently of Leslie Fay during fiscal 1996. In addition, the
reduction in allocation of administrative costs was partially offset by the
increase in selling, general and administrative expenses associated with a full
year's operation of the retail outlet stores plus the addition of 18 more stores
during fiscal 1996.
INTEREST AND FINANCING COSTS
Interest and financing costs increased from $525,000 in fiscal 1995 to
$1.6 million in fiscal 1996, an increase of approximately $1.1 million. This
increase is primarily attributable to Company's execution of a
factoring/financing agreement with Heller Financial ("Heller") effective
February 1996. Prior to that time, the Company's receivables were managed by
Leslie Fay.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operating activities increased to $49.0 million
during fiscal 1997 as compared to cash usage of $3.1 million during fiscal 1996
, primarily as a result of reductions in accounts receivable and inventory
levels from 1996 to 1997. Accounts receivables from outside contractors
consisting of piece goods transferred to them for use in production decreased
directly due to management's plan to reduce inventory levels in fiscal 1997 from
fiscal 1996. That same decision is the cause of the reduction in finished goods
inventory from fiscal 1996 to 1997.
The Company's main sources of liquidity historically have been cash
flows from operations and credit facilities. Prior to June 4, 1997, as a
division of Leslie Fay, the Company either borrowed from, or invested its excess
cash with, Leslie Fay. The Company's capital requirements primarily result from
working capital needs, retail expansion and renovation of department store
boutiques and other corporate activities.
Effective June 5, 1997, the Company entered into a $100 million working
capital facility with BankBoston as the agent bank for a consortium of lending
institutions. The facility provides for a sub-limit for letters of credit of $50
million. The working capital facility is secured by substantially all the assets
of the Company. The working capital facility expires in fiscal 2000 and provides
for various borrowing rate options, including rates based upon a fixed spread
over LIBOR. The facility provides for the maintenance of certain financial
ratios and covenants and sets limits on the amount of capital expenditures and
dividends to shareholders. Availability under the facility is limited to a
borrowing base calculated upon eligible accounts receivable, inventory and
letters of credit. As of January 3, 1998, there were no direct borrowings
outstanding, $21.7 million in letters of credit outstanding under the facility
and $27.6 million available for future borrowings.
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Pursuant to the Reorganization Plan, the Company issued $110 million in
Senior Notes. The Senior Notes bear interest at 12.75% per annum and mature on
March 31, 2004. Interest is payable semi-annually on March 31 and September 30.
Interest relating to the Senior Notes for the seven months ended January 3, 1998
totaled $8.2 million. There are no principal payments due until maturity. To the
extent that the Company elects to undertake a secondary stock offering or elects
to prepay certain amounts a premium (as defined on page 49) will be required to
be paid.
The Company assumed from Leslie Fay a factoring/financing agreement with
Heller. The agreement was for the sole purpose of supporting the Sassco Fashions
Division of Leslie Fay. The agreement had a two year term expiring in February
1998. It provided for Heller to act as the credit and collection arm of the
Company. The Company would receive funds from Heller as the receivables were
collected. Any amounts unpaid after 120 days would be guaranteed and paid to the
Company by the factor. The cost was .4% for the first $240 million in sales and
.35% for sales above that amount. The agreement was amended in January 1998 to
add an additional 18 months to the term of the arrangement and lower the rate to
.35% for the first $250 million in sales and .3% on the excess over that amount.
Capital expenditures were $4.7 and $7.0 million for fiscal 1997 and
fiscal 1996 , respectively. The capital expenditures represent funds spent for
computer systems and hardware to enable the Company to operate independently,
the retail outlet store development and the customization of, and improvements
to, the Company's new warehouse facility in early 1997.
YEAR 2000 COMPLIANCE
- --------------------
The Company has conducted a review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The Company is
utilizing both internal and external resources to identify, correct or
reprogram, and test the systems for the year 2000 compliance. The Company
presently believes that, with modifications to existing software and converting
to new software, the Year 2000 problem will not pose significant operational
problems for the Company's computer systems as so modified and converted.
However, if such modifications and conversions are not completed timely, the
Year 2000 problem may have a material impact on the operations of the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
All new standards relating to items that affect the statement of
operations of the Company in accordance with SAB 74 that were issued as of the
date of emergence from bankruptcy have been fully adopted by the
Company.
The Company has adopted the 1997 Management Stock Option Plan effective
December 2, 1997 (See Note 9 to Unaudited Interim Financial Statements ). In
October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement establishes the fair
market value based method of accounting for an employee stock option but allows
companies to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25
"Accounting for Stock Issued to Employees." Companies which elect to continue
using the accounting under APB Opinion No. 25 must, however, make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined in SFAS No. 123 had been applied. The Company has
elected to account for its stock based compensation awards to employees and
directors under the
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accounting prescribed by APB Opinion No. 25 and has provided the disclosures
required by SFAS No. 123 for fiscal 1997.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." This statement establishes standards for computing and
presenting earnings per share ("EPS"), replacing the presentation of currently
required Primary EPS with a presentation of Basic EPS. For entities with complex
capital structures, the statement requires the dual presentation of both Basic
EPS and Diluted EPS on the face of the statement of operations. Under this new
standard, Basic EPS is computed on the weighted average number of shares
actually outstanding during the year. Diluted EPS includes the effect of
potential dilution from the exercise of outstanding dilutive stock options and
warrants into common stock using the treasury stock method. SFAS No. 128 has
been adopted for the current fiscal year.
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by the implementation of these new standards.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), established standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 now requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by
Management in deciding how to allocate resources and in assessing performance.
Both SFAS Nos. 130 and 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. The Company has not yet determined what
additional disclosures, if any, may be required in connection with adopting
these statements.
CHANGE IN METHOD OF ACCOUNTING
- ------------------------------
The effects of the Company's reorganization under Chapter 11 have been
accounted for in the Company's financial statements using the principles
required by the American Institute of Certified Public Accountants' Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("Fresh Start Accounting"). Pursuant to such principles, the
Company's assets, upon emergence from Chapter 11 are stated at "reorganization
value", which is defined as the value of the entity before considering
liabilities on a going-concern basis following the reorganization and represents
the estimated amount a willing buyer would pay for the assets of the Company
immediately after the reorganization. The reorganization value for the Company
was determined by reference to the remaining liabilities plus the estimated
value of shareholders' equity of the outstanding shares of the Common Stock. The
reorganization value of the Company was allocated to the assets of the Company
in conformity with the procedures specified by Accounting Principles Board
Opinion No.
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16, Business Combinations, for transactions reported on the basis of the
purchase method of accounting. In this allocation, identifiable assets were
valued at estimated fair values, and any excess reorganization value has been
recorded as "reorganization value in excess of amounts allocated to identifiable
assets" (a long-term intangible asset similar to "goodwill").
IMPACT OF ASIAN FINANCIAL AND CURRENCY CRISIS
- ---------------------------------------------
To date, the Company has not experienced any difficulty in obtaining
needed raw material from its primary sources of supply in the Far East which are
located in Japan, nor has it experienced any problems with its sewing
contractors in Taiwan, the Philippines, Hong Kong and China. Over the past year,
the region has suffered extreme volatility in its local financial markets and
currency exchanges. As a result, no assurance can be given that the Company will
continue to have an uninterrupted source of supply from the region. The
inability of certain suppliers to provide needed items on a timely basis could
materially adversely affect the Company's operations, business and financial
condition.
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BUSINESS
GENERAL
The Company is one of the largest manufacturers and marketers of women's
suits in the United States. The Company designs, contracts for the manufacture
of, markets and distributes women's suits, dresses, knitwear and sportswear.
From its established position in the "upper moderate" suit market, under its
Kasper for ASL(R) brand name, the Company has diversified into the lower price
point "moderate" suit market under its Le Suit(TM) brand name and to a lesser
extent, the higher price point "bridge" and designer women's suit markets under
its Albert Nipon(R) and Nipon(R) brand names. The Company markets and
distributes its products under eight different brands: (i) Kasper for ASL(R)
suit, the leading brand name in "upper moderate" women's suits; (ii) Le
Suit(TM), a line of suits introduced to create a less expensive alternative to
Kasper for ASL(R) suits; (iii) Albert Nipon Suits(R), a line of suits designed
and marketed to compete in the bridge area of the market; (iv) Albert Nipon
Evening(TM), a line of beaded and sequined evening suits; (v) Kasper for ASL(R)
dresses, a line of "better" career dresses; (vi) Kasper and Company(R) ASL
Sportswear, a line of sportswear under the Kasper brand name priced between the
moderate and better markets; (vii) Nina Charles(TM), a better priced knitwear
line comprised of two distinct product classifications: better knit dresses and
better knit sportswear/separates; and (viii) b. bennett(TM), a line of suits
catering to the younger woman seeking an updated look.
The Company also designs and manufactures suits for sale under private
labels for various department stores. Management believes the Company's primary
strengths are the quality, styling, value and brand name recognition of its
products. The Company's products are sold to approximately 1,400 retail accounts
having approximately 2,000 retail locations throughout the United States and
through the Company's chain of 47 retail outlet stores.
The Company operates four wholly-owned subsidiaries, ASL/K Licensing
Corp., ASL Retail Outlets, Inc. and Kasper A.S.L. Europe Ltd., each a Delaware
corporation, and Asia Expert, Ltd. ("AEL"), a Hong Kong corporation, the owner
of Viewmon Ltd. and Tomwell Ltd., each Hong Kong corporations.
Generally, AEL acts as a buying agent for the Company for which it
receives an arms length commission. AEL also provides a quality control function
at the sewing contractors in China, Hong Kong and other parts of the Far East as
part of its buying service. Viewmon Ltd. provides services regarding the
acquisition of quota, while Tomwell Ltd. provides beading services for Nipon(R)
and some Kasper for ASL(R) garments. These subsidiaries receive arms length fees
for their services.
Kasper A.S.L. Europe, Ltd. operates a sales office in London, England,
where it sells the Company's products to retailers and distributors throughout
the European continent. ASL Retail Outlets, Inc. operates the chain of 47 retail
outlet stores that sell the Company's products directly to consumers. These
stores purchase the merchandise directly from the Company at an arms length
price. ASL/K Licensing Corp. was established to coordinate the licensing of the
Kasper(R) trade name that was acquired on June 4, 1997. In connection with the
separation from Leslie Fay, Leslie Fay transferred all rights and title to the
Nipon trademarks to the Company. At the time of the transfer, there were several
licensing agreements in effect, including men's sportswear, dress slacks, ties,
ladies coats, etc. In 1997 the Company received approximately $900,000 in
licensing income from licensing agreements. As of January 3, 1998 ASL/K
Licensing Corp. had not entered into any new license agreements, although some
were in the advanced stage of negotiations.
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<PAGE>
REORGANIZATION OF LESLIE FAY
- ----------------------------
In 1980, the Company was acquired by Leslie Fay but continued to operate
as a stand-alone division with Arthur S. Levine remaining as the Company's Chief
Executive Officer. In February 1993, Leslie Fay announced that its 1990, 1991
and 1992 financial statements were incorrect due to fraudulent accounting
entries. As a result of the misstated financial statements, Leslie Fay defaulted
on its unsecured bank and insurance debt. On February 26, 1993, the bank
creditors informed Leslie Fay that no additional revolving borrowings could be
made and that no new letters of credit would be issued under the bank facilities
until the negotiations for a revised credit facility were completed. The
uncertainty surrounding Leslie Fay's financing quickly spread to trade
creditors, most of whom refused to extend further credit to Leslie Fay. As a
result of its inability to obtain credit, Leslie Fay filed for protection under
Chapter 11 of the Bankruptcy Code on April 3, 1993.
Leslie Fay's Plan of Reorganization, which became effective on June 4,
1997 (the "Effective Date"), provided for the Company and a reorganized entity
named The Leslie Fay Company, Inc. to emerge from bankruptcy as separate
stand-alone U.S. corporations, each with its own financing sources. Pursuant to
the Reorganization Plan, the former creditors of Leslie Fay received 6,800,000
shares of Common Stock of the Company and 12.75% Senior Notes in the principal
aggregate amount of $110 million. The Company also issued (i) Management Options
to certain members of management to purchase 1,753,459 shares of Common Stock,
which upon issuance will represent approximately 20.5% of the Company's
outstanding Common Stock; and (ii) options to purchase 100,000 of Common Stock
to its non-employee directors. 1,350,131 of the Common Stock issued pursuant to
the Reorganization and $12,141,438 face amount of the Senior Notes are the
subject of this Prospectus.
Pursuant to the Reorganization Plan, and based on the Company's estimate
of the amount of certain outstanding claims by creditors of Leslie Fay that
ultimately will be allowed by the Bankruptcy Court, the Company retained
approximately 1,427,746 shares of Common Stock and $23,095,893 principal amount
of Senior Notes for payment of certain classes of claims against Leslie Fay (the
"Holdback"). Such shares of Common Stock and Senior Notes are being held in
trust by the Plan Administrator under the Reorganization Plan and are disbursed
as such claims are either settled or dismissed.
STRATEGY
- --------
The Company believes that the women's suit category will continue to
grow notwithstanding the "casualization" of dress in the workplace. More women
are entering the work force and the current fashion cycle seems to favor
structured apparel. The Company's principal retail customers, the department and
specialty department stores, are continuing to invest in women's suits because
this category is strategically important as a destination department for career
women and other women desiring structured, versatile apparel. The Company's
growth in the suit category has been assisted by its ability to bring its goods
to the forefront of the store by increasing and updating its in-store shops and
have been further enhanced by the development of certain areas of its businesses
including petite sizes, increasing emphasis on pantsuits and seasonless fabrics.
The Company extended its sportswear line through a wide variety of products and
the introduction of a full knitwear line with the Fall 1996 delivery.
The Company's marketing strategy is to maintain and grow all its suit
business, while continuing to extend its presence in women' s apparel by
focusing on those competitive advantages that have made it the leading marketer
of women's suits. The Company believes that its strong Kasper(R) brand name,
coupled with its continuous emphasis on excellent fit, high quality and
excellent price-to-value relationship, will enable it to expand consumer
acceptance of its Kasper(R) dresses and sportswear lines.
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<PAGE>
The Company's business strategy is directed at maintaining and enhancing
its position as a leader in the United States women's suits market. The Company
plans to introduce new products and expand its retail operations, including the
opening of one or more full price flagship stores. Implementation of these
strategies may require significant investments for advertising, infrastructure,
furniture and fixtures, and additional inventory. There can be no assurance that
the growth strategies will be successful. The major elements of the Company's
business strategy are as follows:
OFFER QUALITY CAREER WEAR AT REASONABLE PRICE POINTS
The Company's products are well recognized for their consistently
superior quality and fit at prices that offer value to the consumer. The Company
intends to continue the evolution of this process whereby the Company's
designers work closely with its merchandising, sales and production teams to
offer a product that is consistent in quality and fit season after season and
reflects current fashion influences.
INCREASE STORE PENETRATION
The Company distributes its products through approximately 2,000
department and specialty stores throughout the United States. The Company
believes that it has opportunities for increased store penetration in the Kasper
and Company(R) sportswear label and in its knitwear business. At the same time,
the Company feels it can expand its penetration of the Kasper(R) suit label
through increased use of in store shops throughout the department store channel.
The Company currently has 600 such shops in place.
CONTINUE RETAIL STORE EXPANSION
The Company plans to expand its retail outlet store business by adding
10 to 15 new outlet stores per year over the next several years. The Company
currently has 47 retail outlet stores throughout the United States. These stores
have provided the Company with an additional distribution channel at favorable
profit margins. In addition, the Company is exploring the opening of one or more
full price retail outlet stores in key markets, such as New York, Chicago and
San Francisco. The full price stores would be a showcase for the Company's
products that would give additional credence to the Company's licensing efforts
and brand awareness.
DEVELOP NEW LICENSING OPPORTUNITIES
The Company currently has several licensing agreements in place for the
Nipon trade name. In 1997 these licenses generated approximately $900,000 in
revenue. The Company believes there are even greater opportunities to license
not only the Nipon name but also the Kasper name.
EXPAND PRODUCT LINE OFFERINGS
Over the years, the Company has added new product lines such as
LeSuit(TM) to counteract the retailers trend to private label. It has also added
the Nina Charles(TM) knitwear line in Fall of 1996 and the b. bennett(TM) line
of suits, catering to the younger woman, in Spring 1997. The Company intends to
continue its efforts to seek out new promising markets for its existing brands
as well as new brands.
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PRODUCTS
- --------
The Company participates in three principal areas of the women's apparel
market: (i) suits, which include "upper moderate" women's suits sold under the
Kasper for ASL(R) brand name; "moderate" women's suits sold under the Le
Suit(TM) brand name; suits sold under the Albert Nipon(R) brand name that are
priced consistent with the bridge area of the ready-to-wear market; evening
suits sold under the Nipon(R) brand name which compete in the designer market,
and suits sold under the b. bennett(TM) name, a line of suits catering to the
younger woman seeking an updated look; (ii) dresses, which includes Kasper for
ASL(R) dresses, a line of "better" career dresses; and (iii) sportswear, which
includes Kasper and Company ASL(R) sportswear, a line of sportswear under the
Kasper brand name priced between the moderate and better markets and Nina
Charles(TM), a better priced knitwear line comprised of two distinct product
classifications: better knit dresses and better knit sportswear/separates.
Career sportswear are marketed as groups of skirts, pants, jackets, blouses,
sweaters and related accessories which, while sold as separates, are coordinated
as to styles, color palettes and fabrics and are designed to be worn together or
as separates.
SUITS
- -----
The Company produces suits which are designed to sell primarily in four
price ranges under the brand names Kasper for ASL(R), Le Suit(TM), Albert
Nipon(R), and Albert Nipon Evening(TM).
KASPER FOR ASL(R) SUIT
Kasper for ASL(R) is a leading brand name in "upper moderate" women's
suits, with approximately 70% of the "upper moderate" women's suit market. Suits
marketed under the Kasper for ASL(R) brand name represent the core of the
Company's business. The Kasper for ASL(R) Suit division seeks to produce a wide
variety of high quality, excellent fitting suits at affordable prices, and
produces suits in petite, misses and large sizes (large sizes are distributed
under the Kasper II(R) brand name). These suits are designed to achieve an
updated classic look that can be worn from one season to the next without
looking dated. In order to maintain a state of newness in its product inventory
and on the retail sales floor, the Kasper for ASL(R) Suit division introduces a
new line of suits five times a year. Many of these suits are made of
"seasonless" fabrics that can extend the selling and wearing season of the
garments. Sales of Kasper for ASL(R), as a percentage of the Company's net
wholesale sales, for the 1995 , 1996 and 1997 fiscal years were approximately
46.2%, 40.5% and 40.7%, respectively. The retail price for suits sold under the
Kasper for ASL(R) brand name is $160 to $275. The Kasper for ASL(R) Suit
division has established a "quick response" program with key accounts. The
program is built around four basic bodies (two skirt suits, one pant suit and a
three piece suit with jacket, skirt and pants) in three basic colors (black,
navy and taupe), which are available in both Missy and Petite sizes. Under the
program the Kasper for ASL(R) Suit division keeps "quick response" inventory
available throughout the year and automatically replenishes stock based upon
sell-through information received from the key accounts.
LE SUIT(TM)
The Le Suit(TM) line of suits were introduced to create a less expensive
alternative to Kasper for ASL(R) Suits. The Le Suit(TM) division uses the best
styles designed for Kasper for ASL(R) Suits for the preceding year with less
expensive fabrics maintaining the same level of quality, fit and construction as
Kasper for ASL(R) Suits. In addition to regular sizes, the Le Suit(TM) division
also produces suits in petite and large sizes. The Le Suit(TM) brand offers an
alternative to retailers' private label suits at an attractive price to the
retailer without the attendant costs of maintaining their own private label
business. Sales of Le Suit(TM), as a percentage of the Company's net wholesale
sales, for the 1995 , 1996 and 1997 fiscal years were approximately 15.3%, 16.9%
and 16.9%,
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respectively. The retail price for suits sold under the Le Suit(TM) brand name
is $99 to $189. The Le Suit(TM) division has recently initiated a "quick
response" program similar to the Kasper for ASL(R) Suit division.
ALBERT NIPON(R) SUIT
The Albert Nipon(R) Suit division designs and markets suits to compete
in the bridge area of the market. These suits, which are primarily distributed
to high-end department and specialty stores, are designed to provide higher
styling and a more sophisticated look than Kasper for ASL(R) Suits and use more
expensive fabrics. In addition to garments in regular sizes, the Albert Nipon(R)
division also produces suits in petite sizes. Sales of Albert Nipon(R) Suits, as
a percentage of the Company's net wholesale sales, for the 1995 , 1996 and 1997
fiscal years were approximately 4.2%, 4.5% and 4.0%, respectively. The retail
price for suits sold under the Albert Nipon(R) brand name is $275 to $450.
ALBERT NIPON EVENING(TM)
The Albert Nipon Evening(TM) division designs and markets primarily
beaded and sequined evening suits and occupies an unique niche in the suit
marketplace. Sales of Albert Nipon Evening(TM) garments, as a percentage of the
Company's net wholesale sales, for the 1995 , 1996 and 1997 fiscal years were
approximately 2.0%, 1.5% and 1.6%, respectively. The retail price for garments
sold under the Albert Nipon Evening(TM) brand name is $350 to $700.
b. bennett(TM)
In Spring 1997, the Company introduced the b. bennett(TM) line of suits.
This product line is targeted to reach the younger woman seeking a more updated
look and offers her an alternative to the classic business suit. The b.
bennett(TM) line utilizes distinctive fabrics and trim detail to achieve this
look. All garments have the same level of quality and consistent fit as the
Company's other products. Sales of b. bennett(TM) garments, as a percentage of
the Company's net wholesale sales, for the 1997 fiscal year were approximately
1.4%. The retail price for garments sold under the b. bennett(TM) brand name is
$199 to $300.
PRIVATE LABEL
- -------------
The Company also designs and manufactures suits for sale under private
labels for various department stores. Sales of products for sale under these
private labels, as a percentage of the Company's net wholesale sales, for the
1995 , 1996 and 1997 fiscal years were approximately 12.6%, 14% and 9.5%,
respectively. The retail price for suits sold under private labels is $139 to
$199.
DRESSES
- -------
The Company produces collections of dresses under the Kasper for ASL(R)
Dresses brand name, targeted to sell at "better" prices. The Company's strategy
is to leverage its position in the career suit market by designing and marketing
dresses suitable for the career woman.
KASPER FOR ASL(R) DRESSES
The Company believes the Kasper for ASL(R) Dress division is one of the
largest "better" dress companies in the United States. The Kasper for ASL(R)
Dress division has expanded its line and offers a wide variety of high quality
dresses at affordable prices, including career and classic, desk to dinner
dresses. Kasper
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dresses, like Kasper suits, are designed with subtle changes from season to
season rather than drastic trends that tend to become outdated quickly. In order
to maintain a state of "newness" in its product line, the Kasper for ASL(R)
Dress division introduces a new line of dresses five times a year. Sales of
Kasper for ASL(R) Dresses, as a percentage of the Company's net wholesale sales,
for the 1995 , 1996 and 1997 fiscal years were approximately 10.9%, 8.2% and
6.8%, respectively. The retail price for dresses sold under the Kasper for
ASL(R) Dresses brand name is $110 to $180.
SPORTSWEAR
- ----------
The Company offers a collection of "better" career sportswear under the
brand names Kasper and Company ASL(R) Sportswear . Products offered in this area
of the market are intended for a less formal working environment as well as for
casual wear.
KASPER AND COMPANY ASL(R) SPORTSWEAR
In 1993, the Company introduced a line of sportswear under the Kasper
brand name priced between the moderate and better markets. This was a logical
extension that enabled the Company to capitalize on the competitive advantages
it had developed with its suit business. The Kasper and Company ASL(R)
Sportswear division designs and markets blazers, pants, skirts, knit tops and
blouses to be sold as separates. The Kasper and Company ASL(R) Sportswear uses
fabrics of similar quality as those used for the suits and maintaining the
consistency of excellent fit and quality tailoring. Sales of Kasper and Company
for ASL(R) Sportswear, as a percentage of the Company's net wholesale sales, for
the 1995 , 1996 and 1997 fiscal years were approximately 8.8%, 10.6% and 11.8%,
respectively. The retail price for garments sold under the Kasper for ASL(R)
brand name is $49 to $198.
NINA CHARLES(TM)
Nina Charles(TM) for Kasper ASL, also known for its consistency in
quality and fit, is a better priced knitwear division comprised of two distinct
product classifications: "better" knit dresses and "better" knit
sportswear/separates. Both product lines are designated with a modern approach
to career dressing. The styles are current but avoid fashion extremes. Sales of
Nina Charles(TM) garments, as a percentage of the Company's net wholesale sales,
for the 1995 , 1996 and 1997 fiscal years were approximately 0%, 3.7% and 6.2%,
respectively. The retail price for garments sold under the Nina Charles(TM)
brand name $49 to $199. The Company has recently decided to discontinue
marketing the Nina Charles(TM) brand name for wholesale in the United States
beginning with the Fall 1998 season.
DESIGN
- ------
The Company designs its products based on seasonal plans that reflect
prior seasons' experience, current design trends, economic conditions and
management's estimates of the product's future performance. Product lines are
developed primarily for the two major selling seasons, spring and fall. The
Company also produces lines for the transitional periods within these seasons.
As "seasonless" fabrics become increasingly popular in women's apparel, the
Company's has integrated these fabrics into its product lines.
The average lead time from the selection of fabric to the production and
shipping of finished goods ranges from approximately eight to nine months.
Although the Company retains significant flexibility to change production
scheduling, production, for other than private label goods, begins before the
Company has received customer orders.
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The Company's design teams travel around the world to select fabrics and
colors and stay abreast of the latest design trends and innovations. In
addition, the Company monitors the sales of its products to determine changes in
consumer trends. In-house designers use a computer-aided design ("CAD") system
to customize designs. The Company's designers meet regularly with the piece good
and sales departments to review design concepts, fabrics and styles.
Each of the Company's product lines has its own design team which is
responsible for the development and coordination of the product offerings within
each line. Once colors and fabrics are selected, production and showroom samples
are produced and incorporated into the product line, and the design and sourcing
departments begin to develop preliminary production samples. After approval of
the samples, production begins. As a line of products is being finalized,
customer reaction is evaluated and samples are modified as appropriate.
After production samples are approved for production, various patterns
that will be used to cut the fabric are produced by the Company's team of
experienced pattern makers. This process is aided by the use of a computerized
marker and grading system.
MANUFACTURING
- -------------
Apparel sold by the Company is manufactured in accordance with its
design, detailed specification and production schedules. The Company does not
own any significant manufacturing facilities, but contracts for the cutting and
sewing of its garments with over 30 contractors located principally in Taiwan,
the Philippines, Hong Kong and China. Purchases of finished goods from the
Company's four major contractors accounted for 29.2%, 13.7%, 13.4% and 11.7% of
the Company's total production during 1997. The Company schedules work with its
contractors so that each factory, or at least one floor of each factory, is
dedicated 100% to the Company's products, thereby ensuring quality control and
continuous flow of merchandise. The Company believes that outsourcing allows it
to maximize production flexibility while avoiding significant capital
expenditures, work-in-process inventory build ups and costs of managing a large
production work force. The Company's production and sourcing staffs in Hong
Kong, Taiwan and the Philippines oversee all aspects of apparel manufacturing
and production, including quality control, as well as researching and developing
new sources of supply. Although the Company does not have any long-term
agreements with any of its manufacturing contractors it has had long-term
mutually satisfactory relationships with its four principal contractors and has
engaged each of them for more than 15 years. The Company allocates product
manufacturing among contractors based on the contractor's capabilities, the
availability of production capacity and quota, quality, pricing and flexibility
in meeting changing production requirements on relatively short notice. The
Company is able to maintain low cost production through high unit volume and
captive manufacturing facilities as it has products manufactured 52 weeks per
year.
In order to ensure the continuous flow of current merchandise, the
Company maintains an inventory of piece goods in base cloths and colors at its
Hong Kong facility, as well as at various contractors. This enables the Company
to manufacture its products on a constant basis, keeping manufacturing
facilities busy during the slower time periods thus freeing up these facilities
for manufacture of the more recently designed products with a lesser lead time.
By keeping a steady flow of production to its contractors, the Company is able
to retain its dominant position in the contractors facility and allow for the
continuous flow of its products.
QUALITY CONTROL
- ---------------
The Company's comprehensive quality control program is designed to
ensure that purchased piece goods and finished goods meet the Company's exacting
standards. The Company monitors the quality of its fabrics and approves
"strike-offs" prior to the production of such fabrics. Production samples are
submitted to the Company
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for approval prior to production. The Company maintains a quality control staff
who, in addition, to the contractors' own quality control staff, inspect
prototypes of each garment before production runs are commenced and perform
random in-line quality control checks during production and after production
before the garments leave each contractor's premises. In addition, inspectors
perform quality control at the Company's distribution center in New Jersey,
where each style is measured against detailed specifications, and each garment
undergoes a sewing, button and thread inspection and is then steamed in a
state-of-the-art steam tunnel and pressed. Garments are selected at random from
shipments received in the distribution center and sent to New York for
inspection and approval by the production and sales staff before shipment. The
Company believes that its policy of inspection at the offshore contractors'
facilities, together with the inspection and refinishing at its distribution
center, are essential to maintaining the quality and reputation that its
garments enjoy.
The Company permits garments to be returned for credit by its customers
for defective merchandise, incorrect shipments, and/or late/early shipments
only. Average total returns of the Company's products for the 1995 , 1996 and
1997 fiscal years were less than 2.4% of net sales.
SUPPLIERS
- ---------
Generally, the raw materials required for the manufacturing of the
Company's products are purchased directly by the Company. Raw materials, which
are in most instances made and/or colored especially for the Company, consist
principally of piece goods and yarn. Purchases from the Company's four major
suppliers, accounted for 19.4%, 15.3%, 9.2%, and 6.8%, respectively, of the
Company's total purchases of raw materials for 1997. The Company's transactions
with its suppliers are based on written instructions issued by the Company from
time to time and, except for these instructions, the Company has no written
agreements with its suppliers. However, the Company has experienced little
difficulty in satisfying its raw material requirements and considers its sources
of supply adequate.
DISTRIBUTION
- ------------
The Company operates a 300,000 square foot distribution and refinishing
center in Secaucus, New Jersey. To ensure that each of its retail customers
receives the merchandise ordered in excellent condition, all apparel produced
for the Company is processed through the Company's distribution center before
delivery to the retail customer. No merchandise is drop-shipped directly from
the contractor to the customer.
The Company sells approximately 98% of its products within the United
States. The Company distributes its products through approximately 1,400
department stores and specialty retailer accounts throughout the United States
and Canada representing approximately 2,000 locations. Department stores
accounted for approximately 77%, 72%, and 75% of the Company's sales for the
1995 , 1996 and 1997 fiscal years , respectively. Federated Department Stores,
May Merchandising Co. and Dillards Department Stores accounted for approximately
18%, 17% and 14% of total sales, respectively, for fiscal 1997. Sales to any
individual store unit of either Federated Department Stores, May Merchandising
Co. and Dillards Department Stores did not exceed 8.1% of sales. While the
Company believes that purchasing decisions are generally made independently by
each department store, in some cases the trend may be toward more centralized
purchasing decisions. The Company's 10 largest customers accounted for
approximately 70% of the Company's total sales during 1997. A decision by one or
more of such substantial customers, whether motivated by fashion concerns,
financial difficulties, or otherwise, to decrease the amount of merchandise
purchased form the Company or to cease carrying the Company's products could
materially adversely affect the financial condition and operations of the
Company.
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The Company has a direct sales staff in the United States of 48 sales
employees, of which 32 are located in New York and 16 are located in Dallas,
Texas. The Dallas sales staff consists of two full-time employees and fourteen
part-time employees. All sales personnel are salaried. The Company also uses
commissioned agents at three regional showrooms in the United States. In
addition, senior management is actively involved in selling to major accounts.
Products are marketed to department stores and specialty retailing customers
during the "market weeks," which are generally four to six months in advance of
the five corresponding industry selling seasons. The Company also has a sales
office in London comprised of 6 full-time and one part-time employees.
The Company employs a cooperative advertising program with its major
retail accounts, whereby it contributes to the cost of its retail accounts'
advertising programs. An important part of the marketing process includes
prominent displays of the Company's products in retail accounts' sales
brochures.
The Company expects that its continuing emphasis on its retail
relationships with strong in-store marketing support will enable it to secure
broad retail distribution for its new and expanding apparel lines with good
in-store placement. The Company's retail relationships are long-standing, at
senior retail management levels. In 1993, the Company began implementing its
in-store Kasper for ASL(R) shops, which average 800 square feet and dominate the
retail floor with presentation of an in-depth Kasper for ASL(R) suit line. The
Company provides all of the necessary fixtures in return for store commitments
on location and average inventory levels. At January 3, 1998, the Company had
600 Kasper(R) in-store shops. The Company plans to continue to expand this
program to stores which historically have had strong Kasper(R) sales and are
willing to provide prominent floor placement and commit to minimum average
inventory levels.
The Company maintains a staff of 13 regional specialists who service the
department stores carrying the Company's products, focusing principally on the
Kasper for ASL(R) suit line. Retail specialists visit each of their assigned
stores several times a year, depending on the store's volume, to track stock and
sales at each store, conduct training seminars and provide assistance in
displaying the products, collect information on the positioning and appearance
of the Company's products in each store and interact with and assist the store's
customers both informally and at fashion shows organized by the specialists.
These regional specialists provide written reports to the Company's management
and to store management, with the goal of assisting each store to optimize sales
and margins.
Of the approximately 2,000 stores that carry the Company's products,
regional specialists track approximately 800 of the largest locations which, in
fiscal 1997, aggregated approximately 60% of the Kasper suit sales.
Approximately 100 selling specialists, at the highest volume Kasper(R) in-store
boutiques, also report weekly to the Company on sales and inventory positions.
Although these selling specialists are store employees, they are trained by the
Company and can earn Kasper(R) suits from the Company as incentive bonuses for
above average performance. The Company expects to continue to increase the
number of selling specialists as it identifies motivated sales people who are
willing to assume the additional responsibilities. The Company believes that
this in-house marketing support is instrumental in maintaining its competitive
position.
RETAIL OUTLET STORES
- --------------------
In July 1995, the Company commenced its retail outlet store program to
establish another distribution channel for its products and to take advantage of
the current consumer trend towards shopping at "company outlet" stores. At
January 3, 1998, the Company operated 47 retail outlet stores which represented
approximately 7.1% and 12.4% of total sales for the 1996 and 1997 fiscal years,
respectively. These stores, which stock current line merchandise, are generally
located in an outlet center mall where other women's apparel companies have
established retail outlet stores. The Company believes the retail outlet stores
help develop customer awareness
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of the Company's brand names while allowing management to control the price
range of its products. The Company currently has retail locations in Secaucus,
New Jersey, Franklin Mills, Pennsylvania, Worcester, Massachusetts, Central
Valley, New York, Dawsonville, Georgia, Martinsburg, West Virginia, Clinton,
Connecticut, Lancaster, Pennsylvania, Vero Beach, Florida, Howell, Michigan,
Ontario, California, Orlando, Florida, Burbank, Ohio, Michigan City, Indiana,
Grove City, Pennsylvania, Camarillo, California, Gaffney, South Carolina,
Jackson, New Jersey, Waterloo, New York, Riverhead, New York, Williamsburg,
Virginia, Chattanooga, Tennessee, Hilton Head, South Carolina, Prince William,
Virginia, Myrtle Beach, South Carolina, Kittery, Maine, Commerce, Georgia,
Tannersville, Pennsylvania, Reading, Pennsylvania, Destin, Florida, Ellenton,
Florida, Sunrise, Florida, Foley, Alabama, Gonzalez, Louisiana, Gainesville,
Texas, Hillsboro, Texas, San Marcos, Texas, Castle Rock, Colorado, Kenosha,
Wisconsin, Jeffersonville, Ohio, Edinburgh, Indiana, Lake Elsinore, California,
Las Vegas, Nevada, Napa, California, Gilroy, California, Sevierville, Tennessee,
and Birch Run, Michigan.
TRADEMARKS
- ----------
The Company is the holder of several registered marks in the United
States, including Kasper(R), Kasper for ASL(R), Kasper II(R), Kasper for ASL
Petite(R), Kasper and Company(R), Kasper and Company Petite(R), Kasper Dress(R),
Kasper Dress Petite(R), Albert Nipon(R), Nipon Boutique(R), Executive Dress by
Albert Nipon(R), Nipon Night(R), Albert Nipon Suits(R), Nipon Studio(R). The
Company believes its ability to market its products under the Marks is a
substantial factor in the success of the Company's products. The Company relies
primarily upon a combination of trademark, copyright, know-how, trade secrets,
and contractual restrictions to protect its intellectual property rights. The
Company believes that such measures afford only limited protection and,
accordingly, there can be no assurance that the actions taken by the Company to
establish and protect its trademarks, including the Marks, and other proprietary
rights will prevent imitation of its products or infringement of its
intellectual property rights by others, or prevent the loss of revenue or other
damages caused thereby. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or obtain and use information that the Company regards as proprietary.
In addition, there can be no assurance that one or more parties will not assert
infringement claims against the Company; the cost of responding to any such
assertion could be significant, regardless of whether the assertion is valid.
IMPORTS AND IMPORT RESTRICTIONS
- -------------------------------
The Company's transactions with its foreign manufacturers and suppliers
are subject to the risks of doing business abroad.
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Taiwan, South Korea, and Hong Kong. These agreements, which
have been negotiated bilaterally either under the Arrangement Regarding
International Trade in Textiles, known as the Multifiber Agreement, and other
applicable statues, impose quotas on the amounts and types of merchandise which
may be imported into the United States from these countries. These agreements
also allow the United States to impose restraints at any time on the importation
of categories of merchandise that, under the terms of the agreements, are not
currently subject to specified limits. The Company's imported products are also
subject to United States customs duties which comprise a material portion of the
cost of the merchandise. A substantial increase in customs duties could have an
adverse effect on the Company's operating results. The United States and the
countries in which the Company's products are produced or sold may, from time to
time, impose new quotas, duties, tariffs, or other restrictions, or adversely
adjust prevailing quota, duty, or tariff levels, any of which could have a
material adverse effect on the Company.
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The Company monitors duty, tariff and quota-related developments and
continually seeks to minimize its potential exposure to quota-related risks
through, among other measures, geographical diversification of its manufacturing
sources, the maintenance of overseas offices, allocation of production to
merchandise categories where more quota is available and shifts production among
countries and manufacturers.
The Company's imported products are also subject to United States custom
duties and duties imposed in the ordinary course of business.
The United States and the other countries in which the Company's
products are manufactured may, from time to time, impose new quotas, duties,
tariffs or other restrictions, or adversely adjust presently prevailing quotas,
duty or tariff levels, which could adversely affect the Company's operations and
its ability to continue to import products at current or increased levels. The
Company cannot predict the likelihood or frequency of any such events occurring.
Because the Company's foreign manufacturers are located at greater
geographic distances from the Company, the Company is generally required to
allow greater lead time for foreign orders, which reduces the Company's
manufacturing flexibility. Foreign imports are also affected by the high cost of
transportation into the United States. These costs are generally offset by the
lower labor costs.
In addition to the factors outlined above, the Company's future import
operations may be adversely affected by political instability resulting in the
disruption of trade from exporting countries, any significant fluctuation in the
value of the dollar against foreign currencies and restrictions on the transfer
of funds.
BACKLOG
- -------
As of March 1, 1998, the Company had unfilled customer orders of
approximately $97.5 million, compared to approximately $90.8 million of such
orders at March 1, 1997, an increase of 7.4% over the comparable period . These
amounts include both confirmed orders for shipment within the next six months
and unconfirmed orders which, the Company believes, based on industry practice
and past experience, will be confirmed. The amount of unfilled orders at a
particular time is affected by a number of factors, including the scheduling of
the manufacture and shipping of the product, which in some instances is
dependent on the desires of the customer. Accordingly, a comparison of unfilled
orders from period to period is not necessarily meaningful and may not be
indicative of eventual actual shipments.
COMPETITION
- -----------
Competition is strong in the areas of the fashion industry in which the
Company operates. The Company competes with numerous designers and manufacturers
of apparel and accessory products, domestic and foreign, none of which accounts
for a significant percentage of total industry sales, but some of which are
significantly larger and have substantially greater resources than the Company.
The Company's business depends, in part, on its ability to shape and stimulate
consumer tastes and demands by producing innovative, attractive, and exciting
fashion products, as well its ability to remain competitive in the areas of
design and quality.
The Company competes primarily on the basis of consistency of quality
and fit, design, diversity of its product lines and service to its retail
customers. The Company's principal competitors are Seville, Jones New York,
Bicci and Liz Claiborne and department stores' private labels. The Company
believes that its competitive advantages at the customer and retail levels have
served to modulate its competition in the "upper moderate" women's suit
category. These competitive advantages include excellent quality and consistent
fit of the garments
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with high price-to-value relationship, long-standing relationships with fabric
suppliers, low-cost but high-quality production through high unit volume and
captive manufacturing facilities, and long-standing relationship with retailers.
EMPLOYEES
- ---------
At January 3, 1998, the Company had approximately 1,000 employees
including 688 full-time employees and 312 part-time employees. Of the 688
full-time employees, approximately 86 are employed in executive, managerial,
administrative, clerical and office positions, approximately 92 in design, 263
in distribution, 97 in production, 46 in sales and marketing and 104 in retail
sales. Of the 312 part-time employees, approximately 298 are employed in the
Company's retail outlet stores and 14 in the Dallas showroom. Approximately 330
of the Company's 1,000 employees are members of UNITE, the Union representing
the Needle Trades, Industrial and Textile Employees, which has a 3 year labor
agreement with the Company expiring on May 31, 2000. The Company considers its
relations with its employees to be satisfactory.
PROPERTIES
- ----------
The Company's principal executive office, warehousing and distribution
facilities are located in a 289,894 square foot facility located in Secaucus,
New Jersey. The Company leases its headquarters facility from Import Hartz
Associates. The lease, which expires on December 31, 2006, requires an annual
average rent payment of approximately $1.4 million during the term of the lease.
At January 3, 1998, the Company operated 47 retail outlet stores, of
which approximately 22 stores are currently operating on month-to-month leases.
The Company is currently negotiating five-year leases for all such 22 store
locations. The majority of all the new stores are leased under five-year leases.
The average store size is approximately 2,700 square feet, ranging from a
minimum of 1,500 square feet to a maximum of 5,700 square feet.
LEGAL PROCEEDINGS
- -----------------
During 1988, Leslie Fay purchased substantially all of the assets of
Albert Nipon, Inc., including, without limitation, the "Nipon" trademarks and
tradenames. As part of such transaction, Albert Nipon and Pearl Nipon
(collectively, the "Nipons"), each entered into employment contracts with Leslie
Fay (the "Nipon Employment Contracts"), which contracts were rejected by Leslie
Fay during the course of the Chapter 11 cases. Both of the foregoing agreements
contain non-competition covenants.
On January 4, 1995, the Nipons commenced an adversary proceeding against
Leslie Fay in the U.S. Federal Bankruptcy Court in New York (the "Nipon
Complaint"), pursuant to which the Nipons sought a declaratory judgment that
they are not bound or restricted by the non-competition covenants set forth in
the Nipon Employment Contracts. By motion dated April 3, 1995, Leslie Fay sought
to dismiss the Nipon Complaint pursuant to Rule 7012 of the Federal Rules of
Bankruptcy Procedure and Rule 12(b)(1) of the Federal Rules of Civil Procedure
for lack of subject matter jurisdiction because insufficient facts were
presented to establish a judiciable controversy, and directed the parties to
engage in mediation of the issues raised in the Nipon Complaint. After oral
argument, the Bankruptcy Court deferred ruling on Leslie Fay's motion and
appointed a mediator to attempt to reconcile the parties' differences. The
mediation concluded in an impasse and, thereafter, by opinion dated September
21, 1995, the Bankruptcy Court granted Leslie Fay's motion to dismiss the
adversary proceeding pending the Nipons' filing of an amended complaint within
thirty days. Because the Nipons failed
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to file an amended complaint setting forth a justiciable case or controversy,
the court dismissed the Nipon Complaint on or about October 30, 1995.
On February 27, 1996, Albert Nipon, together with American Pop Marketing
Group, Inc ("American Pop")., filed a second complaint against Leslie Fay and
the Leslie Fay Licensing Corporation (the "Second Complaint") alleging breach of
contract and requesting, INTER ALIA, a declaration that Mr. Nipon may use his
name in a manner outlined in the Second Complaint and as contained in Opinion
Letters of his special trademark/tradename counsel. Leslie Fay and the Leslie
Fay Licensing Corporation served an answer to the complaint and simultaneously
filed a counterclaim against Mr. Nipon and American Pop for, INTER ALIA,
trademark infringement of Leslie Fay's federally registered "NIPON" trademarks.
Following the conclusion of discovery, the Court and the parties agreed to have
the matter resolved based on a stipulated record. The parties further agreed to
reserve briefing and argument on Mr. Nipon's claims for breach of contract and
tortious interference and Leslie Fay's claims for damages and attorney's fees
until after the Court issues its decision on the core trademark claims. In a
decision dated December 23, 1997 (the "Decision"), the Court found Mr. Nipon and
American Pop to be in violation of, among other things, federal trademark law.
In a final judgment with injunction entered January 27, 1998 (the "Judgment"),
the Bankruptcy Court enjoined Mr. Nipon and American Pop from using the
designation "ALBERT NIPON" or any confusingly similar designation to market or
sell apparel or accessory items whether on labels or hangtags or in promotional
materials (although the judgment and order does not prohibit Mr. Nipon from
working as a designer or promoter of goods in the apparel/accessory industry or
informing those industries, but not the ultimate consumer, of his association
with other products or companies).
Mr. Nipon and American Pop have appealed from the Decision and the
Judgment, and Leslie Fay has cross-appealed from that portion of the Judgment
denying its request that Mr. Nipon and American Pop pay its costs, attorneys'
fees and other nontaxable costs. The parties perfected the appeal and
cross-appeal and are awaiting transmission of the appeal and cross-appeal to the
District Court for the Southern District of New York.
On November 17, 1997, the Company's wholly-owned subsidiary, Asia
Expert, Ltd. received a letter from the United States Customs Service stating
that a monetary claim in the amount of $694,860 was being contemplated against
Asia Expert, Ltd. as a result of an alleged trans-shipment of goods in late 1995
from China by a contractor. However, it is the Company's position that its
subsidiary did not knowingly or intentionally participate in any violation of
U.S. Custom laws and the Company intends to vigorously pursue all appropriate
legal defenses. The Company has conducted its own investigation through its
customs legal counsel. As a result of the investigation, the Company has
obtained an admission from the contractor that actual trans-shipments had
occurred, but that the contractor acted independently and intentionally
misrepresented its actions to the Company. The contractor further confirmed in a
sworn affidavit that these practices were done entirely without the knowledge of
the Company. Based upon these facts, the Company has responded to US Customs in
a letter dated January 8, 1998 requesting termination of the proceeding without
the issuance of any penalties.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Company's directors, executive officers and key employees are as
follows:
NAME AGE POSITION
Arthur S. Levine 57 Chairman of the Board and Chief Executive
Officer
Clifford B. Cohn 46 Director (1)
William J. Nightingale 68 Director (1)
Larry G. Schafran 59 Director (1)
Robert L. Sind 64 Director (1)
Olivier Trouveroy 42 Director (1)
Gregg I. Marks 45 President
Lester E. Schreiber 49 Chief Operating Officer and Director (1)
Dennis P. Kelly 51 Chief Financial Officer
Barbara Bennett 45 Vice President - Design
Peter Eng 43 Vice President - Piece Goods
Peter Huang 62 Director of Production - Taiwan/Philippines
Peter Lee 50 Managing Director - Asia Expert, Ltd.
- ---------------------
(1) All the directors of the Company have served in such capacity since June
1997.
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers and key employees are as
follows:
ARTHUR S. LEVINE, the Chairman of the Board and Chief Executive Officer
of the Company, has been in the apparel business all his career having started
with Stacy Ames. In 1975, Mr. Levine established Sassco Fashions, Ltd. which he
then sold to Leslie Fay in May 1980 and since that date has operated the Company
as an autonomous entity. Mr. Levine is responsible for the Company's dominance
in the suit business. This has been accomplished through his emphasis on
product, quality, fit and value. His attention to detail and consistency of
product (fit and make) has propelled Kasper to its number one position in the
suit marketplace.
CLIFFORD B. COHN is an attorney and principal of Cohn & Associates, a
private law practice he established in September 1994. Prior to organizing Cohn
& Associates, Mr. Cohn was affiliated with the law firm of Sernovitz & Cohn for
a period of two years. Mr. Cohn also serves as a director of Publicker
Industries, a diversified investment company and an affiliated company of
Balfour Investors Incorporated, a shareholder and Noteholder of the Company's
Securities. Mr. Cohn has been a director of Leslie Fay since June 1997.
WILLIAM J. NIGHTINGALE is currently a Senior Advisor of Nightingale &
Associates, LLC, a general management consulting firm, and has served in various
capacities with the firm, including Chairman and Chief Executive Officer, since
July 1975. Mr. Nightingale is also a director of Leslie Fay, a position he has
held since June 1997 and a director of Rings End, Inc., Tune Up Masters, Inc.;
and a trustee of the Churchill Tax Free Fund of Kentucky, Churchill Cash
Reserves Trust, and Narragansett Insured Tax Free Income Fund.
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LARRY G. SCHAFRAN, has served as the managing general partner of L.G.
Schafran & Associates, a real estate investment and development firm, since
October 1984. Mr. Schafran is also Chairman of the Board of Delta-Omega
Technologies, Inc., a specialty chemical company involved in the research,
development, manufacturing and marketing of environmentally safe products that
have applications in soil remediation. He also serves as a director of Publicker
Industries, a diversified investment company and an affiliated company of
Balfour Investors Incorporated, a shareholder and Noteholder of the Company's
Securities.
ROBERT L. SIND has been the president and chief executive officer of
Recovery Management Corporation, an operating and financial management company
which he founded with a group of experienced industry and operating
professionals, having served over 40 companies since its inception in May 1984.
Previously, Mr. Sind had been an investment banker, and had held senior
corporate operating and financial positions, including Londontown Manufacturing
Company, Beker Industries Corp., and more recently, was chief operating officer
of Nice-Pak Products, Inc. Mr. Sind has been a director of Leslie Fay since June
1997.
OLIVIER TROUVEROY has served as the managing partner of ING Equity
Partners, a private equity investment firm, and its predecessors since February
1992. Mr. Trouveroy also serves as a director of Cost Plus, Inc., a specialty
retailing company, and American Communications Services, Inc., a
telecommunications company.
GREGG I. MARKS, the President of the Company, has been affiliated with
the Company since August 1983 and has held the position of President since
January 1989. Mr. Marks has been an integral part of the Company's growth
through the development of numerous marketing strategies. Mr. Marks maintains
numerous relationships with the management of all major customers, balancing the
various product lines of the Company with the needs of the stores, and
ultimately, the consumer. He is directly responsible for the supervision of the
Kasper suit line sales staff and the heads of all other divisions report
directly to him. Prior to joining the Company in August 1983, Mr. Marks served
as sales manager at Suits Galore, a manufacturer of women's suits, for a period
of two years.
LESTER E. SCHREIBER has served as Chief Operating Officer since May 1996
and a Director of the Company since June 1997. Mr. Schreiber's responsibilities
constitute the overall general management of the Company including all
administrative areas as well as the operations of the Company's reprocessing and
distribution center. Prior to becoming Chief Operating Officer of the Company,
Mr. Schreiber served as Vice President of Operations from January 1989 to April
1996. Prior to joining the Company, Mr. Schreiber was Chief Financial Officer
and Vice President of Operations at Maytex Mills, a manufacturer and distributor
of household furnishings from March 1987 to December 1988.
DENNIS P. KELLY, Chief Financial Officer, has been affiliated with the
Company since May 1995. Mr. Kelly is responsible for all financial and
accounting functions of the Company as well as personnel. Prior to joining the
Company, Mr. Kelly worked in several executive positions, most recently as Vice
President and Controller of Crystal Brands, Inc., a diversified apparel and
jewelry manufacturer from October 1985 to February 1995. Mr. Kelly is a
certified public accountant and an attorney.
KEY EMPLOYEES
The following key employees of the Company make significant
contributions to the operations of the Company:
-40-
<PAGE>
BARBARA BENNETT, Vice President - Design, joined the Company in October
1980. As head of the Company's in-house design studio, Ms. Bennett is
responsible for coordinating the input she receives from the Company's sales
staff, her design staff, and her analysis of the market to oversee the design of
each of the Company's product lines on a timely basis. Ms. Bennett travels
frequently to Europe and monitors the domestic market to keep abreast of fashion
trends. In addition, Ms. Bennett works with key customers and is involved in the
development of the Company's computer design system. Prior to joining the
Company, Ms. Bennett was a designer at Leslie Fay for two years.
PETER ENG, Vice President - Piece Goods, joined the Company in November
1982. Mr. Eng is responsible for the development of new fabrics as well as
variations of current fabrics. Mr. Eng travels through Europe in search of new
ideas and trends, and to the Far East to ensure that the fabrics purchased by
the Company meet the Company's specifications. As a result, Mr. Eng has
developed key relationships with the management of the Company's contractors and
suppliers.
PETER HUANG, Director of Production - Taiwan/Philippines, has been
affiliated with the Company since April 1977. Through his long-standing
relationships with the Company's production factories and his staff, Mr. Huang
is responsible for the timeliness of the Company's deliveries and ensuring the
adherence to the Company's standards of quality.
PETER LEE, Director - Asia Expert, Ltd., joined the Company in January
1997 as Managing Director of the Hong Kong buying office. Prior to joining the
Company, Mr. Lee served for 25 years as Vice President in charge of
administration and production in Taiwan and the Philippines for Carnival
Textiles, a publicly traded Taiwan company and one of the Company's largest
suppliers.
COMMITTEES
- ----------
On June 10, 1997, the Board of Directors established an Audit Committee,
a Compensation Committee and a Finance Committee.
The Company's Audit Committee is currently composed of Messrs.
Nightingale, Schafran and Sind. The function of the Audit Committee is to make
recommendations concerning the selection each year of independent auditors of
the Company, to review the effectiveness of the Company's internal accounting
methods and procedures, and to determine, through discussions with the
independent auditors, whether any instructions or limitations have been placed
upon them in connection with the scope of their audit or its implementation.
The Compensation Committee is currently composed of Messrs. Trouveroy,
Cohn and Schafran. The function of the Compensation Committee is to review and
recommend to the Board of Directors policies, practices and procedures relating
to compensation of key employees and to administer employee benefit plans.
The Finance Committee is currently composed of Messrs. Sind, Trouveroy,
Cohn, Nightingale, and Schafran. The function of the Finance Committee is to
evaluate and review on a continuing basis specific financing programs and
requirements to meet the near and long-term needs of the Company; to advise
management on the Company's business plans and budgets; to review the
organization and functions of the Company's finance department; and to
participate in the development and implementation of the investment and the
investor programs.
-41-
<PAGE>
COMPENSATION OF DIRECTORS
- -------------------------
Each Director who is not an employee of the Company is paid for service
on the Board of Directors a retainer at the rate of $40,000. Each current
non-employee Director also received an option to purchase 20,000 shares of
Common Stock. Such options vest ratably over the first three anniversaries of
the date of grant and are exercisable at a price of $14.00 per share. The
Company also reimburses each Director for reasonable expenses in attending
meetings of the Board of Directors. Directors who are also employees of the
Company are not separately compensated for their services as Directors.
EXECUTIVE COMPENSATION
- ----------------------
The following table sets forth information concerning the annual
compensation paid by the Company for services rendered during the fiscal years
ended December 28, 1996 and January 3, 1998 to each of the Company's executive
officers whose total compensation exceeded or is expected to exceed $100,000
(the "Named Executive Officers") and to all executive officers of the Company as
a group.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
YEAR SALARY BONUS OPTIONS COMPENSATION
---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Arthur S. Levine
Chairman of the Board and 1997 $1,200,000 $ -- (1) 1,240,252 $1,507,635 (2)
Chief Executive Officer 1996 $ 100,000 $ 65,000 -- $3,418,732 (3)
Gregg I. Marks 1997 $ 500,000 $ 370,000 171,068 $ 16,824 (4)
President 1996 $ 260,000 $ 474,200 -- $ 11,228 (5)
Lester E. Schreiber 1997 $ 162,580 $ 62,500 85,536 $ 16,382 (6)
Chief Operating Officer 1996 $ 100,080 $ 131,500 -- $ 15,310 (7)
Dennis P. Kelly
Chief Financial Officer 1997 $ 150,000 $ 65,000 -- $ 576 (8)
1996 $ 150,000 $ 60,000 -- $ 348 (8)
Barbara Bennett 1997 $ 600,000 $ 50,000 171,068 $ 3,218 (9)
Vice President - Design 1996 $ 600,000 $ 50,000 -- $ 1,477 (9)
All Executive Officers as a 1997 $2,012,580 $ 497,500 1,496,856 $1,541,417
group (4 persons) 1996 $ 610,080 $ 730,700 -- $3,445,618
</TABLE>
- -----------------------
(1) Mr. Levine's employment agreement with the Company provides for a bonus
commencing in the 1998 fiscal year in an amount between $500,000 and
$1.5 million based upon the fulfillment of certain EBITDA hurdles for
the fiscal years 1998, 1999 and thereafter.
(2) Includes $2,325 in Group Term Life Insurance, $17,390 in automobile
allowance and $1,487,920 in consulting fees. See "Certain Transactions."
-42-
<PAGE>
(3) Includes $450 in Group Term Life Insurance, $15,640 in automobile
allowance and $3,402,642 in consulting fees. See "Certain Transactions."
(4) Includes $1,824 in Group Term Life Insurance and $15,000 in automobile
allowance.
(5) Includes $428 in Group Term Life Insurance and $10,800 in automobile
allowance.
(6) Includes $482 in Group Term Life Insurance and $15,900 in automobile
allowance.
(7) Includes $160 in Group Term Life Insurance and $15,150 in automobile
allowance.
(8) Represents $576 in Group Term Life Insurance.
(9) Represents $1,566 and $1,218 in Group Term Life Insurance for fiscal
1997 and fiscal 1996, respectively, and a clothing allowance of $2,000
and $259 for fiscal 1997 and fiscal 1996, respectively.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the 1997 Management Stock Option Plan to the Named Executive
Officers in 1997. These grants are also reflected in the Summary Compensation
Table. In addition, in accordance with the SEC disclosure rules, the
hypothetical gains or "option spreads" for each option grant are shown based on
compound annual rates of stock price appreciation of 5% and 10% from the grant
date to the expiration date. The assumed rates of growth are prescribed by the
SEC and are for illustration purposes only; they are not intended to predict
future stock prices, which will depend upon market conditions and the Company's
future performance and prospects. Accordingly, none of the following would have
realized any value if they had exercised their options on such date. No SARs
were granted to any Named Executive Officer in 1997.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term
- ----------------------------------------------------------------------------------------------
% of Total
Name Number of Options
Securities Granted to Expiration
Underlying Employees in Exercise Date
Options Granted Fiscal Year Price (1) (2) 5% 10%
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Arthur S. Levine 1,240,252 71% $ 14.00 6/1/04 $6,110,272 $14,067,749
Gregg I. Marks 171,068 10% $ 14.00 6/1/04 842,790 1,940,365
Lester E. Schreiber 85,536 5% $ 14.00 6/1/04 421,405 970,205
Dennis P. Kelly -- 0% $ 14.00 6/1/04 -- --
Barbara Bennett 171,068 10% $ 14.00 6/1/04 842,790 1,940,365
</TABLE>
(1) The Market price per share on the grant date was $13.19.
(2) Options may be exercised on a cumulative basis for 25% of the grant on
the date of the grant and for 15% annually thereafter on June 4 from the
years 1998 to 2002.
EMPLOYMENT AGREEMENTS
- ---------------------
The Company has entered into a five-year employment agreement dated June
4, 1997 with Mr. Levine which provides for an annual compensation of $2 million.
In addition to the base compensation, the agreement provides for a bonus
commencing in the 1998 fiscal year in an amount between $500,000 and $1.5
million based upon the fulfillment of certain EBITDA hurdles for the fiscal
years 1998, 1999 and thereafter. The Company does not maintain a key person life
insurance policy on the life of Mr. Levine. The loss of Mr. Levine could have
-43-
<PAGE>
a material adverse effect on the Company's business if a suitable replacement or
replacements could not be promptly found.
The employment agreement requires Mr. Levine to provide at least 30
days' notice of intent to terminate the agreement. In addition, the employment
agreement provides that following termination, other than termination by Mr.
Levine for "good reason" (as defined in the agreement) or by the Company without
"cause" (as defined in the agreement) Mr. Levine shall not participate or engage
in, either directly or indirectly, any business activity that is directly
competitive with the Company for the balance of the original term of the
employment agreement.
The Company is currently negotiating employment agreements with Messrs.
Schreiber and Marks.
1997 MANAGEMENT STOCK OPTION PLAN
- ---------------------------------
On December 2, 1997, the Board of Directors approved the 1997 Management
Stock Option Plan (the "Management Plan"). To date, the Company has issued
Management Options to purchase 1,753,459 shares of Common Stock, which upon
issuance will represent approximately 20.5% of the Company's outstanding Common
Stock. Such options are exercisable at $14.00 per share, which was greater than
the market value per share on the date of grant, and vest as follows: 25% vested
immediately with 15% vesting annually thereafter on June 4 from the years 1998
to 2002. The Management Options expire on June 1, 2004.
The Management Plan provides for the grant to officers and employees of
and consultants to the Company and its affiliates who are responsible for or
contribute to the management, growth and profitability of the Company of options
to purchase Common Stock. The total number of shares of Common Stock for which
options may be granted under the Plan is 2,500,000 shares. No participant may be
granted stock options covering in excess of 1,500,000 shares of Common Stock
over the life of the Management Plan. Management Options are not transferable by
the optionee other than by will or the laws of descent and distribution or to
facilitate estate planning, and each option is exercisable during the lifetime
of the optionee only by such optionee.
The Management Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"). The Management Options granted as of the
dated hereof are nonqualified stock options. The term of each option granted
pursuant to the Management Plan may be established by the Committee, in its sole
discretion; provided, however, that the maximum term of each option granted
pursuant to the Management Plan is six and one-half years. Options shall become
exercisable at such times and in such installments as the Committee shall
provide in the terms of each individual option agreement.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
- -----------------------------------
On June 10, 1997, the Board of Directors approved the grant of stock
options ("Director Options") to purchase 20,000 shares of Common Stock to each
of its five non-employee directors. Each option has an exercise price of $14.00
per share and will vest ratably over the first three anniversaries following the
date of grant. The Director Options will expire on the fifth anniversary of the
date of grant. Director Options are not transferable by the optionee other than
by will or the laws of descent and distribution, and each option is exercisable
during the lifetime of the optionee only by such optionee.
-44-
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding (i) the
beneficial ownership of the Common Stock as of March 19, 1997 based upon the
most recent information available to the Company for (i) each person known by
the Company who owns beneficially more than five percent of the Common Stock,
(ii) each of the Company's executive officers and directors and (iii) all
executive officers and directors
of the Company as
a group. Unless otherwise indicated, each stockholder's address is c/o the
Company, 77 Metro Way, Secaucus, New Jersey 07094.
NAMES AND ADDRESS NUMBER OF SHARES PERCENTAGE OWNERSHIP
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF COMMON STOCK
- ------------------- ------------------ ---------------
Arthur S. Levine 341,333 (1) 4.8%
Clifford B. Cohn 6,667 (2) *
William J. Nightingale 6,667 (2) *
Larry G. Schafran 6,667 (2) *
Robert L. Sind 6,667 (2) *
Olivier Trouveroy 6,667 (2) *
Gregg I. Marks 42,767 (3) 0.6%
Lester E. Schreiber 21,384 (4) 0.3%
Dennis P. Kelly -- *
ING Equity Partners, L.P. I
135 East 57 Street
New York, N.Y. 10022 610,971 (5) 8.8%
Officers and Directors as a group (9 438,819 (6) 6.1%
persons)
- --------------------
(1) Includes 310,063 shares of Common Stock issuable upon exercise of
currently exercisable Management Options, 6,254 shares of Common Stock
subject to the Holdback and 25,016 shares issued to Alco Design
Associates, Inc.
(2) Includes 6,667 shares of Common Stock issuable upon exercise of currently
exercisable options.
(3) Includes 42,767 shares of Common Stock issuable upon exercise of currently
exercisable Management Options.
(4) Includes 21,384 shares of Common Stock issuable upon exercise of currently
exercisable Management Options.
(5) Includes 119,043 shares of Common Stock subject to the Holdback. Mr.
Trouveroy, a director of the Company, is a partner of ING Equity Partners,
L.P. He disclaims beneficial ownership of all securities beneficially
owned by ING Equity Partners, L.P.
(6) Includes 407,549 shares of Common Stock issuable upon exercise of
currently exercisable Management and Director Options.
-45-
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The Company has issued an aggregate of 6,800,000 shares of Common Stock
and 12.75% Senior Notes in the aggregate principal amount of $110 million. Of
such Common Stock and Senior Notes, 1,350,131 shares of Common Stock and
$12,141,438 principal amount of Senior Notes were issued to the Selling
Stockholders and are being offered pursuant to this Prospectus. The Selling
Stockholders may effect sales of shares of Common Stock and Senior Notes from
time to time by themselves, their pledgees and/or their donees, in transactions
(which may include block transactions) on the over-the-counter market, in
negotiated transactions, through the writing of options on the Common Stock or
Senior Notes or a combination of such methods of sale, at a fixed price or at
prices that may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Stockholders, their pledgees and/or their
donees, may effect such transactions by selling Common Stock and Senior Notes
directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of shares of Common Stock for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
Company has agreed to bear all expenses in connection with the registration of
the Securities. The Selling Shareholders shall pay any underwriting discounts or
commissions relating to the Securities sold by them pursuant to this Prospectus.
The Selling Stockholders, their pledgees and/or their donees, and any
broker-dealers that act in connection with the sale of the shares of the
Securities as principals may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act and any commissions received by them and
any profit on the resale of the shares of the Securities as principals might be
deemed to be underwriting discounts and commissions under the Securities Act.
The Selling Stockholders, their pledgees and/or their donees, may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of the Securities against certain liabilities, including
liabilities arising under the Securities Act.
The following table sets forth certain information with respect to
persons for whom the Company is registering the Securities for resale to the
public. Beneficial ownership of the Securities by such Selling Shareholders
after the offering will depend on the number of Selling Shareholders' Securities
sold by each Selling Stockholder.
BENEFICIAL MAXIMUM
OWNERSHIP AMOUNT TO
SELLING SHAREHOLDER PRIOR TO OFFERING BE SOLD
- ------------------- ----------------- -------
COMMON STOCK
Betje Partners 8,732 (1) 8,732 (1)
Phaeton BVI 17,336 (2) 17,336 (2)
Phoenix Partners 25,054 (3) 25,054 (3)
Endowment Restart 44,603 (4) 44,603 (4)
Morgens Waterfall Income Partners 23,344 (5) 23,344 (5)
Restart Partners I, L.P. 141,137 (6) 141,137 (6)
Restart Partners II, L.P. 210,944 (7) 210,944 (7)
Restart Partners III, L.P. 147,932 (8) 147,932 (8)
Restart Partners IV, L.P. 89,015 (9) 89,015 (9)
Restart Partners V, L.P. 31,063(10) 31,063(10)
ING Equity Partners, L.P. I 610,971(11) 610,971(11)
--------- ---------
TOTAL SHARES OF COMMON STOCK 1,350,131 1,350,131
========= =========
-46-
<PAGE>
BENEFICIAL MAXIMUM
OWNERSHIP AMOUNT TO
SELLING SHAREHOLDER PRIOR TO OFFERING BE SOLD
- ------------------- ----------------- -------
SENIOR NOTES (12)
Betje Partners $ 31,170 (13) $ 31,170 (13)
Phaeton BVI $ 61,884 (14) $ 61,884 (14)
Phoenix Partners $ 89,434 (15) $89,434 (15)
Endowment Restart $ 159,217 (16) $ 159,217 (16)
Morgens Waterfall Income Partners $ 83,330 (17) $ 83,330 (17)
Restart Partners I, L.P. $ 503,808 (18) $ 503,808 (18)
Restart Partners II, L.P. $ 752,995 (19) $ 752,995 (19)
Restart Partners III, L.P. $ 528,061 (20) $ 528,061 (20)
Restart Partners IV, L.P. $ 317,750 (21) $ 317,750 (21)
Restart Partners V, L.P. $ 110,884 (22) $ 110,884 (22)
General Motors Retirement Program for
Salaried Employees High Yield Account $ 800,000 $ 800,000
The Prudential Series Fund, Inc.
High Yield Bond Portfolio $ 2,200,000 $ 2,200,000
Dreyfus Short-Term High Yield Fund $ 1,317,519 $ 1,317,519
Dreyfus Premier Limited Term High
Income $ 3,000,000 $ 3,000,000
ING Equity Partners, L.P. I $ 2,185,386(23) $ 2,185,386 (23)
----------- -----------
TOTAL SENIOR NOTES $12,141,438 $12,141,438
=========== ===========
- ----------------------
(1) Includes 1,615 shares of Common Stock subject to the Holdback.
(2) Includes 3,206 shares of Common Stock subject to the Holdback.
(3) Includes 4,633 shares of Common Stock subject to the Holdback.
(4) Includes 8,248 shares of Common Stock subject to the Holdback.
(5) Includes 4,317 shares of Common Stock subject to the Holdback.
(6) Includes 26,099 shares of Common Stock subject to the Holdback.
(7) Includes 39,007 shares of Common Stock subject to the Holdback.
(8) Includes 27,355 shares of Common Stock subject to the Holdback.
(9) Includes 16,461 shares of Common Stock subject to the Holdback.
(10) Includes 5,744 shares of Common Stock subject to the Holdback.
(11) Includes 119,043 shares of Common Stock subject to the Holdback.
(12) Refers to face amount of the Senior Notes.
(13) Includes $25,996 face amount of Senior Notes subject to the Holdback.
(14) Includes $51,611 face amount of Senior Notes subject to the Holdback.
(15) Includes $77,588 face amount of Senior Notes subject to the Holdback.
(16) Includes $132,786 face amount of Senior Notes subject to the Holdback.
(17) Includes $69,497 face amount of Senior Notes subject to the Holdback.
(18) Includes $420,173 face amount of Senior Notes subject to the Holdback.
(19) Includes $627,994 face amount of Senior Notes subject to the Holdback.
(20) Includes $440,400 face amount of Senior Notes subject to the Holdback.
(21) Includes $265,002 face amount of Senior Notes subject to the Holdback.
(22) Includes $92,477 face amount of Senior Notes subject to the Holdback.
(23) Includes $1,823,133 face amount of Senior Notes subject to the Holdback.
-47-
<PAGE>
CERTAIN TRANSACTIONS
Prior to the separation from Leslie Fay, Arthur S. Levine was a
principal in two companies, Kerrison Trading Co. ("Kerrison") and Alco Design
Associates, Inc. ("Alco") that provided design and consulting services to the
Company and its subsidiaries. Kerrison provided consulting services in the Far
East with respect to the manufacture and importation of apparel products into
the United States. It provided such services to Asia Expert, Ltd., Viewmon, Ltd.
and Tomwell, Ltd., wholly owned Hong-Kong subsidiaries of The Leslie Fay
Companies until June 4, 1997. Alco provided consulting services with respect to
the design, manufacturing and importation of apparel for the Sassco Fashions
Division of Leslie Fay. Mr Arthur Levine was the principal owner of both
Kerrison and Alco. Those consulting arrangements ceased as of June 4, 1997. For
the 1996 and 1997 fiscal years, Mr. Levine received $3,402,642 and $1,487,920,
respectively, as compensation for such consulting services. Payments totaling
$236,000 were made to the two companies in August 1997 for services rendered
prior to June 5, 1997.
On June 10, 1997, the Board of Directors approved the grant of stock
options ("Director Options") to purchase 20,000 shares of Common Stock to each
of its five non-employee directors. Each option has an exercise price of $14.00
per share and will vest ratably over the first three anniversaries following the
date of grant. The Director Options will expire on the fifth anniversary of the
date of grant. Director Options are not transferable by the optionee other than
by will or the laws of descent and distribution, and each option is exercisable
during the lifetime of the optionee only by such optionee. As of such date, the
market value per share was $15.50. As a result, the Company took a charge to
earnings of $150,000, or $30,000 per non-employee director.
DESCRIPTION OF CAPITAL STOCK
The following is a summary description of the Company's capital stock,
the Senior Notes and certain provisions of the Company's Certificate of
Incorporation and Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The following
discussion is qualified in its entirety by reference to such exhibits.
COMMON STOCK
- ------------
The Company is authorized to issue up to 20,000,000 shares of Common
Stock, par value $0.01 per share. Prior to this offering, there were issued and
outstanding 6,800,000 shares of Common Stock.
PREFERRED STOCK
- ---------------
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, par value $0.01 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by stockholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions.
No shares of preferred stock will be outstanding as of the closing of
this offering, and the Company has no present plans for the issuance thereof.
The issuance of any such preferred stock could adversely affect the rights of
the holders of Common Stock and, therefore, reduce the value of the Common
Stock. The ability of the Board of Directors to issue preferred stock could
discourage, delay, or prevent a takeover of the Company.
-48-
<PAGE>
VOTING, SHAREHOLDERS' MEETINGS AND RESOLUTIONS
- ----------------------------------------------
Holders of Common Stock have one vote for each share held on all matters
submitted to a vote of shareholders. The quorum required for an ordinary meeting
of shareholders consists of at least a majority of the voting power of the
outstanding shares of the Company entitled to vote generally in the election of
directors, represented in person or by proxy. The chairman of the meeting or a
majority of the shares voting at such meeting may adjourn such meeting from time
to time, whether or not there is a quorum. No notice of the time and place of
adjourned meetings need be given except as required by law.
An ordinary resolution (such as resolutions for the election of
directors, the declaration of dividends and the appointment of auditors)
requires approval by the holders of a majority of the Common Stock represented
at the meeting, in person or by proxy, and voting thereon. A special or
extraordinary resolution (such as resolutions regarding mergers, consolidations,
and winding up) requires approval of the holders of at least 80% of the Common
Stock then outstanding, including the affirmative vote of the holders of at
least 80% of the voting power of the then outstanding voting stock not owned
directly or indirectly by an interested stockholder or any affiliate of any
interested stockholder.
DIVIDEND AND LIQUIDATION RIGHTS
- -------------------------------
Subject to the prior rights of any series of preferred stock which may
from time to time be outstanding, if any, holders of Common Stock are entitled
to receive dividends when, as, and if declared by the Board of Directors out of
funds legally available therefor and, upon the liquidation, dissolution or
winding up of the Company, are entitled to share ratably in all assets remaining
after payment of liabilities and payment of accrued dividends and liquidation
preferences on the preferred stock, if any. Holders of Common Stock have no
preemptive rights and have no rights to convert their Common Stock into any
other securities. The outstanding Common Stock is, and the Common Stock to be
outstanding upon completion of this offering will be, duly authorized and
validly issued, fully paid and nonassessable.
In case of a stock dividend (or bonus shares), holders of each class of
Common Stock are entitled to receive Common Stock of one class, whether such
class existed prior thereto or was created therefor, or shares of the same class
which conferred upon the holder the right to receive such dividend.
TRANSFER OF COMMON STOCK
- ------------------------
Fully paid shares of Common Stock are issued in registered form and may
be transferred freely. Each shareholder of record is entitled to receive at
least ten days' prior notice of shareholders' meetings.
ELECTION OF DIRECTORS
- ---------------------
The Shares do not have cumulative voting rights in the election of
Directors. Thus, the holders of the Common Stock conferring more than 50% of the
voting power have the power to elect all the Directors, to the exclusion of the
remaining shareholders. See "Principal Stockholders."
SENIOR NOTES
- ------------
The Senior Notes were issued pursuant to an Indenture Agreement dated
June 4, 1997 between the Company and IBJ Schroder Bank & Trust Company, as
trustee. The Senior Notes bear interest at an annual rate of 12.75% payable
semi-annually in arrears and mature on March 31, 2004. The Senior Notes are
unsecured obligations of the Company and rank PARI PASSU with the Company's
other permitted unsecured indebtedness which, under the terms of the Indenture,
include (i) restricted investments in existence as of June 4, 1997; (ii)
-49-
<PAGE>
certificates of deposit with final maturities of one year or less issued by
commercial banks chartered in the United States of America (a "Commercial Bank")
with capital and surplus in excess of $100 million; (iii) commercial paper rated
at least P-1 by Moody's Investors Service, Inc. or at least A-1 by Standard &
Poor's Corporation; (iv) direct obligations issued by the United States of
America or any agency thereof with a maturity not more than one year from the
date of acquisition; (v) money market preferred stock rated A or above; (vi)
tax-exempt floating rate option tender bonds backed by a letter of credit issued
by a Commercial Bank rated AA by Standard & Poor's Corporation or AA by Moody's
Investors Service, Inc.; and (vii) equity or debt investments in wholly-owned
subsidiaries with lines of business similar to that of the Company or any of its
subsidiaries' existing lines of business. The Senior Notes may be redeemed
starting January 1, 2000 at the Company's option, in whole or in part, at a
prepayment premium. Subject to certain exceptions, the Senior Notes may not be
redeemed in whole or in part prior to January 1, 2000. On or after that date the
Company may redeem the Senior Notes in whole or part, plus any accrued interest,
based upon the following schedule:
Period Redeemed Redemption Price
--------------- ----------------
January 1, 2000 through December 31, 2000 106.375%
January 1, 2001 through December 31, 2001 104.250%
January 1, 2002 through December 31, 2002 102.125%
January 1, 2003 through Maturity Date 100.000%
In the event the Company does a public offering prior to January 1,
2000, the Company may redeem up to 35% of the original aggregate principal
amount of the Senior Notes at 110%, plus any accrued interest.
In the event of a change of control, the Company is required to redeem any
tendered Senior Notes at 101% plus any accrued interest.
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
- ------------------------------------------------------------------
The Company believes the issuance of the Common Stock and the Senior
Notes was exempt from the registration requirements of the Securities Act and
the equivalent state securities and "blue sky" laws pursuant to Section
1145(a)(1) of the U.S. Bankruptcy Code. Generally, Section 1145(a)(1) of the
Bankruptcy Code exempts the offer and sale of securities under a bankruptcy plan
of reorganization from registration under the Securities Act and under
equivalent state securities and "blue sky" laws if the following requirements
are satisfied: (i) the securities are issued under a plan of reorganization by
the debtor or a successor to the debtor under the plan; (ii) the recipients of
the securities hold a claim against the debtor, an interest in the debtor or a
claim for an administrative expense against the debtor; and (iii) the securities
are issued entirely in exchange for the recipient's claim against or interest in
the debtor or are issued "principally" in such exchange and "partly" for cash or
property. The Company believes that the offer and exchange of the Common and the
Senior Notes under the Reorganization Plan satisfies such requirements and
therefore, such offer and exchange is exempt from the registration requirements
referred to above.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
- ---------------------------------------------------
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). In general, this statute prohibits a publicly
held Delaware corporation from engaging, under certain circumstances, in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder unless (i) prior to the date at which the stockholder became an
interested stockholder, the Board of Directors approved either the business
combination or the transaction in which the person became an interested
stockholder; (ii) the stockholder acquires more than 85% of the outstanding
voting stock of the corporation (excluding shares held by directors who are
-50-
<PAGE>
officers or held in certain employee stock plans) upon consummation of the
transaction in which the stockholder became an interested stockholder; or (iii)
the business combination is approved by the Board of Directors and by at least
66-2/3% of the outstanding voting stock of the corporation (excluding shares
held by the interested stockholder) at a meeting of stockholders (and not by
written consent) held on or subsequent to the date such stockholder became an
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or at any time within the prior three
years did own) 15% or more of the corporation's voting stock. Section 203
defines a "business combination" to include, without limitation, mergers,
consolidations, stock sales and asset-based transactions and other transactions
resulting in a financial benefit to the interested stockholder.
LIMITATION ON DIRECTOR'S LIABILITY
- ----------------------------------
In accordance with the DGCL, the Certificate of Incorporation provides
that the directors of the Company shall not be personally liable to the Company
or its stockholders for monetary damages for breach of duty as a director except
(i) for any breach of the director's duty of loyalty to the Company and its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct, or knowing violation of law; (iii) under Section 174 of
the DGCL, which relates to unlawful payments of dividends and unlawful stock
repurchases and redemptions; or (iv) for any transaction from which the director
derived an improper personal benefit. This provision does not eliminate a
director's fiduciary duties; it merely eliminates the possibility of damage
awards against a director personally which may be occasioned by certain
unintentional breaches (including situations that may involve grossly negligent
business decisions) by the director of those duties. The provision has no effect
on the availability of equitable remedies, such as injunctive relief or
rescission, which might be necessitated by a director's breach of his or her
fiduciary duties. However, equitable remedies may not be available as a
practical matter where transactions (such as merger transactions) have already
been consummated. The inclusion of this provision in the Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefited
the Company and its stockholders.
INDEMNIFICATION
- ---------------
The Certificate of Incorporation provides that the Company shall
indemnify its officers, directors, employees and agents to the fullest extent
permitted by the DGCL. Section 145 of the DGCL provides that the Company may
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than a "derivative"
action by or in the right of the Company) by reason of the fact that such person
is or was a director, officer, employee or agent of the Company, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe was unlawful.
A similar standard of care is applicable in the case of derivative actions,
except that no indemnification shall be made where the person is adjudged to be
liable to the Company, unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action was brought
determines that such person is fairly and reasonably entitled to such indemnity
and such expenses.
The Company has purchased director and officer liability insurance. Such
insurance covers its directors and officers with respect to liability which they
may incur in connection with their serving as such, which liability includes
liability under the Securities Act. The insurance also provides certain
additional coverage for the directors and officers against certain liability
even though such liability would not be subject to indemnification under Article
Ten of the Company's Certificate of Incorporation.
-51-
<PAGE>
MARKET INFORMATION
- ------------------
The Company's Common Stock has been quoted in the over-the-counter
market under the symbol "SASX" since June 4, 1997, when the Company emerged from
bankruptcy as a separate stand-alone entity as a result of the Reorganization.
The quotations are dealer prices without retail mark-ups, mark-downs or
commissions and may not represent actual transactions.
The high and low bid prices for the Company's Common Stock for each
quarter from inception, June 4, 1997 were as follows:
Period High Low
------ ---- ---
1997 Second Quarter $ 18 $ 12 3/4
Third Quarter 17 1/2 13 3/4
Fourth Quarter 15 1/8 11
1998 First Quarter $ 13 1/2 $ 11 3/8
(through March 31)
As of April 1, 1998, there were 776 holders of record of the Company's
Common Stock.
TRANSFER AGENT AND REGISTRAR
- ----------------------------
The Company has appointed American Stock Transfer & Trust Company as
Transfer Agent and Registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have an aggregate of
6,800,000 shares of Common Stock outstanding. Of these shares, 6,774,984 shares
of Common Stock of which 1,350,131 are offered hereby will be freely tradeable
without restriction or limitation under the Securities Act, except for any
shares purchased by "affiliates" of the Company, as such term is defined under
the Securities Act. The remaining 25,016 shares will be "restricted securities"
within the meaning of Rule 144 adopted under the Securities Act.
Of the 6,800,000 shares of Common Stock outstanding, 6,774,984 shares
are exempt from the registration requirements of the Securities Act under
Section 1145(a) of the Bankruptcy Code. Such shares are deemed to be issued in a
registered public offering under the Securities Act and, therefore, may be
resold by any holder thereof without registration under the Securities Act
pursuant to the exemption provided by Section 4(1) thereof, unless the holder is
an "underwriter" with respect to such securities, as that term is defined in
Section 1145(b)(1) of the Bankruptcy Code.
Section 1145(b) of the Bankruptcy Code defines "underwriter" for
purposes of the Securities Act as one who (a) purchases a claim with a view to
distribution of any security to be received in exchange for the claim, or (b)
offers to sell securities issued under a plan for the holders of such
securities, or (c) offers to buy securities issued under a plan for persons
receiving such securities, if the offer to buy is made with a view to
distribution of such securities, or (d) is an issuer of the securities within
the meaning of Section 2(11) of the Securities Act (or a "control person" of the
issuer, i.e. officers, directors and 10% shareholders of the issuer). Shares
held by such persons will be deemed to be "restricted securities" under Rule 144
under the Securities Act and may be resold without registration pursuant to the
resale provisions of Rule 144A under the Securities Act.
-52-
<PAGE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least one year and persons who are deemed "affiliates" of the Company,
are entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1% of the then-outstanding shares of Common Stock
(68,000 shares of Common Stock immediately after this offering) or the average
weekly trading volume in the Company's Common Stock during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
manner-of-sale provisions, notice requirements and the availability of current
public information about the Company. However, a person who is not deemed to
have been an "affiliate" of the Company at any time during the three months
preceding a sale and who has beneficially owned restricted securities for at
least two years, would be entitled to sell his shares under Rule 144 without
regard to the volume limitations, manner-of-sale provisions, notice or current
public information requirements. The foregoing summary of Rule 144 is not
intended to be a complete description thereof.
The Company's shares of Common Stock and Senior Notes currently trade in
the over-the counter market. No predictions can be made of the effect, if any,
that market sales of restricted shares of Common Stock or their eligibility for
sale under Rule 144 will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of the restricted Common Stock on the
public market could adversely affect such market price and could impair the
Company's future ability to raise capital through the sale of equity securities.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been
passed upon for the Company by Parker Chapin Flattau & Klimpl, LLP, New York,
New York.
EXPERTS
The combined balance sheets of the Company as of December 28, 1996 and
December 30, 1995 and the combined statements of operations, divisional equity
and cash flows for the years then ended included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving the said reports.
The consolidated balance sheet of the Company as of June 4, 1997 and the
combined statements of operations, divisional equity and cash flows for the
five-month period ended June 4, 1997 included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report thereto and are included in reliance upon the authority of said
firm as experts in giving the said report.
The consolidated balance sheet of the Company as of January 3, 1998 and
the consolidated statements of operations, shareholders' equity and cash flows
for the seven month period ended January 3, 1998 included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report thereto and are included in reliance upon the
authority of said firm as experts in giving the said report.
-53-
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the Securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in the exhibits and schedules thereto as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Regional Offices of the
Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60604 and Seven World Trade Center, New York, New York 10048.
Copies of such material may be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also makes electronic filings publicly
available on the Internet within 24 hours of acceptance. The Commission's
Internet address is http:\\www.sec.gov. The Commission's web site also contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the Commission.
Upon the effectiveness of the Registration Statement, the Company will
be subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and, in accordance therewith, will file
periodic reports and other information with the Commission. The Company intends
to furnish its stockholders and the holders of Senior Notes with annual reports
containing audited financial statements and such interim reports as it deems
appropriate and as may be required by law.
-54-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS PAGE
Report of Arthur Andersen LLP................................................F-2
Consolidated/Combined Balance Sheets at January 3, 1998, June 4, 1997
and December 28, 1996.................................................F-3
Consolidated/Combined Statements of Operations for the Seven Months
Ended January 3, 1998, the Five Months Ended June 4, 1997,
and the Fiscal Year Ended December 28, 1996...........................F-4
Consolidated/Combined Statements of Shareholders' Equity for the Seven Months
Ended January 3, 1998, the Five Months Ended June 4, 1997,
and the Fiscal Year Ended December 28, 1996...........................F-5
Consolidated/Combined Statements of Cash Flows for the Seven Months
Ended January 3, 1998, the Five Months Ended June 4, 1997,
and the Fiscal Year Ended December 28, 1996...........................F-6
Notes to Condensed Consolidated/Combined Financial Statements for the Seven
Months Ended January 3, 1998, the Five Months Ended June 4, 1997,
and the Fiscal Year Ended December 28, 1996..........................F-8
Combined Balance Sheets of the Company at December 28, 1996
and December 30, 1995................................................F-23
Combined Statements of Operations for the Fiscal Years Ended
December 28, 1996 and December 30, 1995..............................F-24
Combined Statements of Divisional Equity for the Fiscal Years Ended
December 28, 1996 and December 30, 1995..............................F-25
Combined Statements of Cash Flows for the Fiscal Years Ended
December 28, 1996 and December 30, 1995..............................F-26
Notes to Combined Financial Statements for the Fiscal Years Ended
December 28, 1996 and December 30, 1995..............................F-27
F-1
<PAGE>
Arthur Andersen LLP
Report of Independent Public Accountants
To the Shareholders and Board of Directors of
Kasper A.S.L., Ltd and Subsidiaries (formerly Sassco Fashions, Ltd., a division
of the Leslie Fay Companies):
We have audited the accompanying consolidated balance sheets of Kasper A.S.L.,
Ltd. (a Delaware corporation) and subsidiaries (the "Reorganized Company" see
Note 2) as of January 3, 1998 and June 4, 1997, and the related consolidated
statements of operations and shareholders' equity and cash flows for the
seven-month period ended January 3, 1998. We have also audited the accompanying
combined balance sheets of the Predecessor Company as of December 28, 1996 and
December 30, 1995 and the related combined statements of operations and
divisional equity and cash flows for the five month period ended June 4, 1997,
the year ended December 28, 1996 and the year ended December 30, 1995. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 2 to the consolidated/combined balance sheets
effective June 4, 1997, the Reorganized Company emerged from protection under
Chapter 11 of the U.S. Bankruptcy Code pursuant to a Reorganization Plan which
was confirmed by the Bankruptcy Court on April 21, 1997. In accordance with
AICPA Statement of Position 90-7, the Reorganized Company adopted "Fresh Start
Reporting" whereby its assets, liabilities and new capital structure were
adjusted to reflect estimated fair values as of June 4, 1997. As a result, the
consolidated financial statements for the periods subsequent to June 4, 1997
reflect the Reorganized Company's new basis of accounting and are not comparable
to the Predecessor Company's pre-reorganization financial statements.
In our opinion, the financial statements referred to above, present fairly, in
all material respects (a) the financial position of the Reorganized Company as
of January 3, 1998 and June 4, 1997 and the results of their operations and
their cash flows for the seven month period ended January 3, 1998, and (b) the
financial position of the Predecessor Company as of December 28, 1996, and as of
December 30, 1995, and the results of their operations and their cash flows for
the five month period ended June 4, 1997, the year ended December 28, 1996, and
the year ended December 30, 1995 all in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
-----------------------
New York, New York
February 25, 1998
F-2
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED/COMBINED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR
COMPANY | COMPANY
---------------------- | ---------
ASSETS JANUARY 3, JUNE 4, | DECEMBER 28,
1998 1997 | 1996
--------- --------- | ---------
<S> <C> <C> <C>
Current Assets: |
Cash and cash equivalents .......................... $ 16,677 $ 3,081 | $ 1,886
Accounts receivable-net of allowances for possible |
losses of $18,725, $14,021 and $18,369, |
respectively ................................... 30,000 50,882 | 55,389
Inventories ........................................ 78,796 60,267 | 84,425
Prepaid expenses and other current assets .......... 2,767 1,744 | 1,877
Deferred taxes ..................................... 1,695 -- | --
--------- --------- | ---------
Total Current Assets ............................... 129,935 115,974 | 143,577
--------- --------- | ---------
Property, Plant and Equipment, at cost less accumulated |
depreciation and amortization of $2,985, $1,571 |
and $8,084, respectively ........................... 14,337 14,002 | 11,904
Excess of Purchase Price over Net Assets |
Acquired -net of accumulated amortization |
of $8,035 .......................................... -- -- | 17,400
Reorganization value in excess of identifiable assets, |
net of accumulated amortization of $1,902 and $0, |
respectively ....................................... 63,279 65,181 | --
Trademarks, net of accumulated amortization of $850 |
and $0, respectively ............................... 50,150 51,000 | --
Other Assets, at cost less accumulated amortization of |
$596 and $98, respectively ......................... 2,955 3,453 | --
--------- --------- | ---------
Total Assets.......................................$ 260,656 $ 249,610 | $ 172,881
========= ========= | =========
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
Current Liabilities: |
Accounts payable ................................... $ 17,637 $ 9,915 | $ 11,412
Accrued expenses and other current liabilities ..... 6,703 9,004 | 3,820
Interest Payable ................................... 3,555 42 | 42
Income taxes payable ............................... 1,164 649 | 403
--------- --------- | ---------
Total Current Liabilities .......................... 29,059 19,610 | 15,677
Long-Term Liabilities: |
Deferred Taxes ..................................... 639 -- | --
Long-Term Debt ..................................... 110,000 110,000 | --
Bank Revolver ...................................... -- -- | --
--------- --------- | ---------
Total Liabilities .................................. 139,698 129,610 | 15,677
Commitments and Contingencies |
Shareholders' Equity: |
Common Stock, $0.01 par value; 20,000,000 shares |
authorized; 6,800,000 shares issued and |
outstanding .................................... 68 68 | --
Preferred Stock, $0.01 par value; 1,000,000 shares |
authorized; none issued and outstanding ........ -- -- | --
Capital in excess of par value ..................... 119,932 119,932 | --
Retained Earnings .................................. 972 -- | --
Divisional Equity .................................. -- -- | 157,204
Cumulative Translation Adjustment .................. (14) -- | --
--------- --------- | ---------
Total Shareholders' Equity ......................... 120,958 120,000 | 157,204
--------- --------- | ---------
Total Liabilities and Shareholders' Equity |
$ 260,656 $ 249,610 | $ 172,881
========= ========= | =========
</TABLE>
The accompanying Notes to Consolidated/Combined Financial Statements are an
integral part of these balance sheets.
F-3
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED/COMBINED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
---------- | -----------------------
SEVEN MONTHS | FIVE MONTHS FISCAL YEAR
ENDED | ENDED ENDED
---------- | ---------- ----------
JANUARY 3, | JUNE 4, DECEMBER 28,
1998 | 1997 1996
---------- | ---------- ----------
<S> <C> <C> <C>
Net Sales ................................ $ 175,602 | $ 136,107 $ 311,550
Cost of Sales ............................ 127,784 | 101,479 238,268
---------- | ---------- ----------
Gross Profit ......................... 47,818 | 34,628 73,282
Operating Expenses: |
Selling, warehouse, general and |
administrative expenses .................. 31,802 | 23,374 50,263
Depreciation and Amortization ............ 4,738 | 1,191 2,238
---------- | ---------- ----------
Total operating expenses ............. 36,540 | 24,565 52,501
---------- | ---------- ----------
Operating income ......................... 11,278 | 10,063 20,781
Interest and Financing Costs ............. 9,358 | 667 1,634
---------- | ---------- ----------
Income before provision for income taxes . 1,920 | 9,396 19,147
Provisions for Income Taxes .............. 948 | 3,758 7,659
---------- | ---------- ----------
Net Income ............................... $ 972 | $ 5,638 $ 11,488
========== | ========== ==========
|
Basic earnings per share ................. .14 | -- --
========== | ========== ==========
|
Diluted earnings per share ............... .14 | -- --
========== | ========== ==========
Weighted average number of shares used |
in computing Basic earnings per share .... 6,800,000 | -- --
Weighted average number of shares used |
incomputing Diluted earnings per share ... 6,805,000 | -- --
</TABLE>
The accompanying Notes to Consolidated/Combined Financial Statements are an
integral part of these financial statements.
F-4
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED/COMBINED SHAREHOLDERS' EQUITY
(In thousands)
FISCAL YEAR ENDED DECEMBER 28, 1996 -PREDECESSOR COMPANY
DIVISIONAL
EQUITY
------------------
BALANCE AT DECEMBER 30, 1995 $135,601
NET INCOME FOR THE PERIOD 11,488
INCREASE IN INVESTMENT WITH LESLIE FAY 10,115
--------
BALANCE AT DECEMBER 28, 1996 $157,204
========
FIVE MONTHS ENDED JUNE 4, 1997 -PREDECESSOR COMPANY
DIVISIONAL
EQUITY
------------------
BALANCE AT DECEMBER 28, 1996 $ 157,204
NET INCOME FOR THE PERIOD 5,638
DECREASE IN INVESTMENT WITH LESLIE FAY (30,479)
---------
BALANCE AT JUNE 4, 1997 $ 132,363
=========
- --------------------------------------------------------------------------------
SEVEN MONTHS ENDED JANUARY 3, 1998 -REORGANIZED COMPANY
<TABLE>
<CAPTION>
CAPITAL IN CUMULATIVE
COMMON EXCESS OF TRANSLATION RETAINED
STOCK PAR ADJUSTMENT EARNINGS TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 4, 1997 $ -- $ -- $ -- $ -- $ --
Common Stock issued to Leslie
Fay Creditors 68 119,932 -- -- 120,000
Translation Adjustment for the
period -- -- (14) -- (14)
Net Income for the Period -- -- -- 972 972
--------- --------- --------- --------- ---------
BALANCE AT JANUARY 3, 1998 $ 68 $ 119,932 $ (14) $ 972 $ 120,958
========= ========= ========= ========= =========
</TABLE>
The accompanying Notes to Consolidated/Combined Financial Statements are an
integral part of these financial statements.
F-5
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
REORGANIZED |
COMPANY | PREDECESSOR COMPANY
-------- | --------------------
SEVEN MONTHS | FIVE MONTHS FISCAL YEAR
ENDED | ENDED ENDED
-------- | -------- --------
JANUARY 3, | JUNE 4, DECEMBER 28,
1998 | 1997 1996
-------- | -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities: |
Net income ....................................... $ 972 | $ 5,638 $ 11,488
|
Adjustments to reconcile net income to net cash |
provided by/(used in) operating activities: |
Depreciation and amortization .................... 2,762 | 916 1,546
Amortization of reorganization value in |
excess of identifiable assets ............... 1,902 | -- --
Amortization of excess purchase over net |
assets acquired .............................. -- | 275 693
Excess of cost over fair value of assets acquired -- | (26) (111)
Change in allowance for possible losses |
on accounts receivable ....................... 4,704 | (4,348) 2,836
Decrease (increase) in: |
Accounts receivable ........................... 16,178 | 9,071 (10,290)
Inventories ................................... (18,529) | 24,158 21
Prepaid expenses and other current |
assets ...................................... (1,023) | (1,080) 101
Deferred Taxes ................................ (1,695) | -- --
Deferred charges and other assets ............. -- | -- 1,481
Increase (decrease) in: |
Accounts payable, accrued expenses and |
other current liabilities .................. 5,421 | (1,236) (9,202)
Interest Payable .............................. 3,513 | -- --
Income taxes payable .......................... 515 | 246 (1,629)
Deferred taxes ................................ 639 | -- --
-------- | -------- --------
Total adjustments ............................. 14,387 | 27,976 (14,554)
-------- | -------- --------
Net cash provided by/(used in) |
operating activities ........................ 15,359 | 33,614 (3,066)
-------- | -------- --------
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
Capital expenditures net of proceeds |
from the sale of |
fixed assets .................................. (1,749) | (2,960) (6,982)
-------- | -------- --------
Net cash used in investing activities ............ (1,749) | (2,960) (6,982)
-------- | -------- --------
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
Net (decrease)/increase in cash invested |
with Leslie Fay ............................... -- | (30,479) 10,115
-------- | -------- --------
Net cash (used in)/provided by financing |
activities .................................... -- | (30,479) 10,115
-------- | -------- --------
Effect of exchange rate changes on cash |
and cash equivalents .......................... (14) | -- --
-------- | -------- --------
Net increase in cash and cash equivalents ............ 13,596 | 175 67
|
Cash and cash equivalents, at beginning of |
period ............................................... 3,081 | 1,886 1,819
-------- | -------- --------
Cash and cash equivalents, at end of period .......... $ 16,677 | $ 2,061 $ 1,886
======== | ======== ========
</TABLE>
The accompanying Notes to Consolidated/Combined Financial Statements are an
integral part of these financial statements.
F-6
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
CONSOLIDATED/COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
REORGANIZED|
COMPANY | PREDECESSOR COMPANY
-------- | -------------------
SEVEN | FIVE FISCAL
MONTHS | MONTHS YEAR
ENDED | ENDED ENDED
JANUARY 3,| JUNE 4, DECEMBER 28,
-------- | -------- --------
1998 | 1997 1996
-------- | -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING, |
INVESTING |
AND FINANCING ACTIVITIES |
|
NONCASH OPERATING |
|
Other current assets recorded upon emergence |
from Bankruptcy $ (23)| $ -- $ --
|
|
Other current liabilities recorded upon |
emergence from Bankruptcy 4,923 | -- --
|
Deferred financing costs recorded upon |
emergence from Bankruptcy (2,422)| -- --
|
|
NONCASH INVESTING |
|
Elimination of divisional equity upon |
emergence from Bankruptcy (132,363)| -- --
|
Elimination of excess of costs over fair |
value of assets upon emergence from Bankruptcy 16,066 | -- --
|
Establishment of reorganization in excess of |
identifiable assets upon emergence from Bankruptcy (65,181)| -- --
|
Establishment of Trademark valuation upon |
emergence from Bankruptcy (51,000)| -- --
|
NONCASH FINANCING |
|
Senior notes issued to creditors upon |
emergence from Bankruptcy 110,000 | -- --
|
Issuance of Common Stock to creditors upon |
emergence from Bankruptcy 120,000 | -- --
</TABLE>
The accompanying Notes to Consolidated/Combined Financial Statements are an
integral part of these financial statements.
F-7
<PAGE>
KASPER A.S.L., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED/COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND ORGANIZATION:
The Consolidated/Combined Financial Statements (the "Financial Statements")
included herein have been prepared by Kasper A.S.L., Ltd. (name changed from
Sassco Fashions, Ltd. on November 5, 1997) and subsidiaries (Kasper A.S.L., Ltd.
being sometimes referred to, and together with its subsidiaries collectively
referred to, as the "Company" or "Kasper" as the context may require). The
Company's fiscal year ends on the Saturday closest to December 31st. The fiscal
years ended January 3, 1998 ("1997") and December 28, 1996 ("1996"), included 53
and 52 weeks, respectively.
Due to the Company's Reorganization and implementation of Fresh Start
Reporting (see Note 2), the Consolidated Financial Statements for the new
"Reorganized Company" (period starting June 4, 1997, the effective date of the
reorganized Company's emergence from bankruptcy) are not comparable to the
Combined Financial Statements of the "Predecessor Company" (period ending June
4, 1997) .
Kasper was a division of The Leslie Fay Company, Inc. ("Leslie Fay"-formerly
The Leslie Fay Companies, Inc.), a Delaware corporation which operated its
business as a debtor in possession subject to the jurisdiction and supervision
of the United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") until June 4, 1997. The Financial Statements herein
presented include the operations of three related Hong Kong corporations, Asia
Expert Limited ("AEL"), Tomwell Limited ("Tomwell"), and Viewmon Limited
("Viewmon"), none of which were part of the Leslie Fay bankruptcy proceeding.
These three Hong Kong corporations were subsidiaries of Leslie Fay (upon
emergence from bankruptcy these entities became subsidiaries of Kasper) that
procure and arrange for the manufacture of apparel products in the Far East
solely for the benefit of Kasper. These Financial Statements also include the
financial statements of Kasper, A.S.L. Europe, Ltd., ASL Retail Outlets Inc. and
ASL/K Licensing Corp., all of which are wholly owned subsidiaries of the
Company. The Financial Statements have been prepared on a stand-alone basis in
accordance with generally accepted accounting principles applicable to a going
concern.
On April 5, 1993, Leslie Fay and certain of its wholly owned subsidiaries
filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code
(the "Bankruptcy Code"), as a result of the announcement of accounting
irregularities, numerous stockholder and other party lawsuits filed against
Leslie Fay and its directors, and the breach of certain provisions of its
financing agreement at the time. On October 31, 1995, the Debtors and the
Committee of Unsecured Creditors (the "Creditors Committee") filed the Plan
pursuant to Chapter 11 of the Bankruptcy Code.
The Plan was subsequently amended on March 13, 1996, December 5, 1996,
February 3, 1997 and February 28, 1997. On December 5, 1996, the Debtors filed a
Disclosure Statement for the Amended Joint Plan of Reorganization pursuant to
Chapter 11 of the Bankruptcy Code (the "Disclosure Statement"), which was also
subsequently amended on February 3, 1997 and February 28, 1997. The Plan
provided for, among other things, the separation of the Debtors' estates and
assets into two separate reorganized entities.
Under the Plan,
stockholders of the Company would not retain or receive any value for their
interest. The Debtors obtained Bankruptcy Court approval of the Disclosure
Statement on February 28, 1997. The Plan was approved by the creditors and on
April 21, 1997, the Bankruptcy Court confirmed the Plan. Refer to the
Consolidated Financial Statements of Leslie Fay for the fiscal year ended
December 28, 1996, included in Leslie Fay's Annual Report on Form 10-K, for more
information regarding Leslie Fay's bankruptcy proceedings.
F-8
<PAGE>
The Plan called for the spin-off of Kasper as a newly organized entity which
consisted of Kasper, AEL, Tomwell, Viewmon, Kasper A.S.L. Europe, Ltd. and ASL
Retail Outlets, Inc. (collectively referred to as "Kasper A.S.L., Ltd. and
Subsidiaries").
On June 4, 1997, the Plan was consummated by Leslie Fay 1) transferring the
equity interest in both Leslie Fay and Kasper, to its creditors in exchange for
relief from the aggregate amount of the claims estimated at $338,000,000; 2)
assigning to certain creditors the ownership rights to notes aggregating
$110,000,000 payable by Kasper; and 3) transferring the assets (including
$10,963,000 of cash) and liabilities of the Sassco division to Kasper and the
assets and liabilities of Leslie Fay's Dress and Sportswear divisions to three
wholly owned subsidiaries of Leslie Fay. In addition, Leslie Fay retained
approximately $41,080,000 in cash, of which $23,580,000 will be used to pay
administrative claims as defined in the Plan. As provided for in the Plan, the
Company has issued eighty (80%) percent of its 6,800,000 of new shares to its
creditors in July 1997. The remaining twenty (20%) percent will be held back
pending the resolutions of certain litigation before the Bankruptcy Court. On
June 4, 1997, Leslie Fay emerged from bankruptcy and Kasper emerged as a newly
organized separate entity.
NOTE 2. FRESH START REPORTING:
The effects of the Company's reorganization under Chapter 11 have been
accounted for in the Company's balance sheet as of June 4, 1997 using principles
required by the American Institute of Certified Public Accountants -Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("Fresh Start Accounting"). Pursuant to the guidelines provided
by SOP 90-7, the Company adopted fresh-start accounting with a reorganization
value of $120,000,000 and allocated the reorganization value to its net assets
on the basis of the purchase method of accounting.
The fresh-start reporting reorganization value of $120,000,000 was based on
averaging several valuation methodologies prepared by an independent appraiser.
A five-year analysis of the Company's actual and forecasted operations (fiscal
years ended 1997-2001) was prepared by management and a discounted cash flow
methodology was applied to those numbers. An equity value was determined by
calculating the impact of various assumption changes to the five-year forecasts
and adding the forecasted cash flows for the first four years to a
"capitalization" of the fifth year's forecasted cash flow under each assumption.
The fifth year's forecasted cash flow was capitalized into value and discounted
to the present.
The aggregate cash flow value was then discounted to its present value,
using a discount rate of 14%. The reorganization values were then weighted with
a range between $118,000,000 and $123,000,000, and $120,000,000 was established
as the Company's reorganization value.
The five-year cash flow forecasts were based on estimates and assumptions
about circumstances and events that have not yet taken place. Such estimates and
assumptions are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the Company, including,
but not limited to, those with respect to the future course of the Company's
business activity.
Since fresh-start reporting has been reflected in the accompanying
Consolidated Balance Sheet as of June 4, 1997, the Consolidated Balance Sheet as
of that date is not comparable to prior periods.
F-9
<PAGE>
The Reorganization and the adoption of Fresh Start Reporting resulted in the
following adjustments to the Company's Consolidated Balance Sheet for the period
ended June 4, 1997:
<TABLE>
<CAPTION>
PREDECESSOR REORGANIZATION FRESH REORGANIZED
COMPANY START ADJUSTMENTS COMPANY
JUNE 4, 1997 DEBIT CREDIT JUNE 4, 1997
----------- ------------------------------- -----------
<S> <C> <C> <C> <C>
ASSETS (in thousands)
Total current assets $ 115,951 (a)$ 1,236 (b)$ 1,213 $ 115,974
Property and equipment, net 14,002 -- -- 14,002
Excess of purchase price over
net assets acquired 17,097 -- (c) 16,066 1,031
Reorganization value in excess
of identifiable assets -- (d) 65,181 -- 65,181
Other assets -- (e) 53,422 -- 53,422
----------- ----------- ----------- -----------
TOTAL ASSETS $ 147,050 $ 119,839 $ 17,279 $ 249,610
=========== =========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Total current liabilities $ 14,687 -- (f)$ 4,923 $ 19,610
Long-term debt -- -- (g) 110,000 110,000
Common Stock -- -- (h) 120,000 120,000
Divisional Equity 132,363 (i) 132,363 -- --
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $ 147,050 $ 132,363 $ 234,923 $ 249,610
=========== =========== =========== ===========
</TABLE>
The significant fresh-start reporting adjustments are summarized as follows:
a. Cash and other receivables recorded at closing.
b. Reclass prepaid bank fees to other assets.
c. Elimination of excess of purchase price over net asset acquired.
d. Allocation of the fair market value of identifiable net assets in excess
of the reorganization value in accordance with the purchase method of
accounting. The goodwill will be amortized over twenty (20) years.
e. Recording $51,000,000 of trademark valuation and $2,422,000 in bank
commitment and related fees.
f. To record additional liabilities.
g. Recording of $110,000,000 of ten-year notes that bear interest at 12.75%
per annum with interest payable semiannually in September and March.
h. Recording of the reorganization value of $120,000,000.
i. Elimination of divisional equity and intercompany accounts with Leslie
Fay.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) BUSINESS -
The Company is principally engaged in the design and sale of women's
apparel.
F-10
<PAGE>
(b) PRINCIPLES OF CONSOLIDATION-
The consolidated financial statements include the accounts of Sassco, AEL,
Tomwell, Viewmon, Kasper A.S.L. Europe, Ltd., ASL Retail Outlets, Inc. and ASL/K
Licensing Corp. All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) FAIR VALUE OF FINANCIAL INSTRUMENTS -
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of the fair value of certain
financial instruments. Cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses are reflected at fair value because of the short
term maturity of these instruments.
(d) USE OF ESTIMATES -
The financial statements are prepared in conformity with generally accepted
accounting principles. Such preparation requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
(e) REORGANIZATION VALUE -
Reorganization value in excess of identifiable assets is being amortized
using the straight-line method over 20 years. The Company, under the
requirements of SFAS No. 121, will continually evaluate, based upon income
and/or cash flow projections and other factors as appropriate, whether events
and circumstances have occurred that indicate that the remaining estimated
useful life of this asset warrants revision or that the remaining balance of
this asset may not be recoverable.
(f) TRADEMARKS -
Trademarks are being amortized using the straight-line method over 35 years
which is the estimated useful life. The Company, under the requirements of SFAS
No. 121, will continually evaluate, based upon income and/or cash flow
projections and other factors as appropriate, whether events and circumstances
have occurred that indicate that the remaining estimated useful life of this
asset warrants revision or that the remaining balance of this asset may not be
recoverable.
(g) CASH EQUIVALENTS -
All highly liquid investments with a remaining maturity of three months or
less at the date of acquisition are classified as cash equivalents
(h) INVENTORIES -
Inventories are valued at the lower of cost (first-in, first-out; "FIFO") or
market.
F-11
<PAGE>
(i) PROPERTY, PLANT AND EQUIPMENT -
Land, buildings, fixtures, equipment and leasehold improvements are recorded
at cost. Major replacements or betterments are capitalized. Maintenance and
repairs are charged to earnings as incurred. For financial statement purposes,
depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets.
(j) REVENUE RECOGNITION -
Sales are recognized upon shipment of products to customers and, in the case
of sales by Company owned retail stores, when goods are sold to customers.
Allowances for estimated uncollected accounts and discounts are provided
when sales are recorded.
(k) INCOME TAXES -
Prior to the reorganization, as a division of Leslie Fay, the Company was
not subject to Federal, State and Local income taxes. Concurrent with the
reorganization, the Company became fully subject to such taxes and is subject to
the provisions of SFAS No. 109. Under this method, any deferred income taxes
recorded are provided for at currently enacted statutory rates on the
differences in the basis of assets and liabilities for tax and financial
reporting purposes. When recorded, deferred income taxes are classified in the
balance sheet as current or non-current based upon the expected future period in
which such deferred income taxes are anticipated to reverse.
(l) EARNINGS PER SHARE
Basic and Fully Diluted Earnings Per Share are computed under the provisions
of SFAS No. 128. Under this standard, Basic EPS is computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS includes the effect of potential
dilution from the exercise of outstanding dilutive stock options and warrants
into common stock using the treasury stock method.
NOTE 4. INVENTORIES:
Inventories, net of reserves, consist of the following:
January 3, June 4, | December 28,
1998 1997 | 1996
----------- ----------- | -----------
(in thousands) |
Raw materials $ 32,121 $ 29,943 | $ 25,061
Work in process 3 65 | 30
Finished goods 46,672 30,259 | 59,334
----------- ----------- | -----------
|
Total inventories $ 78,796 $ 60,267 | $ 84,425
=========== =========== | ===========
F-12
<PAGE>
NOTE 5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
|
January 3, June 4, | December 28, Estimated
1998 1997 1996 Useful Lives
---------- ---------- | ---------- ------------
(in thousands) |
<S> <C> <C> <C> <C>
Land and Buildings $ -- $ -- | $ 32 25-40 years
Building under capitalized lease |
obligation -- -- | 122 Term of lease
Machinery, equipment and fixtures 11,153 10,665 | 11,179 5-10 years
Leasehold improvements 6,078 4,805 | 5,044 5 years
Construction in Progress 91 103 | 3,611 N/A
---------- ---------- | ----------
Property, plant and equipment, |
at cost 17,322 15,573 | 19,988
Less: Accumulated depreciation |
and amortization (2,985) (1,571) | (8,084)
---------- ---------- | ----------
Total property, plant |
and equipment, net $ 14,337 $ 14,002 | $ 11,904
========== ========== | ==========
</TABLE>
NOTE 6. DEBT:
CREDIT AGREEMENT -
On June 4, 1997 the Company entered into a three-year financing agreement
(the "Credit Agreement") with BankBoston ("BOB") to provide direct borrowings
and the issuance of letters of credit on Company's behalf in an aggregate amount
not exceeding $ 100,000,000, with a sublimit on letters of credit of
$50,000,000. Direct borrowings bear interest at the higher of the annual rate of
interest announced from time to time by BOB as its "Base Rate" or one-half of
one percent (0.50%) above the Federal Funds Effective Rate, plus the Base Rate
Applicable Margin of 0.75%. (9.25% at January 3, 1998) and the Credit Agreement
requires a fee, payable monthly, on average outstanding letters of credit at a
rate of 1.75% annually. At January 3, 1998, there were no direct borrowings
outstanding under the BOB Credit Agreement and approximately $21,700,000
outstanding in letters of credit under the facility. The Company has
approximately $27,600,000 available for future borrowings as of January 3, 1998.
The BOB Credit Agreement, as amended, contains certain reporting
requirements, as well as financial and operating covenants related to capital
expenditures and the attainment of a current assets to current liabilities
ratio, an interest to earnings ratio and minimum earnings. As collateral for
borrowings under the BOB Credit Agreement, the Company has granted to BOB a
security interest in substantially all of its assets. In addition, the BOB
Credit Agreement contains certain restrictive covenants, including limitations
on the incurrence of additional liens and indebtedness and a prohibition on
paying dividends.
The Company paid $2,422,000 in commitment and related fees in connection
with the credit facility in June 1997. These fees are included in other assets
and will be amortized as interest and financing costs over the term of the
Credit Agreement (three years).
LONG TERM DEBT -
Pursuant to the reorganization the former creditors of Leslie Fay received
12.75% Senior Notes in the aggregate principal amount of $110,000,000. These
notes bear interest at twelve and three quarter percent (12.75%) and mature
F-13
<PAGE>
on June 4, 2004. Interest is paid semi-annually on March 31 and September 30.
The Senior Notes contain certain restrictive covenants which include, among
others: (i) generally, no addition to long term debt is allowed until the
interest coverage exceeds 1.75 for 1 for four consecutive quarters; (ii) the
Company can only make investments in certain high quality investments, such as
treasury bills, etc.; (iii) generally, the Company cannot incur any liens upon
its property other than those incurred in the ordinary course of business; and
(iv) the Company cannot make restricted payments including dividends until it is
permitted to incur additional indebtedness in accordance with item (i) above and
the Company has accumulated a minimum amount of funds prior to the restrictive
payment.
NOTE 7. SHAREHOLDERS EQUITY:
As provided under the Plan, the authorized common stock of the reorganized
company consists of 20,000,000 shares of common stock with a par value of $.01
per share. At June 4, 1997, 6,800,000 were issued and outstanding and were being
held by the plan administrator in trust. In July 1997, approximately 5, 372, 254
of the shares were distributed. Pursuant to the Reorganization Plan, and based
on the Company's estimate of the amount of certain outstanding claims by
creditors of Leslie Fay that ultimately will be allowed by the Bankruptcy Court,
the Company retained approximately 1,427,746 shares of Common Stock and
$23,095,893 principal amount of Senior Notes for payment of certain classes of
claims against Leslie Fay . Such shares of Common Stock and Senior Notes are
being held in trust by the plan administrator under the Reorganization Plan and
are disbursed as such claims are either settled or dismissed. In addition,
1,000,000 shares of Preferred Stock of the new reorganized Company were
authorized at June 4, 1997 with a par value of $.01. None of the shares have
been issued.
NOTE 8. INCOME TAXES:
As a division of Leslie Fay, the Predecessor Company was not subject to
Federal, State and Local income taxes. Provisions for deferred taxes were not
reflected on the Company's books, but were reflected on Leslie Fay's books and
records. Leslie Fay and it's subsidiaries filed a consolidated Federal income
tax return. AEL, Tomwell and Viewmon file separate returns in Hong Kong. Income
taxes have been provided herein for the Predecessor Company as if the Company
had filed a separate return in the United States, in addition to the separate
returns mentioned above.
Beginning June 4, 1997, the Reorganized Company became fully subject to such
taxes and accounts for income taxes under the liability method prescribed by
SFAS No. 109. Under this method, any deferred income taxes recorded are provided
for at currently enacted statutory rates on the differences in the basis of
assets and liabilities for tax and financial reporting purposes. When recorded,
deferred income taxes are classified in the balance sheet as current or
non-current based upon the expected future period in which such deferred income
taxes are anticipated to reverse.
The financial statements for the Predecessor Company reflect an effective
tax rate of 40%, which reasonably reflects what the Company's tax rate would
have been as a separate company.
F-14
<PAGE>
For January 3, 1998, June 4, 1997 and December 28, 1996, the following
provisions for income taxes were made:
JANUARY 3, | JUNE 4, DECEMBER 28,
1998 | 1997 1996
----------- | ----------- -----------
| (In thousands)
Current: |
Federal $ 1,631 | $ 2,818 $ 5,744
State 276 | 639 1,302
Foreign 97 | 301 613
----------- | ----------- -----------
Total Current: $ 2,004 | $ 3,758 $ 7,659
----------- | ----------- -----------
Deferred: |
Federal (1,056) | -- --
----------- | ----------- -----------
Provision for income taxes $ 948 | $ 3,758 $ 7,659
=========== | =========== ===========
Deferred taxes for the Predecessor Company were reflected as a component of
divisional equity as Leslie Fay was the taxable legal entity.
Deferred tax liabilities (assets) are comprised of the following:
JANUARY 3,
1998
-----------
(in thousands)
Deferred tax assets
A/R reserve $ (1,166)
Inventory, net (529)
-----------
Total deferred tax assets (1,695)
===========
Deferred tax liabilities
Amortization 601
Compensation costs 38
-----------
Total deferred tax liabilities 639
===========
Net deferred tax assets $ (1,056)
===========
The difference between the Company's effective income tax rate and the
statutory federal income tax rate for January 3, 1998, June 4, 1997 and December
28, 1996, respectively, is as follows:
JANUARY 3, | JUNE 4, DECEMBER 28,
1998 | 1997 1996
----------- | ----------- -----------
(In thousands, except percentages)
Provision for income taxes $ 948 | $ 3,758 $ 7,659
=========== | =========== ===========
Income before taxes $ 1,920 | $ 9,396 $ 19,147
=========== | =========== ===========
|
Effective tax rate 49.4% | 40.0% 40.0%
Net state tax (14.4) | (6.8) (6.8)
Foreign tax rate differential (5.0) | 2.8 2.8
Other 4.0 | (1.0) (1.0)
----------- | ----------- -----------
Federal statutory rate 34.0% | 35.0% 35.0%
=========== | =========== ===========
F-15
<PAGE>
At June 4, 1997, Leslie Fay had consolidated federal tax loss carryforwards
of $135,100,000 expiring in 2009, 2010 and 2011. No benefit with respect to
these tax loss carryforwards has been reflected in the June 4, 1997 and December
28, 1996 financial statements of the Company. As of January 3, 1998, Kasper has
no net operating loss carryforwards.
NOTE 9. COMMITMENTS AND CONTINGENCIES:
LEGAL PROCEEDINGS -
On April 5, 1993, Leslie Fay and several of its subsidiaries filed voluntary
petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy Code. All
civil litigation commenced against Leslie Fay and those referenced subsidiaries
prior to that date was stayed under the Bankruptcy Code. By an order dated April
30, 1997 (the "Confirmation Order"), the Bankruptcy Court confirmed the Plan.
The Plan was consummated on June 4, 1997.
The Confirmation Order, inter alia, dismissed with prejudice all pending
litigation, and released all claims that could have been brought in litigation.
Both prior to and subsequent to the Filing Dates, various class action suits
were commenced on behalf of certain prior stockholders of the Company. Any
claims against the Company arising out of these suits were discharged as part
of, and in accordance with the terms of the Plan. Accordingly, whatever the
eventual outcome of these cases, there can be no material financial impact on
the Company based on the terms of the Plan.
On November 17, 1997, the Company's wholly-owned subsidiary, Asia Expert,
Ltd. received a letter from the United States Customs Service stating that a
monetary claim in the amount of $694,860 was being contemplated against Asia
Expert, Ltd. as a result of an alleged trans-shipment of goods in late 1995 from
China by a contractor. At this time, the case is in preliminary stages of
investigation. However, it is the Company's position that its subsidiary did not
knowingly or intentionally participate in any violation of U.S. Custom laws and
the Company intends to vigorously pursue all appropriate legal defenses.
LEASES -
The Company rents real and personal property under leases expiring at
various dates through 2008. Certain of the leases stipulate payment of real
estate taxes and other occupancy expenses.
Minimum annual rental commitments under leases in effect at January 3, 1998
are summarized as follows:
(In thousands)
FISCAL YEAR ENDED REAL ESTATE EQUIPMENT
& OTHER
---------- ----------
1998 $ 4,762 $ 59
1999 4,214 31
2000 3,764 --
2001 3,743 --
2002 3,288 --
Later years 12,649 --
---------- ----------
Total minimum lease payments $ 32,420 $ 90
========== ==========
Rent expense for the seven months ended January 3, 1998, five months ended
June 4, 1997 and the year ended December 28, 1996 amounted to $3,431,529,
$3,226,566 and $4,356,709, respectively.
F-16
<PAGE>
CONCENTRATIONS OF CREDIT RISK -
Financial instruments which potentially expose the Company to concentrations
of credit risk, as defined by SFAS No. 105, consist primarily of trade accounts
receivable. The Company's customers are not concentrated in any specific
geographic region, but are concentrated in the retail apparel business. The
Company has established an allowance for possible losses based upon factors
surrounding the credit risk of specific customers, historical trends and other
information. For the years ended January 3, 1998 and December 28, 1996, sales to
three customers accounted for approximately 18%, 17% and 14% and 18%, 15% and
11% of total sales, respectively.
GEOGRAPHIC SEGMENTS -
Identifiable assets in the United States and the Far East are $218,586,000
and $42,070,000 at January 3, 1998. The Company's Hong Kong entities sole source
of revenues comes from intercompany transactions, as their sole function is to
procure and arrange for the manufacture of apparel in the Far East for Kasper.
NOTE 10. RETIREMENT PLANS:
(a) DEFINED BENEFIT PLAN
In January 1992, Leslie Fay established a non-contributory defined benefit
pension plan covering certain salaried, hourly and commission-based employees.
Employees of the Predecessor Company participated in this plan. Plan benefits
are based upon the participants' salaries and years of service. The plan had
been amended to freeze benefit accruals effective December 31, 1994 and to
terminate the plan effective December 31, 1996. Investments are made primarily
in U.S. Government obligations and common stock. The following major assumptions
were used in the actuarial valuations:
JUNE 4, DECEMBER 28,
1997 1996
---- ----
Discount rate 7.5% 7.5%
Long-term rate of return on assets 8.8% 8.8%
Average increase in compensation N/A N/A
Net periodic pension cost recognized by Leslie Fay for the five months ended
June 4, 1997 and year ended December 28, 1996, was $0 and $195,000,
respectively. The components of this cost are as follows:
JUNE 4, DECEMBER 28,
1997 1996
---- ----
(in thousands)
Service costs $ -- $ --
Interest cost 38 127
Actual return on assets (98) (111)
Recognition of partial settlement of pension -- (106)
obligations
Net amortization and deferral 60 73
----- -----
Net periodic pension cost $ -- $ 195
===== =====
F-17
<PAGE>
Net periodic pension cost charged to Kasper for the five months ended June
4, 1997 and year ended 1996 was $0 and $107,000, respectively.
The following table summarizes the funding status of the plan at June 4,
1997 and December 28, 1996:
JUNE 4, DECEMBER 28,
1997 1996
------- -------
Actuarial present value of benefit obligations: (In thousands)
Accumulated benefit obligation:
Vested $ 1,867 $(2,034)
Non-vested -- (97)
------- -------
Total accumulated benefit obligation $ 1,867 $(2,131)
======= =======
Projected benefit obligation $ 1,867 $(2,131)
Estimated fair value of assets 1,054 1,062
------- -------
Excess of projected benefit obligation over plan assets (813) (1,069)
Unrecognized prior service costs -- --
Unrecognized net loss -- --
Additional minimum liability under SFAS No. 87 -- --
------- -------
Leslie Fay Accrued Pension Costs $ (813) $(1,069)
======= =======
The above accrued pension costs have not been allocated to Sassco.
As a result of the plan termination, Leslie Fay recorded an additional
$676,000 as reorganization expenses to write-off these assets and record an
additional liability to fully fund the plan in the fourth quarter of 1996.
The Company has not established a defined benefit pension plan subsequent to
June 4, 1997.
(b) DEFINED CONTRIBUTION PLAN
Kasper established a 401(k) Savings Plan for its employees on June 4, 1997.
It is open to employees over the age of 21, who have completed at least twelve
consecutive months of service. The Company makes matching contributions up to a
percentage of employee contributions. Total contributions to the plan may not
exceed the amount permitted pursuant to the Internal Revenue Code. Contributions
to the plan for the seven months ended January 3, 1998 were $52,650.
Leslie Fay also maintained a qualified voluntary contributory profit sharing
plan covering certain salaried, hourly and commission-based employees, including
some employees of the Predecessor Company. Certain matching contributions to the
plan were mandatory. Other contributions to the plan were discretionary. Total
contributions to the plan may not exceed the amount permitted as a deduction
pursuant to the Internal Revenue Code. The contributions charged to Kasper for
the five months ended June 4, 1997 and the year ended December 28, 1996 amounted
to $ 46,200 and $175,000, respectively.
F-18
<PAGE>
(c) OTHER
Leslie Fay participates in multi-employer pension plans, which also covered
certain Predecessor Company employees. The plans provide defined benefits to
unionized employees. Amounts charged to Kasper for contributions to the pension
funds for the five months ended June 4, 1997 and the year ended December 28,
1996, amounted to approximately $283,000 and $629,400, respectively.
The Company has not established a multi-employer pension plan subsequent to
June 4, 1997
The Company does not provide for postemployment or postretirement benefits
other than the plans described above.
NOTE 11. STOCK OPTION PLANS:
MANAGEMENT STOCK OPTION PLAN -
On December 2, 1997, the Board of Directors approved the 1997 Management
Stock Option Plan (the "Management Plan"). To date, the Company has issued
Management Options to purchase 1,753,459 shares of Common Stock, which upon
issuance will represent approximately 20.5% of the Company's outstanding Common
Stock. Such options are exercisable at $14.00 per share and vest as follows: 25%
vested immediately with 15% vesting annually thereafter on June 4 from the years
1998 to 2002. The Management Options expire on June 1, 2004.
The Management Plan provides for the grant to officers and employees of and
consultants to the Company and its affiliates who are responsible for or
contribute to the management, growth and profitability of the Company of options
to purchase Common Stock. The total number of shares of Common Stock for which
options may be granted under the Plan is 2,500,000 shares. No participant may be
granted stock options in excess of 1,500,000 shares of Common Stock over the
life of the Management Plan. Management Options are not transferable by the
optionee other than by will or the laws of descent and distribution or to
facilitate estate planning, and each option is exercisable during the lifetime
of the optionee only by such optionee.
The Management Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"). The Management Options granted as of the
date hereof are nonqualified stock options. The term of each option granted
pursuant to the Management Plan may be established by the Committee, in its sole
discretion: provided, however, that the maximum term of each option granted
pursuant to the Employee Plan is six and one-half years. Options shall become
exercisable at such times and in such installments as the Committee shall
provide in the terms of each individual option agreement.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN -
On June 10, 1997, the Board of Directors approved the grant of stock options
("Director Options") to purchase 20,000 shares of Common Stock to each of its
five non-employee directors for a total of 100,000 options. Each option has an
exercise price of $14.00 per share and will vest ratably over the first three
anniversaries following the date of grant. The Director Options will expire on
the fifth anniversary of the date of grant. Director Options are not
transferable by the optionee other than by will or the laws of descent and
distribution or to facilitate estate planning, and each option is exercisable
during the lifetime of the optionee only by such optionee. At the date of
issuance, the fair market value per share was $15.50. The fair market value in
excess of the exercise price paid is being amortized over the vesting period.
F-19
<PAGE>
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". This statement establishes a
fair market value based method of accounting for an employee stock option but
allows companies to continue to measure compensation cost for those plans using
the intrinsic value based method prescribed by APB Opinion No. 25 "Accounting
for Stock Issued to Employees". Companies electing to continue using the
accounting under APB Opinion No. 25 must, however, make pro forma disclosure of
net income and earnings per share as if the fair value based method of
accounting in SFAS No. 123 had been applied. The Company has elected to account
for its stock based compensation awards to employees and directors under the
accounting prescribed by APB Opinion No. 25, under which no compensation cost
has been recognized.
Had compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
SEVEN MONTHS ENDED
JANUARY 3, 1998
---------------
(in thousands, except per share)
Net Income: As Reported $ 972
Pro Forma (7,645)
Basic EPS: As Reported .14
Pro Forma (1.12)
Diluted EPS: As Reported .14
Pro Forma (1.12)
The option price under the Management Plan exceeded the stock's market price
on the date of grant. The option price under the Director Options was less than
the stock's market price on the date of grant.
A summary of the status of the Company's two stock plans at January 3, 1998
and changes during the seven months then ended is presented in the table and
narrative below:
JANUARY 3, 1998
---------------
Shares Weighted Avg.
(000) Exercise Price
-------- --------------
Outstanding at beginning of year -- $ --
Granted 1,853 14
Exercised -- --
Forfeited -- --
Expired -- --
-------- --------
Outstanding at end of year 1,853 14
-------- --------
Exercisable at end of year 472 14
Weighted average of fair value
of options granted $4.65
All of the options outstanding at January 3, 1998 have an exercise price of
$14 and a weighted average remaining contractual life of 6.7 years. 472 of these
options are exercisable.
F-20
<PAGE>
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 in 1997: risk-free interest rate of 5.8% for the Management
Plan and 6.4% for the Director Options; expected dividend yield of 0%, expected
lives of 5 years and expected stock price volatility of 34%, all for both plans.
NOTE 12. INCOME PER SHARE:
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". This statement establishes standards for computing and
presenting earnings per share ("EPS"), replacing the presentation of currently
required Primary EPS with a presentation of Basic EPS. For entities with complex
capital structures, the statement requires the dual presentation of both Basic
EPS and Diluted EPS on the face of the statement of operations. Under this new
standard, Basic EPS is computed on the weighted average number of shares
actually outstanding during the year. Diluted EPS includes the effect of
potential dilution from the exercise of outstanding dilutive stock options and
warrants into common stock using the treasury stock method. SFAS No. 128 is
effective for the current fiscal year end.
FOR THE SEVEN MONTHS ENDED JANUARY 3, 1998
(in thousands except per share amounts)
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------- ---------- ----------
Basic EPS
Income available to common
shareholders $ 972 6,800 $ .14
==========
Effect of Dilutive Securities
Non-Employee Director Stock Options -- 5
Management Stock Options -- --
---------- ----------
Diluted EPS
Income available to
common shareholders + $ 972 6,805 $ .14
assumed conversions ========== ========== ==========
The Management Stock Options issued on December 2, 1997 were not included in
the computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares, for the entire time
outstanding during the year. All options were still outstanding at January 3,
1998.
NOTE 13. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), established standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 now requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
F-21
<PAGE>
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by
Management in deciding how to allocate resources and in assessing performance.
Both SFAS No. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. The Company has not yet determined what additional
disclosures, if any, may be required in connection with adopting these
statements.
NOTE 14. SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid for interest and income taxes were as follows:
JANUARY 3, | JUNE 4, DECEMBER 28,
1998 | 1997 1996
---------- | ---------- ----------
| (in thousands)
Interest $ 5,869 | $ 307 $ 496
Income taxes 1,462 | 82 626
F-22
<PAGE>
SASSCO FASHIONS, LTD. AND RELATED ENTITIES
a Division of The Leslie Fay Companies, Inc.
(a Debtor In Possession -Note 1)
COMBINED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS DECEMBER 28, DECEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................ $ 1,886 $ 1,819
Accounts receivable-net of allowances for possible
losses of $18,369 and $15,532, respectively ...... 55,389 47,936
Inventories .......................................... 84,425 84,446
Prepaid expenses and other current assets ............ 1,877 1,978
-------- --------
Total Current Assets ............................. 143,577 136,179
-------- --------
Property, Plant and Equipment, at cost less
accumulated depreciation and
amortization of $8,084 and $6,539, respectively ...... 11,904 6,467
Excess of Purchase Price over Net Assets Acquired-net
of accumulated amortization of $8,035 and $7,342,
respectively ......................................... 17,400 17,982
Deferred Charges and Other Assets ........................ -- 1,481
-------- --------
Total Assets ............................................. $172,881 $162,109
======== ========
LIABILITIES AND DIVISIONAL EQUITY
Current Liabilities:
Accounts payable ..................................... $ 11,412 $ 15,351
Accrued expenses and other current liabilities ....... 3,862 9,125
Income taxes payable ................................. 403 2,032
-------- --------
Total Current Liabilities ........................ 15,677 26,508
Commitments and Contingencies.............................
Divisional Equity ........................................ 157,204 135,601
-------- --------
Total Liabilities and Divisional Equity .............. $172,881 $162,109
======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these financial statements.
F-23
<PAGE>
SASSCO FASHIONS, LTD. AND RELATED ENTITIES
a Division of The Leslie Fay Companies, Inc.
(a Debtor In Possession -Note 1)
COMBINED STATEMENTS OF OPERATIONS
(In thousands)
DECEMBER 28, DECEMBER 30,
1996 1995
-------- --------
Net Sales ............................................ $311,550 $279,974
Cost of Sales ........................................ 238,268 207,161
-------- --------
Gross profit ..................................... 73,282 72,813
-------- --------
Operating Expenses:
Selling, warehouse, general and administrative
expenses ............................................. 50,263 49,604
Depreciation and Amortization ........................ 2,238 2,033
-------- --------
Total operating expenses ..................... 52,501 51,637
-------- --------
Operating income ..................................... 20,781 21,176
Interest and Financing Costs ......................... 1,634 525
-------- --------
Income before provision for income taxes ............. 19,147 20,651
Provision for Income Taxes ........................... 7,659 8,260
-------- --------
Net Income ........................................... $ 11,488 $ 12,391
======== ========
The accompanying Notes to Combined Financial Statements are an integral part of
these financial statements.
F-24
<PAGE>
SASSCO FASHIONS, LTD. AND RELATED ENTITIES
a Division of The Leslie Fay Companies, Inc.
(a Debtor In Possession -Note 1)
COMBINED STATEMENTS OF DIVISIONAL EQUITY
(In thousands)
DECEMBER 28, 1996 DECEMBER 30, 1995
----------------- -----------------
Divisional Equity, beginning of year .... $135,601 $109,563
Net Income .............................. 11,488 12,391
Less: Net increase in investment with
Leslie Fay ............................. 10,115 13,647
-------- --------
Divisional Equity, end of year .......... $157,204 $135,601
======== ========
The accompanying Notes to Combined Financial Statements are an integral part of
these financial statements.
F-25
<PAGE>
SASSCO FASHIONS, LTD. AND RELATED ENTITIES
a Division of The Leslie Fay Companies, Inc.
(a Debtor In Possession -Note 1)
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
-------------------------
DECEMBER 28, DECEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 11,488 $ 12,391
Adjustments to reconcile net income to net cash (used
in) operating activities:
Depreciation and amortization ..................... 1,546 1,456
Amortization of excess purchase price over net
assets acquired ................................ 693 577
Excess of cost over fair value of assets acquired . (111) (1,524)
Change in provision for possible losses on accounts
receivable ..................................... 2,836 2,636
(Increase) Decrease in:
Accounts receivable ............................ (10,290) (8,313)
Inventories .................................... 21 (22,900)
Prepaid expenses and other current assets ...... 101 (1,361)
Deferred charges and other assets .............. 1,481 (1,155)
Increase (Decrease) in:
Accounts payable, accrued expenses and other
current liabilities ........................ (9,202) 7,397
Income taxes payable ........................... (1,629) 743
-------- --------
Total adjustments .......................... (14,554) (22,444)
-------- --------
Net case (used in) operating activities .... (3,066) (10,053)
-------- --------
Cash Flows from Investing Activities:
Capital expenditures net of proceeds from the sale of
fixed assets ...................................... (6,982) (3,149)
-------- --------
Net cash (used in) investing activities ........... (6,982) (3,149)
-------- --------
Cash Flows from Financing Activities:
Net increase in cash invested with Leslie Fay ......... 10,115 13,647
-------- --------
Net cash provided by financing activities ......... 10,115 13,647
-------- --------
Net increase in cash and cash equivalents ................. 67 445
Cash and cash equivalents, at beginning of period ......... 1,819 1,374
-------- --------
Cash and cash equivalents, at end of period ............... $ 1,886 $ 1,819
======== ========
</TABLE>
The accompanying Notes to Combined Financial Statements are an integral part of
these financial statements.
F-26
<PAGE>
SASSCO FASHIONS, LTD. AND RELATED ENTITIES
a Division of The Leslie Fay Companies, Inc.
(a Debtor In Possession -Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION:
Sassco Fashions, Ltd. ("Sassco") is a division of The Leslie Fay
Companies, Inc. ("Leslie Fay"), a Delaware corporation operating its business as
a debtor in possession subject to the jurisdiction and supervision of the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"). The combined financial statements herein presented include the
operations of three related Hong Kong corporations, Asia Expert Limited ("AEL"),
Tomwell Limited ("Tomwell") and Viewmon Limited ("Viewmon"), none of which are
part of the Leslie Fay bankruptcy proceeding. These three Hong Kong corporations
are subsidiaries of Leslie Fay that procure and arrange for the manufacture of
apparel products in the Far East solely for the benefit of Sassco. The combined
financial statements of Sassco, AEL, Tomwell and Viewmon (Sassco being sometimes
individually referred to, and together with its related entities collectively
referred to, as the "Company" as the context may require) have been prepared on
a stand-alone basis in accordance with generally accepted accounting principles
applicable to a going concern. The Company's fiscal year ends on the Saturday
closest to December 31st. The fiscal years ended December 28, 1996 ("1996") and
December 30, 1995 ("1995"), included 52 weeks in each year.
On April 29, 1997, the Bankruptcy Court confirmed Leslie Fay's Plan of
Reorganization (the "Plan") (see Note 11). The Plan called for the spin-off of
Sassco as a newly organized entity and will consist of Sassco, AEL, Tomwell,
Viewmon, Sassco Europe and ASL Retail (collectively referred to as "Sassco
Fashions, Ltd.").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) BUSINESS
The Company is principally engaged in the design and sale of women's
apparel.
(b) PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Sassco, AEL,
Tomwell, Viewmon, Sassco Europe and ASL Retail. All significant intercompany
balances and transactions have been eliminated in combination.
(c) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires disclosure of the fair value of
certain financial instruments. Cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses are reflected at fair value because of the
short term maturity of these instruments.
(d) CASH EQUIVALENTS
All highly liquid investments with a remaining maturity of three months
or less at the date of acquisition are classified as cash equivalents.
F-27
<PAGE>
(e) INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out;
"FIFO") or market.
(f) PROPERTY, PLANT AND EQUIPMENT
Land, buildings, fixtures, equipment and leasehold improvements are
recorded at cost. Major replacements or betterments are capitalized. Maintenance
and repairs are charged to earnings as incurred. For financial statement
purposes, depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets.
(g) EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The excess of purchase price over net assets acquired is amortized on a
straight-line basis, primarily over a forty year period. In 1995, Sassco Europe
purchased assets from Leslie Fay and recorded excess purchase price over net
assets acquired of $1,043,500. The additional balance was recorded in connection
with the purchase of Sassco by Leslie Fay.
The Company continually evaluates, based upon income and/or cash flow
projections and other factors as appropriate, whether events and circumstances
have occurred that indicate that the remaining estimated useful life of this
asset warrants revision or that the remaining balance of this asset may not be
recoverable.
(h) DIVISIONAL EQUITY
Divisional equity as used in these financial statements, represents a
summary of all intercompany activity between Sassco and Leslie Fay and its
affiliates as well as the accumulation of earnings.
(i) REVENUE RECOGNITION
Sales are recognized upon shipment of products to customers and, in the
case of sales by Company owned retail stores, when goods are sold to customers.
Allowances for estimated uncollectible accounts and discounts are provided when
sales are recorded.
(j) FOREIGN CURRENCY TRANSLATION
The functional currency of the Hong Kong subsidiaries is the U.S.
dollar, and remeasurement gains and losses (which were not material) are
included in determining net income for the period.
(k) INCOME TAXES
Leslie Fay and its subsidiaries file a consolidated Federal income tax
return. As a division of Leslie Fay, the Company was not subject to Federal,
State and Local income taxes. AEL, Tomwell and Viewmon file separate tax returns
in Hong Kong. The effective tax rate used herein reflects the rate that would
have been applicable, had the Company been independent. Provisions for deferred
taxes were not reflected on the Company's books, but were reflected on Leslie
Fay's books and records. Going forward, the Company will record deferred taxes
in accordance with the provision of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes".
F-28
<PAGE>
(l) USE OF ESTIMATES
The financial statements are prepared in conformity with generally
accepted accounting principles, such preparation requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
3. INVENTORIES:
Inventories consist of the following:
December 28, December 30,
1996 1995
---------- ----------
(In thousands)
Raw materials $ 25,061 $ 36,035
Work in process 30 23
Finished goods 59,334 48,388
---------- ----------
Total inventories $ 84,425 $ 84,446
========== ==========
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
Estimated
December 28, December 30, Useful
1996 1995 Lives
------- ------- -------
(In thousands)
Land and buildings $ 32 $ 32 25-40 years
Building under capitalized lease obligation 122 122 Term of lease
Machinery, equipment and fixtures 11,179 7,256 5-10 years
Leasehold improvements 5,044 4,331 5 years
Construction in progress 3,611 1,265 N/A
------- -------
Property, plant and equipment, at cost 19,988 13,006
Less: Accumulated depreciation and
amortization 8,084 6,539
------- -------
Total property, plant and equipment, net $11,904 $ 6,467
======= =======
5. DEBT:
(a) FNBB CREDIT AGREEMENT/DIP CREDIT AGREEMENT
Leslie Fay utilizes a centralized cash management system. As such, cash
has not been allocated on a divisional level. Cash and cash equivalents on the
accompanying balance sheets is primarily held by AEL, Tomwell and Viewmon. On
occasion, the Company has required funding from Leslie Fay for short periods.
The Company has not reflected either interest income or interest expense on
centralized cash balances or borrowings in the statement of operations. Interest
expense on the accompanying combined statements of operations and divisional
equity represents fees for letters of credit utilized by Sassco during
respective fiscal years.
F-29
<PAGE>
In connection with Leslie Fay's chapter 11 filing on April 5, 1993,
Leslie Fay and certain of its subsidiaries entered into an interim post-petition
credit agreement with Citibank N.A. On April 28, 1993, Leslie Fay refinanced
this agreement when they entered into a Post-Petition Credit Agreement (the "DIP
Credit Agreement") which was to expire on the earlier of April 26, 1994 or the
consummation of a plan of reorganization.
In April 1994, the Bankruptcy Court signed an order approving an
amendment to the DIP Credit Agreement which extended this facility until April
27, 1995. This DIP Credit Agreement was further amended to extend the facility
until December 15, 1995, subject to Bankruptcy Court approval. On May 2, 1995, a
replacement credit facility for a new $80,000,000 credit agreement with The
First National Bank of Boston ("FNBB") and BankAmerica Business Credit, Inc.
("BABC"), as facility Agents and FNBB as Administrative Agent (the "FNBB Credit
Agreement") was approved by the Bankruptcy Court. This facility replaced the
original post-petition credit agreement (the "DIP Credit Agreement") and was
subsequently extended twice and currently matures on the earlier of (i) May 16,
1997, (ii) the date of termination of the Commitments (as the term is defined in
the FNBB Credit Agreement) or (iii) the first date on which a reorganization
plan for the Company is substantially consummated. The FNBB Credit Agreement
provides for post-petition direct borrowings and the issuance of letters of
credit on Leslie Fay's behalf in an aggregate amount not exceeding $80,000,000,
subject to being permanently reduced on an equal basis for any net cash proceeds
received from the sale of assets after March 20, 1995 for which the cumulative
proceeds exceed $20,000,000 up to a maximum of $40,000,000 on a cumulative
basis. On November 15, 1995, the facility was amended to reduce the aggregate
borrowing limit to $60,000,000, and beginning January 1, 1996 a sublimit for
borrowings under the revolving line of credit was set at $15,000,000 and a
sublimit for letters of credit was set at $50,000,000. No qualifying asset sales
have been made which would reduce the facility borrowing limits. Direct
borrowings bear interest at prime plus 1.5% (9.75% at December 28, 1996 and
10.0% at December 30, 1995).
The FNBB Credit Agreement as amended contains certain reporting
requirements, as well as financial and operating covenants through December 28,
1996, related to minimum and maximum inventory levels, capital expenditures and
attainment of minimum earnings before reorganization, interest, taxation,
depreciation and amortization. As collateral for borrowings under the FNBB
Credit Agreement, Leslie Fay has granted to FNBB and BABC a security interest in
substantially all assets of Leslie Fay, including the Sassco division assets. In
addition, the FNBB Credit Agreement contains certain restrictive covenants
including limitations on the incurrence of additional liens and indebtedness and
a prohibition on paying dividends. Leslie Fay is in compliance with all
covenants contained in the FNBB Credit Agreement.
The above Facilities were utilized during 1996 and 1995 primarily to
provide letter of credit facilities to Sassco and Leslie Fay's other divisions.
Approximately $17,692,000 and $24,847,200, respectively, was committed under
unexpired letters of credit as of December 28, 1996 and December 30, 1995,
relating to Sassco.
(b) NEW COMPANY FINANCING AGREEMENTS
On February 24, 1997, the Bankruptcy Court approved in substance the
term sheet from a financial institution to provide financing for Sassco
Fashions, Ltd. upon consummation of Leslie Fay's Plan of Reorganization. This
agreement takes effect upon consummation of the Plan. The financing agreement
for Sassco Fashions, Ltd. provides a revolving line of credit and letters of
credit to support their working capital needs. This agreement contains financial
operating covenants and other limitations which require Sassco Fashions, Ltd. to
achieve a level of profitability within a range included in Leslie Fay's
December 5, 1996 Disclosure Statement For Amended Joint Plan of Reorganization.
F-30
<PAGE>
6. INCOME TAXES:
The financial statements reflect an effective tax rate of 40%, which
reasonably reflects what the Company's tax rate would have been as a separate
company. Deferred taxes are reflected as a component of divisional equity as
Leslie Fay is the taxable legal entity. If the Company was a separate taxable
entity, the components of the temporary differences would be primarily due to
customer reserves and allowances, inventory, depreciation and vacation pay
accrued.
For 1996 and 1995, the following provisions for income taxes were made:
1996 1995
------ ------
Current: (In thousands)
Federal $5,744 $6,195
State 1,302 1,409
Foreign 613 656
------ ------
Provision for income taxes $7,659 $8,260
====== ======
The difference between the Company's effective income tax rate and the
statutory federal income tax rate for 1996 and 1995, respectively, is as
follows:
1996 1995
------ ------
(In thousands, except percentages)
Provision for income taxes $ 7,659 $ 8,260
======= =======
Income before taxes $19,147 $20,651
======= =======
Effective tax rate 40.0% 40.0%
Net state tax (6.8) (6.8)
Foreign tax rate differential 2.8 2.8
Other (1.0) (1.0)
------- -------
Federal statutory rate 35.0% 35.0%
======= =======
At December 28, 1996, Leslie Fay had consolidated federal tax loss
carryforwards of $135,100,000 expiring in 2009, 2010 and 2011. No benefit with
respect to these tax loss carryforwards has been reflected in the accompanying
financial statements.
7. COMMITMENTS AND CONTINGENCIES:
(a) LEASES
The Company rents real and personal property under leases expiring at
various dates through 1999. Certain of the leases stipulate payment of real
estate taxes and other occupancy expenses. Total rent expenses charged to
operations for 1996 and 1995, amounted to $4,356,709 and $2,498,608,
respectively.
F-31
<PAGE>
Minimum annual rental commitments under leases in effect at December 28,
1996 are summarized as follows:
(In thousands)
Equipment
Real Estate & Other
----------- -------
1997 $ 3,808 $ 56
1998 3,397 56
1999 2,488 25
2000 2,032 --
2001 1,781 --
Later years 8,520 --
------- -------
Total minimum lease payments $22,026 $ 137
======= =======
(b) LEGAL PROCEEDINGS
On April 5, 1993, Leslie Fay and several of its subsidiaries filed
voluntary petitions in the Bankruptcy Court under Chapter 11 of the Bankruptcy
Code. All civil litigation commenced against Leslie Fay and those referenced
subsidiaries prior to that date has been stayed under the Bankruptcy Code.
(c) SETTLEMENT OF LABOR DISPUTE
On July 8, 1994 Leslie Fay and the International Ladies Garment Workers'
Union (the "ILGWU") reached a negotiated settlement agreement (the "ILGWU
Agreement") following a six-week labor strike which commenced at the end of the
expiration of the contract period, May 31, 1994. The Final Settlement Agreement
was approved by the Bankruptcy Court on September 15, 1995 and all payments were
made by December 1995.
(d) ILGWU NATIONAL RETIREMENT FUND
Leslie Fay is obligated to contribute to the ILGWU Retirement Fund (the
"Fund"), a multi-employer pension fund, pursuant to its collective bargaining
agreement with the ILGWU. The Fund has filed a proof of claim with the
Bankruptcy Court for Leslie Fay's estimated withdrawal liability representing
its allocable share of unfunded vested benefits under the Multi-employer Pension
Plan Amendments Act ("MPPA") of the Employee Retirement Income Security Act. The
Fund's most recent estimate of Leslie Fay's withdrawal liability through plan
year 1996 is approximately $14,875,000. In February 1997, Leslie Fay and the
Fund resolved the claim for withdrawal liability within reserves that had been
established for the claim (included in Liabilities subject to compromise). It
has not been determined what effect, if any, this will have on Sassco. As such,
no reserve has been provided in the accompanying financial statements.
(e) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist primarily of
trade accounts receivable. The Company's customers are not concentrated in any
specific geographic region, but are concentrated in the retail apparel business.
In 1996, three customers accounted for 19%, 16% and 12% of the Company's sales.
In 1995, three customers accounted for 21%, 14% and 12% of the
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<PAGE>
Company's sales. The Company has established an allowance for possible losses
based upon factors surrounding the credit risk of specific customers, historical
trends and other information.
(f) GEOGRAPHIC SEGMENTS
Identifiable assets in the United States and the Far East are
$104,129,600 and $68,751,800 at December 28, 1996 and $86,047,500 and
$76,061,000 at December 30, 1995, respectively. The Company's Hong Kong entities
sole source of revenues comes from intercompany transactions as their sole
function is to procure and arrange for the manufacture of apparel in the Far
East for Sassco.
8. RELATED PARTY TRANSACTIONS:
(a) INTERCOMPANY ACTIVITIES
Leslie Fay has provided services to Sassco, including but not limited to
financial, systems and legal services, administration of benefit and insurance
programs, income tax management, cash management and treasury services. These
financial statements include an allocation of Leslie Fay's administrative
expenses totaling $1,858,969 and $10,781,475 for 1996 and 1995, respectively. In
addition, Sassco incurred $5,737,054 of administrative expenses in 1996.
Management estimates that Sassco would have incurred $5,550,000 in 1995,
relative to the type of services provided to it by Leslie Fay, had Sassco been
operating as an unaffiliated entity. This estimate does not include costs
associated with the factoring of receivable which would have been approximately
$136,000 and $1,120,000 in 1996 and 1995, respectively. In addition, Sassco
incurred $1,161,900 of factoring charges from Heller Financial in 1996.
Sassco has taken possession of the Albert Nipon trademark in 1996.
Royalty income of $798,000 in 1996 is included as an offset to Sassco operating
expenses. In 1995 royalty income of $835,000 relating to this trademark was
included in the books and records of Leslie Fay.
(b) CONSULTING SERVICES
Sassco is a party to a consulting agreement with Alco Design Associates,
Inc. ("Alco"), whereby Alco performs consulting services relating to the
manufacture and importation of apparel for Sassco. The senior executive of
Sassco is a controlling stockholder of Alco. This consulting agreement had been
continuing on a month to month basis and has been terminated effective June 4,
1997. During 1996 and 1995, charges associated with this agreement were
$2,176,047 and $3,958,567, respectively.
AEL, Viewmon and Tomwell are parties to a consulting agreement with
Kerrison Trading Co. ("Kerrison"), whereby Kerrison performs consulting services
relating to the manufacture and importation into the United States of apparel
for Sassco and the manufacturing operations of Tomwell. The senior executive of
Sassco and the senior executive of AEL are controlling stockholders of Kerrison.
This consulting agreement had been continuing on a month to month basis and was
subsequently terminated effective June 4, 1997. During 1996 and 1995, charges
associated with this agreement were $2,459,000 and $2,277,000, respectively.
(c) OTHER
AEL sources product from two factories in Hong Kong which are controlled
by the husband of the senior executive of AEL. In February 1997, the senior
executive of AEL resigned from the Company. The Company believes that all
purchases were made under ordinary and customary practices of the industry.
During 1996 and 1995, AEL purchased goods from these two factories in the amount
of $20,344,000 and $19,204,000, respectively.
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<PAGE>
9. RETIREMENT PLANS:
(a) DEFINED BENEFIT PLAN
In January 1992, Leslie Fay established a non-contributory defined
benefit pension plan covering certain salaried, hourly and commission-based
employees. Sassco employees participate in this plan. Plan benefits are based
upon the participants' salaries and years of service. The plan has been amended
to freeze benefit accruals effective December 31, 1994 and to terminate the plan
effective December 31, 1996. Investments are made primarily in U.S. Government
obligations and common stock. The following major assumptions were used in the
actuarial valuations:
1996 1995
---- ----
Discount rate 7.5% 8.8%
Long-term rate of return on assets 8.8% 8.8%
Average increase in compensation N/A N/A
Net periodic pension cost was recognized by Leslie Fay in 1996 and 1995,
respectively, of $195,000 and $341,000. The components of this cost are as
follows:
(In thousands)
1996 1995
----- -----
Service costs $ -- $ --
Interest cost 127 223
Actual return on assets (111) 417
Recognition of partial settlement of pension obligations 106 200
Net amortization and deferral 73 (499)
----- -----
Net periodic pension cost $ 195 $ 341
===== =====
Net periodic pension cost charged to Sassco in 1996 and 1995,
respectively, was $107,000 and $85,000.
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<PAGE>
The following table summarizes the funding status of the plan at
December 28, 1996 and December 30, 1995:
Actuarial present value of benefit obligations: (In thousands)
Accumulated benefit obligation: 1996 1995
------- -------
Vested $(2,034) $(1,639)
Non-vested (97) (196)
------- -------
Total accumulated benefit obligation $(2,131) $(1,835)
======= =======
Projected benefit obligation $(2,131) $(1,835)
Estimated fair value of assets 1,062 1,359
------- -------
Excess of projected benefit obligation
over plan assets (1,069) (476)
Unrecognized prior service costs -- 262
Unrecognized net loss -- 313
Additional minimum liability under SFAS No.87 -- (575)
------- -------
Leslie Fay Accrued Pension Costs $(1,069) $ (476)
======= =======
The above accrued pension costs have not been allocated to Sassco.
Under the requirements of SFAS No. 87 -"Employers' Accounting for
Pension", an additional minimum pension liability representing the excess of
accumulated benefits over plan assets and accrued pension costs, was recognized
at December 30, 1995. A corresponding amount was recognized as an intangible
asset to the extent of unrecognized prior service costs with the balance
recorded as a separate reduction of stockholders' equity. As a result of the
plan termination, Leslie Fay recorded an additional $676,000 as reorganization
expenses to write-off these assets and record an additional liability to fully
fund the plan in the fourth quarter of 1996.
(b) DEFINED CONTRIBUTION PLAN
Leslie Fay also maintains a qualified voluntary contributory profit
sharing plan covering certain salaried, hourly and commission-based employees,
which also covers some Sassco employees. Certain matching contributions to the
plan are mandatory. Other contributions to the plan are discretionary. Total
contributions to the plan may not exceed the amount permitted as a deduction
pursuant to the Internal Revenue Code. The contributions charged to Sassco for
1996 and 1995, amounted to $175,000 and $130,000, respectively.
(c) OTHER
Leslie Fay participates in multi-employer pension plans, which also
cover certain Sassco employees. The plans provide defined benefits to unionized
employees. Amounts charged to Sassco's operations for contributions to the
pension funds in 1996 and 1995, amounted to approximately $629,400 and $545,400,
respectively.
The Company does not provide for postemployment or postretirement
benefits other than the plans described above.
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<PAGE>
10. SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid for interest and income taxes were as follows:
(In thousands)
1996 1995
---- ----
Interest $496 $525
Income taxes $626 $230
11. LESLIE FAY BANKRUPTCY
As mentioned in Note 1, Leslie Fay was operating its business as a
debtor in possession subject to the jurisdiction of the Bankruptcy Court. On
April 5, 1993, Leslie Fay and certain of its wholly owned subsidiaries filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"), as a result of the announcement of accounting
irregularities, numerous stockholder and other party lawsuits filed against the
Company and its directors, and the breach of certain provisions of its financing
agreement at the time. On February 28, 1997, Leslie Fay filed an Amended Joint
Plan of Reorganization pursuant to Chapter 11 of the Bankruptcy Code. The Plan
has been approved by the creditors and on April 29, 1997, the Bankruptcy Court
confirmed the Plan. Refer to the consolidated financial statements of Leslie Fay
for the fiscal year ended December 28, 1996, included in Leslie Fay's Annual
Report on Form 10-K, for more information regarding Leslie Fay's bankruptcy
proceedings and reorganization case.
Leslie Fay's ability to continue as a going concern is dependent upon
the confirmation of a plan of reorganization by the Bankruptcy Court, securing
ongoing debtor in possession financing, compliance with all debt covenants under
their debtor in possession financing, the achievement of profitable operations
and positive cash flow, a favorable resolution of certain legal proceedings
against Leslie Fay, the success of future operations, the resolutions of future
uncertainties in the Chapter 11 cases and legal proceedings as discussed in
Notes 2 and 8, respectively, of Notes to the Consolidated Financial Statements
contained in the 1996 Form 10-K, and the ability to obtain financing for its
operations that will enable it to emerge from Chapter 11. Because of the
uncertainties relating to Leslie Fay's bankruptcy and future operations, the
financial condition of Leslie Fay raises substantial doubt as to Sassco's
ability to continue as a going concern. In addition, Sassco is supported by the
overall financing facility of Leslie Fay. The accompanying combined financial
statements do not include any adjustments relating to recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should Sassco be unable to continue as a
going concern.
12. SUBSEQUENT EVENTS
At the close of business on June 4, 1997, Leslie Fay emerged from
bankruptcy and Sassco Fashions, Ltd. emerged as a newly organized separate
entity.
On June 4, 1997, the Plan was consummated by Leslie Fay 1) transferring
the equity interest in both Leslie Fay and Sassco, to its creditors in exchange
for relief from the aggregate amount of the claims estimated at $338,000,000; 2)
assigning to certain creditors the ownership rights to notes aggregating
$110,000,000 payable by Sassco; and 3) transferring the assets (including
$10,963,000 of cash) and liabilities of the then Sassco division to Sassco and
the assets and liabilities of Leslie Fay Dress and Sportswear divisions to three
wholly owned subsidiaries of Leslie Fay. In addition, Leslie Fay retained
approximately $41,080,000 in cash, of which $23,580,000 will be used to pay
administrative claims as defined in the Plan. As provided for in the Plan, the
Company will issue eighty (80%)
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<PAGE>
percent of its 6,800,000 of new shares to its creditors in July 1997. The
remaining twenty (20%) percent will be held back pending the resolutions of
certain litigation before the Bankruptcy Court. On June 4, 1997, Leslie Fay
emerged from bankruptcy and Kasper has emerged as a newly organized separate
entity.
The effects of the Company's reorganization under Chapter 11 will be
accounted for in the Company's financial statements using the principles
required by the American Institute of Certified Public Accountants' Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("Fresh
Start Accounting").
Pursuant to such principles, the Company's assets, upon emergence from Chapter
11 will be stated at "reorganization value", which is defined as the value of
the entity before considering liabilities on a going-concern basis following the
reorganization and represents the estimated amount a willing buyer would pay for
the assets of the Company immediately after the reorganization. The
reorganization value for the Company will be determined by reference to the
remaining liabilities plus the estimated value of shareholders' equity of the
outstanding shares of the Common Stock. The reorganization value of the Company
will be allocated to the assets of the Company in conformity with the procedures
specified by Accounting Principles Board Opinion No. 16, Business Combinations,
for transactions reported on the basis of the purchase method of accounting. In
this allocation, identifiable assets were valued at estimated fair values, and
any excess reorganization value has been recorded as "reorganization value in
excess of amounts allocated to identifiable assets" (a long-term intangible
asset similar to "goodwill").
F-37
<PAGE>
====================================== ======================================
NO PERSON IS AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, KASPER A.S.L., LTD.
SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES 1,350,131 SHARES OF COMMON STOCK AND
OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL $12,141,438 OF 12.75% SENIOR NOTES
TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
--------------
PROSPECTUS
TABLE OF CONTENTS --------------
PAGE
Prospectus Summary..................3
Risk Factors........................6
Non-Comparability of Historical
Financial Statements.............13
Use of Proceeds....................13
Dividend Policy....................13
Capitalization.....................13
Selected Consolidated / Combined
Financial Data..................14
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........18
Business...........................26
Management.........................39
Principal Stockholders.............45
Selling Stockholders'
and Plan of Distribution.........46
Certain Transactions...............48
Description of Capital Stock.......48 , 1998
Shares Eligible for Future Sale....52
Legal Matters......................53
Experts............................53
Additional Information.............54
Index to Financial Statements.....F-1
------------------
UNTIL __________, 1998 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS
REPRESENTATIVES AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
====================================== ======================================
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
It is estimated that the following expenses will be incurred in
connection with the proposed Offering hereunder. All of such expenses will be
borne by the registrant.
Registration fee - Securities and Exchange Commission...........$9,024.17
NASD filing fee.................................................
New York Stock Exchange listing fee............................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Transfer agent fees and expenses................................ *
Blue sky fees and expenses (including counsel fees)............. *
Printing expenses............................................... *
Miscellaneous................................................... *
---------
Total............................................$ *
=========
- --------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
1. Section 145 of Delaware General Corporation Law. Section 145 of
the Delaware General Corporation Law provides that a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
plea of nolo contendere or its equivalent, shall not, in and of itself, create a
presumption that his conduct was unlawful.
Section 145 also provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon adjudication that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person
II-1
<PAGE>
is fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim, issue
or matter therein, such person shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by such person in connection
therewith.
Any such indemnification (unless ordered by a court) shall be made by
the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because such person has met the applicable standard of conduct
set forth above. Such determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action,
suit or proceeding; or
(2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent
legal counsel in a written opinion; or
(3) by the stockholders.
Section 145 permits a Delaware business corporation to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by him in such capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify such person.
2. Charter Provisions on Indemnity. Article Ten of the Certificate
of Incorporation of the Company sets forth the extent to which the Company's
directors and officers may be indemnified by the Company against liabilities
which they may incur while serving in such capacity. Such indemnification will
be provided to the fullest extent permitted and in the manner required by the
Delaware General Corporation Law. This article generally provides that the
Company shall indemnify the directors and officers of the Company who are or
were a party to any threatened, pending, or completed action, suit or
proceeding, whether in nature civil, criminal, administrative or investigative,
by reason of the fact that he is or was a director or officer of the Company or
of any constituent corporation absorbed into the Company by consolidation or
merger or serves or served with another corporation, partnership, joint venture,
trust or other enterprise at the request of the Company or of any such
constituent corporation and, at the Company's option, provides advances for
expenses incurred in defending any such action, suit or proceeding, upon receipt
of an undertaking by or on behalf of such officer or director to repay such
advances unless it is ultimately determined that he is entitled to
indemnification by the Company.
3. Limitation of Liability of Directors. As permitted by the
Delaware General Corporation Law, the Company's Certificate of Incorporation
provides that a director of the Company will not be personally liable to the
Company or its stockholders for monetary damages for breach of the fiduciary
duty of care as a Director. By its terms and in accordance with the Delaware
General Corporation Law, however, this provision does not eliminate or limit the
liability of a director of the Company (i) for any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law
II-2
<PAGE>
(relating to unlawful payments of dividends or unlawful stock repurchases or
redemptions), or (iv) for any transaction from which the director derived an
improper personal benefit.
4. Director and Officer Liability Insurance. The Company has
purchased director and officer liability insurance. Such insurance covers its
directors and officers with respect to liability which they may incur in
connection with their serving as such, which liability includes liability under
the Securities Act. The insurance also provides certain additional coverage for
the directors and officers against certain liability even though such liability
would not be subject to indemnification under Article Ten of the Company's
Certificate of Incorporation.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
2(1) Fourth Amended and Restated Joint Plan of Reorganization for
Debtors (Leslie Fay Companies, Inc.) Pursuant to Chapter 11 of
the United States Bankruptcy Code Proposed by Debtors and
Creditors' Committee, dated April 18, 1997.
3.1(5) Amended and Restated Certificate of Incorporation as filed on May
30, 1997.
3.2(5) Amendment to Certificate of Incorporation as
filed on November 5, 1997.
3.3(5) By-laws, as amended.
4.1(2) Indenture dated as of June 4, 1997 by and between the Registrant
and IBJ Schroder Bank & Trust Company, as Trustee.
4.2(3) Supplemental Indenture, dated as of June 30, 1997, by and between
the Registrant and IBJ Schroder Bank & Trust Company, as Trustee.
4.3(4) Form of Senior Note issued under the Indenture.
5(5) Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1(5) Credit Agreement dated June 5, 1997 by and between the Registrant
and BankBoston (without exhibits).
10.2(5) Employment Agreement dated June 4, 1997 between the Registrant
and Arthur S. Levine.
10.3 Lease Modification Agreement and Lease Agreement, each dated
August 20, 1996, between the Registrant and Import Hartz
Associates.
II-3
<PAGE>
10.4(5) Acquisition Agreement dated June 2, 1997 by and among the
Registrant, ASL/K Licensing Corp, Herbert Kasper AND Forecast
Designs, Inc.
10.5(5) Employment, Consulting and Non-Competition Agreement dated as of
June 4, 1997 by and among Sassco Fashions, Ltd., ASL/K Licensing
Corp. and Herbert Kasper.
10.6(5) 1997 Management Stock Option Plan.
10.7(5) Form of stock option agreement issued to Directors.
21(5) Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Parker Flattau & Klimpl, LLP (Included in Exhibit 5).
24(6) Power of Attorney (included in signature page).
27(5) Financial Data Schedule.
- ---------------------------------
(1) Incorporated by reference to Exhibit No. 4 to the Registrant's Report on
Form 8-K (Commission File No. 022-22269) filed with the Commission on
July 14, 1997 (the "Report on Form 8-K").
(2) Incorporated by reference to Exhibit No. 1 to the Registrant's Report on
Form 8-K.
(3) Incorporated by reference to Exhibit No. 3 the Registrant's Report on
Form 8-K.
(4) Incorporated by reference to Exhibit No. 2 to the Registrant's Report on
Form 8-K.
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Commission File No. 333-41629) filed with the Commission on
December 5, 1997.
(6) Incorporated by reference to the Registrant's Amendment No. 1 to
Registration Statement on Form S-1 (Commission File No. 333-41629) filed
with the Commission on December 23, 1997.
(b) FINANCIAL STATEMENT SCHEDULE
None.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
II-4
<PAGE>
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum Offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate Offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, as amended, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed to be
the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the Offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering of such securities
at that time shall be deemed to be the initial bona fide Offering thereof.
(c) The undersigned registrant hereby undertakes to provide to the
Representatives, at the closing specified in the underwriting agreement included
in Exhibit 1.1 hereto, certificates in such denominations and registered in such
names as required by the Representatives to permit delivery to each purchaser.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 14 above, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
II-5
<PAGE>
whether such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
(e) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, as amended, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended,
shall be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, as amended, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide Offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on the 3rd day of April 1998.
KASPER A.S.L., LTD.
By /S/ ARTHUR S. LEVINE
--------------------------
Arthur S. Levine
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Arthur S. Levine Chairman of the Board and Chief April 3, 1998
- -------------------------- Executive-Officer
Arthur S. Levine
/s/ Lester E. Schreiber Chief Operating Officer and April 3, 1998
- -------------------------- Director
Lester E. Schreiber
/s/ Dennis P. Kelly Chief Financial Officer April 3, 1998
- --------------------------
Dennis P. Kelly
/s/ Clifford B. Cohn Director April 3, 1998
- --------------------------
Clifford B. Cohn
/s/ William J. Nightingale Director April 3, 1998
- --------------------------
William J. Nightingale
/s/ Larry G. Schafran Director April 3, 1998
- --------------------------
Larry G. Schafran
II-7
<PAGE>
/s/ Robert L. Sind Director April 3, 1998
- --------------------------
Robert L. Sind
/s/ Olivier Trouveroy Director April 3, 1998
- --------------------------
Olivier Trouveroy
II-8
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2(1) Fourth Amended and Restated Joint Plan of Reorganization for
Debtors (Leslie Fay Companies, Inc.) Pursuant to Chapter 11 of
the United States Bankruptcy Code Proposed by Debtors and
Creditors' Committee, dated April 18, 1997.3.1 (5) Amended and
Restated Certificate of Incorporation as filed on May 30,
1997.
3.2(5) Amendment to Certificate of Incorporation as filed on November
5, 1997.
3.3(5) By-laws, as amended.
4.1(2) Indenture dated as of June 4, 1997 by and between the
Registrant and IBJ Schroder Bank & Trust Company, as trustee.
4.2(3) Supplemental Indenture, dated as of June 30, 1997, by and
between the Registrant and IBJ Schroder Bank & Trust Company,
as trustee.
4.3(4) Form of Senior Note issued under the Indenture.
5(5) Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1(5) Credit Agreement dated June 5, 1997 by and between the
Registrant and BankBoston (without exhibits).
10.2(5) Employment Agreement dated June 4, 1997 between the Registrant
and Arthur S. Levine.
10.3 Lease Modification Agreement and Lease Agreement, each dated
August 20, 1996, between the Registrant and Import Hartz
Associates.
10.4(5) Acquisition Agreement dated June 2, 1997 by and among the
Registrant, ASL/K Licensing Corp, Herbert Kasper and Forecast
Designs, Inc.
10.5(5) Employment, Consulting and Non-Competition Agreement dated as
of June 4, 1997 by and among Sassco Fashions, Ltd., ASL/K
Licensing Corp. and Herbert Kasper.
10.6(5) 1997 Management Stock Option Plan.
10.7(5) Form of Stock Option Agreement issued to Directors.
21(5) Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP.
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
23.2 Consent of Parker Flattau & Klimpl, LLP (Included in Exhibit
5).
24(6) Power of Attorney (included in signature page).
27(5) Financial Data Schedule.
- -----------------------
(1) Incorporated by reference to Exhibit No. 4 to the Registrant's Report on
Form 8-K (Commission File No. 022-22269) filed with the Commission on July
14, 1997 (the "Report on Form 8-K").
(2) Incorporated by reference to Exhibit No. 1 to the Registrant's Report on
Form 8-K.
(3) Incorporated by reference to Exhibit No. 3 the Registrant's Report on Form
8-K.
(4) Incorporated by reference to Exhibit No. 2 to the Registrant's Report on
Form 8-K.
(5) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Commission File No. 333-41629) filed with the Commission on
December 5, 1997.
(6) Incorporated by reference to the Registrant's Amendment No. 1 to
Registration Statement on Form S-1 (Commission File No. 333-41629) filed
with the Commission on December 23, 1997.
-2-
================================================================================
IMPORT HARTZ ASSOCIATES
Landlord,
and
THE LESLIE FAY COMPANIES, INC.
Tenant
----------------------
LEASE
----------------------
Premises:
in
77 METRO WAY
SECAUCUS, NEW JERSEY
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLES PAGE
- -------- ----
1 - DEFINITIONS..............................................................1
2 - DEMISE AND TERM..........................................................6
3 - RENT.....................................................................6
4 - USE OF DEMISED PREMISES .................................................7
5 - PREPARATION OF DEMISED PREMISES..........................................7
6 - TAX AND OPERATING EXPENSE PAYMENTS.......................................8
7 - COMMON AREAS............................................................11
8 - SECURITY................................................................12
9 - SUBORDINATION...........................................................13
10 - QUIET ENJOYMENT.........................................................15
11 - ASSIGNMENT, SUBLETTING AND MORTGAGING...................................16
12 - COMPLIANCE WITH LAWS....................................................18
13 - INSURANCE AND INDEMNITY.................................................19
14 - RULES AND REGULATIONS...................................................22
15 - ALTERATIONS AND SIGNS...................................................22
16 - LANDLORD'S AND TENANT'S PROPERTY........................................23
17 - REPAIRS AND MAINTENANCE.................................................24
18 - UTILITY CHARGES.........................................................26
19 - ACCESS, CHANGES AND NAME................................................27
20 - MECHANICS' LIENS AND OTHER LIENS........................................28
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<PAGE>
PAGE
----
21 - NON-LIABILITY AND INDEMNIFICATION.......................................28
22 - DAMAGE OR DESTRUCTION...................................................29
23 - EMINENT DOMAIN..........................................................31
24 - SURRENDER...............................................................32
25 - CONDITIONS OF LIMITATION................................................33
26 - RE-ENTRY BY LANDLORD....................................................34
27 - DAMAGES.................................................................35
28 - AFFIRMATIVE WAIVERS.....................................................37
29 - NO WAIVERS..............................................................38
30 - CURING TENANT'S DEFAULTS................................................38
31 - BROKER..................................................................39
32 - NOTICES.................................................................39
33 - ESTOPPEL CERTIFICATES...................................................39
34 - ARBITRATION.............................................................40
35 - MEMORANDUM OF LEASE.....................................................40
36 - MISCELLANEOUS...........................................................40
EXHIBITS
Exhibit A - Demised Premises
Exhibit B - Description of Land
Exhibit C - Work letter
-ii-
<PAGE>
PAGE
----
Exhibit D - Rules and Regulations
Exhibit E - Permitted Encumbrances
Exhibit F - Lease Modification
Exhibit G - Parking Spaces
-iii-
<PAGE>
LEASE, dated August 20, 1996 between IMPORT HARTZ ASSOCIATES, a New
Jersey Limited Partnership, having an office at 400 Plaza Drive, Secaucus, New
Jersey 07094- 3688 ("Landlord"), and THE LESLIE FAY COMPANIES, INC., a Delaware
corporation, debtor-in-possession, having an office at 1412 Broadway, New York,
New York ("Tenant").
ARTICLE 1 - DEFINITIONS
1.01. As used in this Lease (including in all Exhibits and any
Riders attached hereto, all of which shall be deemed to be part of this Lease)
the following words and phrases shall have the meanings indicated:
A. Advance Rent: $122,039.16.
B. Additional Charges: All amounts that become payable by Tenant
to Landlord hereunder other than the Fixed Rent and Percentage Rent.
C. Architect: Kenneth Carl Bonte, or as Landlord may designate.
D. Broker: None.
E. Building: The buildings referred to on Exhibit A as Building A
and Building B located on the Land and collectively known as 77 Metro Way,
Secaucus, New Jersey.
F. Building Fraction: The fraction expressed as a percentage
(i.e. 3.89%), the numerator of which is the Floor Space of the Building
(approximately 401,678 square feet) and the denominator of which is the
aggregate Floor Space of the buildings in the Development (i.e. approximately
10,337,983 square feet). If the aggregate Floor Space of the Building or the
buildings in the Development shall be changed due to any construction or
alteration, the denominator of the Building Fraction shall be increased or
decreased to reflect such change.
G. Calendar Year: Any twelve-month period commencing on a January
1.
H. Commencement Date: The date upon which both (a) the Assumption
Approval is obtained and (b) the Demised Premises shall have been turned over to
Tenant (notwithstanding that Landlord's Work may not be completed or may be
ongoing as of such date).
I. Common Areas: All areas, spaces and improvements in the
Building and on the Land which Landlord makes available from time to time for
the common use and benefit of the tenants and occupants of the Building and
which are not exclusively available for use by a single tenant or occupant,
including, without limitation, parking areas, roads, walkways, sidewalks,
landscaped and planted areas, community rooms, if any, the managing agent's
office, if any, and public rest rooms, if any.
<PAGE>
J. Demised Premises: The area outlined in red on the plan
attached hereto as Exhibit A. The Demised Premises contains or will contain
approximately 292,894 square feet of Floor Space on the first (1st) and second
(2nd) floor of the Building, 119,470 square feet of which is located in Building
A and 173,424 square feet of which is located in Building B, subject to
adjustment upon verification by the Architect.
K. Development: All land and improvements owned by Landlord or
its parents, subsidiaries, or affiliates, now existing or hereafter constructed,
located south of Route 3, east of the Hackensack River, west of County Avenue
and north of Castle Road.
L. Development Common Areas: The roads and bridges that from time
to time service and provide access to the Development for the common use of the
tenants, invitees, occupants of the Development, that are maintained by Landlord
or its related entities.
M. Expiration Date: The date that is the day before the tenth
(10th) anniversary of the Fixed Rent Commencement Date if the Fixed Rent
Commencement Date is the first day of a month, or the tenth (10th) anniversary
of the last day of the month in which the Fixed Rent Commencement Date occurs if
the Fixed Rent Commencement Date is not the first day of a month. However, if
the Term is extended by Tenant's effective exercise of Tenant's right, if any,
to extend the Term, the "Expiration Date" shall be changed to the last day of
the latest extended period as to which Tenant shall have effectively exercised
its right to extend the Term. For the purposes of this definition, the earlier
termination of this Lease shall not affect the "Expiration Date."
N. Fixed Rent: Commencing on the Fixed Rent Commencement Date
through the date which is the day before the fifth (5th) anniversary of the
Fixed Rent Commencement Date, an amount at the annual rate of Five and 00/100
Dollars ($5.00) multiplied by the number of square feet of Floor Space of the
Demised Premises; and from the fifth (5th) anniversary of the Fixed Rent
Commencement Date of this Lease through the Expiration Date, an amount at the
annual rate of Five and 75/100 ($5.75) Dollars multiplied by the number of
square feet of Floor Space of the Demised Premises. It is intended that the
Fixed Rent shall be an absolutely net return to Landlord throughout the Term,
free of any expense, charge or other deduction whatsoever, with respect to the
Demised Premises, the Building, the Land and/or the ownership, leasing,
operation, management, maintenance, repair, rebuilding, use or occupation
thereof, or any portion thereof, with respect to any interest of Landlord
therein, except as may otherwise expressly be provided in this Lease.
O. Fixed Rent Commencement Date: The Fixed Rent Commencement Date
shall have the meaning set forth in Paragraph R3 of the Rider to this Lease.
P. Floor Space: Any reference to Floor Space of a demised
premises shall mean the floor area stated in square feet bounded by the exterior
faces of the exterior walls, or by the exterior or Common Areas face of any wall
between the premises in question and any portion of
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<PAGE>
the Common Areas, or by the center line of any wall between the premises in
question and space leased or available to be leased to a tenant or occupant,
plus a pro rata portion of the floor area of the Common Areas in the Building;
and any reference to Floor Space of the Building shall mean the aggregate Floor
Space of the demised premises leased or which Landlord has available to be
leased in the Building, measured in the same manner. There will be no reduction
of Floor Space measurements for setbacks for store fronts or service entrances,
and Floor Space of any premises with a setback for a store front shall be
measured to the line of such premises as if such premises had no setback. Any
reference to the Floor Space is intended to refer to the Floor Space of the
entire area in question irrespective of the Person(s) who may be the owner(s) of
all or any part thereof.
Q. Guarantor: None.
R. Insurance Requirements: Rules, regulations, orders and other
requirements of the applicable board of underwriters and/or the applicable fire
insurance rating organization and/or any other similar body performing the same
or similar functions and having jurisdiction or cognizance over the Land and
Building, whether now or hereafter in force.
S. Land: The Land consisting of Tract A and Tract B upon which
the Building and Common Areas are located, as more particularly described on
Exhibit B.
T. Landlord's Work: The materials and work to be furnished,
installed and performed by Landlord at its expense in accordance with the
provisions of Exhibit C.
U. Legal Requirements: Laws and ordinances of all federal, state,
city, town, county, borough and village governments, and rules, regulations,
orders and directives of all departments, subdivisions, bureaus, agencies or
offices thereof, and of any other governmental, public or quasi-public
authorities having jurisdiction over the Land and Building, whether now or
hereafter in force, including, but not limited to, those pertaining to
environmental matters.
V. Mortgage: A mortgage and/or a deed of trust.
W. Mortgagee: A holder of a mortgage or a beneficiary of a deed
of trust.
X. Operating Expenses: The sum of the following: (1) the cost and
expense incurred (whether or not within the contemplation of the parties) for
the repair, replacement, maintenance, policing, insurance and operation of the
Building and Land, and (2) the Building Fraction of the sum of (a) the cost and
expense incurred for the repair, replacement, maintenance, policing, insurance
and operation of the Development Common Areas; and (b) the Real Estate Taxes, if
any, attributable to the Development Common Areas. The "Operating Expenses"
shall, include, without limitation, the following: (i) the cost for rent,
casualty, liability, boiler and fidelity insurance, (ii) if an independent
managing agent is employed by Landlord, the fees payable to such agent (provided
the same are competitive with the fees payable to independent managing agents of
-3-
<PAGE>
comparable facilities), (iii) costs and expenses incurred for legal, accounting
and other professional services (including, but not limited to, costs and
expenses for in-house or outside counsel, each at rates not to exceed the
reasonable and customary charges for any such services as would be imposed in an
arms length third party agreement for such services, plus (iv) if Landlord is
itself managing the Building and has not employed an independent third party for
such management, fifteen percent (15%) of the resulting total of all of the
foregoing items making up "Operating Expenses" for Landlord's home office
administration and overhead cost and expense. All items included in Operating
Expenses shall be determined in accordance with generally accepted accounting
principles consistently applied.
Y. Intentionally omitted.
Z. Permitted Uses: Warehousing and distribution of non-hazardous
materials and ancillary offices, and a warehouse outlet store incidental to the
operation of the warehouse portion of the Demised Premises in an area not to
exceed the lesser of (i) 8,000 square feet of Floor Space or (ii) the size
permitted by applicable zoning requirements.
AA. Person: A natural person or persons, a partnership, a
corporation, or any other form of business or legal association or entity.
BB. Ready for Occupancy: The condition of the Demised Premises
when the Demised Premises are delivered to Tenant (notwithstanding that
Landlord's Work may be ongoing or incomplete at such time). The Landlord's Work
shall be deemed substantially completed notwithstanding the fact that minor or
insubstantial details of construction, mechanical adjustment or decoration
remain to be performed, the noncompletion of which does not materially interfere
with Tenant's use of the Demised Premises.
CC. Real Estate Taxes: The real estate taxes, assessments and
special assessments imposed upon the Building and Land by any federal, state,
municipal or other governments or governmental bodies or authorities, and any
expenses incurred by Landlord in contesting such taxes or assessments and/or the
assessed value of the Building and Land, which expenses shall be allocated to
the period of time to which such expenses relate. If at any time during the Term
the methods of taxation prevailing on the date hereof shall be altered so that
in lieu of, or as an addition to or as a substitute for, the whole or any part
of such real estate taxes, assessments and special assessments now imposed on
real estate there shall be levied, assessed or imposed (a) a tax, assessment,
levy, imposition, license fee or charge wholly or partially as a capital levy or
otherwise on the rents received therefrom, or (b) any other such additional or
substitute tax, assessment, levy, imposition or charge, then all such taxes,
assessments, levies, impositions, fees or charges or the part thereof so
measured or based shall be deemed to be included within the term "Real Estate
Taxes" for the purposes hereof, provided, however, that absent an alteration in
the method of taxation as set forth above, "Real Estate Taxes" shall not be
deemed to include Landlord's gross receipts taxes, personal and corporate income
taxes, inheritance and estate taxes, and other business taxes and assessments,
franchise, gift and transfer taxes.
-4-
<PAGE>
DD. Rent: The Fixed Rent, the Percentage Rent and the Additional
Charges.
EE. Rules and Regulations: The reasonable rules and regulations
that may be promulgated by Landlord from time to time, which may be reasonably
changed by Landlord from time to time. The Rules and Regulations now in effect
are attached hereto as Exhibit D.
FF. Security Deposit: Such amount as Tenant has deposited or
hereinafter deposits with Landlord as security under this Lease. Tenant has
deposited the sum of $1,000,000.00 in the form of a Letter of Credit with
Landlord as security hereunder as of the date hereof.
GG. Successor Landlord: As defined in Section 9.03.
HH. Superior Lease: Any lease to which this Lease is, at the time
referred to, subject and subordinate.
II. Superior Lessor: The lessor of a Superior Lease or its
successor in interest, at the time referred to.
JJ. Superior Mortgage: Any Mortgage to which this Lease is, at the
time referred to, subject and subordinate.
KK. Superior Mortgagee: The Mortgagee of a Superior Mortgage at
the time referred to.
LL. Tenant's Fraction: The Tenant's Fraction shall mean the
fraction, the numerator of which shall be the Floor Space of the Demised
Premises and the denominator of which shall be the Floor Space of the Building
(i.e. 292,894/401,678 or 72.92%). If the size of the Demised Premises or the
Building shall be changed from the initial size thereof, due to any taking, any
construction or alteration work or otherwise, the Tenant's Fraction shall be
changed to the fraction, the numerator of which shall be the Floor Space of the
Demised Premises and the denominator of which shall be the Floor Space of the
Building. In the event Landlord reasonably determines that Tenant's utilization
of any item of Operating Expenses exceeds the fraction referred to above,
Tenant's Fraction with respect to such item shall, at Landlord's option, mean
the percentage of any such item (but not less than the fraction referred to
above) which Landlord reasonably estimates as Tenant's proportionate share
thereof.
MM. Tenant's Property: As defined in Section 16.02.
NN. Tenant's Work: The facilities, materials and work which may be
undertaken by or for the account of Tenant (other than the Landlord's Work) to
equip, decorate and furnish the Demised Premises for Tenant's occupancy.
-5-
<PAGE>
OO. Term: The period commencing on the Commencement Date and
ending at 11:59 p.m. of the Expiration Date, but in any event the Term shall end
on the date when this Lease is earlier terminated.
PP. Unavoidable Delays: A delay arising from or as a result of a
strike, lockout, or labor difficulty, explosion, sabotage, accident, riot or
civil commotion, act of war, fire or other catastrophe, Legal Requirement or an
act of the other party and any cause beyond the reasonable control of that
party, provided that the party asserting such Unavoidable Delay has exercised
its best efforts to minimize such delay.
ARTICLE 2 - DEMISE AND TERM
2.01. Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the Demised Premises, for the Term. This Lease is subject to (a) the
matters set forth on Exhibit E annexed hereto, and (b) easements now or
hereafter created by Landlord in, under, over, across and upon the Land for
sewer, water, electric, gas and other utility lines and services now or
hereafter installed; provided, however, Landlord represents covenants and
warrants to Tenant that the Demised Premises may be used and occupied for the
purposes set forth herein; and that the foregoing shall in no manner interfere
with Tenant's use and quiet enjoyment of the Demised Premises. Promptly
following the Commencement Date, the parties hereto shall enter into an
agreement in form and substance satisfactory to Landlord setting forth the
Commencement Date.
ARTICLE 3 - RENT
3.01. Commencing on the Fixed Rent Commencement Date, Tenant shall
pay the Fixed Rent in equal monthly installments in advance on the first day of
each and every calendar month during the Term (except that Tenant shall pay,
upon the execution and delivery of this Lease by Tenant, the Advance Rent, to be
applied against the first installment or installments of Fixed Rent becoming due
under this Lease). If the Commencement Date occurs on a day other than the first
day of a calendar month, the Fixed Rent for the partial calendar month at the
commencement of the Term shall be prorated.
3.02. The Rent shall be paid in lawful money of the United States to
Landlord at its office, or such other place, or Landlord's agent, as Landlord
shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due
without notice or demand therefor and without any abatement, deduction or setoff
for any reason whatsoever, except as may be expressly provided in this Lease. If
Tenant makes any payment to Landlord by check, same shall be by check of Tenant
and Landlord shall not be required to accept the check of any other Person, and
any check received by Landlord shall be deemed received subject to collection.
If any check is mailed by Tenant, Tenant shall post such check in sufficient
time prior to the date when payment is due so that such check will be received
by Landlord on or before the date when payment is due. Tenant shall assume the
risk of lateness or failure of delivery of the mails, and no lateness or failure
of the
-6-
<PAGE>
mails will excuse Tenant from its obligation to have made the payment in
question when required under this Lease.
3.03. No payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct Rent shall be deemed to be other than a payment
on account, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance or pursue any other remedy in this Lease or at law
provided.
3.04. If Tenant is in arrears in payment of Rent, Tenant waives
Tenant's right, if any, to designate the items to which any payments made by
Tenant are to be credited, and Landlord may apply any payments made by Tenant to
such items as Landlord sees fit, irrespective of and notwithstanding any
designation or request by Tenant as to the items to which any such payments
shall be credited.
3.05. In the event that any installment of Rent due hereunder shall
remain unpaid for five (5) days or more after its due date, a "Late Charge"
equal to four percent (4%) or the maximum rate permitted by law, whichever is
less ("Late Payment Rate") for Rent so overdue may be charged by Landlord for
each month or part thereof that the same remains overdue. Any such Late Charges
if not previously paid shall, at the option of the Landlord, be added to and
become part of the next succeeding Rent payment to be made hereunder.
ARTICLE 4 - USE OF DEMISED PREMISES
4.01. Tenant shall use and occupy the Demised Premises for the
Permitted Uses, and Tenant shall not use or permit or suffer the use of the
Demised Premises or any part thereof for any other purpose.
4.02. If any governmental license or permit, including a certificate
of occupancy or certificate of continued occupancy (a "Certificate of
Occupancy") shall be required for the proper and lawful conduct of Tenant's
business in the Demised Premises or any part thereof, Tenant shall duly procure
and thereafter maintain such license or permit and submit the same to Landlord
for inspection. Tenant shall at all times comply with the terms and conditions
of each such license or permit. Tenant shall not at any time use or occupy, or
suffer or permit anyone to use or occupy the Demised Premises, or do or permit
anything to be done in the Demised Premises, in any manner which (a) violates
the Certificate of Occupancy for the Demised Premises or for the Building; (b)
causes or is liable to cause injury to the Building or any equipment, facilities
or systems therein; (c) constitutes a violation of the Legal Requirements or
Insurance Requirements; (d) impairs or tends to impair the character, reputation
or appearance of the Building; (e) impairs or tends to impair the proper and
economic maintenance, operation and repair of the Building and/or its equipment,
facilities or systems; or (f) annoys or inconveniences or tends to annoy or
inconvenience other tenants or occupants of the Building.
-7-
<PAGE>
ARTICLE 5 - PREPARATION OF DEMISED PREMISES
5.01. The Demised Premises shall be completed and prepared for
Tenant's occupancy in the manner described in, and subject to the provisions of,
Exhibit C. Tenant shall occupy the Demised Premises promptly after the same are
delivered to Tenant by Landlord giving to Tenant a notice of such effect. Except
as expressly provided to the contrary in this Lease, the taking of possession by
Tenant of the Demised Premises shall be conclusive evidence as against Tenant
that the Demised Premises and the Building were in good and satisfactory
condition at the time such possession was taken. Except as expressly provided to
the contrary in this Lease, Tenant is leasing the Demised Premises "as is" on
the date hereof, subject to reasonable wear and tear and the rights of the
present occupant(s) of the Demised Premises to remove its or their trade
fixtures and other property from the Demised Premises.
5.01.(b) Tenant shall, upon request of Landlord, provide Landlord with
Tenant's plans and specifications for the Tenant's initial alterations and fit
up of the Demised Premises.
5.02. If the substantial completion of Landlord's Work shall be
delayed due to (a) any act or omission of Tenant or any of its employees, agents
or contractors (including, without limitation, [I] any delays due to changes in
or additions to the Landlord's Work, or [ii] any delays by Tenant in the
submission of plans, drawings, specifications or other information or in
approving any working drawings or estimates or in giving any authorizations or
approvals), or (b) any additional time needed for the completion of the
Landlord's Work by the inclusion in the Landlord's Work of any items specified
by Tenant that require long lead time for delivery or installation, then the
Demised Premises shall be deemed Ready for Occupancy on the date when they would
have been ready but for such delay(s). The Demised Premises shall be
conclusively presumed to be in satisfactory condition on the Commencement Date
except for the minor or insubstantial details of which Tenant gives Landlord
notice within thirty (30) days after the Commencement Date specifying such
details with reasonable particularity.
5.03. If Landlord is unable to give possession of the Demised
Premises on the Commencement Date because of the holding-over or retention of
possession by any tenant, undertenant or occupant, Landlord shall not be subject
to any liability for failure to give possession, the validity of this Lease
shall not be impaired under such circumstances, and the Term shall not be
extended, but the Rent shall be abated if Tenant is not responsible for the
inability to obtain possession.
5.04. Landlord reserves the right, at any time and from time to
time, to increase, reduce or change the number, type, size, location, elevation,
nature and use of any of the Common Areas and the Building and any other
buildings and other improvements on the Land and in the Development, including,
without limitation, the right to move and/or remove same, provided that any
modifications to the Common Areas or the Building shall not unreasonably block
or interfere
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<PAGE>
with Tenant's means of ingress or egress to and from the Demised Premises, or
materially and adversely interfere with Tenant's use of the Demised Premises for
the Permitted Uses.
ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS
6.01. Commencing on the Fixed Rent Commencement Date, Tenant shall
pay to Landlord, as hereinafter provided, Tenant's Fraction of the Real Estate
Taxes. Tenant's Fraction of the Real Estate Taxes shall be the Real Estate Taxes
in respect of the Building for the period in question, multiplied by the
Tenant's Fraction, plus the Real Estate Taxes in respect of the Land for the
period in question, multiplied by the Tenant's Fraction. If any portion of the
Building shall be exempt from all or any part of the Real Estate Taxes, then for
the period of time when such exemption is in effect, the Floor Space on such
exempt portion shall be excluded when making the above computations in respect
of the part of the Real Estate Taxes for which such portion shall be exempt.
Landlord shall estimate the annual amount of Tenant's Fraction of the Real
Estate Taxes (which estimate may be changed by Landlord at any time and from
time to time), and Tenant shall pay to Landlord 1/12th of the amount so
estimated on the first day of each month in advance. Tenant shall also pay to
Landlord on demand from time to time the amount which, together with said
monthly installments, will be sufficient in Landlord's estimation to pay
Tenant's Fraction of any Real Estate Taxes thirty (30) days prior to the date
when such Real Estate Taxes shall first become due. When the amount of any item
comprising Real Estate Taxes is finally determined for a real estate fiscal tax
year, Landlord shall submit to Tenant a statement in reasonable detail of the
same, and the figures used for computing Tenant's Fraction of the same, and if
Tenant's Fraction so stated is more or less than the amount theretofore paid by
Tenant for such item based on Landlord's estimate, Tenant shall pay to Landlord
the deficiency within ten (10) days after submission of such statement, or
Landlord shall, at its sole election, either refund to Tenant the excess or
apply same to future installments of Real Estate Taxes due hereunder. Any Real
Estate Taxes for a real estate fiscal tax year, a part of which is included
within the Term and a part of which is not so included, shall be apportioned on
the basis of the number of days in the real estate fiscal tax year included in
the Term, and the real estate fiscal tax year for any improvement assessment
will be deemed to be the one-year period commencing on the date when such
assessment is due, except that if any improvement assessment is payable in
installments, the real estate fiscal tax year for each installment will be
deemed to be the one-year period commencing on the date when such installment is
due. The above computations shall be made by Landlord in accordance with
generally accepted accounting principles, and the Floor Space referred to will
be based upon the average of the Floor Space in existence on the first day of
each month during the period in question. In addition to the foregoing, Tenant
shall be responsible for any increase in Real Estate Taxes attributable to
assessments for improvements installed by or for the account of Tenant at the
Demised Premises. If the Demised Premises are not separately assessed, the
amount of any such increase shall be determined by reference to the records of
the tax assessor.
6.02. Real Estate Taxes, whether or not a lien upon the Demised
Premises shall be apportioned between Landlord and Tenant at the beginning and
end of the Term; it being intended
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that Tenant shall pay only that portion of the Real Estate Taxes as is allocable
to the Demised Premises for the Term.
6.03. Commencing on the Commencement Date, Tenant shall pay to
Landlord, as hereinafter provided, Tenant's Fraction of the Operating Expenses.
Tenant's Fraction of the Operating Expenses shall be the Operating Expenses for
the period in question, multiplied by Tenant's Fraction. Landlord shall estimate
Tenant's annual Fraction of the Operating Expenses (which estimate may be
reasonably changed by Landlord from time to time), and Tenant shall pay to
Landlord 1/12th of the amount so estimated on the first day of each month in
advance. If at any time Landlord changes its estimate of Tenant's Fraction of
the Operating Expenses for the then current Calendar Year or partial Calendar
Year, Landlord shall give notice to Tenant of such change and within ten (10)
days after such notice Landlord and Tenant shall adjust for any overpayment or
underpayment during the prior months of the then current Calendar Year or
partial Calendar Year. After the end of each Calendar Year, including any
partial Calendar Year at the beginning of the Term, and after the end of the
Term, Landlord shall submit to Tenant a statement in reasonable detail stating
Tenant's Fraction of the Operating Expenses for such Calendar Year, or partial
Calendar Year in the event the Term shall begin on a date other than a January
1st and/or end on a date other than a December 31st, as the case may be, and
stating the Operating Expenses for the period in question and the figures used
for computing Tenant's Fraction, and if Tenant's Fraction so stated for such
period is more or less than the amount paid for such period, Tenant shall pay to
Landlord the deficiency within ten (10) days after submission of such statement,
or Landlord shall, at its sole election, either refund to Tenant the excess or
apply same to future installments of Operating Expenses due hereunder. All
computations shall be made in accordance with generally accepted accounting
principles.
6.04. Each such statement given by Landlord pursuant to Section 6.01
or Section 6.03 shall be conclusive and binding upon Tenant unless within 30
days after the receipt of such statement Tenant shall notify Landlord that it
disputes the correctness of the statement, specifying the particular respects in
which the statement is claimed to be incorrect. If such dispute is not settled
by agreement, either party may submit the dispute to arbitration as provided in
Article 34. Pending the determination of such dispute by agreement or
arbitration as aforesaid, Tenant shall, within ten (10) days after receipt of
such statement, pay the Additional Charges in accordance with Landlord's
statement, without prejudice to Tenant's position. If the dispute shall be
determined in Tenant's favor, Landlord shall forthwith pay to Tenant the amount
of Tenant's overpayment resulting from compliance with Landlord's statement.
6.05. Provided Tenant shall not then be in default hereunder beyond
any applicable notice or cure periods, Tenant may file and pursue a Real Estate
Tax appeal upon Landlord's consent thereto, which consent shall not be
unreasonably withheld; provided, however, that, Landlord shall have the right,
but not the obligation, to have its counsel join in any such Real Estate Tax
appeal as co-counsel. If Tenant desires to protest Real Estate Taxes, Tenant
shall have the right to proceed with such protest at Tenant's sole cost and
expense. If Tenant cannot proceed in its own name, Landlord shall permit Tenant
to proceed in Landlord's name and Landlord shall
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execute all documents required thereby and promptly return the same to Tenant.
Furthermore, Tenant may request that Landlord file and prosecute a Real Estate
Tax appeal on Tenant's behalf, at Tenant's expense. If Landlord declines to file
or prosecute such Real Estate Tax appeal, Landlord shall provide to Tenant its
reasons for declining and Tenant shall be free to file and prosecute such Real
Estate Tax appeal for its own account, subject to the terms and provisions of
this Section 6.05. If either party shall prosecute a Real Estate Tax Appeal, the
other party will cooperate and furnish any pertinent information in its files
reasonably required by the prosecuting party. In the event any Real Estate Tax
appeal is filed by Tenant: (i) Tenant shall provide Landlord with written notice
of Tenant's intention to file such tax appeal not less than thirty (30) days
prior to the filing of same and Tenant shall provide Landlord with copies of all
filings and all appraisal reports and discovery obtained in connection
therewith, (ii) Landlord reserves the right, but not the obligation, to
prosecute such appeal itself and in such event may require Tenant to withdraw
any appeal filed by Tenant in the event Landlord files an appeal with respect to
the subject matter of Tenant's appeal, or at Landlord's option, Landlord shall
have the right at any time, but not the obligation, to prosecute such appeal
itself, (iii) any such appeal (other than an appeal prosecuted by Landlord under
(ii) above) shall be at Tenant's sole cost and expense, (iv) Tenant shall
indemnify Landlord against the cost thereof and against all liability for
damages, interest, penalties and expenses (including experts' and attorneys'
fees and expenses), resulting from or incurred in connection with any Real
Estate Tax appeal commenced pursuant to this paragraph, including but not
limited to any increase in Real Estate Taxes resulting therefrom, and (v) Tenant
shall keep Landlord advised as to the status of any such proceedings filed by
Tenant. If any cash payment refund is received as a result of such proceedings
the party herein paying the costs of such proceeding shall be entitled to
reimbursement from such cash payment of its reasonable costs incurred as a
result of pursuing such proceeding (the "Cost Reimbursement"). In the event that
Landlord receives a refund or credit for Real Estate Taxes from any taxing
authority for any period in respect to which Tenant paid such Real Estate Taxes,
Landlord shall promptly notify Tenant thereof and, provided that Tenant shall
not then be in default hereunder beyond any applicable notice and/or cure
period, refund to Tenant, Tenant's Fraction of the net amount of such refund or
credit, after deducting and paying over to the party entitled to the same the
Reimbursement Costs. In the event Tenant obtains directly from any taxing
authority any refund in connection with any such tax appeal, such refund shall
be paid over to Landlord and Landlord shall refund to Tenant, Tenant's Fraction
of the net amount of such refund or credit, after deducting and paying over to
the party entitled to the same the Reimbursement Costs. Any abatement of Real
Estate Taxes shall be reflected in the tax bills and calculations submitted by
Landlord to Tenant, and thus passed on to Tenant proportionately.
ARTICLE 7 - COMMON AREAS
7.01. Except as may be otherwise expressly provided in this Lease,
Landlord will operate, manage, equip, light, repair and maintain, or cause to be
operated, managed, equipped, lighted, repaired and maintained, the Common Areas
for their intended purposes. Landlord reserves the right, at any time and from
time to time, to construct within the Common Areas kiosks, fountains, aquariums,
planters, pools and sculptures, and to install vending machines,
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telephone booths, benches and the like, provided same shall not unreasonably
block or interfere with Tenant's means of ingress or egress to and from the
Demised Premises.
7.02. Tenant and its subtenants and concessionaires, and their
respective officers, employees, agents, customers and invitees, shall have the
non-exclusive right, in common with Landlord and all others to whom Landlord has
granted or may hereafter grant such right, but subject to the Rules and
Regulations, to use the Common Areas. Landlord reserves the right, at any time
and from time to time, to close temporarily all or any portions of the Common
Areas when in Landlord's reasonable judgment any such closing is necessary or
desirable (a) to make repairs or changes or to effect construction, (b) to
prevent the acquisition of public rights in such areas, (c) to discourage
unauthorized parking, or (d) to protect or preserve natural persons or property.
Landlord may do such other acts in and to the Common Areas as in its judgment
may be desirable to improve or maintain same.
7.03. Tenant agrees that it, any subtenant or licensee and their
respective officers, employees, contractors and agents will park their
automobiles and other vehicles only where and as permitted by Landlord. Tenant
will, if and when so requested by Landlord, furnish Landlord with the license
numbers of any vehicles of Tenant, any subtenant or licensee and their
respective officers, employees and agents. See Rider Paragraph R5.
ARTICLE 8 - SECURITY
8.01. (a) In the event Tenant deposits with Landlord any Security
Deposit, the same shall be held as security for the full and faithful payment
and performance by Tenant of Tenant's obligations under this Lease. If Tenant
defaults in the full and prompt payment and performance of any of its
obligations under this Lease, including, without limitation, the payment of
Rent, Landlord may use, apply or retain the whole or any part of the Security
Deposit to the extent required for the payment of any Rent or any other sums as
to which Tenant is in default or for any sum which Landlord may expend or may be
required to expend by reason of Tenant's default in respect of any of Tenant's
obligations under this Lease, including, without limitation, any damages or
deficiency in the reletting of the Demised Premises, whether such damages or
deficiency accrue before or after summary proceedings or other re-entry by
Landlord. If Landlord shall so use, apply or retain the whole or any part of the
security, Tenant shall upon demand immediately deposit with Landlord a sum equal
to the amount so used, applied and retained, as security as aforesaid. If Tenant
shall fully and faithfully pay and perform all of Tenant's obligations under
this Lease, the Security Deposit or any balance thereof to which Tenant is
entitled shall be returned or paid over to Tenant after the date on which this
Lease shall expire or sooner end or terminate, and after delivery to Landlord of
entire possession of the Demised Premises. In the event of any sale or leasing
of the Land, Landlord shall have the right to transfer the security to which
Tenant is entitled to the vendee or lessee and Landlord shall thereupon be
released by Tenant from all liability for the return or payment thereof; and
Tenant shall look solely to the new landlord for the return or payment of the
same; and the provisions hereof shall apply to every transfer or assignment made
of the same to a new landlord. Tenant shall not assign or encumber or attempt
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to assign or encumber the monies deposited herein as security, and neither
Landlord nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
8.01. (b) Tenant shall provide to Landlord an irrevocable
transferable Letter of Credit in the amount of the Security Deposit in form and
substance satisfactory to Landlord and issued by a financial institution
approved by Landlord. Landlord shall have the right, upon written notice to
Tenant (except that for Tenant's non-payment of Rent or for Tenant's failure to
comply with Article 8.03, no such notice shall be required) and regardless of
the exercise of any other remedy the Landlord may have by reason of a default,
to draw upon said Letter of Credit to apply same to any default of Tenant or for
any purpose authorized by Section 8.01(a) of this Lease and if Landlord does so,
Tenant shall, upon demand, additionally fund the Letter of Credit with the
amount so drawn so that Landlord shall have the full deposit on hand at all
times during the Term of the Lease and for a period of thirty (30) days'
thereafter. In the event of a sale of the Building or a lease of the Building
subject to this Lease, Landlord shall have the right to transfer the security to
the vendee or lessee.
8.02. The Letter of Credit shall expire not earlier than thirty (30)
days after the Expiration Date of this Lease. Upon Landlord's prior consent, the
Letter of Credit may be of the type which is automatically renewed on an annual
basis. In the alternative, such Letter of Credit may be of a duration of one (1)
year, provided Tenant provides a replacement Letter of Credit on or before the
date which is forty-five (45) days prior to the expiration date of such Letter
of Credit ("Annual Renewal Date"). In any event, Tenant shall maintain the
Letter of Credit and its renewals in full force and effect during the entire
Term of this Lease (including any renewals, replacements or extensions) and for
a period of thirty (30) days thereafter. The Letter of Credit will contain a
provision requiring the issuer thereof to give the beneficiary (Landlord) thirty
(30) days' advance written notice of its intention not to renew the Letter of
Credit on the next Annual Renewal Date.
8.03. In the event Tenant shall fail to deliver to Landlord a
substitute irrevocable Letter of Credit, in the amount stated above, on or
before thirty (30) days prior to the next Annual Renewal Date, Landlord shall be
permitted, upon two (2) days written notice to Tenant, to draw upon the Letter
of Credit and treat the proceeds thereof as a cash Security Deposit and apply
same to any default of Tenant or for any purpose authorized by Section 8.01(a)
of this Lease. In the event of a draw upon the Letter of Credit pursuant to this
Section 8.03, Landlord shall have the right, but not the obligation, to demand
that Tenant replace the cash Security Deposit with a Letter of Credit meeting
the requirements of this Article upon not less than thirty (30) days prior
written notice, and Landlord may treat a failure by Tenant to furnish such
Letter of Credit as a default under this Lease.
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ARTICLE 9 - SUBORDINATION
9.01. Subject to the provisions of Section 9.05 of this Lease, this
Lease, and all rights of Tenant hereunder, are and shall be subject and
subordinate to all ground leases and underlying leases of the Land and/or the
Building now or hereafter existing and to all Mortgages which may now or
hereafter affect the Land and/or building and/or any of such leases, whether or
not such Mortgages or leases shall also cover other lands and/or buildings, to
each and every advance made or hereafter to be made under such Mortgages, and to
all renewals, modifications, replacements and extensions of such leases and such
Mortgages and spreaders and consolidations of such Mortgages. The provisions of
this Section 9.01 shall be self-operative and no further instrument of
subordination shall be required. In confirmation of such subordination, Tenant
shall promptly execute, acknowledge and deliver any instrument that Landlord,
the lessor under any such lease or the Mortgagee of any such Mortgage or any of
their respective successors in interest may reasonably request to evidence such
subordination; and if Tenant fails to execute, acknowledge or deliver any such
instruments within 10 days after request therefor, Tenant hereby irrevocably
constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an
interest, to execute and deliver any such instruments for and on behalf of
Tenant.
9.02. If any act or omission of Landlord would give Tenant the
right, immediately or after lapse of a period of time, to cancel or terminate
this Lease, or to claim a partial or total eviction, Tenant shall not exercise
such right (a) until it has given written notice of such act or omission to
Landlord and each Superior Mortgagee and each Superior Lessor whose name and
address shall previously have been furnished to Tenant, and (b) until a
reasonable period for remedying such act or omission shall have elapsed
following the giving of such notice and following the time when such Superior
Mortgagee or Superior Lessor shall have become entitled under such Superior
Mortgage or Superior Lease, as the case may be, to remedy the same (which
reasonable period shall in no event be less than the period to which Landlord
would be entitled under this Lease or otherwise, after similar notice, to effect
such remedy), provided such Superior Mortgagee or Superior Lessor shall with due
diligence give Tenant notice of intention to, and commence and continue to,
remedy such act or omission.
9.03. If any Superior Lessor or Superior Mortgagee shall succeed to
the rights of Landlord under this Lease, whether through possession or
foreclosure action or delivery of a new lease or deed, then at the request of
such party so succeeding to Landlord's rights ("Successor Landlord") and upon
such Successor Landlord's written agreement to accept Tenant's attornment,
Tenant shall attorn to and recognize such Successor Landlord as Tenant's
landlord under this Lease and shall promptly execute and deliver any instrument
that such Successor Landlord may reasonably request to evidence such attornment.
Upon such attornment this Lease shall continue in full force and effect as a
direct lease between the Successor Landlord and Tenant upon all of the terms,
conditions and covenants as are set forth in this Lease except that the
Successor Landlord(s) shall not (a) be liable for any previous act or omission
of Landlord under this Lease; (b) be subject to any offset, not expressly
provided for in this Lease, which theretofore shall have accrued to Tenant
against Landlord; (c) be liable for the return of any Security Deposit, in whole
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or in part, to the extent that same is not paid over to the Successor Landlord;
or (d) be bound by any previous modification of this Lease or by any previous
prepayment of more than one month's Fixed Rent or Additional Charges, unless
such modification or prepayment shall have been expressly approved in writing by
the Superior Lessor of the Superior Lease or the Mortgagee of the Superior
Mortgage through or by reason of which the Successor Landlord shall have
succeeded to the rights of Landlord under this Lease.
9.04. If any then present or prospective Superior Mortgagee shall
require any modification(s) of this Lease, Tenant shall promptly execute and
deliver to Landlord such instruments effecting such modification(s) as Landlord
shall request, provided that such modification(s) do not adversely affect in any
material respect any of Tenant's rights or obligations under this Lease.
9.05. Landlord will request that all Superior Mortgagees and
Superior Lessors (unless such Superior Lease provides for automatic
non-disturbance) under Superior Mortgages or Superior Leases in existence as of
the date of this Lease enter into a subordination, non-disturbance and
attornment agreement (a "SNA") with Tenant on such Superior Mortgagee's standard
form. In the event Landlord does not obtain such SNAs from such Superior
Mortgagees by the date which is the later to occur of sixty (60) days after the
date hereof or ten (10) days after the Assumption Approval (the "SNA Date"),
Tenant shall have the right to terminate this Lease upon thirty (30) days
written notice to Landlord given not later than the SNA Date (provided that such
termination notice shall be nullified if Landlord obtains such SNA within said
thirty (30) days. Subordination of this Lease pursuant to Section 9.01 with
respect to any Superior Lease or Superior Mortgage entered into after the date
of this Lease shall be conditioned upon the Superior Lessor or Superior
Mortgagee thereunder entering into a SNA with Tenant (a SNA on such Superior
Mortgagee's or Superior Lessor's standard form shall be considered reasonably
acceptable for purposes hereof).
9.06. Tenant acknowledges that the portion of the Land upon which
Tract A is located is subject to a long term ground lease pursuant to which
Landlord leases said portion of the Land. In the event said ground lease is
terminated this Lease shall become a direct lease with the fee owner with
respect to such portion of the Land. In the event that the ground lease is
terminated and the fee owner of Tract A and the fee owner of Tract B are
different: (a) Tenant shall, upon request of either fee owner, consent to a pro
rata division of the Fixed Rent and Percentage Rent between the fee owner of
Tract A and the fee owner of Tract B; (b) any Additional Charges, such as Real
Estate Taxes and Operating expenses shall be allocated respectively to Tract A
and Tract B to the extent such Additional charges relate specifically to such
parcels; (c) any Additional Charges which are not separately allocated shall be
paid jointly to the fee owners of Tract A and Tract B. In the event that the
ground lease is terminated and the fee owner of Tract A and the fee owner of
Tract B are different and fail to jointly direct Tenant with respect to any
consent required of Landlord under this Lease, or if there is a conflict with
respect to such direction, the direction of the fee owner of Tract A, shall be
controlling.
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ARTICLE 10 - QUIET ENJOYMENT
10.01. So long as Tenant pays all of the Rent and performs all of
Tenant's other obligations hereunder, Tenant shall peaceably and quietly have,
hold and enjoy the Demised Premises without hindrance, ejection or molestation
by Landlord or any person lawfully claiming through or under Landlord, subject,
nevertheless, to the provisions of this Lease and to Superior Leases and
Superior Mortgages.
ARTICLE 11 - ASSIGNMENT, SUBLETTING AND MORTGAGING
11.01. Tenant shall not, whether voluntarily, involuntarily, or by
operation of law or otherwise, (a) assign or otherwise transfer this Lease, or
offer or advertise to do so, (b) sublet the Demised Premises or any part
thereof, or offer or advertise to do so, or allow the same to be used, occupied
or utilized by anyone other than Tenant, or (c) mortgage, pledge, encumber or
otherwise hypothecate this Lease in any manner whatsoever, without in each
instance obtaining the prior written consent of Landlord.
11.02. If at any time (a) the original Tenant named herein, (b) the
then Tenant, (c) any Guarantor, or (d) any Person owning a majority of the
voting stock of, or directly or indirectly controlling, the then Tenant shall be
a corporation or partnership, any transfer of voting stock or partnership
interest resulting in the person(s) who shall have owned a majority of such
corporation's shares of voting stock or the general partners' interest in such
partnership, as the case may be, immediately before such transfer, ceasing to
own a majority of such shares of voting stock or general partner's interest, as
the case may be, except as the result of transfers by inheritance, shall be
deemed to be an assignment of this Lease as to which Landlord's consent shall
have been required, and in any such event Tenant shall notify Landlord. The
provisions of this Section 11.02 shall not be applicable to any corporation all
the outstanding voting stock of which is listed on a national securities
exchange (as defined in the Securities Exchange Act of 1934, as amended) or is
traded in the over-the-counter market with quotations reported by the National
Association of Securities Dealers through its automated system for reporting
quotations and shall not apply to transactions with a corporation into or with
which the then Tenant is merged or consolidated or to which substantially all of
the then Tenant's assets are transferred or to any corporation which controls or
is controlled by the then Tenant or is under common control with the then
Tenant, provided that in any of such events (i) the successor to Tenant has a
net worth computed in accordance with generally accepted accounting principles
at least equal to Fifty Million Dollars ($50,000,000), and (ii) proof
satisfactory to Landlord of such net worth shall have been delivered to Landlord
at least 10 days prior to the effective date of any such transaction. For the
purposes of this Section, the words "voting stock" shall refer to shares of
stock regularly entitled to vote for the election of directors of the
corporation. Landlord shall have the right at any time and from time to time
during the Term to inspect the stock record books of the corporation to which
the provisions of this Section 11.02 apply, and Tenant will produce the same on
request of Landlord.
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11.03. If this Lease is assigned, whether or not in violation of this
Lease, Landlord may collect rent from the assignee. If the Demised Premises or
any part thereof are sublet or used or occupied by anybody other than Tenant,
whether or not in violation of this Lease, Landlord may, after default by
Tenant, and expiration of Tenant's time to cure such default, collect rent from
the subtenant or occupant. In either event, Landlord may apply the net amount
collected to the Rent, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of Section 11.01 or
Section 11.02, or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the performance by Tenant of Tenant's
obligations under this Lease. The consent by Landlord to any assignment,
mortgaging, subletting or use or occupancy by others shall not in any way be
considered to relieve Tenant from obtaining the express written consent of
Landlord to any other or further assignment, mortgaging or subletting or use or
occupancy by others not expressly permitted by this Article 11. References in
this Lease to use or occupancy by others (that is, anyone other than Tenant)
shall not be construed as limited to subtenants and those claiming under or
through subtenants but shall be construed as including also licensees and others
claiming under or through Tenant, immediately or remotely.
11.04. Any permitted assignment or transfer, whether made with
Landlord's consent pursuant to Section 11.01 or without Landlord's consent if
permitted by Section 11.02, shall be made only if, and shall not be effective
until, the assignee shall execute, acknowledge and deliver to Landlord an
agreement in form and substance satisfactory to Landlord whereby the assignee
shall assume Tenant's obligations under this Lease and whereby the assignee
shall agree that all of the provisions in this Article 11 shall, notwithstanding
such assignment or transfer, continue to be binding upon it in respect to all
future assignments and transfers. Notwithstanding any assignment or transfer,
whether or not in violation of the provisions of this Lease, and notwithstanding
the acceptance of Rent by Landlord from an assignee, transferee, or any other
party, the original Tenant and any other person(s) who at any time was or were
Tenant shall remain fully liable for the payment of the Rent and for Tenant's
other obligations under this Lease.
11.05. The liability of the original named Tenant and any other
Person(s) who at any time are or become responsible for Tenant's obligations
under this Lease shall not be discharged, released or impaired by any agreement
or stipulation made by Landlord extending the time of, or modifying any of the
terms or obligations under this Lease, or by any waiver or failure of Landlord
to enforce, any of this Lease.
11.06. The listing of any name other than that of Tenant, whether on
the doors of the Demised Premises or the Building directory, or otherwise, shall
not operate to vest any right or interest in this Lease or in the Demised
Premises, nor shall it be deemed to be the consent of Landlord to any assignment
or transfer of this Lease or to any sublease of the Demised Premises or to the
use or occupancy thereof by others. Notwithstanding anything contained in this
Lease to the contrary, Landlord shall have the absolute right to withhold its
consent to an assignment or subletting to a Person who is otherwise a tenant or
occupant, or is in discussions with Landlord or Landlord's affiliated entities
in connection with becoming a tenant or occupant of the Building, or of a
building owned or managed by Landlord or its affiliated entities.
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11.07. Without limiting any of the provisions of Article 27, if
pursuant to the Federal Bankruptcy Code (or any similar law hereafter enacted
having the same general purpose), Tenant is permitted to assign this Lease
notwithstanding the restrictions contained in this Lease, adequate assurance of
future performance by an assignee expressly permitted under such Code shall be
deemed to mean the deposit of cash security in an amount equal to the sum of one
(1) year's Fixed Rent plus an amount equal to the Additional Charges for the
Calendar Year preceding the year in which such assignment is intended to become
effective, which deposit shall be held by Landlord for the balance of the Term,
without interest, as security for the full performance of all of Tenant's
obligations under this Lease, to be held and applied in the manner specified for
security in Article 8.
11.08. If Tenant shall propose to assign or in any manner transfer
this Lease or any interest therein, or sublet the Demised Premises or any part
or parts thereof, or grant any concession or license or otherwise permit
occupancy of all or any part of the Demised Premises by any person, Tenant shall
give notice thereof to Landlord, together with a copy of the proposed instrument
that is to accomplish same and such financial and other information pertaining
to the proposed assignee, transferee, subtenant, concessionaire or licensee as
Landlord shall require. Notwithstanding anything contained in this Lease to the
contrary, Landlord shall not be obligated to entertain or consider any request
by Tenant to consent to any proposed assignment of this Lease or sublet of all
or any part of the Demised Premises, unless each request by Tenant is
accompanied by a non-refundable fee payable to Landlord in the amount of One
Thousand Dollars ($1,000.00) to cover Landlord's administrative, legal, and
other costs and expenses incurred in processing each of Tenant's requests.
Neither Tenant's payment nor Landlord's acceptance of the foregoing fee shall be
construed to impose any obligation whatsoever upon Landlord to consent to
Tenant's request.
ARTICLE 12 - COMPLIANCE WITH LAWS
12.01. Tenant shall comply with all Legal Requirements which shall,
in respect of the Demised Premises or the use and occupation thereof, or the
abatement of any nuisance in, on or about the Demised Premises, impose any
violation, order or duty on Landlord or Tenant; and Tenant shall pay all the
costs, expenses, fines, penalties and damages which may be imposed upon Landlord
or any Superior Lessor by reason of or arising out of Tenant's failure to fully
and promptly comply with and observe the provisions of this Section 12.01.
However, Tenant need not comply with any such law or requirement of any public
authority so long as Tenant shall be contesting the validity thereof, or the
applicability thereof to the Demised Premises, in accordance with Section 12.02.
12.02. Tenant may contest, by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any Legal Requirement, provided that (a) Landlord shall not be
subject to criminal penalty or to prosecution for a crime, and neither the
Demised Premises nor any part thereof shall be subject to being condemned or
vacated, by
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reason of non-compliance or otherwise by reason of such contest; (b) before the
commencement of such contest, Tenant shall furnish to Landlord either (i) the
bond of a surety company satisfactory to Landlord, which bond shall be, as to
its provisions and form, satisfactory to Landlord, and shall be in an amount at
least equal to 100% of the cost of such compliance (as estimated by a reputable
contractor designated by Landlord) and shall indemnify Landlord against the cost
thereof and against all liability for damages, interest, penalties and expenses
(including reasonable attorneys' fees and expenses), resulting from or incurred
in connection with such contest or non-compliance, or (ii) other security in
place of such bond satisfactory to Landlord; (c) such non-compliance or contest
shall not constitute or result in any violation of any Superior Lease or
Superior Mortgage, or if any such Superior Lease and/or Superior Mortgage shall
permit such non-compliance or contest on condition of the taking of action or
furnishing of security by Landlord, such action shall be taken and such security
shall be furnished at the expense of Tenant; and (d) Tenant shall keep Landlord
advised as to the status of such proceedings. Without limiting the application
of the above, Landlord shall be deemed subject to prosecution for a crime if
Landlord, or its managing agent, or any officer, director, partner, shareholder
or employee of Landlord or its managing agent, as an individual, is charged with
a crime of any kind or degree whatsoever, whether by service of a summons or
otherwise, unless such charge is withdrawn before Landlord or its managing
agent, or such officer, director, partner, shareholder or employee of Landlord
or its managing agent (as the case may be) is required to plead or answer
thereto. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall not file any Real Estate Tax Appeal with respect to the Land,
Building or the Demised Premises.
ARTICLE 13 - INSURANCE AND INDEMNITY
13.01. Landlord shall maintain or cause to be maintained All Risk
insurance in respect of the Building and other improvements on the Land normally
covered by such insurance (except for the property Tenant is required to cover
with insurance under Section 13.02 and similar property of other tenants and
occupants of the Building or buildings and other improvements which are on land
neither owned by nor leased to Landlord) for the benefit of Landlord, any
Superior Lessors, any Superior Mortgagees and any other parties Landlord may at
any time and from time to time designate, as their interests may appear, but not
for the benefit of Tenant, and shall maintain rent insurance as required by any
Superior Lessor or any Superior Mortgagee. The All Risk insurance will be in the
amounts required by any Superior Lessor or any Superior Mortgagee but not less
than the amount sufficient to avoid the effect of the co-insurance provisions of
the applicable policy or policies. Landlord may also maintain any other forms
and types of insurance which Landlord shall deem reasonable in respect of the
Building and Land. Landlord shall have the right to provide any insurance
maintained or caused to be maintained by it under blanket policies.
13.02. Tenant shall maintain the following insurance: (a)
comprehensive general public liability insurance in respect of the Demised
Premises and the conduct and operation of business therein, having not less than
a $5,000,000.00 combined single limit per occurrence for bodily injury or death
to any one person and for bodily injury or death to any number of persons in any
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one occurrence, and for property damage, including water damage and sprinkler
leakage legal liability (coverage to include but not be limited to (i) premises
operation, completed operations, broad form contractual liability and product
liability, (ii) comprehensive automobile, truck and vehicle liability insurance
covering all owned, hired and non-owned vehicles used by the contractor(s) in
connection with their work and any loading of such vehicles, with limits as
stated above and (iii) worker's compensation, employers liability and
occupational disease insurance as required by statutes, but in any event not
less than $500,000.00 for Coverage B covering all damages and injuries arising
from each accident or occupational disease) (b) steam boiler, air conditioning
and machinery insurance, protecting Landlord and Tenant, with limits of not less
than $500,000, if there is a boiler or pressure object or other similar
equipment in the Demised Premises, and (c) All Risk insurance in respect of
Tenant's stock in trade, fixtures, furniture, furnishings, removable floor
coverings, equipment, signs and all other property of Tenant in the Demised
Premises in any amounts required by any Superior Lessor or any Superior
Mortgagee but not less than eighty percent (80%) of the full insurable value of
the property covered and not less than the amount sufficient to avoid the effect
of the co-insurance provisions of the applicable policy or policies, and (d)
such other insurance as is required for compliance with the Insurance
Requirements. Landlord may at any time and from time to time require that the
limits for the comprehensive general public liability insurance to be maintained
by Tenant be increased to the limits that new tenants in the Building are
required by Landlord to maintain. Tenant shall deliver to Landlord and any
additional named insured(s) certificates for such fully paid-for policies upon
execution hereof. Upon request of Landlord, Tenant shall furnish Landlord with
copies of all such insurance policies. Tenant shall procure and pay for renewals
of such insurance from time to time before the expiration thereof, and Tenant
shall deliver to Landlord and any additional insured(s) certificates therefor at
least thirty (30) days before the expiration of any existing policy. All such
policies shall be issued by companies of recognized responsibility, having a
Bests Key Rating Guide of not less than A, Class VII, licensed to do business in
New Jersey, and all such policies shall contain a provision whereby the same
cannot be canceled unless Landlord and any additional insured(s) are given at
least thirty (30) days' prior written notice of such cancellation. The
certificates of insurance to be delivered to Landlord by Tenant shall name
Landlord as an additional insured and, at Landlord's request, shall also name
any Superior Lessors or Superior Mortgagees as additional insureds, and the
following phrase must be typed on the certificate of insurance: "Hartz Mountain
Industries, Inc., and its respective subsidiaries, affiliates, associates, joint
ventures, and partnerships, are hereby named as additional insureds as their
interests may appear (and if Landlord has so requested, Tenant shall include any
Superior Lessors and Superior Mortgagees as additional insured(s)). It is
intended for this insurance to be primary and non-contributing." Tenant shall
give Landlord at least thirty (30) days' prior written notice that any such
policy is being canceled or replaced.
13.03. Tenant shall not do, permit or suffer to be done any act,
matter, thing or failure to act in respect of the Demised Premises or use or
occupy the Demised Premises or conduct or operate Tenant's business in any
manner objectionable to any insurance company or companies whereby the fire
insurance or any other insurance then in effect in respect of the Land and
Building or any part thereof shall become void or suspended or whereby any
premiums in respect of
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insurance maintained by Landlord shall be higher than those which would normally
have been in effect for the occupancy contemplated under the Permitted Uses. In
case of a breach of the provisions of this Section 13.03, in addition to all
other rights and remedies of Landlord hereunder, Tenant shall (a) indemnify
Landlord and the Superior Lessors and hold Landlord and the Superior Lessors
harmless from and against any loss which would have been covered by insurance
which shall have become void or suspended because of such breach by Tenant and
(b) pay to Landlord any and all increases of premiums on any insurance,
including, without limitation, rent insurance, resulting from any such breach.
13.04. Tenant shall indemnify and hold harmless Landlord and all
Superior Lessors and its and their respective partners, joint venturers,
directors, officers, agents, servants and employees from and against any and all
claims arising from or in connection with (a) the conduct or management of the
Demised Premises or of any business therein, or any work or thing whatsoever
done, or any condition created (other than by Landlord) in the Demised Premises
during the Term or during the period of time, if any, prior to the Commencement
Date that Tenant may have been given access to the Demised Premises; (b) any
act, omission or negligence of Tenant or any of its subtenants or licensees or
its or their partners, joint venturers, directors, officers, agents, employees
or contractors; (c) any accident, injury or damage whatever (unless caused
solely by Landlord's negligence) occurring in the Demised Premises; and (d) any
breach or default by Tenant in the full and prompt payment and performance of
Tenant's obligations under this Lease; together with all costs, expenses and
liabilities incurred in or in connection with each such claim or action or
proceeding brought thereon, including, without limitation, all attorneys' fees
and expenses. In case any action or proceeding is brought against Landlord
and/or any Superior Lessor and/or its or their partners, joint venturers,
directors, officers, agents and/or employees in connection with conduct or
management of the Demised Premises or by reason of any claim referred to above,
Tenant, upon notice from Landlord or such Superior Lessor, shall, at Tenant's
cost and expense, resist and defend such action or proceeding by counsel
reasonably satisfactory to Landlord.
13.05. Neither Landlord nor any Superior Lessor shall be liable or
responsible for, and Tenant hereby releases Landlord and each Superior Lessor
from, all liability and responsibility to Tenant and any person claiming by,
through or under Tenant, by way of subrogation or otherwise, for any injury,
loss or damage to any person or property in or around the Demised Premises or to
Tenant's business irrespective of the cause of such injury, loss or damage, and
Tenant shall require its insurers to include in all of Tenant's insurance
policies which could give rise to a right of subrogation against Landlord or any
Superior Lessor a clause or endorsement whereby the insurer waives any rights of
subrogation against Landlord and such Superior Lessors or permits the insured,
prior to any loss, to agree with a third party to waive any claim it may have
against said third party without invalidating the coverage under the insurance
policy.
ARTICLE 14 - RULES AND REGULATIONS
14.01. Tenant and its employees and agents shall faithfully observe
and comply with the Rules and Regulations and such reasonable changes therein
(whether by modification, elimination
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or addition) as Landlord at any time or times hereafter may make and communicate
to Tenant, which in Landlord's judgment, shall be necessary for the reputation,
safety, care or appearance of the Land and Building, or the preservation of good
order therein, or the operation or maintenance of the Building or its equipment
and fixtures, or the Common Areas, and which do not unreasonably affect the
conduct of Tenant's business in the Demised Premises; provided, however, that in
case of any conflict or inconsistency between the provisions of this Lease and
any of the Rules and Regulations, the provisions of this Lease shall control.
Nothing in this Lease contained shall be construed to impose upon Landlord any
duty or obligation to enforce the Rules and Regulations against any other tenant
or any employees or agents of any other tenant, and Landlord shall not be liable
to Tenant for violation of the Rules and Regulations by any other tenant or its
employees, agents, invitees or licensees.
ARTICLE 15 - ALTERATIONS AND SIGNS
15.01. Tenant shall not make any alterations or additions to the
Demised Premises, or make any holes or cuts in the walls, ceilings, roofs, or
floors thereof, or change the exterior color or architectural treatment of the
Demised Premises, without on each occasion first obtaining the consent of
Landlord. Tenant shall submit to Landlord plans and specifications for such work
at the time Landlord's consent is sought. Notwithstanding the foregoing,
Landlord's consent shall not be required, however notice to the Landlord
(together with a copy of the plans and specifications) shall be required, for
alterations that are non-structural in nature and do not involve or affect the
mechanical systems of the Demised Premises or Building and have a cost of less
than $75,000.00, provided such notice shall include reasonably sufficient
details of the alteration(s). Tenant shall pay to Landlord upon demand the
reasonable cost and expense of Landlord in (a) reviewing said plans and
specifications and (b) inspecting the alterations to determine whether the same
are being performed in accordance with the approved plans and specifications and
all Legal Requirements and Insurance Requirements, including, without
limitation, the fees of any architect or engineer employed by Landlord for such
purpose. Before proceeding with any permitted alteration which will cost more
than $50,000 (exclusive of the costs of decorating work and items constituting
Tenant's Property), as estimated by a reputable contractor designated by
Landlord, Tenant shall obtain and deliver to Landlord either (i) a performance
bond and a labor and materials payment bond (issued by a corporate surety
licensed to do business in New Jersey), each in an amount equal to 100% of such
estimated cost and in form satisfactory to Landlord, or (ii) such other security
as shall be satisfactory to Landlord. Tenant shall fully and promptly comply
with and observe the Rules and Regulations then in force in respect of the
making of alterations. Any review or approval by Landlord of any plans and/or
specifications with respect to any alterations is solely for Landlord's benefit,
and without any representation or warranty whatsoever to Tenant in respect of
the adequacy, correctness or efficiency thereof or otherwise.
15.02. Tenant shall obtain all necessary governmental permits and
certificates for the commencement and prosecution of permitted alterations and
for final approval thereof upon completion, and shall cause alterations to be
performed in compliance therewith and with all applicable Legal Requirements and
Insurance Requirements. Alterations shall be diligently
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performed in a good and workmanlike manner, using new materials and equipment at
least equal in quality and class to the better of (a) the original installations
of the Building, or (b) the then standards for the Building established by
Landlord. Alterations shall be performed by contractors first approved by
Landlord (such approval not to be unreasonably withheld); provided, however,
that any alterations in or to the mechanical, electrical, sanitary, heating,
ventilating, air conditioning or other systems of the Building shall be
performed only by the contractor(s) designated by Landlord. Alterations shall be
made in such manner as not to unreasonably interfere with or delay and as not to
impose any additional expense upon Landlord in the construction, maintenance,
repair or operation of the Building; and if any such additional expense shall be
incurred by Landlord as a result of Tenant's making of any alterations, Tenant
shall pay any such additional expense upon demand. Throughout the making of
alterations, Tenant shall carry, or cause to be carried, worker's compensation
insurance in statutory limits and general liability insurance, with completed
operation endorsement, for any occurrence in or about the Building, under which
Landlord and its managing agent and any Superior Lessor whose name and address
shall previously have been furnished to Tenant shall be named as parties
insured, in such limits as Landlord may reasonably require, with insurers
reasonably satisfactory to Landlord. Tenant shall furnish Landlord with
reasonably satisfactory evidence that such insurance is in effect at or before
the commencement of alterations and, on request, at reasonable intervals
thereafter during the making of alterations.
15.03. Tenant shall not place any signs on the roof, exterior walls
or grounds of the Demised Premises without first obtaining Landlord's written
consent thereto. Landlord shall not unreasonably withhold or delay its consent
the installation of a sign on the exterior wall of the Demised Premises, setting
forth Tenant's name and logo, identifying the Tenant's occupancy of the Demised
Premises. Tenant shall not place the sign of any third party on the Demised
Premises or the Building. Tenant shall, at Tenant's sole cost and expense, be
responsible for the maintenance of said sign. At Landlord's request, upon
termination or expiration of this Lease, Tenant shall, at Tenant's sole cost and
expense, remove such sign and repair any damage to the Building resulting
therefrom. In placing any signs on or about the Demised Premises, Tenant shall,
at its expense, comply with all applicable Legal Requirements and obtain all
required permits and/or licenses.
ARTICLE 16 - LANDLORD'S AND TENANT'S PROPERTY
16.01. All fixtures, equipment, improvements and appurtenances
attached to or built into the Demised Premises at the commencement of or during
the Term, whether or not by or at the expense of Tenant, shall be and remain a
part of the Demised Premises, shall be deemed to be the property of Landlord and
shall not be removed by Tenant, except as provided in Section 16.02, provided
however that Landlord's consent shall not be required for the removal of the
pre-existing pipe rack and conveyor system in connection with the initial
installation of Tenant's Work. Further, any carpeting or other personal property
in the Demised Premises on the Commencement Date, unless installed and paid for
by Tenant, shall be and shall remain Landlord's property and shall not be
removed by Tenant.
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16.02. All movable partitions, business and trade fixtures, machinery
and equipment, communications equipment and office equipment, whether or not
attached to or built into the Demised Premises, which are installed in the
Demised Premises by or for the account of Tenant without expense to Landlord and
can be removed without structural damage to the Building and all furniture,
furnishings, and other movable personal property owned by Tenant and located in
the Demised Premises (collectively, "Tenant's Property") shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term; provided that if any of the Tenant's Property is removed, Tenant shall
repair or pay the cost of repairing any damage to the Demised Premises, the
Building or the Common Areas resulting from the installation and/or removal
thereof. Any equipment or other property for which Landlord shall have granted
any allowance or credit to Tenant shall not be deemed to have been installed by
or for the account of Tenant without expense to Landlord, shall not be
considered as the Tenant's Property and shall be deemed the property of
Landlord.
16.03. At or before the Expiration Date or the date of any earlier
termination of this Lease, or within fifteen (15) days after such an earlier
termination date, Tenant shall remove from the Demised Premises all of the
Tenant's Property (except such items thereof as Landlord shall have expressly
permitted to remain, which property shall become the property of Landlord if not
removed), and Tenant shall repair any damage to the Demised Premises, the
Building and the Common Areas resulting from any installation and/or removal of
the Tenant's Property. Any items of the Tenant's Property which shall remain in
the Demised Premises after the Expiration Date or after a period of fifteen (15)
days following an earlier termination date, may, at the option of Landlord, be
deemed to have been abandoned, and in such case such items may be retained by
Landlord as its property or disposed of by Landlord, without accountability, in
such manner as Landlord shall determine at Tenant's expense.
ARTICLE 17 - REPAIRS AND MAINTENANCE
17.01. Tenant shall, throughout the Term, take good care of the
Demised Premises, the fixtures and appurtenances therein, and shall not do,
suffer, or permit any waste with respect thereto. Tenant shall keep and maintain
the Demised Premises including without limitation all building equipment,
windows, doors, loading bay doors and shelters, plumbing and electrical systems,
heating, ventilating and air conditioning ("HVAC") systems (whether located in
the interior of the Demised Premises or on the exterior of the Building) in a
clean and orderly condition. Tenant shall, at Landlord's option, keep and
maintain in a clean and orderly condition all HVAC systems and any other
mechanical or other systems exclusively serving the Demised Premises which are
located in whole or in part outside of the Demised Premises (it being understood
and agreed that if Landlord shall elect to keep and maintain said systems, then
the cost of same shall be included in Operating Expenses). Tenant shall keep and
maintain all exterior components of any windows, doors, loading bay doors and
shelters serving the Demised Premises in a clean and orderly condition. The
phrase "keep and maintain" as used herein includes repairs,
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replacement and/or restoration as appropriate. Tenant shall not permit or suffer
any over-loading of the floors of the Demised Premises. Tenant shall be
responsible for all repairs, interior and exterior, structural and
nonstructural, ordinary and extraordinary, in and to the Demised Premises, and
the Building (including the facilities and systems thereof) and the Common Areas
the need for which arises out of (a) the performance or existence of the
Tenant's Work or alterations, (b) the installation, use or operation of the
Tenant's Property in the Demised Premises, (c) the moving of the Tenant's
Property in or out of the Building, or (d) the act, omission, misuse or neglect
of Tenant or any of its subtenants or its or their employees, agents,
contractors or invitees. Upon request by Landlord, Tenant shall furnish Landlord
with true and complete copies of maintenance contracts and with copies of all
invoices for work performed, confirming Tenant's compliance with its obligations
under this Article. In the event Tenant fails to furnish such copies, Landlord
shall have the right, at Tenant's cost and expense, to conduct such inspections
or surveys as may be required to determine whether or not Tenant is in
compliance with this Article and to have any work required of Tenant performed
at Tenant's cost and expense. Tenant shall promptly replace all scratched,
damaged or broken doors and glass in and about the Demised Premises and shall be
responsible for all repairs, maintenance and replacement of wall and floor
coverings in the Demised Premises and for the repair and maintenance of all
sanitary and electrical fixtures and equipment therein. The Tenant shall also
arrange for its own cleaning services and rubbish removal, subject to the right
of Landlord, at Landlord's option to perform such services and include the cost
of such services in Operating Expenses. Tenant shall promptly make all repairs
in or to the Demised Premises for which Tenant is responsible, and any repairs
required to be made by Tenant to the mechanical, electrical, sanitary, heating,
ventilating, air-conditioning or other systems of the Building shall be
performed only by contractor(s) designated by Landlord. Any other repairs in or
to the Building and the facilities and systems thereof for which Tenant is
responsible shall be performed by Landlord at Tenant's expense; but Landlord
may, at its option, before commencing any such work or at any time thereafter,
require Tenant to furnish to Landlord such security, in form (including, without
limitation, a bond issued by a corporate surety licensed to do business in New
Jersey) and amount, as Landlord shall deem necessary to assure the payment for
such work by Tenant.
17.02. Landlord shall make all structural repairs and replacements,
including, specifically, the roof and roof membrane (except as hereinabove
provided in Section 17.01) and the cost thereof shall be included in Operating
Expenses, for which Tenant shall pay Tenant's Fraction. Landlord shall keep and
maintain the Common Areas and shall procure landscaping and snow removal
services for the Building and the cost thereof shall be included in Operating
Expenses, for which Tenant shall pay Tenant's Fraction.
17.03. Tenant shall not permit or suffer the overloading of the
floors of the Demised Premises beyond a total combined load of 250 pounds per
square foot, or such lesser amount as may be applicable to any mezzanine or
second floor area.
17.04. Except as otherwise expressly provided in this Lease, Landlord
shall have no liability to Tenant, nor shall Tenant's covenants and obligations
under this Lease be reduced or
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abated in any manner whatsoever, by reason of any inconvenience, annoyance,
interruption or injury to business arising from Landlord's doing any repairs,
maintenance, or changes which Landlord is required or permitted by this Lease,
or required by Law, to make in or to any portion of the Building.
ARTICLE 18 - UTILITY CHARGES
18.01. Tenant shall pay all charges for gas, water, sewer,
electricity, heat or other utility or service supplied to the Demised Premises
as measured by meters relating to Tenant's use, and any cost of repair,
maintenance, replacement, and reading of any meters measuring Tenant's
consumption thereof. If any utilities or services are not separately metered or
assessed or are only partially separately metered or assessed and are used in
common with other tenants or occupants of the Building, Tenant shall pay to
Landlord on demand Tenant's proportionate share of such charges for utilities
and/or services, which shall be such charges multiplied by a fraction the
numerator of which shall be the Floor Space in the Demised Premises and the
denominator of which shall be the Floor Space of all tenants and occupants of
the Building using such utilities and/or services. In the event Landlord
determines that Tenant's utilization of any such service exceeds the fraction
referred to above, Tenant's proportionate share with respect to such service
shall, at Landlord's option, mean the percentage of any such service (but not
less than the fraction referred to above) which Landlord reasonably estimates as
Tenant's utilization thereof. Tenant expressly agrees that Landlord shall not be
responsible for the failure of supply to Tenant of any of the aforesaid, or any
other utility service. Landlord shall not be responsible for any public or
private telephone service to be installed in the space, particularly conduit, if
required.
18.02. Tenant's use of electric energy in the Demised Premises shall
not at any time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Demised Premises. In order to insure that
such capacity is not exceeded and to avert possible adverse effect upon the
Building's electric service, Tenant shall not, without Landlord's prior consent
in each instance (which shall not be unreasonably withheld), connect any
fixtures, appliances or equipment to the Building's electric distribution system
or make any alteration or addition to the electric system of the Demised
Premises existing on the Commencement Date. Should Landlord grant such consent,
all additional risers or other equipment required therefor shall be provided by
Landlord and the cost thereof shall be paid by Tenant to Landlord on demand.
ARTICLE 19 - ACCESS, CHANGES AND NAME
19.01. Except for the space within the inside surfaces of all walls,
hung ceilings, floors, windows and doors bounding the Demised Premises, all of
the Building, including, without limitation, exterior Building walls, core
corridor walls and doors and any core corridor entrance, any terraces or roofs
adjacent to the Demised Premises, and any space in or adjacent to the Demised
Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or
other utilities, sinks or other Building facilities and the use thereof, as well
as access thereto through the Demised Premises for the purpose of operating,
maintenance, decoration and repair, are reserved
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to Landlord. Landlord also reserves the right, to install, erect, use and
maintain pipes, ducts and conduits in and through the Demised Premises, provided
such are properly enclosed.
19.02. Landlord and its agents shall have the right to enter and/or
pass through the Demised Premises at any time or times (a) to examine the
Demised Premises and to show then to actual and prospective Superior Lessors,
Superior Mortgagees, or prospective purchasers of the Building, and (b) to make
such repairs, alterations, additions and improvements in or to the Demised
Premises and/or in or to the Building or its facilities and equipment as
Landlord is required or desires to make. Landlord shall be allowed to take all
materials into and upon the Demised Premises that may be required in connection
therewith, without any liability to Tenant and without any reduction of Tenant's
obligations hereunder. During the period of eighteen (18) months prior to the
Expiration Date, Landlord and its agents may exhibit the Demised Premises to
prospective tenants.
19.03. If at any time any windows of the Demised Premises are
temporarily darkened or obstructed by reason of any repairs, improvements,
maintenance and/or cleaning in or about the Building, or if any part of the
Building or the Common Areas, other than the Demised Premises, is temporarily or
permanently closed or inoperable, the same shall not be deemed a constructive
eviction and shall not result in any reduction or diminution of Tenant's
obligations under this Lease.
19.04. If, during the last month of the Term, Tenant has removed all
or substantially all of the Tenant's Property from the Demised Premises,
Landlord may, without notice to Tenant, immediately enter the Demised Premises
and alter, renovate and decorate the same, without liability to Tenant and
without reducing or otherwise affecting Tenant's obligations hereunder.
19.05. Landlord reserves the right, at any time and from time to
time, to make such changes, alterations, additions and improvements in or to the
Building and the fixtures and equipment thereof as Landlord shall deem necessary
or desirable.
19.06. Landlord may adopt any name for the Building. Landlord
reserves the right to change the name and/or address of the Building at any
time. Landlord agrees that, provided Tenant is not in default of its obligations
under this Lease, and further provided Tenant has not assigned this Lease or
sublet more than twenty-five percent (25%) of the Demised Premises and is in
occupancy of not less than fifty percent (50%) of the Building, Landlord shall
not name the Building after another tenant of the Building.
ARTICLE 20 - MECHANICS' LIENS AND OTHER LIENS
20.01. Nothing contained in this Lease shall be construed to imply
any consent of Landlord to subject Landlord's interest or estate to any
liability under any mechanic's, construction or other lien law. If any lien or
any Notice of Intention (to file a lien), Lis Pendens, or Notice of Unpaid
Balance and Right to File Lien is filed against the Land, the Building, or any
part thereof,
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or the Demised Premises, or any part thereof, for any work, labor, services or
materials claimed to have been performed or furnished for or on behalf of
Tenant, or anyone holding any part of the Demised Premises through or under
Tenant, Tenant shall cause the same to be canceled and discharged of record by
payment, bond or order of a court of competent jurisdiction within fifteen (15)
days after notice by Landlord to Tenant.
ARTICLE 21 - NON-LIABILITY AND INDEMNIFICATION
21.01. Neither Landlord nor any partner, joint venturer, director,
officer, agent, servant or employee of Landlord shall be liable to Tenant for
any loss, injury or damage to Tenant or to any other Person, or to its or their
property, irrespective of the cause of such injury, damage or loss, unless
caused by or resulting from the negligence of Landlord, its agents, servants or
employees in the operation or maintenance of the Land or Building without
contributory negligence on the part of Tenant or any of its subtenants or
licensees or its or their employees, agents or contractors. Further, neither
Landlord nor any partner, joint venturer, director, officer, agent, servant or
employee of Landlord shall be liable (a) for any such damage caused by other
tenants or Persons in, upon or about the Land or Building, or caused by
operations in construction of any private, public or quasi-public work; or (b)
even if negligent, for consequential damages arising out of any loss of use of
the Demised Premises or any equipment or facilities therein by Tenant or any
Person claiming through or under Tenant.
21.02. Tenant shall indemnify and hold harmless Landlord and all
Superior Lessors and its and their respective partners, joint venturers,
directors, officers, agents, servants and employees from and against any and all
claims arising from or in connection with (a) the conduct or management of the
Demised Premises or of any business therein, or any work or thing whatsoever
done, or any condition created (other than by Landlord) in the Demised Premises
during the Term or during the period of time, if any, prior to the Commencement
Date that Tenant may have been given access to the Demised Premises; (b) any
act, omission or negligence of Tenant or any of its subtenants or licensees or
its or their partners, joint venturers, directors, officers, agents, employees
or contractors; (c) any accident, injury or damage whatever (unless caused
solely by Landlord's negligence) occurring in the Demised Premises; and (d) any
breach or default by Tenant in the full and prompt payment and performance of
Tenant's obligations under this Lease; together with all costs, expenses and
liabilities incurred in or in connection with each such claim or action or
proceeding brought thereon, including, without limitation, all attorneys' fees
and expenses. In case of any action or proceeding is brought against Landlord
and/or any Superior Lessor and/or its or their partners, joint venturers,
directors, officers, agents and/or employees by reason of any such claim,
Tenant, upon notice from Landlord or such Superior Lessor, shall resist and
defend such action or proceeding (by counsel reasonably satisfactory to
Landlord).
21.03. Notwithstanding any provision to the contrary, Tenant shall
look solely to the estate and property of Landlord in and to the Land and
Building (or the proceeds received by Landlord on a sale of such estate and
property but not the proceeds of any financing or refinancing thereof) in the
event of any claim against Landlord arising out of or in connection with this
Lease,
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the relationship of Landlord and Tenant or Tenant's use of the Demised Premises
or the Common Areas, and Tenant agrees that the liability of Landlord arising
out of or in connection with this Lease, the relationship of Landlord and Tenant
or Tenant's use of the Demised Premises or the Common Areas shall be limited to
such estate and property of Landlord (or sale proceeds). No other properties or
assets of Landlord or any partner, joint venturer, director, officer, agent,
servant or employee of Landlord shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgement (or other judicial
process) or for the satisfaction of any other remedy of Tenant arising out of,
or in connection with, this Lease, the relationship of Landlord and Tenant or
Tenant's use of the Demised Premises or the Common Areas and if Tenant shall
acquire a lien on or interest in any other properties or assets by judgment or
otherwise, Tenant shall promptly release such lien on or interest in such other
properties and assets by executing, acknowledging and delivering to Landlord an
instrument to that effect prepared by Landlord's attorneys.
ARTICLE 22 - DAMAGE OR DESTRUCTION
22.01. If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other casualty (and if this Lease shall
not be terminated as in this Article 22 hereinafter provided), Landlord shall
repair the damage and restore and rebuild the Building and/or the Demised
Premises (except for the Tenant's Property) with reasonable dispatch after
notice to it of the damage or destruction and the collection of the insurance
proceeds attributable to such damage.
22.02. Subject to the provisions of Section 22.05, if all or part of
the Demised Premises shall be damaged or destroyed or rendered completely or
partially untenantable on account of fire or other casualty, the Rent shall be
abated or reduced, as the case may be, in the proportion that the untenantable
area of the Demised Premises bears to the total area of the Demised Premises (to
the extent of rent insurance proceeds received by the Landlord, provided however
that the aforementioned limitation shall be conditioned upon Landlord obtaining
and maintaining rent insurance covering a period of not less than twelve (12)
months rent) for the period from the date of the damage or destruction to (a)
the date the damage to the Demised Premises shall be substantially repaired, or
(b) if the Building and not the Demised Premises is so damaged or destroyed, the
date on which the Demised Premises shall be made tenantable; provided, however,
should Tenant reoccupy a portion of the Demised Premises during the period the
repair or restoration work is taking place and prior to the date that the
Demised Premises are substantially repaired or made tenantable the Rent
allocable to such reoccupied portion, based upon the proportion which the area
of the reoccupied portion of the Demised Premises bears to the total area of the
Demised Premises, shall be payable by Tenant from the date of such occupancy.
22.03. If (a) the Building or the Demised Premises shall be totally
damaged or destroyed by fire or other casualty, or (b) the Building shall be so
damaged or destroyed by fire or other casualty (whether or not the Demised
Premises are damaged or destroyed) that its repair or restoration requires the
expenditure, as estimated by a reputable contractor or architect designated
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by Landlord, of more than twenty percent (20%) (or ten percent [10%] if such
casualty occurs during the last two [2] years of the Term) of the full insurable
value of the Building immediately prior to the casualty, or (c) the Building
shall be damaged or destroyed by fire or other casualty (whether or not the
Demised Premises are damaged or destroyed) and either the loss shall not be
covered by Landlord's insurance or the net insurance proceeds (after deducting
all expenses in connection with obtaining such proceeds) shall, in the
estimation of a reputable contractor or architect designated by Landlord be
insufficient to pay for the repair or restoration work, then in either such case
Landlord may terminate this Lease by giving Tenant notice to such effect within
ninety (90) days after the date of the fire or other casualty.
22.04. Tenant shall not be entitled to terminate this Lease and no
damages, compensation or claim shall be payable by Landlord for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Demised Premises or of the Building pursuant to this Article 22.
Landlord shall use its best efforts to make such repair or restoration promptly
and in such manner as not unreasonably to interfere with Tenant's use and
occupancy of the Demised Premises, but Landlord shall not be required to do such
repair or restoration work except during Landlord's business hours on business
days.
22.05. Notwithstanding any of the foregoing provisions of this
Article 22, if by reason of some act or omission on the part of Tenant or any of
its subtenants or its or their partners, directors, officers, servants,
employees, agents or contractors, either (a) Landlord or any Superior Lessor or
any Superior Mortgagee shall be unable to collect all of the insurance proceeds
(including, without limitation, rent insurance proceeds) applicable to damage or
destruction of the Demised Premises or the Building by fire or other casualty,
or (b) the Demised Premises or the Building shall be damaged or destroyed or
rendered completely or partially untenantable on account of fire or other
casualty, then, without prejudice to any other remedies which may be available
against Tenant, there shall be no abatement or reduction of the Rent. Further,
nothing contained in this Article 22 shall relieve Tenant from any liability
that may exist as a result of any damage or destruction by fire or other
casualty.
22.06. Landlord will not carry insurance of any kind on the Tenant's
Property, and, except as provided by law or by reason of Landlord's breach of
any of its obligations hereunder, shall not be obligated to repair any damage to
or replace the Tenant's Property.
22.07. The provisions of this Article 22 shall be deemed an express
agreement governing any case of damage or destruction of the Demised Premises
and/or Building by fire or other casualty, and any law providing for such a
contingency in the absence of an express agreement, now or hereafter in force,
shall have no application in such case.
ARTICLE 23 - EMINENT DOMAIN
23.01. If the whole of the Demised Premises shall be taken by any
public or quasi-public authority under the power of condemnation, eminent domain
or expropriation, or in the event of
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conveyance of the whole of the Demised Premises in lieu thereof, this Lease
shall terminate as of the day possession shall be taken by such authority. If
25% or less of the Floor Space of the Demised Premises shall be so taken or
conveyed, this Lease shall terminate only in respect of the part so taken or
conveyed as of the day possession shall be taken by such authority. If more than
25% of the Floor Space of the Demised Premises shall be so taken or conveyed,
this Lease shall terminate only in respect of the part so taken or conveyed as
of the day possession shall be taken by such authority, but either party shall
have the right to terminate this Lease upon notice given to the other party
within 30 days after such taking possession. If more than 25% of the Floor Space
of the Building shall be so taken or conveyed, Landlord may, by notice to
Tenant, terminate this Lease as of the day possession shall be taken. If so much
of the parking facilities shall be so taken or conveyed that the number of
parking spaces necessary, in Landlord's judgment, for the continued operation of
the Building shall not be available, Landlord shall, by notice to Tenant,
terminate this Lease as of the day possession shall be taken. If this Lease
shall continue in effect as to any portion of the Demised Premises not so taken
or conveyed, the Rent shall be computed as of the day possession shall be taken
on the basis of the remaining Floor Space of the Demised Premises. Except as
specifically provided herein, in the event of any such taking or conveyance
there shall be no reduction in Rent. If this Lease shall continue in effect,
Landlord shall, at its expense, but shall be obligated only to the extent of the
net award or other compensation (after deducting all expenses in connection with
obtaining same) available to Landlord for the improvements taken or conveyed
(excluding any award or other compensation for land or for the unexpired portion
of the term of any Superior Lease), make all necessary alterations so as to
constitute the remaining Building a complete architectural and tenantable unit,
except for the Tenant's Property, and Tenant shall make all alterations or
replacements to the Tenant's Property and decorations in the Demised Premises.
All awards and compensation for any taking or conveyance, whether for the whole
or a part of the Land or Building, the Demised Premised or otherwise, shall be
the property of Landlord, and Tenant hereby assigns to Landlord all of Tenant's
right, title and interest in and to any and all such awards and compensation,
including, without limitation, any award or compensation for the value of the
unexpired portion of the Term. Tenant shall be entitled to claim, prove and
receive in the condemnation proceeding such award or compensation as may be
allowed for the Tenant's Property and for loss of business, good will, and
depreciation or injury to and cost of removal of the Tenant's Property, but only
if such award or compensation shall be made by the condemning authority in
addition to, and shall not result in a reduction of, the award or compensation
made by it to Landlord.
23.02. If the temporary use or occupancy of all or any part of the
Demised Premises shall be taken during the Term, Tenant shall be entitled,
except as hereinafter set forth, to receive that portion of the award or payment
for such taking which represents compensation for the use and occupancy of the
Demised Premises, for the taking of the Tenant's Property and for moving
expenses, and Landlord shall be entitled to receive that portion which
represents reimbursement for the cost of restoration of the Demised Premises.
This Lease shall be and remain unaffected by such taking and Tenant shall
continue to be responsible for all of its obligations hereunder insofar as such
obligations are not affected by such taking and shall continue to pay the Rent
in full when due. If the period of temporary use or occupancy shall extend
beyond the Expiration Date, that
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part of the award or payment which represents compensation for the use and
occupancy of the Demised Premises (or a part thereof) shall be divided between
Landlord and Tenant so that Tenant shall receive (except as otherwise provided
below) so much thereof as represents compensation for the period up to and
including the Expiration Date and Landlord shall receive so much thereof as
represents compensation for the period after the Expiration Date. All monies to
be paid to Tenant as, or as part of, an award or payment for temporary use and
occupancy for a period beyond the date to which the Rent has been paid shall be
received, held and applied by the first Superior Mortgagee (or if there is no
Superior Mortgagee, by Landlord as a trust fund) for payment of the Rent
becoming due hereunder.
ARTICLE 24 - SURRENDER
24.01. On the Expiration Date, or upon any earlier termination of
this Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant
shall quit and surrender the Demised Premises to Landlord "broom-clean" and in
good order, condition and repair, except for ordinary wear and tear and such
damage or destruction as Landlord is required to repair or restore under this
Lease, and Tenant shall remove all of Tenant's Property therefrom except as
otherwise expressly provided in this Lease.
24.02. If Tenant remains in possession of the Demised Premises after
the expiration of the Term, Tenant shall be deemed to be occupying the Demised
Premises as a tenant from month to month at the sufferance of Landlord subject
to all of the provisions of this Lease, except that the monthly Fixed Rent shall
be twice the Fixed Rent in effect during the last month of the Term, plus 1/12th
of the average annual Percentage Rent for the immediately preceding three full
Calendar Years (or for the entire Term if less than three full Calendar Years).
24.03. No act or thing done by Landlord or its agents shall be deemed
an acceptance of a surrender of the Demised Premises, and no agreement to accept
such surrender shall be valid unless in writing and signed by Landlord.
ARTICLE 25 - CONDITIONS OF LIMITATION
25.01. This Lease is subject to the limitation that whenever Tenant
or any Guarantor (a) shall make an assignment for the benefit of creditors, or
(b) shall commence a voluntary case or have entered against it an order for
relief under any chapter of the Federal Bankruptcy Code (Title 11 of the United
States Code) or any similar order or decree under any federal or state law, now
in existence, or hereafter enacted having the same general purpose, and such
order or decree shall have not been stayed or vacated within 30 days after
entry, or (c) shall cause, suffer, permit or consent to the appointment of a
receiver, trustee, administrator, conservator, sequestrator, liquidator or
similar official in any federal, state or foreign judicial or nonjudicial
proceeding, to hold, administer and/or liquidate all or substantially all of its
assets, and such appointment shall not have been revoked, terminated, stayed or
vacated and such official discharged of his duties within 30 days of his
appointment, then Landlord, at any time after the occurrence of any such event,
may
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give Tenant a notice of intention to end the Term at the expiration of five (5)
days from the date of service of such notice of intention, and upon the
expiration of said five (5) day period, whether or not the Term shall
theretofore have commenced, this Lease shall terminate with the same effect as
if that day were the expiration date of this Lease, but Tenant shall remain
liable for damages as provided in Article 27.
25.02. This Lease is subject to the further limitations that: (a) if
Tenant shall default in the payment of any Rent and such default remains uncured
for five (5) days after written notice from Landlord, or (b) if Tenant shall,
whether by action or inaction, be in default of any of its obligations under
this Lease (other than a default in the payment of Rent) and such default shall
continue and not be remedied within thirty (30) days after Landlord shall have
given to Tenant a notice specifying the same, or, in the case of a default which
cannot with due diligence be cured within a period of fifteen (15) days and the
continuance of which for the period required for cure will not subject Landlord
or any Superior Lessor to prosecution for a crime (as more particularly
described in the last sentence of Section 12.02) or termination of any Superior
Lease or foreclosure of any Superior Mortgage, if Tenant shall not, (i) within
said thirty (30) day period advise Landlord of Tenant's intention to take all
steps necessary to remedy such default, (ii) duly commence within said thirty
(30) day period, and thereafter diligently prosecute to completion all steps
necessary to remedy the default, and (iii) complete such remedy within a
reasonable time after the date of said notice by Landlord, or (c) if any event
shall occur or any contingency shall arise whereby this Lease would, by
operation of law or otherwise, devolve upon or pass to any person, firm or
corporation other than Tenant, except as expressly permitted by Article 11, or
(d) if Tenant shall vacate or abandon the Demised Premises, or (e) if there
shall be any default by Tenant (or any person which, directly or indirectly,
controls, is controlled by, or is under common control with Tenant) under any
other lease with Landlord (or any person which, directly or indirectly,
controls, is controlled by, or is under common control with Landlord) which
shall not be remedied within the applicable grace period, if any, provided
therefor under such other lease, then in any of said cases Landlord may give to
Tenant a notice of intention to end the Term at the expiration of five (5) days
from the date of the service of such notice of intention, and upon the
expiration of said five (5) days, whether or not the Term shall theretofore have
commenced, this Lease shall terminate with the same effect as if that day were
the expiration date of this Lease, but Tenant shall remain liable for damages as
provided in Article 27.
ARTICLE 26 - RE-ENTRY BY LANDLORD
26.01. If Tenant shall default in the payment of any Rent, or if this
Lease shall terminate as provided in Article 25, Landlord or Landlord's agents
and employees may immediately or at any time thereafter re-enter the Demised
Premises, or any part thereof, either by summary dispossess proceedings or by
any suitable action or proceeding at law without being liable to indictment,
prosecution or damages therefor, and may repossess the same, and may remove any
Person therefrom, to the end that Landlord may have, hold and enjoy the Demised
Premises. The word "re-enter," as used herein, is not restricted to its
technical legal meaning. If this Lease is terminated under the provisions of
Article 25, or if Landlord shall re-enter the Demised Premises
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under the provisions of this Article 26, or in the event of the termination of
this Lease, or of re-entry, by or under any summary dispossess or other
proceedings or action or any provision of law by reason of default hereunder on
the part of Tenant, Tenant shall thereupon pay to Landlord the Rent payable up
to the time of such termination of this Lease, or of such recovery of possession
of the Demised Premises by Landlord, as the case may be, and shall also pay to
Landlord damages as provided in Article 27.
26.02. In the event of a breach or threatened breach by Tenant of any
of its obligations under this Lease, Landlord shall also have the right of
injunction. The special remedies to which Landlord may resort hereunder are
cumulative and are not intended to be exclusive of any other remedies to which
Landlord may lawfully be entitled at any time and Landlord may invoke any remedy
allowed at law or in equity as if specific remedies were not provided for
herein.
26.03. If this Lease shall terminate under the provisions of Article
25, or if Landlord shall re-enter the Demised Premises under the provisions of
this Article 26, or in the event of the termination of this Lease, or of
re-entry, by or under any summary dispossess or other proceeding or action or
any provision of law by reason of default hereunder on the part of Tenant,
Landlord shall be entitled to retain all monies, if any, paid by Tenant to
Landlord, whether as Advance Rent, security or otherwise, but such monies shall
be credited by Landlord against any Rent due from Tenant at the time of such
termination or re-entry or, at Landlord's option, against any damages payable by
Tenant under Article 27 or pursuant to law.
ARTICLE 27 - DAMAGES
27.01. If this Lease is terminated under the provisions of Article 25
or if Landlord shall re-enter the Demised Premises under the provisions of
Article 26, or in the event of the termination of this Lease, or of re-entry, by
or under any summary dispossess or other proceeding or action or any provision
of law by reason of default hereunder on the part of Tenant, Tenant shall pay as
Additional Charges to Landlord, at the election of Landlord, either or any
combination of:
A. a sum which at the time of such termination of this Lease or at the
time of any such re-entry by Landlord, as the case may be, represents
the then value of the excess, if any, of (I) the aggregate amount of
the Rent which would have been payable by Tenant (conclusively
presuming the average monthly Percentage Rent and Additional Charges to
be the same as were the average monthly Percentage Rent and Additional
Charges payable for the year, or if less than three hundred sixty five
(365) days have then elapsed since the Commencement Date, the partial
year, immediately preceding such termination or re-entry) for the
period commencing with such earlier termination of this Lease or the
date of any such re-entry, as the case may be, and ending with the
Expiration Date, over (ii) the aggregate rental value of the Demised
Premises for the same period; or
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B. sums equal to the Fixed Rent, Percentage Rent (in the same monthly
amount as the average monthly Percentage Rent payable for the year, or
if less than three hundred sixty five (365) days have then elapsed
since the Commencement Date, the partial year, immediately preceding
such termination or re-entry) and the Additional Charges which would
have been payable by Tenant had this Lease not so terminated, or had
Landlord not so re-entered the Demised Premises, payable upon the due
dates therefor specified herein following such termination or such
re-entry and until the Expiration Date, provided, however, that if
Landlord shall relet the Demised Premises during said period, Landlord
shall credit Tenant with the net rents received by Landlord from such
reletting, such net rents to be determined by first deducting from the
gross rents as and when received by Landlord from such reletting the
expenses incurred or paid by Landlord in terminating this Lease or in
re-entering the Demised Premises and in securing possession thereof, as
well as the expenses of reletting, including, without limitation,
altering and preparing the Demised Premises for new tenants, brokers'
commissions, legal fees, and all other expenses properly chargeable
against the Demised Premises and the rental therefrom, it being
understood that any such reletting may be for a period shorter or
longer than the period ending on the Expiration Date; but in no event
shall Tenant be entitled to receive any excess of such net rents over
the sums payable by Tenant to Landlord hereunder, nor shall Tenant be
entitled in any such for the collection of damages pursuant to this
subdivision (b) to a credit in respect of any rents from a reletting,
except to the extent that such net rents are actually received by
Landlord. If the Demised Premises or any part thereof should be relet
in combination with other space, then proper apportionment on a square
foot basis shall be made of the rent received from such reletting and
of the expenses of reletting; or
C. a sum which at the time of such termination of this Lease or at the
time of any such re-entry by Landlord, as the case may be, represents
the aggregate amount of the Rent which would have been payable by
Tenant (conclusively presuming the average monthly Additional Charges
to be the same as were the average monthly Additional Charges payable
for the year, or if less than 365 days have then elapsed since the
Commencement Date, the partial year, immediately preceding such
termination or re-entry) for the period commencing with such earlier
termination of this Lease or the date of any such re-entry, as the case
may be, and ending with the Expiration Date; provided, however, that if
Landlord shall relet the Demised Premises during said period, Landlord
shall credit Tenant with the net rents received by Landlord from such
reletting, such net rents to be determined by first deducting from the
gross rents as and when received by Landlord from such reletting the
expenses incurred or paid by Landlord in terminating this Lease or in
re-entering the Demised Premises and in securing possession thereof, as
well as the expenses of reletting, including, without limitation,
altering and preparing the Demised Premises for new tenants, brokers'
commissions, legal fees, and all other expenses properly chargeable
against the Demised Premises and the rental therefrom, it being
understood that any such reletting may be for a period shorter or
longer than the period ending on the Expiration Date; but in no event
shall Landlord have to account to Tenant for any rents in excess of
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the total damages recovered by Landlord hereunder, nor shall Tenant be
entitled in any suit for the collection of damages pursuant to this
subdivision (c) to a credit in respect of any rents from a reletting,
except to the extent that such net rents are actually received by
Landlord. If the Demised Premises or any part thereof should be relet
in combination with other space, then proper apportionment on a square
foot basis shall be made of the rent received from such reletting and
of the expenses of reletting.
If the Demised Premises or any part thereof should be relet by Landlord before
presentation of proof of such damages to any court, commission or tribunal, the
amount of rent reserved upon such reletting shall, prima facie, be the fair and
reasonable rental value for the Demised Premises, or part thereof, so relet
during the term of the reletting. Landlord shall not be liable in any way
whatsoever for its failure to relet the Demised Premises or any part thereof, or
if the Demised Premises or any part thereof are relet, for its failure to
collect the rent under such reletting, and no such failure to relet or failure
to collect rent shall release or affect Tenant's liability for damages or
otherwise under this Lease.
27.02. Suit or suits for the recovery of such damages or, any
installments thereof, may be brought by Landlord at any time and from time to
time at its election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the date when the Term would have expired if it
had not been so terminated under the provisions of Article 25, or under any
provision of law, or had Landlord not re-entered the Demised Premises. Nothing
herein contained shall be construed to limit or preclude recovery by Landlord
against Tenant of any sums or damages to which, in addition to the damages
particularly provided above, Landlord may lawfully be entitled by reason of any
default hereunder on the part of Tenant. Nothing herein contained shall be
construed to limit or prejudice the right of Landlord to prove for and obtain as
damages by reason of the termination of this Lease or re-entry of the Demised
Premises for the default of Tenant under this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time, whether or
not such amount be greater than, equal to, or less than any of the sums referred
to in Section 27.01.
27.03. In addition, if this Lease is terminated under the provisions
of Article 25, or if Landlord shall re-enter the Demised Premises under the
provisions of Article 26, Tenant covenants that: (a) the Demised Premises then
shall be in the same condition as that in which Tenant has agreed to surrender
the same to Landlord at the Expiration Date; (b) Tenant shall have performed
prior to any such termination any obligation of Tenant contained in this Lease
for the making of any alteration or for restoring or rebuilding the Demised
Premises or the Building, or any part thereof; and (c) for the breach of any
covenant of Tenant set forth above in this Section 27.03, Landlord shall be
entitled immediately, without notice or other action by Landlord, to recover,
and Tenant shall pay, as and for liquidated damages therefor, the cost of
performing such covenant (as estimated by an independent contractor selected by
Landlord).
27.04. In addition to any other remedies Landlord may have under this
Lease, and without reducing or adversely affecting any of Landlord's rights and
remedies under this Article 27, if any
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Rent or damages payable hereunder by Tenant to Landlord are not paid upon demand
therefor, the same shall bear interest at the Late Payment Rate or the maximum
rate permitted by law, whichever is less, from the due date thereof until paid,
and the amounts of such interest shall be Additional Charges hereunder.
27.05. In the event of Tenant's default under this Lease and
Landlord's re-entry and recovery or possession of the Demised Premises, Landlord
shall use commercially reasonable efforts to mitigate Landlord's damages by
reletting of the Demised Premises. The net proceeds of any such reletting
received by Landlord shall be credited against Tenant's then-outstanding
obligations under this Lease. As used herein, "net proceeds" shall mean the full
amount of rent and other similar charges paid to Landlord by all succeeding
tenants of all or any portion of the Demised Premises less Landlord's actual
expenses of reletting the Demised Premises (including, but not limited to
expenses or work done to the Demised Premises in connection with such reletting,
broker's fees and attorneys' fees). Nothing contained herein shall require
Landlord to relet the Demised Premises prior to or with any preference over the
leasing of any other similar premises of Landlord or any affiliate of Landlord,
nor shall any rental of such other premises reduce the damages which Landlord
would be entitled to recover from Tenant.
ARTICLE 28 - AFFIRMATIVE WAIVERS
28.01. Tenant, on behalf of itself and any and all persons claiming
through or under Tenant, does hereby waive and surrender all right and privilege
which it, they or any of them might have under or by reason of any present or
future law, to redeem the Demised Premises or to have a continuance of this
Lease after being dispossessed or ejected from the Demised Premises by process
of law or under the terms of this Lease or after the termination of this Lease
as provided in this Lease.
28.02. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, and Tenant's use or occupancy of the
Demised Premises and use of the Common Area, including, without limitation, any
claim of injury or damage, and any emergency and other statutory remedy with
respect thereto. Tenant shall not interpose any counterclaim of any kind in any
action or proceeding commenced by Landlord to recover possession of the Demised
Premises.
ARTICLE 29 - NO WAIVERS
29.01. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this Lease, or to exercise any election herein contained, shall not be construed
as a waiver or relinquishment for the future of the performance of such one or
more obligations of this Lease or of the right to exercise such election, but
the same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Rent,
Percentage Rent or Additional Charges with
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knowledge of breach by Tenant of any obligation of this Lease shall not be
deemed a waiver of such breach.
ARTICLE 30 - CURING TENANT'S DEFAULTS
30.01. If Tenant shall default in the performance of any of Tenant's
obligations under this Lease, Landlord, without thereby waiving such default,
may (but shall not be obligated to) perform the same for the account and at the
expense of Tenant, without notice in a case of emergency, and in any other case
only if such default continues after the expiration of fifteen (15) days from
the date Landlord gives Tenant notice of the default. Bills for any expenses
incurred by Landlord in connection with any such performance by it for the
account of Tenant, and bills for all costs, expenses and disbursements of every
kind and nature whatsoever, including reasonable attorneys' fees and expenses,
involved in collecting or endeavoring to collect the Rent or any part thereof or
enforcing or endeavoring to enforce any rights against Tenant or Tenant's
obligations hereunder, under or in connection with this Lease or pursuant to
law, including any such cost, expense and disbursement involved in instituting
and prosecuting summary proceedings or in recovering possession of the Demised
Premises after default by Tenant or upon the expiration of the Term or sooner
termination of this Lease, and interest on all sums advanced by Landlord under
this Article at the Late Payment Rate or the maximum rate permitted by law,
whichever is less, may be sent by Landlord to Tenant monthly, or immediately, at
Landlord's option, and such amounts shall be due and payable in accordance with
the terms of such bills.
ARTICLE 31 - BROKER
31.01. Landlord and Tenant represent that no broker was instrumental
in bringing about or consummating this Lease and that Landlord and Tenant had no
conversations or negotiations with any broker concerning the leasing of the
Demised Premises to the Tenant. Landlord and Tenant agree to indemnify and hold
each other harmless against and from any claims for any brokerage commissions
and all costs, expenses and liabilities in connection therewith, including,
without limitation, attorneys' fees and expenses, arising out of any
conversations or negotiations had by such party with any broker claiming to have
dealt through the indemnifying party.
ARTICLE 32 - NOTICES
32.01. Any notice, statement, demand, consent, approval or other
communication required or permitted to be given, rendered or made by either
party to the other, pursuant to this Lease or pursuant to any applicable Legal
Requirement, shall be in writing and shall be deemed to have been properly
given, rendered or made only if hand delivered or sent by United States
registered or certified mail, return receipt requested, addressed to the other
party at the address hereinabove set forth (except that after the Fixed Rent
Commencement Date, Tenant's address, unless Tenant shall give notice to the
contrary, shall be the Building) as to Landlord, to the attention of General
Counsel with a concurrent notice to the attention of Controller, and shall be
deemed to have been given, rendered or made on the second day after the day so
mailed, unless mailed outside the State
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of New Jersey, in which case it shall be deemed to have been given, rendered or
made on the third business day after the day so mailed. Either party may, by
notice as aforesaid, designate a different address or addresses for notices,
statements, demands, consents, approvals or other communications intended for
it. In addition, upon and to the extent requested by Landlord, copies of notices
shall be sent to the Superior Mortgagee.
ARTICLE 33 - ESTOPPEL CERTIFICATES
33.01. Each party shall, at any time and from time to time, as
requested by the other party, upon not less than ten (10) days' prior notice,
execute and deliver to the requesting party a statement certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), certifying the dates to which the Fixed Rent and Additional
Charges have been paid, stating whether or not, to the best knowledge of the
party giving the statement, the requesting party is in default in performance of
any of its obligations under this Lease, and, if so, specifying each such
default of which the party giving the statement shall have knowledge, and
stating whether or not, to the best knowledge of the party giving the statement,
any event has occurred which with the giving of notice or passage of time, or
both, would constitute such a default of the requesting party, and, if so,
specifying each such event; any such statement delivered pursuant hereto shall
be deemed a representation and warranty to be relied upon by the party
requesting the certificate and by others with whom such party may be dealing,
regardless of independent investigation. Tenant also shall include in any such
statement such other information concerning this Lease as Landlord may
reasonably request.
ARTICLE 34 - ARBITRATION
34.01. Landlord may at any time request arbitration, and Tenant may
at any time when not in default in the payment of any Rent request arbitration,
of any matter in dispute but only where arbitration is expressly provided for in
this Lease. The party requesting arbitration shall do so by giving notice to
that effect to the other party, specifying in said notice the nature of the
dispute, and said dispute shall be determined in Newark, New Jersey, by a single
arbitrator, in accordance with the rules then obtaining of the American
Arbitration Association (or any organization which is the successor thereto).
The award in such arbitration may be enforced on the application of either party
by the order or judgment of a court of competent jurisdiction. The fees and
expenses of any arbitration shall be borne by the parties equally, but each
party shall bear the expense of its own attorneys and experts and the additional
expenses of presenting its own proof. If Tenant gives notice requesting
arbitration as provided in this Article, Tenant shall simultaneously serve a
duplicate of the notice on each Superior Mortgagee and Superior Lessor whose
name and address shall previously have been furnished to Tenant, and such
Superior Mortgagees and Superior Lessor shall have the right to participate in
such arbitration.
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ARTICLE 35 - MEMORANDUM OF LEASE
35.01. Tenant shall not record this Lease. However, at the request of
Landlord, Tenant shall promptly execute, acknowledge and deliver to Landlord a
memorandum of lease in respect of this Lease sufficient for recording. Such
memorandum shall not be deemed to change or otherwise affect any of the
obligations or provisions of this Lease. Whichever party records such memorandum
of Lease shall pay all recording costs and expenses, including any taxes that
are due upon such recording.
ARTICLE 36 - MISCELLANEOUS
36.01. Tenant expressly acknowledges and agrees that Landlord has not
made and is not making, and Tenant, in executing and delivering this Lease, is
not relying upon, any warranties, representations, promises or statements,
except to the extent that the same are expressly set forth in this Lease or in
any other written agreement(s) which may be made between the parties
concurrently with the execution and delivery of this Lease. All understandings
and agreements heretofore had between the parties are merged in this Lease and
any other written agreement(s) made concurrently herewith, which alone fully and
completely express the agreement of the parties and which are entered into after
full investigation. Neither party has relied upon any statement or
representation not embodied in this Lease or in any other written agreement(s)
made concurrently herewith. The submission of this Lease to Tenant does not
constitute by Landlord a reservation of, or an option to Tenant for, the Demised
Premises, or an offer to lease on the terms set forth herein and this Lease
shall become effective as a lease agreement only upon execution and delivery
thereof by Landlord and Tenant.
36.02. No agreement shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease, in whole
or in part, unless such agreement is in writing, refers expressly to this Lease
and is signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of abandonment is
sought.
36.03. If Tenant shall at any time request Landlord to sublet or let
the Demised Premises for Tenant's account, Landlord or its agent is authorized
to receive keys for such purposes without releasing Tenant from any of its
obligations under this Lease, and Tenant hereby releases Landlord of any
liability for loss or damage to any of the Tenant's Property in connection with
such subletting or letting.
36.04. Except as otherwise expressly provided in this Lease, the
obligations under this Lease shall bind and benefit the successors and assigns
of the parties hereto with the same effect as if mentioned in each instance
where a party is named or referred to; provided, however, that (a) no violation
of the provisions of Article 11 shall operate to vest any rights in any
successor or assignee of Tenant and (b) the provisions of this Section 39.04
shall not be construed as modifying the conditions of limitation contained in
Article 25.
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36.05. Except for Tenant's obligations to pay Rent, the time for
Landlord or Tenant, as the case may be, to perform any of its respective
obligations hereunder shall be extended if and to the extent that the
performance thereof shall be prevented due to any Unavoidable Delay. Except as
expressly provided to the contrary, the obligations of Tenant hereunder shall
not be affected, impaired or excused, nor shall Landlord have any liability
whatsoever to Tenant, (a) because Landlord is unable to fulfill, or is delayed
in fulfilling, any of its obligations under this Lease due to any of the matters
set forth in the first sentence of this Section 36.05, or (b) because of any
failure or defect in the supply, quality or character of electricity, water or
any other utility or service furnished to the Demised Premises for any reason
beyond Landlord's reasonable control.
36.06. Any liability for payments hereunder (including, without
limitation, Additional Charges) shall survive the expiration of the Term or
earlier termination of this Lease.
36.07. If Tenant shall request Landlord's consent and Landlord shall
fail or refuse to give such consent, Tenant shall not be entitled to any damages
for any withholding by Landlord of its consent; Tenant's sole remedy shall be an
action for specific performance or injunction, and such remedy shall be
available only in those cases where Landlord has expressly agreed in writing not
to unreasonably withhold or delay its consent or where as a matter of law
Landlord may not unreasonably withhold its consent.
36.08. If an excavation shall be made upon land adjacent to or under
the Building, or shall be authorized to be made, Tenant shall afford to the
Person causing or authorized to cause such excavation, license to enter the
Demised Premises for the purpose of performing such work as said Person shall
reasonably deem necessary or desirable to preserve and protect the Building from
injury or damage and to support the same by proper foundations, without any
claim for damages or liability against Landlord and without reducing or
otherwise affecting Tenant's obligations under this Lease.
36.09. Tenant shall not exercise its rights under Article 15 or any
other provision of this Lease in a manner which would violate Landlord's union
contracts or create any work stoppage, picketing, labor disruption or dispute or
any interference with the business of Landlord or any tenant or occupant of the
Building.
36.10. Tenant shall give prompt notice to Landlord of (a) any
occurrence in or about the Demised Premises for which Landlord might be liable,
(b) any fire or other casualty in the Demised Premises, (c) any damage to or
defect in the Demised Premises, including the fixtures and equipment thereof,
for the repair of which Landlord might be responsible, and (d) any damage to or
defect in any part of the Building's sanitary, electrical, heating, ventilating,
air-conditioning, elevator or other systems located in or passing through the
Demised Premises or any part thereof.
36.11. This Lease shall be governed by and construed in accordance
with the laws of the State of New Jersey. Tenant hereby irrevocably agrees that
any legal action or proceeding arising
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out of or relating to this Lease may be brought in the Courts of the State of
New Jersey, or the Federal District Court for the District of New Jersey, as
Landlord may elect. By execution and delivery of this Lease, Tenant hereby
irrevocably accepts and submits generally and unconditionally for itself and
with respect to its properties, to the jurisdiction of any such court in any
such action or proceeding, and hereby waives in the case of any such action or
proceeding brought in the courts of the State of New Jersey, or Federal District
Court for the District of New Jersey, any defenses based on jurisdiction, venue
or forum non conveniens. If any provision of this Lease shall be invalid or
unenforceable, the remainder of this Lease shall not be affected and shall be
enforced to the extent permitted by law. The table of contents, captions,
headings and titles in this Lease are solely for convenience of reference and
shall not affect its interpretation. This Lease shall be construed without
regard to any presumption or other rule requiring construction against the party
causing this Lease to be drafted. If any words or phrases in this Lease shall
have been stricken out or otherwise eliminated, whether or not any other words
or phrases have been added, this Lease shall be construed as if the words or
phrases so stricken out or otherwise eliminated were never included in this
Lease and no implication or inference shall be drawn from the fact that said
words or phrases were so stricken out or otherwise eliminated. Each covenant,
agreement, obligation or other provision of this Lease on Tenant's part to be
performed, shall be deemed and construed as a separate and independent covenant
of Tenant, not dependent on any other provision of this Lease. All terms and
words used in this Lease, regardless of the number or gender in which they are
used, shall be deemed to include any other number and any other gender as the
context may require. In the event Landlord permits Tenant to examine Landlord's
books and records with respect to any Additional Charge imposed under this
Lease, such examination shall be conducted at Tenant's sole cost and expense and
shall be conditioned upon Tenant retaining an independent accounting firm for
such purposes which shall not be compensated on any type of contingent fee basis
with respect to such examination. Wherever in this Lease or by law Landlord is
authorized to charge or recover costs and expenses for legal services or
attorneys' fees, same shall include, without limitation, the costs and expenses
for in-house or staff legal counsel or outside counsel at rates not to exceed
the reasonable and customary charges for any such services as would be imposed
in an arms length third party agreement for such services.
36.12. Within thirty (30) days of each anniversary date of this
Lease, Tenant shall annually furnish to Landlord a copy of its then current
audited financial statement which shall be employed by Landlord for purposes of
financing the Premises and not distributed otherwise without prior authorization
of Tenant. Any material adverse change of Tenant's financial condition shall be
furnished to Landlord in writing forthwith and without request by Landlord for
same.
36.13. At least ninety (90) days prior to Tenant's termination of
this Lease, and any extensions thereof, Tenant agrees to seek a determination
from the New Jersey Department of Environmental Protection ("NJDEP") in the form
of a Letter of Non-applicability ("LNA"), that the New Jersey Industrial Site
Recovery Act, N.J.S.A. 13:1K-6 et seq. ("ISRA"), is inapplicable to the Tenant's
cessation of operations and termination of this Lease. Tenant represents,
warrants, and covenants that any information contained in any application for an
LNA submitted pursuant
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to this subsection will be true and complete. Tenant represents that the
Standard Industrial Classification (SIC) number applicable to Tenant's
operations would not subject this transaction to the requirements of ISRA.
(ii) In the event that an LNA is denied by NJDEP, notice of such
denial will be given to Landlord within two (2) business days of Tenant's
receipt of NJDEP's denial of the LNA. Tenant shall satisfy its obligations under
ISRA prior to its lease termination date: (1) by securing an approval of the
Tenant's Negative Declaration; or (2) by securing an approval of the Tenant's
Remedial Action Workplan, and completing the implementation of such Plan, and
obtaining from NJDEP a "No Further Action" letter. Tenant shall bear sole
responsibility for any investigation and cleanup costs, fees, penalties, or
damages associated with ISRA compliance. In the event that Tenant is unable to
complete the its ISRA compliance obligations by the date of its lease
termination, Landlord shall continue to provide Tenant with reasonable access to
the Demised Premises, provided that any work undertaken by Tenant shall be
performed in such a manner as to minimize interference with Landlord's or any
other tenant's use of the Demised Premises. However, Landlord reserves its
rights to deem Tenant a holdover tenant in the event that Tenant's ISRA
compliance unreasonably restricts the Landlord's use of the Demised Premises.
(iii) Tenant shall provide Landlord with copies of all
correspondence, documents and reports, including sampling results submitted to
or received from any governmental agency or third party in connection with
Tenant's compliance with ISRA.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
Landlord:
IMPORT HARTZ ASSOCIATES
BY: HARTZ MOUNTAIN INDUSTRIES, INC.
BY: _______________________________
[Corporate Seal] Irwin A. Horowitz
Executive Vice President
Tenant:
THE LESLIE FAY COMPANIES, INC.
DEBTOR-IN-POSSESSION
[Corporate Seal]
BY: _______________________________
Name:
Title:
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LEASE MODIFICATION AGREEMENT
THIS LEASE MODIFICATION AGREEMENT, made this 20th day of August 1996 by
and between HARTZ MOUNTAIN METROPOLITAN, a New Jersey partnership, having an
office at 400 Plaza Drive, Secaucus, New Jersey 07094 (hereinafter referred to
as "Landlord") and THE LESLIE FAY COMPANIES, INC., debtor-in-possession, a
Delaware corporation having an office at 1412 Broadway, New York, New York 10018
(hereinafter referred to as "Tenant").
WITNESSETH:
WHEREAS, by Agreement of Lease dated June 16, 1980, as amended
September 12, 1986, May 22, 1989, and March 22, 1992 (collectively the "Lease")
Landlord leased to Tenant and Tenant hired from Landlord certain premises
located at 52 Metro Way, Secaucus, New Jersey (hereinafter the "Demised
Premises"); and
WHEREAS, Landlord and Tenant wish to modify the Lease to reflect an
extension of the Term thereof on the terms and conditions more particularly set
forth herein and amend the Lease accordingly;
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. The Lease is hereby extended on the same terms and conditions as set
forth therein from July 1, 1996 through March 31, 1997 (the "Expiration Date").
2. Provided Tenant shall obtain an Order from the United States
Bankruptcy Court satisfactory to Landlord (the "Assumption Approval"), approving
the execution and assumption of that certain Lease between Import Hartz
Associates and Tenant dated as of even date herewith for premises located at 77
Metro Way, Secaucus, New Jersey (the "77 Metro Way Lease"), Landlord and Tenant
shall each have the right, upon prior written notice to the other to terminate
this Lease, as more particularly provided in paragraph 3 hereof.
<PAGE>
3. In the event either Landlord or Tenant elects to terminate this
Lease pursuant to paragraph 2 hereof, such termination shall be effective on the
date Tenant vacates and surrenders the Demised Premises in accordance with
Article 19 hereof, including but not limited to the removal by Tenant, at its
sole cost and expense, of Tenant's racking system, but in no event later than
the Expiration Date. In the event of such termination by Landlord or Tenant,
pursuant to paragraph 2 hereof, the Fixed Rent from and after the later to occur
of (I) January 31, 1997, and (ii) the date on which Tenant shall have commenced
the payment of Fixed Rent pursuant to the 77 Metro Way Lease, shall be reduced
to One ($1.00) Dollar per month; provided, however that if Landlord notifies
Tenant that Landlord has signed a lease with a new tenant for the Demised
Premises (or any part thereof) and that Landlord requires possession of the
Demised Premises for rental to such tenant or to prepare same for such rental,
on a certain date (which date shall be at least twenty (20) days after the date
on which such notice is given), and Tenant fails to vacate and surrender the
Demised Premises on or before said date, then from the date specified in said
notice until Tenant vacates and surrenders the Demised Premises, the Fixed Rent
with respect to the Demised Premises shall be restored to the full rate of Fixed
Rent applicable prior to the commencement of such period or reduced Fixed Rent.
In the event Tenant fails to surrender the Demised Premises at the Expiration
Date, or upon termination of this Lease pursuant to paragraph 2 hereof, Tenant
shall be deemed a holdover and Landlord shall be entitled to any and all
remedies available in law, in equity or by contract with respect to such
holdover.
4. Except as provided herein, all of the terms and conditions of the
Lease, as amended above, are in full force and effect and are confirmed as if
fully set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Lease
Modification Agreement to be duly executed as of the day and year first above
written.
ATTEST: IMPORT HARTZ ASSOCIATES
BY: HARTZ MOUNTAIN METROPOLITAN
BY: HARTZ MOUNTAIN INDUSTRIES, INC.
("LANDLORD")
____________________ By: ______________________________________
Irwin A. Horowitz
Executive Vice President
ATTEST: THE LESLIE FAY COMPANIES, INC.
("TENANT")
___________________ By: ______________________________________
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RIDER TO LEASE DATED AUGUST 20, 1996, BETWEEN IMPORT HARTZ ASSOCIATES, AS
LANDLORD AND THE LESLIE FAY COMPANIES, INC., DEBTOR-IN-POSSESSION, AS TENANT.
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R1. If any of the provisions of this Rider shall conflict with any
of the provisions, printed or typewritten, of this Lease, such conflict shall
resolve in every instance in favor of the provisions of this Rider.
R2. Tenant shall have the right, subject to compliance by Tenant
with all Legal Requirements, to operate a warehouse outlet store in a portion of
the Demised Premises containing not more than 8,000 square feet of Floor Space
(hereinafter referred to as the "Retail Premises"). In the event Tenant operates
such outlet store, Tenant shall pay to Landlord, in addition to the Fixed Rent,
a "Percentage Rent" (as hereinafter provided):
a. Percentage Rent: The amount for any period computed in
accordance with the provisions of Paragraph f. hereof.
b. Percentage Rent Rate: Five percent (5%).
c. Calendar Quarter: Any three-month period commencing on either a
January 1, an April 1, a July 1 or an October 1.
d. Gross Sales: The dollar aggregate of: (a) the actual sales price
of all goods and merchandise sold, leased or licensed and the
charges for all services performed by Tenant or otherwise in
connection with all business conducted at or from the Retail
Premises, whether made for cash, by check, credit or otherwise,
without reserve or deduction for inability or failure to collect
the same, including, without limitation, sales and services (I)
where the orders therefor originate at or are accepted at or
from the Retail Premises, whether delivery or performance
thereof is made at or from the Retail Premises or any other
place, it being understood that all sales made and orders
received at or from the Retail Premises shall be deemed to have
been made and completed therein even though the orders are
fulfilled elsewhere or the payments of account are transferred
to some other office for collection, (ii) where the orders
therefor result from solicitation off the Retail Premises but
which are conducted by personnel operating from or reporting to
or under the control or supervision of any person at the Retail
Premises, (iii) pursuant to mail, telegraph, telephone or other
similar orders received or billed at or from the Retail
Premises, and (iv) by means of mechanical or other vending
devices, and (b) all monies or other things of value received by
Tenant from its operations at the Retail Premises (which are not
excluded from Gross Sales by the next succeeding sentence)
including all finance charges, cost of gift or merchandise
certificates and all deposits not refunded to customers. Gross
Sales shall not include (x) the exchange of merchandise between
stores of Tenant where such exchange is made solely for the
convenient operation of Tenant's business and neither for the
purpose of depriving Landlord of the benefits of a sale which
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would otherwise be made at or from the Retail Premises nor for
the purpose of consummating a sale which has been theretofore
made at or from the Retail Premises, (y) sales of trade fixtures
which are not part of Tenant's stock in trade and not sold in
the regular course of Tenant's business, or (z) the amount of
any city, county, state or federal sales tax, luxury tax or
excise tax on sales if the tax is added to the selling price and
separately stated and actually paid to the taxing authority by
Tenant; provided, however, no franchise or capital stock tax and
no income or similar tax based upon income, profits or Gross
Sales shall be deducted from Gross Sales in any event
whatsoever. Cash or credit refunds made upon transactions
included within the Gross Sales, but not exceeding the selling
price of merchandise returned by the purchaser and accepted by
Tenant, shall be deducted from the Gross Sales for the period
when such refunds are made. Each charge or sale upon installment
or credit or layaway, so called, shall be treated as a sale for
the full price in the month during which such charge or sale
shall be made, irrespective of the time when Tenant shall
receive payment from its customer. Each lease or rental or
license of merchandise to customers shall be treated as a sale
in the month in which the lease, rental or license is made for a
price equal to the total rent of license fee payable. For
purposes of this paragraph the word "Tenant" shall include any
of Tenant's subtenants, concessionaires and licensees.
e. Breakpoint: An amount at an annual rate of Three Hundred Fifty
and 00/100 Dollars ($350.00)multiplied by the number of square
feet of Floor Space of the retail store located within the
Demised Premises; and in the event the Tenant exercises its
right to extend the Term, the Breakpoint shall be increased in
the same proportion as Fixed Rent applicable to such Extended
Period is increased. If the Fixed Rent is not increased for such
Extended Period, the Breakpoint shall remain the same as the
Breakpoint in effect immediately preceding such Extended Period.
If for any reason the Fixed Rent is reduced or abated, the
Breakpoint shall be reduced in the same proportion as the Fixed
Rent is reduced or abated.
f. Within fifteen (15) days after the end of each calendar month
during the Term, Tenant shall submit to Landlord a statement
certified by Tenant (by an authorized officer if Tenant is a
corporation or by a partner if Tenant is a partnership) stating
the Gross Sales (including an itemization of all claimed
deductions therefrom) for such month. Within fifteen (15) days
after the end of each Calendar Quarter, Tenant shall pay to
Landlord as Percentage Rent the amount, if any, by which the
aggregate Gross Sales for the Calendar Year in which such
Calendar Quarter occurs up to the end of such Calendar Quarter
exceeds the Breakpoint for such period, or a pro-rata portion
thereof for a partial Calendar Quarter, if applicable,
multiplied by the Percentage Rent Rate. Within ninety (90) days
after the end of each Calendar Year, including any partial
Calendar Year at the beginning of the Term, and after the end of
the Term, Tenant shall submit to Landlord a statement certified
by an independent certified public accountant stating the Gross
Sales (including an itemization of all claimed deductions
therefrom) and the Percentage Rent for such Calendar Year, or
partial
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Calendar Year if the Term shall begin on a date other than a
January 1st and/or end on a date other than a December 31st, as
the case may be, and if the Percentage Rent so stated for such
period is more or less than the Percentage Rent paid for such
period, Tenant shall pay to Landlord the deficiency, or Landlord
shall refund to Tenant the excess, within twenty (20) days after
submission of such statement of Gross Sales. For at least
thirty-six (36) months after the expiration of each Calendar
Year, including any partial Calendar Year at the beginning of
the Term, and after the end of the Term, Tenant shall keep and
maintain (and shall cause all subtenants, concessionaires and
licensees to keep and maintain) in the Retail Premises or the
main office of Tenant full and accurate books of account and
records from which the Gross Sales can be determined. The books
and records maintained shall include, but shall not be limited
to (i) cash register tapes showing continuous grand total (from
a sealed cash register), (ii) original source documents, (iii)
sequentially numbered receipts, (iv) federal, state & local tax
returns, (v) receipts from daily bank deposits, (vi) computer
printouts and (vii) bank statements. Landlord shall have the
right from time to time during such thirty-six (36) month period
to inspect and audit all such books and records relating to
Gross Sales, and Tenant, each subtenant, concessionaire and
licensee will produce the same on request of Landlord. If any
such inspection and audit discloses that the Gross Sales were
understated, Tenant shall forthwith pay to Landlord any
additional Percentage Rent shown to be payable, and if the Gross
sales for any Calendar Year or partial Calendar Year were
understated by more than One Thousand Dollars ($1,000.00),
Tenant shall also pay the cost of Landlord's inspection and
audit. Landlord does not in any way, or for any purpose, become
a partner or joint venturer with Tenant hereunder. The
provisions of this Lease relating to Percentage Rent are
included solely for the purpose of providing a method whereby
rentals are to be measured and ascertained.
R3. The Tenant shall (except with respect to the Advance Rent)
commence the payment of the Fixed Rent and Real Estate Taxes on the earlier to
occur of January 1, 1997 or the date Tenant first occupies the Demised Premises
other than for the performance of Tenant's Work (such date being refered to in
this Lease as the "Fixed Rent Commencement Date").
R4. Tenant agrees that Tenant shall obtain an Order from the United
States Bankruptcy Court satisfactory to Landlord, approving the execution of
this Lease and the assumption hereof by Tenant (herein the "Assumption
Approval"). In the event final unappealable Assumption Approval is not obtained
by the date which is forty-five (45) days from the date hereof, Landlord shall
have the right, upon written notice to Tenant, to terminate this Lease whereupon
this Lease and the extension of the 52 Metro Way Lease shall be deemed null and
void and of no force and effect.
R5. Tenant shall have the right to during the Term hereof to use the
parking spaces marked in blue on the attached Exhibit G.
R6. Provided Tenant shall have obtained the Assumption Approval,
Landlord shall, within thirty (30) days after receipt of written request
therefor from Tenant given no earlier than the later
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to occur of the Commencement Date and the date the Assumption Approval becomes
final and unappealable, advance to Tenant up to the sum of One Hundred Thousand
and 00/100 Dollars ($100,000.00) (the "Construction Allowance") for construction
and installation of Tenant's Work so long as (i) Tenant shall not then be in
default under this Lease beyond any applicable periods of notice and grace, (ii)
Tenant provides to Landlord invoices and paid receipts in form and substance
reasonably satisfactory to Landlord for the Tenant's Work for which Tenant is
requesting the Construction Allowance, (iii) there are no liens as a result of
the Tenant's Work, (iv) Tenant has submitted lien waivers and contractors'
affidavits to Landlord, (v) Tenant has obtained all permits, including occupancy
certificate(s), if required, for all Tenant's Work performed by Tenant, and (vi)
Tenant has accepted possession of the Demised Premises and has paid all Rent
then due.
R7. Notwithstanding anything contained to the contrary in Article 11
hereof, Landlord and Tenant agree as follows:
(a) Tenant has advised Landlord that this Lease may be assigned by
The Leslie Fay Companies, Inc. to an entity which shall have succeeded to
ownership and control of all or substantially all of the assets of Leslie Fay's
Sassco fashion division (said resulting entity hereinafter referred to as
"Sassco") pursuant to the bankruptcy reorganization plan of The Leslie Fay
Companies, Inc. or otherwise pursuant to Bankruptcy court order. Landlord's
consent shall be given for such assignment to Sassco (such assignment referred
to in this Lease sometimes as the "Sassco Assignment"); PROVIDED, HOWEVER, that
(i) such assignment shall be subject to Bankruptcy Court approval and Landlord
shall be provided with evidence of receipt of the same; (ii) Sassco assumes all
of the obligations to be performed by Tenant pursuant to this Lease; (iii)
Landlord receives a copy of the proposed instrument that is to accomplish the
same and an original of the executed agreement within ten (10) days of such
transfer; and (iv) the transferee shall use the Demised Premises only for the
purpose stated in the Permitted Uses. Landlord's consent to the Sassco
Assignment shall not be deemed to be a consent to any further assignment,
subletting, or transfer and shall require in each instance the prior written
consent of Landlord pursuant to this Lease.
(b) Notwithstanding anything contained in Article 11 to the
contrary, Tenant may assign this Lease or sublet all or any portion of the
Demised Premises to an Affiliate. For purposes of this Article, an "Affiliate"
shall mean any Person owning or controlling Tenant, or under common ownership or
control with or by Tenant. For purposes hereof, "ownership or control" shall
mean the legal or beneficial ownership of fifty-one percent (51%) or more of the
voting stock of any corporation, or, if not a corporation, fifty-one percent
(51%) of the partnership interest or other form of ownership. The terms and
provisions of this subparagraph (b) of this Paragraph R7 shall be personal to
the original named Tenant and Sassco.
(c) Notwithstanding anything contained in Article 11 to the
contrary, Landlord agrees that it shall not unreasonably withhold or delay its
consent to an assignment and/or subletting. Landlord's agreement not to
unreasonably withhold its consent to a subletting and/or assignment shall be
personal to the original named Tenant hereunder and to Sassco. Landlord agrees
not to unreasonably withhold its consent to the subletting of the Demised
Premises or an assignment of this Lease. In determining reasonableness, Landlord
may take into consideration all relevant factors surrounding
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the proposed sublease and assignment, including, without limitation, the
following: (i) The business reputation of the proposed assignee or subtenant and
its officers or directors in relation to the other tenants or occupants of the
Building or Development; (ii) the nature of the business and the proposed use of
the Demised Premises by the proposed assignee or subtenant in relation to the
other tenants or occupants of the Building or Development; (iii) whether the
proposed assignee or subtenant (or if any subsidiary, affiliate or parent of a
tenant) is then a tenant of (or in discussions with Landlord for) other space in
the Building or Development, or any other property owned or managed by Landlord
or its affiliates; (iv) the financial condition of the proposed assignee or
subtenant; (v) restrictions, if any, contained in leases or other agreements
affecting the Building and the Development; (vi) the effect that the proposed
assignee's or subtenant's occupancy or use of the Demised Premises would have
upon the operation and maintenance of the Building and the Development; (vii)
the extent to which the proposed assignee or subtenant and Tenant provide
Landlord with assurances reasonably satisfactory to Landlord as to the
satisfaction of Tenant's obligations hereunder. In any event, at no time shall
there be more than two (2) subtenants of the Demised Premises permitted.
In the event the Demised Premises are sublet or this Lease is assigned,
Tenant shall pay to Landlord as an Additional Charge the following amounts, if
any, less the actual reasonable expense incurred by Tenant in connection with
such assignment or subletting, as substantiated by Tenant, in writing, to
Landlord's reasonable satisfaction, including, without limitation, a reasonable
brokerage fee and reasonable legal fees, as the case may be: (i) in the case of
an assignment, an amount equal to fifty percent (50%) of all sums and other
consideration paid to Tenant by the assignee for or by reason of such
assignment, and (ii) in the case of a sublease, fifty percent (50%) of any
rents, additional charge or other consideration paid under the sublease to
Tenant by the subtenant which is in excess of the Fixed Rent and Additional
Charges accruing during the term of the sublease in respect of the subleased
space (at the rate per square foot payable by Tenant hereunder) pursuant to the
terms hereof.
R8. On the Commencement Date the roof shall be free of leaks and the
mechanical systems and the electrical systems of the Building such as HVAC and
lighting (but not the electrical systems serving machinery or equipment such as
the conveyor system) of the Demised Premises shall be in working order.
R9. Provided Tenant is not in default of its obligations under this
Lease, Landlord shall consent to a reduction of the Security Deposit in the
amount of $500,000 on the date (herein referred to as the "Reduction Date")
which is thirty (30) days after the earlier to occur of (i) the date on which
Tenant's plan of bankruptcy reorganization receives final unappealable approval
of the U.S. Bankruptcy Court and Tenant is discharged therefrom with the Lease
having been assumed and affirmed, or (ii) the Sassco Assignment is accomplished
(and approved by Landlord) pursuant to and in accordance with the requirements
of paragraph R7(a) hereof (provided that at the time of the Sassco Assignment,
Sassco has a net worth of at least Fifty Million Dollars ($50,000,000),
resulting in a total Security Deposit of $500,000.00 in the form of a Letter of
Credit meeting the requirements of Article 8 of this Lease. Provided Tenant is
not in default of its obligations under this Lease and the Sassco net worth
shall not have been reduced below the amount set forth above, Landlord shall
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consent to a further reduction of the Security Deposit in the amount of
$255,921.67 on the date which is one year after the Reduction Date, resulting in
a total Security Deposit of $244,078.33 in the form of a Letter of Credit
meeting the requirements of Article 8 of this Lease. In no event however shall
the Letter of Credit contain a provision for its automatic reduction.
R10. Landlord and Tenant agree that Tenant and Landlord's affiliate,
Hartz Mountain Metropolitan ("HMM") shall enter into a modification of the Lease
between HMM and Tenant, dated June 16, 1980 and amended September 12, 1986, May
22, 1989 and March 22, 1992 for the premises known as 52 Metro way (the "52
Metro Way Lease"), shall be extended on the same terms and conditions as set
forth in the amendment annexed hereto as Exhibit F.
("Landlord")
IMPORT HARTZ ASSOCIATES
BY: HARTZ MOUNTAIN INDUSTRIES, INC.
By: _______________________________
Irwin A. Horowitz
Executive Vice President
("Tenant")
THE LESLIE FAY COMPANIES, INC.
DEBTOR-IN-POSSESSION
By: _______________________________
Name:
Title:
The undersigned hereby joins in the execution hereof with
respect to the provisions of R10 of this Rider:
HARTZ MOUNTAIN METROPOLITAN ASSOCIATES
BY: HARTZ MOUNTAIN INDUSTRIES, INC.
By: _______________________________
Irwin A. Horowitz
Executive Vice President
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated May 2 1997 (except for Note 12 as to which the date is June 4, 1997) and
February 25, 1998 included in this registration statement on Form S-1 and to all
references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
New York, New York
April 1, 1998
