SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______ to _______
Commission File No. 1-2782
SIGNAL APPAREL COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Indiana 62-0641635
(State of Incorporation) (I.R.S. Employer Identification Number)
34 Englehard Avenue, Avenel, New Jersey 07001
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (732) 382-2882
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock: Par value $.01 a share New York Stock Exchange
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant: $10,579,148, calculated by using the closing price on the New
York Stock Exchange on March 15, 2000 of the Company's Common stock, and
excluding common shares owned beneficially by directors and officers of the
Company, and by certain other entities, who may be deemed to be "affiliates",
certain of whom disclaim such status.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of March 15, 2000
Common Stock, $.01 par value 53,326,821 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Part of Documents from Which Portions are
Form 10-K Incorporated by Reference
- --------- -------------------------
Part III Proxy Statement for 2000 Annual Meeting of
Shareholders' SIGNAL APPAREL COMPANY, INC.
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ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
INDEX
Item
PART I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8. Financial Statements and Supplementary Data
9. Disagreements on Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners
and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
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ITEM 1. BUSINESS
(a) Signal Apparel Company, Inc. ("Signal" or the "Company") is engaged in the
sales and marketing of apparel within the following product lines:
screenprinted and embroidered knit and woven activewear for men and boys,
and screenprinted and embroidered ladies' and girls' activewear, bodywear
and swimwear. The Company outsources all of its manufacturing and
embellishment processes to third parties located in the United States and
throughout the world.
On March 22, 1999, the Company purchased the business and assets of Tahiti
Apparel, Inc. ("Tahiti"), a leading supplier of ladies' and girls'
activewear, bodywear and swimwear primarily to the mass market as well as
to the mid-tier and upstairs retail channels. Tahiti's products are
marketed pursuant to various licensed properties and brands as well as
proprietary brands of Tahiti.
In November 1998, the Company acquired the license and certain assets for
the world recognized Umbro Soccer Brand in the United States for the
department store, sporting goods store, sports specialty store and mid-tier
retail channels and commenced sales of Umbro branded products with the
Spring 1999 selling season.
As of January 1, 1999, the Company sold the business and assets of its
Heritage Sportswear division which was engaged in the manufacture and
marketing of upscale knit apparel for the ladies' market.
As of July 31, 1999, the Company sold its wholly-owned subsidiary, GIDI
Holdings, Inc. doing business as Grand Illusion Sportswear, Inc. ("Grand
Illusion"), a supplier of embellished apparel and other activewear
primarily to large corporate accounts.
During 1999, the Company completed its transition to a sales and marketing
orientation from its historical manufacturing structure. In the first
quarter of 1999, the Company closed substantially all of its Chattanooga,
Tennessee offices and warehouses and its Tazewell, Tennessee cut and sew
facility. Previously, the Company had closed its Chattanooga, Tennessee
screenprinting and distribution operations. The Company also consolidated
its sales, merchandising and corporate administrative functions into
similar functions at Tahiti following completion of the Tahiti acquisition
on March 22, 1999.
In the second quarter of 1999, Signal closed its warehouse and printing
facility in Houston, Texas and shut down substantially all of its
operations located there. Signal relocated the sales and merchandising
functions for its Big Ball Sports branded apparel line to New York, New
York.
(b) The Company is engaged in the single line of business of apparel sales and
marketing.
For financial information about the Company, see the information discussed
in Item 8 below.
(c) GENERAL
Founded in 1891 as Wayne Knitting Mills, a women's hosiery company, in Fort
Wayne, Indiana, the Company merged with the H. W. Gossard Co. of Chicago,
Illinois in 1967 and became Wayne-Gossard Corporation. The Company's name
was changed to Signal Apparel Company, Inc. in February 1987. As a result
of a merger in July 1991, The Shirt Shed, Inc. became a wholly-owned
subsidiary of the Company. In November 1994, the Company purchased all of
the outstanding capital stock of American Marketing Works Inc. (AMW) whose
principal business was the marketing of branded licensed apparel. The
outstanding capital stock of Grand Illusion and Big Ball was purchased in
October 1997 and
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November 1997, respectively. On March 22, 1999, the Company purchased the
business and assets of Tahiti.
The Company arranges for the manufacture and markets activewear, bodywear
and swimwear in juvenile, youth and adult size ranges. The Company's
products are sold principally to retail accounts under the Company's
proprietary brands, licensed lifestyle brands, licensed character brands,
licensed sports brands, and other licensed brands. The Company's principal
proprietary brands include G.I.R.L., Bermuda Beachwear, Tahiti Swimwear,
Big Ball and Signal Sport. Licensed brands include Hanes Sport, BUM
Equipment, Bikini.com, Jones New York and Umbro. Licensed character brands
include Mickey Unlimited, Winnie the Pooh, Looney Tunes and Scooby-Doo; and
licensed sports brands include the logos of Major League Baseball, the
National Hockey League and various colleges and universities. Currently, a
significant portion of the products marketed by the Company consists of
products generally similar in design and composition to those produced by
the Company's competition. The Company's business is, therefore, highly
subject to competitive pressures.
During 1999, the Company completed a strategic change from a manufacturing
orientation to a sales and marketing focus and as of December 31, 1999
operated under the following strategic business unit structure:
TAHITI APPAREL BUSINESS UNIT:
Tahiti Apparel designs and sells a range of women's and girls' activewear,
bodywear and swimwear primarily to mass market and mid-tier retailers. This
unit's products are sourced from various suppliers and embellished with
silkscreened and embroidered graphics developed by the Company. Finished
products are marketed under licenses from Warner Brothers, Disney
Enterprises, B.U.M. International and Hanes among others, as well as under
the Company's proprietary brands, Tahiti Swimwear and Bermuda Beachwear,
and proprietary brands of the Company's major retail customers.
SPORTS BUSINESS UNIT:
The Sports Business Unit is engaged in selling embellished activewear
ranging from children's to adult sizes to mid-tier and mass merchants as
well as to sporting goods, sport specialty, and department stores. This
unit markets tops and bottoms sourced from various suppliers and
embellished with a variety of silkscreened and embroidered graphics derived
under license from colleges and professional sports leagues (MLB and NHL)
or featuring original graphics created by the Company's internal creative
department. Finished products are generally sold under licensed brands such
as Hank Aaron Originals, proprietary brands of the Company such as Big Ball
Sports, Is Life, or Signal Sports, or the brands of the Company's major
retail customers.
UMBRO BUSINESS UNIT:
The Umbro Business Unit is engaged in selling to mid-tier, sporting goods,
sport specialty and department stores within the United States a line of
athletic-oriented activewear and footwear ranging from children's to adult
sizes and soccer hardgoods. This unit's apparel products, featuring the
world recognized Umbro Soccer Brand, are sourced from various suppliers and
embellished with screenprinted and embroidered graphics. Footwear and
hardgoods are sourced directly from the licensor, Umbro International. The
Company began selling Umbro products in 1999.
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BRANDS AND CHARACTER BUSINESS UNIT:
The Brands and Character Business Unit is engaged in selling primarily to
mid-tier and mass merchants a line of popularly priced activewear ranging
from children's to adult sizes. This unit utilizes tops and bottoms sourced
from various suppliers and embellished with a variety of silkscreened and
embroidered graphics derived under license from popular cartoons, movies,
and television shows, as well as licensed brands and original concepts
produced by the Company's internal creative department.
PREMIER ACTIVE GROUP UNIT:
The Premier Active Group Unit is engaged in selling printed and embroidered
women's and girls swimwear, cover-ups, and activewear, sourced from various
suppliers, to department and specialty stores under licensed brands Jones
New York and Bikini.com., as well as under private label brands of major
retail customers and the Company's own G.I.R.L. brand, among others.
SALES BY PRODUCT LINE
The following table reflects the percentage of net sales contributed by the
Company's product lines to net sales during 1999, 1998, and 1997:
Product Line Percentage of Net Sales
1999 1998 1997
---- ---- ----
Screenprinted and embroidered men's and
boys' knit and woven activewear 35% 77% 73%
Screenprinted and embroidered ladies'
and girls activewear, bodywear and
swimwear 65% 0% 0%
Women's knit apparel (Heritage
Sportswear Division sold as of
January 1, 1999) 0% 23% 27%
For the years ended December 31, 1999, 1998 and 1997, one customer
accounted for 58%, 19% and 20%, respectively of the Company's net sales and
the next largest customer accounted for 9%, 10% and 10%, respectively of
the Company's net sales.
The numbers for 1999 include sales by the Company's Tahiti Apparel division
for all of 1999. (See Note 4 to the consolidated financial statements.) and
reflect the sale of Grand Illusion as of July 31, 1999.
DESCRIPTION OF OPERATIONS
During the course of 1998 and the first two quarters of 1999, the Company
substantially completed its transition from a manufacturer of garments to a
purchaser of blank and embellished finished garments from a variety of
domestic and international suppliers. Blank products are screenprinted or
embroidered by other suppliers prior to sale. The supply and price of
finished and blank products is dependent upon a variety of factors and is
primarily dependent upon the level of demand from competitive companies or
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companies seeking similar products, although in the past, worldwide crop
conditions and in the case of synthetic products, global petroleum
availability have also had an impact. These factors generally have had a
greater impact on price than on availability. The Company also purchases
hangers, cartons, bags and ticketing for its products.
Although the Company does not have formal arrangements extending beyond one
year with its suppliers, the Company has not experienced any significant
difficulty obtaining necessary blank or finished products from its current
sources and believes that, in any event, adequate alternative sources are
available.
"Big Ball", "...Is Life" and "Signal Sport" are the principal registered
trademarks of the Company. In the first quarter of 1999, the Company
acquired its other principal trademarks, Tahiti Swimwear, G.I.R.L. and
Bermuda Beachwear, among others, in connection with its acquisition of
Tahiti. The Company is licensed directly or through affiliates of
well-known athletes to use the trademarks of Major League Baseball, the
National Hockey League and various colleges in connection with collections
of embellished activewear. The Company is also licensed by various
companies to print their respective corporate logos and corresponding
lifestyle graphics on garments. The Company is licensed by an affiliate of
well known athlete Hank Aaron (for MLB products) to sell products with
labels bearing his name. The Company is also licensed for the Umbro Brand
by Umbro International.
The Company also acquired various licensed rights in connection with its
acquisition of Tahiti. These licenses include Mickey Unlimited, Mickey
Stuff for Kids and Winnie the Pooh from Disney Enterprises, Looney Tunes
and Scooby-Doo from Warner Brothers, and licenses for the brands Hanes
Sport, B.U.M. Equipment and Jones New York. These licenses give the Company
the right to market various ladies and girls swimwear, activewear and/or
bodywear products.
The licenses held by the Company vary significantly in their terms and
duration. The Company's licenses generally are renewed for one to two-year
terms on an annual basis. The Company's MLB license, held through an
affiliate of Hank Aaron, has been extended through December 31, 2000. The
Company's license with the National Hockey League expires June 30, 2000 and
renewal discussions are expected to commence during the second quarter of
2000. The Company's license with the National Football League expired,
subject to certain sell-off rights, on March 31, 1999 and was not renewed.
The Company's license with the National Basketball Association, subject to
certain sell-off rights, expired on July 31, 1999 and was not renewed.
During the years ended December 31, 1998 and December 31, 1999,
respectively, licensed NFL and NBA product sales were approximately 21% and
3% of consolidated revenue. The expiration of these licenses has not
materially affected the Company's ability to sell other professional sports
apparel to its customers, however, there are no assurances it will not
affect future sales opportunities. The Company's license for the Jones New
York brand is scheduled to expire on June 30, 2000, and the Company is
currently in renewal discussions with the licensor. Except as set forth
above, no other material licenses of the Company are scheduled to expire
during 2000.
The Company obtained the U.S. license for Umbro, a world recognized soccer
brand, in November 1998 and began selling Umbro apparel, footwear and
hardgoods in 1999. The Company's license for Umbro has a five year term
(subject to certain repurchase rights by the licensor and certain renewal
rights by the Company).
The business of the Company tends to be seasonal with peak shipping months
varying from product line to product line. To meet the demands of peak
shipping months, it is necessary to build inventories of some products in
advance of expected shipping dates. The Company believes that its credit
practices and merchandise return policy are customary in the industry.
Borrowings are used to finance seasonal
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inventories and receivables. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition".
During 1999, the Company sold its products to over 650 customers, including
department stores, sporting goods stores, specialty stores, mass
merchandisers, mid-tier chains and other retailers, wholesalers, and
distributors. Products are primarily shipped directly from the Company's
warehouse or from third party screenprint or embroidery locations. The
trend for the Company's sales to be concentrated on a few large customers
which possess significant negotiating power with regard to the terms of
sale and the possible return of certain merchandise continued in 1999.
On December 31, 1999, the Company had unfilled customer orders of
approximately $38 million, compared to approximately $5 million of such
orders at December 31, 1998. These amounts include both confirmed 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 timing of
the receipt and processing of customer orders and scheduling of the
manufacture and shipping of the product, which is 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.
The apparel industry as a whole, including the part of the industry engaged
in by the Company, is highly competitive. The Company believes that the
principal methods of competition in the markets in which it competes are
design, styling, price, quality and service. The licensed and branded
markets are influenced by fashion, design, color, consistent quality and
consumer loyalty. Imports offer competition throughout the Company's
product lines. The industry is very fragmented, and the Company's relative
position in the industry is not known.
Compliance with federal, state and local provisions which have been enacted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, have not had, and are not
expected to have, any material effect upon the capital expenditures,
operating results, or the competitive position of the Company.
The Company had approximately 145 employees at March 1, 2000, compared to
146 employees at March 1, 1999.
(d) All of the Company's offices and facilities are located in the United
States. Substantially all of the Company's sales are domestic.
ITEM 2. PROPERTIES
As of December 31, 1999, the Company operated leased facilities aggregating
approximately 130,000 square feet of usable space and owned approximately 29,200
square feet in an idle facility which was sold on February 17, 2000. The
following table sets forth certain information concerning those of the above
facilities which constitute materially important physical properties of the
Company.
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Facility Square Owned/ Products/
Location Feet Leased Operations
- -------- ---- ------ ----------
New York, NY 11,700 Leased Offices
New York, NY 7,867 Leased Offices and
Showroom
Avenel, NJ 98,000 Leased Offices,
Warehouse and
Distribution
The leased premises set forth in the table above are well maintained and are
suitable for the Company's needs (see later paragraph for a discussion of the
idle facilities). Substantially all of the leased premises are protected by
sprinkler systems and automatic alarm systems, and all are insured in accordance
with the terms of the respective leases. The contents of all leased premises are
insured for amounts the Company considers adequate.
As part of its strategic plan, the Company in 1999 closed its remaining 92,500
square feet of warehousing, distribution and office space in Chattanooga,
Tennessee, except for approximately 3,700 square feet of office and permanent
file storage space, and shifted these functions into other Company facilities or
to outside contractors. The Company also closed its 91,300 square foot cut and
sew and warehouse facility in New Tazewell, Tennessee in March 1999, except for
a temporary warehousing function which was closed in July 1999. The Company also
closed approximately 12,100 square feet of office space in Chattanooga,
Tennessee during the first quarter of 1999 and consolidated these functions into
similar functions at Tahiti. In July 1999, the Company completed the closure of
its screenprinting, warehouse and distribution facilities (62,700 square feet)
in Houston, Texas, except for limited functions which were substantially
eliminated during the third and fourth quarters of 1999. The Company's former
facilities in Schaumburg, Illinois (28,200 square feet) were sold as part of the
Company's sale of Grand Illusion as of July 31, 1999. The Company sold 69,000
square feet of idle facilities in Wabash, Indiana in the fourth quarter of 1999
and 29,200 square feet of idle facilities in Marion, South Carolina in February
2000.
The Company uses independent contractors to supply and embellish all of its
products and the Company believes the contracted production will support the
expected level of business in 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is unaware of any material pending legal proceeding other than
ordinary, routine litigation incidental to its business, except as noted below.
The litigation commenced against the Company by former employees of the
Company's LaGrange, Georgia facility (which the Company closed in December 1996)
alleging that the Company violated the provisions of the WARN Act in connection
with the closing of the facility was settled in the fourth quarter of 1999 for
an amount not material to the financial condition of the Company.
On April 14, 1999, litigation was commenced against the Company and an affiliate
of the Company's principal shareholders ("Shareholder Affiliate") by a
consulting and investment advisory services company alleging the Company and/or
the Shareholder Affiliate owes the plaintiff fees in connection with the
Company's acquisition of the business and assets of Tahiti Apparel in March
1999. The Company and the Shareholder
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Affiliate have independently filed answers denying the allegations in the
litigation complaint. The Company has accrued $400,000 for legal fees of this
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of the Company's shareholders was held on December
31, 1999.
(b) The names of the directors elected at the meeting are as follows:
Henry L. Aaron, Zvi Ben-Haim, Barry F. Cohen, Paul R. Greenwood,
Michael Harary, Thomas A. McFall and Stephen Walsh.
(c) The meeting was held to consider and vote upon (i) a proposal to issue
up to 4,296,316 additional shares of the Company's Common Stock in
connection with the Company's acquisition of substantially all of the
assets of Tahiti Apparel, Inc.; (ii) a proposal to issue warrants to
purchase up to 4,000,000 shares of the Company's Common Stock to
Messrs. Zvi Ben-Haim and Michael Harary under the terms of Securities
Transfer Agreements executed in conjunction with such officers'
employment agreements; (iii) a proposal to issue additional shares of
the Company's Common Stock from time to time, in connection with
transactions approved by the Company's Board of Directors, pursuant to
the terms of the Company's compensation arrangements with Thomas A.
McFall, Vice Chairman of its Board of Directors; (iv) a proposal to
issue 4,217,956 additional shares of the Company's Common Stock to
WGI, LLC in connection with certain additional guarantees and
collateral pertaining to the Company's senior credit facility, plus an
indeterminate number of additional shares issuable, at the Company's
election, as payment of interest under the Company's Reimbursement
Agreement with WGI, LLC; and (v) a proposal to amend the Company's
Restated Articles of Incorporation increasing the number of authorized
shares of Common Stock from 80,000,000 to 150,000,000.
The results of the vote on the proposal to issue shares of the Company's Common
Stock in connection with the acquisition of Tahiti Apparel were as follows:
FOR 25,921,815
AGAINST 269,955
ABSTAIN 8,923
TOTAL 26,200,693
BROKER NON-VOTES 2,616,307
The results of the vote on the proposal to issue warrants to Messrs. Ben-Haim
and Harary were as follows:
FOR 25,885,152
AGAINST 305,048
ABSTAIN 10,493
TOTAL 26,200,693
BROKER NON-VOTES 2,616,307
The results of the vote on the proposal to issue shares of the Company's Common
Stock to Mr. McFall in connection with transactions approved by the Company's
Board of Directors were as follows:
FOR 23,367,091
AGAINST 312,879
ABSTAIN 2,520,723
TOTAL 26,200,693
BROKER NON-VOTES 2,616,307
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The results of the vote on the proposal to issue shares of the Company's Common
Stock to the Company's principal shareholder were as follows:
FOR 25,891,557
AGAINST 299,049
ABSTAIN 10,087
TOTAL 26,200,693
BROKER NON-VOTES 2,616,307
The results of the vote on the proposed to amend the Company's Restated Articles
of Incorporation were as follows:
FOR 25,921,522
AGAINST 265,754
ABSTAIN 13,417
TOTAL 26,200,693
BROKER NON-VOTES 2,616,307
There was no solicitation in opposition to management's nominees for directors.
Each director serves a one year term, or until his successor is elected and
qualified. The results of the election of directors were as follows:
WITHHOLD
DIRECTOR NAME FOR AUTHORITY TOTAL
- ------------- --- --------- -----
Henry L. Aaron 28,612,978 204,022 28,817,000
Zvi Ben-Haim 28,612,978 204,022 28,817,000
Barry F. Cohen 28,607,978 209,022 28,817,000
Paul R. Greenwood 28,615,978 201,022 28,817,000
Michael Harary 28,612,978 204,022 28,817,000
Thomas A. McFall 28,608,488 208,512 28,817,000
Stephen Walsh 28,615,978 201,022 28,817,000
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET PRICES AND DIVIDENDS
Quarter Ended
-------------
March 31 June 30 September 30 December 31
------------- ------------- ------------- -------------
1999 1998 1999 1998 1999 1998 1999 1998
------------- ------------- ------------- -------------
Common Stock:
High $1.63 $1.94 $1.13 $3.25 $0.75 $3.13 $1.06 $2.25
Low $1.50 $1.00 $1.13 $ .75 $0.75 $1.63 $0.88 $1.13
Cash dividends $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
The Company's loan agreements contain provisions which currently restrict the
Company's ability to pay dividends (see Note 4 of Notes to Consolidated
Financial Statements). No Common Stock dividends were declared during the
five-year period ended December 31, 1999 (See Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
Shareholders of record as of March 15, 2000: Common 933
The Company's Common Stock is listed on the New York Stock Exchange.
(Symbol "SIA")
RECENT SALES OF UNREGISTERED SECURITIES
On March 3, 1999, in connection with the redemption of all outstanding shares of
its Series G1 Preferred Stock, the Company issued $5 million of 5% Convertible
Debentures due March 3, 2002, together with warrants to purchase 2,500,000
shares of the Company's Common Stock at $1.00 per share, in a private placement
transaction which was exempt from the registration requirements of the
Securities Act of 1933 (the "Securities Act") pursuant to Rule 506 of Regulation
D thereunder. See Note 6 to the Consolidated Financial Statements for additional
information concerning these debentures.
On March 22, 1999, in connection with the acquisition of substantially all of
the assets of Tahiti Apparel, Inc., the Company issued 10,070,000 shares of its
Common Stock and warrants to acquire up to an additional 4,000,000 shares of
Common Stock in a private placement transaction which was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
as a transaction in securities by an issuer not involving any public offering.
See Note 2 to the Consolidated Financial Statements for additional information
concerning this acquisition.
Effective March 22, 1999, in connection with the execution of a new financing
arrangement with the Company's senior lender, the Company permitted the senior
lender to purchase 1,791,667 shares of the Company's Common Stock at the par
value of $.01 per share in a private placement transaction which was exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof as a transaction in securities by an issuer not involving any public
offering.
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On April 23, 1999, in connection with the conveyance of certain intellectual
property and other rights to the Company, the Company issued 20,000 shares of
its Common Stock in a private placement transaction which was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
as a transaction in securities by an issuer not involving any public offering.
On May 26, 1999, as consideration for the assignment of a license agreement to
the Company, the Company issued 20,000 shares of its Common Stock to an
affiliate of the licensor. This issuance constituted a private placement
transaction which was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof as a transaction in securities
by an issuer not involving any public offering.
On February 1, 2000, following approval of the issuance of such shares at the
Company's Annual Meeting on December 31, 1999, the Company issued 4,217,956
shares of its Common Stock to its principal shareholder, WGI, LLC, in connection
with additional guarantees and collateral provided by WGI, LLC in support of the
Company's financing with its senior lender. This issuance constituted a private
placement transaction which was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof as a transaction in securities
by an issuer not involving any public offering. See Note 4 to the Consolidated
Financial Statements for additional information concerning this transaction.
On March 1, 2000, following approval of the issuance of such shares at the
Company's Annual Meeting on December 31, 1999, the Company issued 4,296,316
additional shares of its Common Stock to the shareholders of Tahiti Apparel,
Inc. as additional consideration pursuant to an amended agreement for the
acquisition of substantially all of the assets of Tahiti. This issuance
constituted a private placement transaction which was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
as a transaction in securities by an issuer not involving any public offering.
See Note 2 to the Consolidated Financial Statements for additional information
concerning this acquisition.
ITEM 6. SELECTED FINANCIAL DATA
Summary of Selected Financial Data
Dollars in Thousands (except Per Share data)
1999(a) 1998 1997(b) 1996 1995
-----------------------------------------------------
Net sales $ 98,725 $ 48,876 $ 44,616 $ 58,808 $ 89,883
Net loss (47,926) (35,607) (30,345) (33,696) (39,959)
Basic/diluted net loss
per common share (1.04) (1.22) (2.39) (2.91) (3.80)
Total assets 44,604 18,464 26,722 26,167 43,229
Long-term obligations 72,114 70,728 60,147 66,423 57,243
(a) The data includes amounts applicable to Tahiti Apparel from the effective
date of control of the Company, January 1, 1999.
(b) The data includes amounts applicable to Grand Illusion and Big Ball Sports
from the dates of acquisition, October 1, 1997 and November 5, 1997,
respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1999 COMPARED TO 1998
Net sales of $98.7 million for 1999 represent an increase of 102% or $49.8
million when compared to the $48.9 million for 1998. This increase is primarily
attributed to $72.6 in sales from the Tahiti division and the Umbro division.
Conversely, 1999 does not include any sales from the Heritage division (sold at
1/1/99) which had provided $9.4 million in sales in 1998. In addition, the sale
of Grand Illusion and the closing of the Big Ball operations resulted in 1999
reflecting only $4.4 million in sales compared to $10.3 million in 1998 from
these entities.
Gross profit was $9.5 million (9.6% of sales) in 1999 compared to $4.9 million
(10% of sales) in 1998. The gross profit % in 1999 declined, in part, due to
$2.7 million of excessive costs to import goods by air freight and then
transport those same goods by overnight courier direct to customer retail
locations, all as a result of late manufacture of such goods. The late
manufacture of goods resulted from delays in opening letters of credit to
foreign manufacturers as a result of limited bank availability during the
negotiation of the acquisition of the assets of Tahiti Apparel, Inc. by the
Company. In addition, the gross profit for 1999 was negatively affected by (a) a
$1.9 million net loss on closeout goods and $0.5 million in customer chargebacks
related to the Big Ball shutdown and (b) recognition of an additional $1.5
million loss on the markdown and sale of other obsolete and slow moving
inventory. The $1.9 million net loss on closeout goods related to the Big Ball
shutdown represents a 70% markdown from the total cost basis of $2.7 million for
such inventory. From December 31, 1998 through May 1999, the Company pursued a
vigorous effort to sell the Big Ball-related inventory through normal
distribution channels. From January 1999 through April 1999, the company sold a
meaningful portion of the inventory at prices above cost, giving management
confidence that the remaining units could be sold within a reasonable period of
time, at prices that at least would allow the Company to recover its cost plus
direct costs of disposition. During the second quarter of 1999, however,
management realized that the unsold inventory would not be liquidated at normal
selling prices. The remaining inventory was not of a quality or quantity that
easily could be sold in the closeout market, particularly taking into
consideration a rapid deterioration in the closeout market for sports apparel
that occurred in the second quarter of 1999 due to an excess of goods created by
the bankruptcies of two major sports apparel manufacturers. In order to minimize
costs, management determined that the Company should sell the remaining
inventory as fast as possible at an estimated liquidation value (after costs of
loading and shipping) of approximately $0.8 million, and booked the net loss in
June 1999 based on this estimate. The final liquidated value of such goods
approximated the Company's estimate.
Royalty expense related to licensed product sales was 5.6% of sales in 1999,
compared to 8.6% for the corresponding period of 1998. This decrease resulted
primarily from an increase by the Company in sales of proprietary products.
Selling, general and administrative (SG&A) expenses as a percentage of total
sales were 38.1% of sales for 1999 compared to 44.3% for the corresponding
period of 1998, an 6.2% improvement. The SG&A expenses increased a total of $16
million to $37.6 million from $21.6 million for 1998. The change in the total
amount of SG&A expenses between 1998 and 1999 is primarily related to (a)
additional sales expenses resulting from the additional $49.8 million of sales
in 1999, (b) over $0.7 million in consulting fees being paid to third parties
for services related to accounting and systems consulting, (c) $1.0 in
professional fees, (d) $1.5 million of temporary and recruiting costs associated
with the move of the Company's administrative and warehousing functions to New
Jersey, which were partially offset by $0.7 million in reduced SG&A expenses at
the Houston facility, compared to 1998, (e) $0.5 million of employee termination
costs and other administrative
Page 14 of 58
<PAGE>
exit costs related to the Big Ball shutdown, and (f) $0.8 million of start-up
expenses incurred for the expansion of two divisions.
During 1999, the Company continued to implement the revised business strategy
initiated in the last quarter of 1998, which has resulted in a change from the
Company being primarily a manufacturer of products to primarily a sales,
marketing, merchandising and distribution company for activewear, swimwear and
other clothing. As a result, the Company closed its last operating facility for
the Big Ball division in Houston, Texas. The Company's Gross Profit in 1999
includes a $1.9 million net loss on closeout goods and $0.5 million in customer
chargebacks related to this shutdown.
Depreciation and Amortization decreased from $3.9 million in 1998 to $3.7
million in 1999, primarily as a result of $1.8 million of amortization of
goodwill attributable to the new Tahiti acquisition, net of disposals of idle
property and equipment.
Interest expense for 1999 was $14.3 million compared to $8.6 million in 1998. In
1999, $5.1 million of the $14.3 million of interest expense is non-cash interest
and amortization of debt issuance costs for the WGI, LLC warrants and the
warrants issued to the senior lender. (See Note 4.)
1998 COMPARED TO 1997
Net sales of $48.9 million for 1998 represent an increase of 10% or $4.3 million
when compared to the $44.6 million in net sales for 1997. This increase is
comprised of an $8.0 million increase for screenprinted and embellished products
offset by a $2.2 million decrease in undecorated activewear, a $0.3 million
decrease for women's fashion knitwear and a $1.2 million sales allowance related
to a single large chargeback from a primary customer due to failure to meet
certain garment specifications. Sales in the fourth quarter of 1998 decreased to
$9.6 million from an average of $13.1 million for the first three quarters of
1998.
Gross profit was $4.9 million (10% of sales) in 1998 compared to $5.3 million
(12% of sales) in 1997. Despite increased first quality sales and other
efficiencies during 1998, as well as improved margins on first quality sales due
to improved sales mix and an overall decrease in closeout sales, the Company
recorded a $0.4 million decrease in gross profit in 1998 due to excessive Cost
of sales of $13.0 million for the fourth quarter. The Company had sales and
negative gross profit for the fourth quarter of 1998 of $9.6 million and ($2.3)
million, respectively. The excessive Cost of sales for the fourth quarter
primarily resulted from substantial closeout sales completed in the fourth
quarter of 1998 which had costs of sales in excess of sales price and a $1.0
million charge included in Cost of sales related to a dispute with a vendor.
This dispute arose after the vendor had delivered a portion of the garments
pursuant to the Company's purchase agreement and before the Company took
delivery of additional goods for which it originally was obligated under the
agreement. The Company did not take delivery of the additional goods. The
Company is asserting breach of contract against the vendor for failures in both
quality and timely delivery. The vendor is asserting breach of contract against
the Company. No lawsuit has been filed. The Company has reserved $1.0 million to
cover anticipated costs relating to the resolution of its dispute with this
vendor, including legal fees. The Company believes this accrual is sufficient
based upon the Company's claims against this vendor for breach of contract.
Royalty expense related to licensed product sales was 9% and 12% of total sales
for 1998 and 1997, respectively. The decrease in royalty expense percentage from
1997 is the result of increased sales of licensed products relative to total
sales. The additional licensed sales achieved more revenues, thereby covering
the minimum royalty obligations and resulting in a lower percentage of cost of
sales.
Page 15 of 58
<PAGE>
Selling, general and administrative ("SG&A") expenses were 44% and 31% of sales
for the years ended December 31, 1998 and 1997, respectively. Actual SG&A
expenses increased in 1998 by $7.7 million to $21.6 million principally due to
additional costs associated with Big Ball and Grand Illusion.
The Company's SG&A expenses in the fourth quarter of 1998 were $7.8 million
compared to the SG&A expenses for the first nine months of 1998 of $13.8
million. The average SG&A expenses for the first nine months of 1998 were $4.6
million per quarter. Thus, the fourth quarter reflected approximately $3.2
million of SG&A expenses above the average level for the balance of the year.
The material items which substantially contributed to this $3.2 million variance
are as follows: (a) $0.5 million of bad debt, (b) $0.5 million of legal and
professional fees due to potential liability related to the closure of the La
Grange facility, (c) $0.4 million of start-up expenses for the new Umbro
Division which commenced in October, 1998, (d) $0.2 million of additional
insurance expenses related to change in policies, (e) $0.3 million of excessive
administrative expenses at the Grand Illusion division related to the
extraordinary activity resulting from the shutdown of the Chattanooga printing
facility, (f) $0.1 million of excessive factor interest related to slow payments
by customers, and (g) $0.1 million of temporary accounting labor and moving
costs related to the consolidation of administrative functions in New Jersey.
The primary element making up the 1998 other income (expense) amount of $1.3
million is a gain on the disposal of certain fixed assets.
The Company recorded a restructuring charge of $2.8 million as a result of the
Company reevaluating its business strategy during the latter portion of 1998.
The reevaluation resulted in a shift from a capital-intensive manufacturing
company to a sales and marketing company with lower fixed costs. In connection
with the reevaluation of the Company's business strategy, the Company analyzed
the performance of its operations and divisions. This analysis indicated that
significant strategic and operational changes would be necessary, including the
closure of the Big Ball operations and the Chattanooga and Tazewell locations,
as well as the sale of the Heritage division and Grand Illusion.
This analysis led, among other things, to the sale of the Company's Heritage
division, which was completed on January 20, 1999 (for additional details, see
Note 7 to the consolidated financial statements). Additionally, the Company
reached a decision during the fourth quarter of 1998 to close the Big Ball
operations, as well as the Chattanooga and Tazewell facilities, by no later than
the end of the second quarter of fiscal 1999 with an anticipated completion of
this exit plan by the end of the third quarter. The Chattanooga and Tazewell
locations substantially ceased operations effective December 14, 1998 and March
9, 1999, respectively. As of December 1998, the Company was in negotiations
regarding the sale of Grand Illusion and anticipated the completion of this sale
by mid-1999. The sale of Grand Illusion was completed as of July 31, 1999.
In connection with the decisions discussed above, the Company recorded a $2.8
million restructuring charge in the fourth quarter of 1998. The exit plan for
Chattanooga and Tazewell estimated the termination of 375 employees (275 at
Chattanooga and 100 at Tazewell) representing substantially all of the
management, office staff, plant supervisors, artists, and factory workers at
each of these locations. As of December 31, 1998, approximately 200 employees
consisting of management, supervisors, and plant workers of the Chattanooga
Printwear location had been terminated, but no termination benefits had been
paid as of year end. Subsequent to the balance sheet date, all accrued benefits
have been paid out. Other than the lease buyouts associated with the planned
closure of Big Ball, no other exit costs for Big Ball or Grand Illusion were
reasonably estimable by management as of the end of fiscal 1998. Accordingly, no
other costs were accrued as of the end of fiscal 1998 with respect to the
planned closure of Big Ball and sale of Grand Illusion. In addition to the
restructuring charge, the Company recorded a $4.5 million charge to write-off
the remaining goodwill resulting from the Big Ball and Grand Illusion
acquisitions.
Page 16 of 58
<PAGE>
The restructuring charge is composed of the writedown of fixed assets of the
aforementioned divisions and locations, employee termination benefits, and other
exit costs such as lease buyouts, contract buyouts, legal and professional costs
associated with plant closures, and cost of employees incurred after operations
cease that are associated with the closing of the Chattanooga location, as
summarized in the following table:
<TABLE>
<CAPTION>
Initial Charge to Remaining
Charge Related Assets Balance
------ -------------- -------
<S> <C> <C> <C>
Writedown of property, plant, and equipment $1,352 $1,352 $ 0
(Big Ball division, Chattanooga and Tazewell facilities)
Severance costs of terminated employees 276 0 276
(Chattanooga and Tazewell facilities)
Lease buyouts 401 0 401
(Big Ball division)
Employee payroll incurred after plant closure 495 0 495
(Chattanooga facility)
Legal and professional costs associated with closure 167 0 167
(Chattanooga and Tazewell facilities)
Other, including travel 67 0 67
------ ------ ------
$2,758 $1,352 $1,406
------ ------ ------
Write off of goodwill (Big Ball and Grand Illusion) $4,542 $4,542 $ 0
====== ====== ======
</TABLE>
The remaining restructuring charges incurred in 1999 approximated the remaining
reserve balance at December 31, 1998.
[For additional information concerning the restructuring, see Note 7 to the
accompanying consolidated financial statements.]
FINANCIAL CONDITION
Additional working capital was required in 1999 to fund the continuing losses
and payment of interest on the Company's long term debt to its secured lenders.
Such working capital was provided through several transactions with WGI, LLC and
affiliates (the Company's principal shareholders) and its senior lender. See
Note 4 for information related to the Revolving Credit Agreement, Term Loan and
Security Agreement and funding from WGI, LLC and affiliates. At December 31,
1999, the Company had overadvance borrowings (secured in part by collateral and
guarantees of WGI, LLC and affiliates) of $18.8 million with its senior lender
compared to $8.2 million at December 31, 1998.
The Company's working capital deficit at December 31, 1999 increased $50.2
million or 88.2% compared to 1998. The increase in the working capital deficit
was primarily due to the new term loan being classified as a current liability
($49.6 million), which was partially offset by a decrease in accounts payable,
accrued liabilities, and accrued interest ($4.1 million), a decrease in the
revolving advance account ($4.1 million), and debt discount associated with the
term loan ($4.8 million). The Company has a "zero base balance" arrangement with
the bank where it maintains its operating account that allows the Company to
cover checks drawn on such account on a daily basis with funds wired from its
senior lender based on the credit facility with the senior lender.
Accounts and notes receivable decreased $1.3 million over 1998.
Page 17 of 58
<PAGE>
Inventories decreased $5.3 million compared to 1998. Inventories decreased as a
result of management's focus on selling slow moving and obsolete inventory
during 1999, the sale of substantially all of the remaining Big Ball Sports
inventory in connection with the closure of the Houston facility.
Total current liabilities increased $43.8 million or 60.7% over 1998, primarily
due to increased borrowings under the Company's credit facility, the long-term
portion of such borrowing ($48 million) had to be included in current
liabilities (See Note 4 to the Consolidated Financial Statements).
Cash used in operations was $38.0 million during 1999 compared to $16.2 million
used in operating activities during 1998. The increased use of cash during that
period was primarily due to the net loss of $47.9 million during 1999, which was
partially offset by depreciation and amortization ($3.7 million) and non-cash
interest ($5.1 million), and a decrease in inventories ($5.3 million) (excluding
the effect of all the sales and acquisitions of divisions).
Commitments to purchase equipment totaled less than $1 million as of December
31, 1999.
Cash provided by investing activities was $2.2 million for 1999, compared to
cash provided of $1.6 million in 1998. This primarily resulted from $2.5 million
provided through the sale of the Heritage division, $0.4 million from the sale
of Grand Illusion, and $0.5 million of restricted cash being released.
Cash provided by financing activities was $35.3 million in 1999 compared to
$14.7 million in 1998. At December 31, 1999, the Company had a net increase in
borrowings amounting to approximately $32.1 million from its senior lender,
after taking into account borrowings under the new Revolving Credit, Term Loan
and Security Agreement and repayment of the prior credit facilities maintained
by the Company. WGI, LLC has pledged $25.5 million of collateral in support of
the Company's $50 million term loan with its senior lender and has pledged
collateral totaling $31.1 million and provided guarantees of up to $17.5 million
in support of the Company's indebtedness of $40 million at December 31, 1999
under the Revolving Advance Account with its senior lender. Effective June 30,
1999, the Company entered into a Reimbursement Agreement with WGI, LLC pursuant
to which the Company will automatically become indebted to WGI, LLC under a
related Promissory Note to the extent that the senior lender proceeds against
any of these WGI, LLC guarantees or offsets any of such collateral against the
Company's indebtedness to the senior lender. In addition, the Company sold $5.0
million of 5% convertible debentures, which was partially offset by repurchase
of $2.4 million Series G1 Preferred Stock, and other principal payments of $3.4
million on borrowings (including debt discounts). See Note 4 to the Consolidated
Financial Statements.
Interest expense for 1999 was $14.3 million compared to $8.6 million for 1998.
Excluding the effect of all sales and acquisitions of divisions, the $14.3
million of interest in this period included non-cash interest charges of $5.1
million. Total outstanding debt averaged $93 million and $65 million for 1999
and 1998, respectively, with average interest rates of 9.1% and 10%,
respectively. The increased interest expense during 1999 reflects non-cash
interest charges of $5.1 million.
The Company uses letters of credit to support foreign and some domestic sourcing
of inventory and certain other obligations. Outstanding letters of credit were
$12 million as of December 31, 1999.
Total Shareholders' Deficit increased $26.2 million to $93.9 million compared to
1998, primarily due to a loss of $47.9 million for the year.
Page 18 of 58
<PAGE>
YEAR 2000 READINESS
The Company has completed an extensive program to ensure that its computer
systems are Year 2000 compliant and has experienced no significant problems to
date associated with the Year 2000 issue. Additionally, there are no claims
pending or, to its knowledge, threatened against the Company arising out of the
Year 2000 issue. The costs incurred with respect to ensuring compliance with the
Year 2000 issue were not material.
LIQUIDITY AND CAPITAL RESOURCES
As a result of continuing losses, the Company has been unable to fund its cash
needs through cash generated by operations. The Company's liquidity shortfalls
from operations during these periods have been funded through several
transactions with its principal shareholders and with the Company's senior
lender. These transactions are detailed above in the Financial Condition
section.
As of December 31, 1999, the Company's senior lender waived certain covenant
violations (tangible net worth, current ratio, working capital and net loss)
under the Company's factoring agreement. Accordingly, Generally Accepted
Accounting Principles requires that the $49,639 term loans be classified as a
current liability even though the term of the loan is longer than one year.
Throughout 1999 and during the first quarter of 2000, the Company experienced
liquidity shortfalls from operations that were resolved through additional
advances against the Company's available borrowing capacity. These shortfalls
bring into questions whether the Company will be in compliance with the
financial covenants of its new Resolving Credit Agreement and Term Loan at the
end of the first quarter for fiscal 2000 or have sufficient capacity under its
available borrowings to fund its operating needs. If the senior lender were to
accelerate the maturity of the Company's indebtedness under its factoring
agreement, the Company would not have funds available to repay the debt.
If the Company's sales and profit margins do not substantially improve in the
near term, the Company will be required to seek additional capital in order to
continue its operations and to move forward with the Company's turnaround plans,
which include seeking appropriate additional acquisitions. To obtain such
additional capital and such financing, the Company may be required to issue
additional securities that may dilute the interest of its stockholders.
In a prior year, the Company implemented a restructuring plan for its preferred
equity and the majority of its subordinated indebtedness (following approval by
shareholders of the issuance of Common Stock in connection therewith), which
resulted in a significant increase in the Company's overall equity as well as a
significant reduction in the Company's level of indebtedness and ongoing
interest expense. In addition, as discussed in Note 4 to the financial
statements, during 1999, the Company sold $5 million of Convertible Debentures
to institutional investors, whose funds were used to repurchase the Company's
Series G1 Convertible Preferred Stock (following the conversion of $348) stated
value (included accrued dividends) of such stock into 331,140 shares of the
Company's Common Stock effective February 26, 1999, by two other institutional
investors). In order for the Company to have sufficient liquidity for it to
continue as a going concern in its present form, the Company will need to raise
additional funds and execute planned improvements (See Note 1 to the
consolidated financial statements).
INFLATION AND CHANGING PRICES
Inflation and changing prices have not had a material effect on the Company's
results of operations or financial condition during the past three years.
Page 19 of 58
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998
Consolidated Statements of Operations for the years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Shareholders' Deficit for the Years Ended December
31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
Page 20 of 58
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Signal Apparel Company, Inc.
We have audited the accompanying consolidated balance sheet of Signal Apparel
Company, Inc. and Subsidiaries as of December 31, 1999 and the related
consolidated statements of operations, shareholders' deficit, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Signal Apparel Company, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plan in regard to
these matters is also described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Goldstein Golub Kessler LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 22, 2000
Page 21 of 58
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Signal Apparel Company, Inc.:
We have audited the accompanying consolidated balance sheet of SIGNAL APPAREL
COMPANY, INC. (an Indiana corporation) AND SUBSIDIARIES as of December 31, 1998
and the related consolidated statements of operations, shareholders' deficit,
and cash flows for each of the two years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Signal Apparel Company, Inc.
and subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has as of
December 31, 1998 a working capital deficit of $56.9 million, an accumulated
deficit of $284.9 million, and the liquidity of the Company has been adversely
affected by recurring losses from operations. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 1. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 26, 1999
Page 22 of 58
<PAGE>
Signal Apparel Company, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 1999 and 1998
(in thousands of dollars, except per share data)
Assets: 1999 1998
--------- ---------
Current assets:
Cash and cash equivalents $ 0 $ 403
Receivables, less allowance for
doubtful accounts of $251 in 1999
and $2,443 in 1998, respectively 304 1,415
Notes receivable 100 283
Inventories 7,346 12,641
Prepaid expenses and other current assets 1,139 539
--------- ---------
Total current assets 8,889 15,281
Property, plant and equipment, at cost:
Land 12 390
Buildings and leasehold improvements 2,057 4,918
Machinery and equipment 1,486 20,023
--------- ---------
Total property, plant and equipment 3,555 25,331
Less: Accumulated depreciation and amortization (707) (22,330)
--------- ---------
Net property, plant and equipment 2,848 3,001
Goodwill, less accumulated amortization
of $1,827 in 1999 26,249 0
Debt issuance costs 5,528
Other assets 1,090 182
--------- ---------
Total Assets $ 44,604 $ 18,464
========= =========
Liabilities and Shareholders' Deficit:
Current liabilities:
Accounts payable $ 4,922 $ 8,133
Accrued liabilities 6,358 9,760
Accrued interest 6,365 3,810
Current portion of long-term debt 8,722 6,435
Revolving advance account 39,994 44,049
Term loans 49,639 0
--------- ---------
Total current liabilities 116,000 72,187
Long Term debt, principally to related parties,
less current portion, net of unamortized
discount of $4,768 and $6,276, respectively 22,475 13,968
--------- ---------
Total liabilities 138,475 86,155
Page 23 of 58
<PAGE>
Signal Apparel Company, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
December 31, 1999 and 1998
(in thousands of dollars, except per share data)
Commitments and contingencies
Shareholders' Deficit:
Preferred stock
Series G1, $1,000 stated value per share, 5,000
shares authorized, issued and outstanding in
1998, (cumulative unpaid dividends of $73 in 1998) 4,484
Series H, $100,000 stated value per share, 1,000
shares authorized, 443.16 issued and outstanding
in 1999 and 1998 (including unpaid dividends of
$6,980 in 1999 and $3,989 in 1998) 51,296 48,305
Common Stock, 150,000,000 shares authorized,
$.01 Par value per share, 53,492,406 and 32,661,955
shares issued and outstanding in 1999 and 1998,
respectively 535 326
Additional Paid-in Capital 191,263 165,242
Accumulated Deficit (335,848) (284,931)
--------- ---------
Subtotal (92,754) (66,574)
Less: cost of treasury shares (140,220 shares) (1,117) (1,117)
--------- ---------
Total shareholders' deficit (93,871) (67,691)
--------- ---------
Total liabilities and shareholders' deficit $ 44,604 $ 18,464
========= =========
The accompanying notes and independent auditors' reports should be read in
conjunction with the consolidated financial statements.
Page 24 of 58
<PAGE>
Signal Apparel Company, Inc. And Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 98,725 $ 48,876 $ 44,616
Cost of sales 89,268 43,999 39,287
-------- -------- --------
Gross profit 9,457 4,877 5,329
Royalty Expense 5,484 4,211 5,467
Selling, general and administrative
Expenses 37,645 21,643 13,916
Interest expense 14,254 8,645 14,726
Other (income) expense, net 0 (1,315) 1,565
Write off of goodwill 0 4,542 0
Nonrecurring charges 0 2,758 0
-------- -------- --------
Loss before income taxes (47,926) (35,607) (30,345)
Income taxes 0 0 0
-------- -------- --------
Net loss (47,926) (35,607) (30,345)
Less: preferred stock dividends (2,991) (4,062) 0
-------- -------- --------
Net loss applicable to common stock ($50,917) ($39,669) ($30,345)
======== ======== ========
Weighted average shares outstanding,
basic and diluted 48,782 32,644 12,693
======== ======== ========
Basic/diluted net loss per share ($ 1.04) ($ 1.22) ($ 2.39)
======== ======== ========
</TABLE>
The accompanying notes and independent auditors' reports should be read in
conjunction with the consolidated financial statements.
Page 25 of 58
<PAGE>
Signal Apparel Company, Inc. and Subsidiaries
Consolidated Statement of Shareholders' Deficit
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands of dollars except per share data)
<TABLE>
<CAPTION>
Preferred Stock Series
A C F G1 H Common Capital in Accumulated Treasury Total
Stock Excess of Deficit Stock
Par Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, $39,584 $36,618 $0 $0 $0 $115 $73,507 ($214,862) ($1,117) ($66,155)
1996
------------------------------------------------------------------------------------------------------
Net loss 0 0 0 0 0 0 0 (30,345) 0 (30,345)
Exercise of warrants to 0 (3,375) 0 0 0 46 13,911 0 0 10,582
acquire 4,630,000 shares
of common stock through
conversion of $10,582 in
debt and Series C
Preferred Stock
Conversion of $23,802 in 0 (20,514) 44,316 0 0 0 0 0 0 23,802
debt and Series C
Preferred Stock into
Series F Preferred Stock
Conversion of $15,833 in (39,584) (12,729) 0 0 0 155 67,991 0 0 15,833
debt and Series A and C
Preferred Stock into
15,473,220 shares of
Common Stock
Issuance of 855, 194 0 0 0 0 0 9 1,274 0 0 1,283
Shares of Common Stock
for Big Ball acquisition
Issuance of 4,750,000 0 0 0 0 0 0 3,716 0 0 3,716
warrants in connection
with extension of debt
------------------------------------------------------------------------------------------------------
Balance, December 31, 0 0 44,316 0 0 325 160,399 (245,207) (1,117) (41,284)
1997
------------------------------------------------------------------------------------------------------
Net loss 0 0 0 0 0 0 0 (35,607) 0 (35,607)
Issuance of 125,000 0 0 0 0 0 1 180 0 0 181
shares of Common Stock
Conversion of Series F 0 0 (44,316) 0 44,316 0 0 0 0 0
Preferred Stock into
Series H Preferred Stock
Issuance of 5,000 shares 0 0 0 4,429 0 0 196 0 0 4,625
of Series G1 Preferred
Stock and 162,500
warrants to purchase
common stock
</TABLE>
Page 26 of 58
<PAGE>
Signal Apparel Company, Inc. and Subsidiaries
Consolidated Statement of Shareholders' Deficit (Continued)
For the Years Ended December 31, 1999, 1998 and 1997
(in thousands of dollars except per share data)
<TABLE>
<CAPTION>
Preferred Stock Series
A C F G1 H Common Capital in Accumulated Treasury Total
Stock Excess of Deficit Stock
Par Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of 3,997,000 warrants 0 0 0 0 0 0 4,467 0 0 4,467
to purchase common stock
to a lender
Accretion of Series G1 0 0 0 55 0 0 0 (55) 0 0
Preferred Stock
Cumulative accrued dividends on 0 0 0 0 0 0 0 (73) 0 (73)
Series G1 Preferred Stock
Cumulative accrued dividends on 0 0 0 0 3,989 0 0 (3,989) 0 0
Series H Preferred Stock
------------------------------------------------------------------------------------------------------
Balance, December 31, 0 0 0 4,484 48,305 326 165,242 (284,931) (1,117) (67,691)
1998
------------------------------------------------------------------------------------------------------
Net loss 0 0 0 0 0 0 0 (47,926) 0 (47,926)
Issuance of 14,366,316 shares of 0 0 0 0 0 144 16,917 0 0 17,061
common stock for the acquisition
of Tahiti Apparel and payment
of Chan note
Issuance of 4,217,956 shares of 0 0 0 0 0 42 4,228 0 0 4,270
common stock to a lender
Conversion of preferred stock 0 0 0 (347) 0 3 344 0 0 -0-
for common stock
Issuance of 1,791,667 shares of 0 0 0 0 0 18 2,314 0 0 2,332
common stock and 375,000
warrants to senior lender
Issuance of 83,333 shares of 0 0 0 0 0 1 100 0 0 101
common stock to former officer
Issuance of 40,057 shares of 0 0 0 0 0 1 0 0 0 1
common stock for business
transactions
Issuance of 15,000 warrants to 0 0 0 0 0 0 16 0 0 16
purchase common stock
Repurchase of Series G1 0 0 0 (4,137) 0 0 0 0 0 (4,137)
Preferred Stock
Issuance of warrants to 0 0 0 0 0 0 2,102 0 0 2,102
purchase common stock to a
lender
Dividends on Series H preferred 0 0 0 0 2,991 0 0 (2,991) 0 -0-
stock
------------------------------------------------------------------------------------------------------
Balance, December 31, $0 $0 $0 $0 $51,296 $535 $191,263 ($335,848) ($1,117) ($93,871)
1999
======================================================================================================
</TABLE>
The accompanying notes and independent auditors' reports should be read in
conjunction with the consolidated financial statements.
Page 27 of 58
<PAGE>
Signal Apparel Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended
December 31, 1999, 1998 and 1997
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net loss $ (47,926) $ (35,607) $ (30,345)
Adjustments to reconcile net loss to net cash used
in operating activities:
Nonrecurring charges 2,758
Depreciation and amortization 3,712 3,933 1,467
Increase in debt issuance costs (2,332)
Non-cash interest charges 5,051
Non-cash compensation 100
(Gain) loss on disposal and write-down
Of property, plant and equipment 472 (1,199) 977
Loss on sale of GIDI Holdings 85
Write-off of goodwill 4,542
Changes in operating assets and liabilities,
net of effects of business acquired:
Receivables 1,349 2,566 (2,147)
Inventories 13,060 (2,251) 5,146
Prepaid expenses and other current assets (245) (131) 349
Other assets (465)
Accounts payable and accrued liabilities (10,837) 9,142 3,709
----------- ----------- -----------
Net cash used in operating activities (37,976) (16,247) (20,844)
----------- ----------- -----------
Investing activities:
Purchases of property, plant and equipment (730) (215) (233)
Proceeds from sale of property, plant and equipment 1,575 2,295
Cash received in acquisition of Tahiti 476 (200)
Proceeds from note receivable 217
Proceeds from sale of Heritage Division 2,500
----------- ----------- -----------
Net cash provided by investing activities 2,246 1,577 1,862
----------- ----------- -----------
Financing activities:
Net (decrease)increase in revolving advance account (17,887) 3,592 (26)
Net increase in term loan borrowings 50,000
Proceeds from borrowings 6,922 9,754 22,472
Principal payments on borrowings (3,810) (2,970) (3,998)
Principal payments on multi-employer withdrawal liability (312) (795)
Repurchase of Series G1 Preferred Stock (2,398)
Proceeds from issuance of Series G1 Preferred Stock 4,625 0
Proceeds from sale of convertible debt 2,500
----------- ----------- -----------
Net cash provided by financing activities 35,327 14,689 17,653
----------- ----------- -----------
</TABLE>
Page 28 of 58
<PAGE>
Signal Apparel Company, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31, 1999, 1998 and 1997
(in thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net (decrease)increase in cash and cash equivalents $ (403) $ 19 $ (1,329)
Cash and cash equivalents, beginning of year 403 384 1,713
----------- ----------- -----------
Cash and cash equivalents, end of year $ 0 $ 403 $ 384
----------- ----------- -----------
</TABLE>
Supplemental schedule of non-cash investing and financing activities - See notes
2,4 and 5
The accompanying notes and independent auditors' reports should be read in
conjunction with the consolidated financial statements.
Page 29 of 58
<PAGE>
SIGNAL APPAREL COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars, except per share data)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of Signal Apparel Company, Inc. (the
"Company") have been presented on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company reported a net loss applicable to Common Stock of
$50,917 for the year ended December 31, 1999 and cumulative losses applicable to
common stock for the past three years of $120,931. As a result of these
continuing losses, the Company's accumulated deficit now totals $335,848 as of
December 31, 1999.
As of December 31, 1999, the Company was not in compliance with certain
financial covenants of its Revolving Credit, Term Loan and Security Agreement
with its senior lender. The Company has received from its senior lender a waiver
of compliance with the aforementioned financial covenants at December 31, 1999.
Throughout 1999 and during the first quarter of 2000, the Company experienced
liquidity shortfalls from operations that were resolved through additional
advances against the Company's available borrowing capacity. These shortfalls
bring into question whether the Company will be in compliance with the financial
covenants of its Revolving Credit, Term Loan and Security Agreement at the end
of the first quarter of fiscal 2000 or have sufficient capacity under its
available borrowings to fund its operating needs. Accordingly, all debt due the
senior lender has been classified as a current liability in the consolidated
balance sheets. The Company's working capital deficit as of December 31, 1999
totals $107,111.
If the debt due the senior lender does become subject to accelerated maturity,
there can be no assurance the Company would be able to find other financing
sources to continue operations or repay the senior lender.
The Company's continued existence is dependent upon its ability to raise
additional debt or equity financing and to substantially improve its operating
results in 2000. Plans to improve operations include: 1) reducing general and
administrative costs; 2) focusing the Company's efforts on Tahiti's markets,
which include swimwear, bodywear, and activewear; 3) expanding market
penetration of the Company's Umbro license; 4) continuing to improve margins
through effective offshore sourcing and other measures; 5) seeking appropriate
additional acquisitions to enhance the Company's revenues and profitability.
In order for the Company to have sufficient liquidity for it to continue as a
going concern in its present form, the Company will need to raise additional
funds and execute planned improvements. The Company has no assurances it will be
able to raise additional funds. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amount and classification of liabilities or any
other adjustments that might become necessary should the Company be unable to
continue as a going concern in its present form. There can be no assurances that
the Company's operations can be returned to profitability.
Nature of Operations
The Company is engaged in the manufacture and marketing of apparel to retailers
throughout the United States within the following product lines: screenprinted
and embroidered knit and woven activewear for men and boys, and screenprinted
and embroidered ladies' and girls' activewear, bodywear and swimwear.
Page 30 of 58
<PAGE>
Principles of Consolidation
The consolidated financial statements include the accounts of Signal Apparel
Company, Inc. ("Signal") and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany balances and transactions have been
eliminated.
Revenue Recognition
Revenue is recognized when the Company's products are shipped to its customers.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and investments with original
maturities of three months or less.
Inventories
Inventories are stated at the lower of first-in, first-out ("FIFO") cost or
market for all inventories. For discontinued and closeout inventories, the
Company evaluates the need for write-downs on an item by item basis. Market
value for finished goods and blank (unprinted) goods is estimated net realizable
value.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided over the estimated
useful lives of the assets principally using accelerated methods. Assets under
capital leases are included in property, plant and equipment, and amortization
of such assets is included with depreciation expense. The estimated useful lives
of the assets range from 4 to 32 years for buildings and improvements and from 3
to 10 years for machinery and equipment. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization of
property, plant and equipment amounted to $810 in 1999, $1,736 in 1998 and
$1,411 in 1997.
The Company identifies and records impairment on long-lived assets when events
and circumstances indicate that such assets have been impaired. The Company
periodically evaluates the recoverability of its long-lived assets based on
expected nondiscounted cash flows, and recognizes impairment, if any, based on
expected discounted cash flows.
Net Loss per Share
As the Company is in a loss position for all periods presented, the Company's
potential common stock would have an anti-dilutive effect on earnings per share
("EPS") and are excluded from the diluted EPS calculation for all periods
presented.
Stock-Based Compensation
The Company accounts for its stock-based compensation plan under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"). Effective in 1996, the Company adopted the disclosure option of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 requires companies that do not choose to
account for stock-based compensation as prescribed by the statement to disclose
the pro forma effects on net income and earnings per share as if SFAS No. 123
had been adopted. Additionally, certain other disclosures are required with
respect to stock-based compensation and the assumptions used to determine the
pro forma effects of SFAS No. 123.
Page 31 of 58
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Credit and Market Risk
The Company sells products to a wide variety of customers servicing the ultimate
consumer. Pursuant to the terms of a factoring agreement with its senior lender,
the Company sells substantially all accounts receivable, except cash-in-advance
or cash-on-delivery sales, to the senior lender on a pre-approved basis. The
Company pays a factoring commission as consideration for the credit risk and
other services provided by the senior lender.
With regard to credit-approved sales, the senior lender accepts the credit risk
for nonpayment due to financial inability to pay. With regard to
non-credit-approved sales, the Company bears all credit risk of nonpayment for
any reason. As of December 31, 1999, the senior lender had outstanding
receivables from the Company's customers totaling $14,282, of which $2,611 was
not credit-approved by the senior lender. The Company performs ongoing credit
evaluations of those customers carried at its own risk and generally does not
require collateral for such receivables. The Company maintains an allowance for
doubtful accounts at a level which management believes is sufficient to cover
potential credit losses.
For the years ended December 31, 1999, 1998 and 1997, one customer accounted for
58%, 19% and 20%, respectively, of the Company's net sales and the next largest
customer accounted for 9%, 10% and 10%, respectively, of the Company's net
sales.
The Company's NFL and NBA licenses expired on March 31, 1999 and July 31, 1999,
respectively. The Company no longer has the right to manufacture NFL and NBA
licensed products. During 1999 and 1998, respectively, licensed NFL and NBA
product sales were approximately 3% and 21% of consolidated revenue. The loss of
these licenses could also affect the Company's ability to sell other
professional sports apparel to its customers, although the Company is not aware
of any material impact to date.
Goodwill
In 1997, the Company acquired GIDI Holdings, Inc., doing business as Grand
Illusion Sportswear and Big Ball Sports, Inc. (including Print The Planet, Inc.)
(collectively "Big Ball"). These acquisitions resulted in goodwill of $751 and
$4,137, respectively. As a result of the Company changing its business strategy
and outsourcing more of its manufacturing process in 1998, the Company wrote off
the remaining goodwill for both Grand Illusion and Big Ball [See Note 7].
Amortization and write-off of goodwill associated with the aforementioned
acquisitions aggregated $4,832 in 1998. The acquisition of Tahiti [see Note 2]
resulted in goodwill of $28,076. Amortization of goodwill for Tahiti was $1,827.
Page 32 of 58
<PAGE>
At each balance sheet date, the Company evaluates the period of amortization of
intangible assets. The factors used in evaluating the period of amortization
include (i) current operating results, (ii) projected future operating results,
and (iii) any other material factor that effect the continuity of the business.
Segment Information
Effective in 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect the results of operations, financial position or
segment-related disclosure information. Management has determined that the
Company is a single reportable segment.
New Pronouncements
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
2. Acquisition of Tahiti Apparel Co., Inc.
On March 22, 1999, effective January 1, 1999, the Company completed the
acquisition of substantially all of the assets of Tahiti Apparel Co., Inc.
("Tahiti"), a New Jersey corporation engaged in the marketing of swimwear,
bodywear and activewear for ladies and girls. The purchase price for the assets
and business of Tahiti was $15,872, payable in shares of the Company's common
stock having an agreed value (for purposes of such payment only) of $1.1875 per
share. The Company acquired certain assets aggregating $12,875 and assumed
certain liabilities aggregating $25,079.
The acquisition resulted in the issuance of 14,366,316 shares of the Company's
Common Stock to Tahiti in payment of the purchase price under the Acquisition
Agreement (including 1,000,000 shares issued in payment of the "Chan Note"
discussed below). One million of such shares have been placed in escrow for a
period commencing on the closing date and ending on the earlier of the second
anniversary of the closing date or the completion of the Company's annual audit
for its 1999 fiscal year to satisfy the obligations of Tahiti and its majority
stockholders and to indemnify the Company against certain potential claims as
specified in the Acquisition Agreement. During the course of negotiations
leading to the execution of the Acquisition Agreement, and in order to enable
Tahiti to obtain working capital financing needed to support its ongoing
operations, the Company guaranteed repayment by Tahiti of certain amounts owed
by Tahiti under one of its loans from its senior lender.
At a meeting held January 29, 1999, the Company's shareholders approved the
issuance of up to 10,070,000 shares of the Company's Common Stock in connection
with the Acquisition Agreement and the Chan Agreement discussed below, for which
shares were issued in connection with the closing. Issuance of the additional
4,296,316 shares of Common Stock called for by the amendment to the Acquisition
Agreement was approved by the Company's shareholders at the Company's annual
meeting held on December 31, 1999, and the Company has issued such shares.
All of the shares of Common Stock issued pursuant to the Acquisition Agreement
are unregistered, restricted shares pursuant to the rules of the Securities and
Exchange Commission. Under the terms of a separate Registration Rights Agreement
executed in connection with the Acquisition Agreement, Tahiti and/or its
shareholders (and certain permitted assignees) have the right for a period of
ten years following the Closing Date, under certain circumstances, to have the
Company register the shares of Common Stock issued to them pursuant to the
Acquisition Agreement. Tahiti shareholders have also agreed with the Company
(subject to certain limited exceptions) to limit their transfers of Company
Common Stock during each of the first five years following the closing date (two
years in the case of the shares
Page 33 of 58
<PAGE>
issued under the Chan Agreement) to no more than five percent of the number of
shares held by each of them during each such year.
Pursuant to the terms of the Acquisition Agreement, the Company also entered
into employment agreements with Tahiti's two former majority shareholders. These
agreements call for minimum annual salaries of $500 each for five years. Each of
them must be appointed to the Company's Executive Management Committee and one
must be appointed as a director of the Company. The employment agreements also
provide for the issuance in the aggregate of up to 4,000,000 warrants to
purchase the Company's Common Stock with an average exercise price of $1.75 per
share. One million of such warrants vested upon the signing of the Agreement and
the remaining three million warrants are subject to certain vesting
restrictions.
In connection with the acquisition, Tahiti and Tahiti's former majority
shareholders reached an agreement with Tahiti's former minority shareholder,
Ming-Yiu Chan (the "Chan Agreement"), pursuant to which Tahiti executed a
promissory note to Chan in the principal amount of $6,770 (the "Chan Note"),
bearing interest at the rate of 8% per annum, and payable as follows:
(a) $3,500 payable in cash (with accrued interest thereon) in the
following installments:
$1,000 payable in equal installments of $250 (90 days, 180 days, 270
days, and 360 days following the closing)
$2,500 payable in equal quarterly installments of $312 commencing June
1, 2000 with a final payment due on March 1, 2002.
(b) The balance of $3,270 plus accrued interest payable, at the option of
Tahiti, through either the delivery of 1,000,000 shares of Common
Stock of the Company within five business days of the closing, or
payment of such amount in cash in eight quarterly installments,
beginning on the first anniversary of the closing under the Asset
Purchase Agreement.
Under the terms of the Acquisition Agreement, the Company assumed the Chan note
following closing and effective March 22, 1999 repaid $3,270 of the Chan note
through the issuance of 1,000,000 shares of Common Stock.
The Acquisition Agreement gives Tahiti's former majority shareholders the right
(jointly) to repurchase Tahiti's assets from the Company, if at any time prior
to the fifth anniversary of the Closing, the Company is unable to provide
sufficient financing to Tahiti to support a level of sales at least equal to the
sales of such business for the preceding season plus a reasonable rate of growth
(a "Financing Default"). If the rights were exercised, the repurchase price
would consist of repayment to the Company of the original $15,872 purchase price
(payable in shares of Common Stock which would be valued at $1.1875 per share),
plus the assumption of liabilities incurred in the ordinary course of business.
The following pro forma information presents the results of operations of the
Company for the year ended December 31, 1998 as though the acquisition occurred
on January 1, 1998.
(unaudited)
Net Sales $112,142
Net Loss ($45,602)
Net Loss per share ($1.08)
Page 34 of 58
<PAGE>
3. Inventories
Inventories consisted of the following at December 31:
1999 1998
-------- --------
Raw materials $ 1,079 $ 788
Work-in-process 583 1,377
Finished goods 5,634 10,262
Supplies 50 214
-------- --------
Total inventories $ 7,346 $ 12,641
======== ========
4. Debt
Debt consisted of the following at December 31:
1999 1998
-------- --------
Senior Obligations:
Term Loan A $ 27,500 $ -0-
Term Loan B 22,139 -0-
Revolving advance account 39,994 44,049
under senior credit facility -
interest payable monthly at the
alternate base rate (8.5% at
at December 31, 1999); plus 1.25%,
guaranteed by principal
shareholder
Senior secured subordinated 15,042 13,184
promissory note to related
party - interest at 10% (payable
quarterly); secured by a second
lien on accounts receivable,
inventory, machinery and equip-
ment, and certain real estate (net
of unamortized debt discount of
$4,768 and $6,276, respectively)
Promissory unsecured subordinated 2,100
note to related party pursuant to
Reimbursement Agreement - interest
payable annually at 8% per annum
Page 35 of 58
<PAGE>
Notes payable to related parties 6,731 1,981
interest accrued monthly at 5.5%
to 8% per annum based on the
average outstanding debt.(a)
5% Convertible Debentures net 3,373
of unamortized debt discount
of 1,627
Subordinated debt to related party 3,000 3,000
Obligations under capital leases 792 1,029
Other 159 1,209
-------- --------
Total 120,830 64,452
Less: current portion of long-term 8,722 6,435
debt
Term loans 49,639
Revolving advance account 39,994 44,049
-------- --------
Long-term debt, excluding current
portion and Revolving advance account $ 22,475 $ 13,968
======== ========
(a) In a prior year, the Company entered into a Reimbursement Agreement of
a Promissory Note with FS Signal, a related party, whereby the Company
agreed to repay amounts that FS Signal pays in support of letters of
credit. As of December 31, 1999 and 1998 the Company had a debt of $3,981
and $1,981, respectively, relating to this agreement. Accrued interest
relating to this debt as of December 31, 1999 and 1998 was approximately
$316 and $207, respectively. (See Note 2 for information relating to the
"Chan Note" in the amount of $2,750.)
Substantially all of the assets of the Company are secured under the terms of
the aforementioned debt and capital lease agreements.
Revolving Credit Agreement and Term Loan with Senior Lender
Effective March 22, 1999, pursuant to a Revolving Credit, Term Loan and Security
Agreement (the "Credit Agreement"), the Company completed a new financing
arrangement with its senior lender, (GMAC Financial Corporation (successor in
interest to BNY Financial Corporation) on its own behalf and as agent for other
participating lenders). This arrangement provides the Company with funding of up
to $98,000 (the "Maximum Facility Amount") under a combined facility that
includes a $50,000 Term Loan (supported in part by $25,500 of collateral pledged
by an affiliate of WGI, LLC, the Company's principal shareholder) and a
Revolving Credit Line of up to $48,000 (the "Maximum Revolving Advance Amount").
Subject to the lenders' approval and to continued compliance with the terms of
the original facility, the Company may elect to increase the Maximum Revolving
Advance Amount from $48,000 up to $65,000, in increments of not less than
$5,000.
The Term Loan portion of the new facility is divided into two segments with
differing payment schedules: (i) $27,500 ("Term Loan A") payable, with respect
to principal, in a single installment on March 12, 2004, and (ii) $22,500 ("Term
Loan B") payable, with respect to principal, in 47 consecutive monthly
installments on the first business day of each month commencing April 1, 2000,
with the first 46 installments to equal $267 and the final installment to equal
the remaining unpaid balance of Term Loan B. The Credit Agreement allows the
Company to prepay either term loan, in whole or in part, without premium or
penalty.
Page 36 of 58
<PAGE>
In connection with the Revolving Credit Line, the Credit Agreement also provides
(subject to certain conditions) that the senior lender will issue Letters of
Credit ("L/C")on behalf of the Company, subject to a maximum amount of $40,000
and further subject to the requirement that the sum of all advances under the
revolving credit line (including any outstanding L/Cs) may not exceed the lesser
of the Maximum Revolving Advance Amount or an amount (the "Formula Amount")
equal to the sum of:
(1) up to 85% of Eligible Receivables, as defined, plus
(2) up to 50% of the value of Eligible Inventory, as defined (excluding
L/C inventory and subject to a cap of $30,000 availability), plus
(3) up to 60% of the first cost of Eligible L/C Inventory, as defined,
plus
(4) 100% of the value of collateral and letters of credit posted by the
Company's principal shareholders, minus
(5) Reserves (as defined).
As detailed below under "WGI, LLC Agreements," the Company's principal
shareholder currently has in place guarantees totaling up to $7.5 million and
has posted collateral totaling $31.3 million in support of the Company's
borrowings under this formula.
In addition to the secured revolving advances represented by the Formula Amount,
and subject to the overall limitation of the Maximum Revolving Advance Amount,
the agreement provides the Company with an additional, unsecured Overformula
Facility of $17,000 (the outstanding balance of which must be reduced to not
more than $10,000 for at least one business day during a five business day
cleanup period each month) through December 31, 2000. Between December 31, 2000
and June 1, 2001, both the maximum overall balance and the maximum cleanup
period balance under this Overformula Facility are gradually reduced to zero in
six equal monthly increments. Subject to the limitations of the Maximum
Revolving Advance Amount and the Formula Amount, as well as the Maximum Facility
Amount, the agreement also provides that the senior lender (in its individual
capacity) may make Swingline Loans of up to $5,000 to the Company for periods
not to exceed seven (7) days for any one such loan.
Interest on all amounts advanced under the Credit Agreement pursuant to the
either Term Loan or Revolving Advances (including any outstanding Letters of
Credit) is payable in arrears on the last day of each month. The facility allows
the Company to select (separately) interest rates for both the Term Loan and
Revolving Advances based on either a Domestic Rate or a Eurodollar Rate.
Interest on Domestic Rate Loans is payable at a fluctuating Alternate Base Rate
equal to the higher of the prime rate (as defined) (8.5% as of December 31,
1999) or the federal funds rate plus 0.5%, plus the Applicable Margin (as
defined). Interest on Eurodollar Rate Loans is payable at a fluctuating
Eurodollar Rate equal to the daily average of the 30-day London Interbank
Offered Rate as published in The Wall Street Journal (5.8225% as of December 31,
1999) (calculated as prescribed in the agreement), plus the Applicable Margin
(as defined). The Applicable Margin for both Domestic Rate Loans and Eurodollar
Rate Loans is tied to the Company's ratio of Funded Debt to Free Cash Flow (each
as defined in the agreement), and ranges (A) in the case of Domestic Rate Loans,
from zero for a ratio less than or equal to 1.0:1 to 1.25% for a ratio greater
than 5.0:0, and (B) in the case of Eurodollar Rate Loans, from 1.5% for a ratio
less than or equal to 1.0:1 to 3.5% for a ratio greater than 5.0:1.
Notwithstanding the foregoing, the Credit Agreement provides that (x) from and
after the Closing Date through and including the earlier of (i) the first
anniversary of the Closing Date and (ii) the date on which the senior lender
receives the Company's 1999 annual audited financial statement as required, the
Applicable Margin shall be 1.25% for Domestic Rate Loans and 3.5% for Eurodollar
Rate Loans, and (y) from and after the date that the Company repays in full Term
Loan B,
Page 37 of 58
<PAGE>
and (ii) the date at which advances are no longer permitted under the
Overformula Facility, the Applicable Margin in effect from time to time for both
Domestic Rate Loans and Eurodollar Rate Loans shall be increased by .50%.
In addition to the amounts due for interest, the Company is obligated to pay:
(i) a monthly unused facility fee, computed at the rate of 0.25% per annum, on
the difference between the Maximum Revolving Advance Amount and the average
daily balance of outstanding Revolving Advances (plus the aggregate undrawn
amount of outstanding Letters of Credit) during that month; (ii) a monthly fee
computed at the rate of 0.25% per annum on the outstanding face amount of any
Letters of Credit (plus certain customary fees charged by the senior lender in
connection with issuing letters of credit); and (iii) certain administrative
fees payable to the senior lender under a fee letter executed in connection with
the agreement.
The Credit Agreement requires, among other things, maintenance by the Company of
prescribed minimum amounts of tangible net worth, ratios of current assets to
current liabilities, and working capital and net operating results (excluding
extraordinary items). The Credit Agreement also limits the Company's ability to
pay dividends, the Company's future capital expenditures, and the amount of
indebtedness the Company may incur, and it effectively prohibits future
acquisition or business combination transactions by the Company without the
lenders' consent. Substantial doubt exists regarding the Company's ability to
maintain compliance with its financial covenants under the new Credit Agreement.
As of December 31, 1999, the Company's senior lender waived certain covenant
violations (tangible net worth, current ratio, working capital and net loss)
under the Company's Revolving Credit, Term Loan and Security Agreement. During
the first quarter of 2000, the Company does not expect to be in compliance with
these covenants. Accordingly, Generally Accepted Accounting Principles ("GAAP")
requires that the $49,639 of term loans be classified as a current liability
even though the term of the loan is longer than one year.
In consideration of the provision of the additional, unsecured Overadvance
Facility prescribed in the agreement, the Company permitted the senior lender to
purchase a total of 1,791,667 shares of the Company's Common Stock at the par
value of $.01 per share (the "Issued Shares") under the terms of a separate
Subscription and Stock Purchase Agreement executed in conjunction with the
Credit Agreement. The Company also issued to the senior lender warrants to
purchase up to 375,000 additional shares of its Common Stock (the "Warrant
Shares") at an exercise price of $1.50 per share. The fair market value of these
warrants using the Black-Scholes Option Pricing Model was $204 and will be
treated as a debt discount and amortized over the term of the agreement. Subject
to certain requirements for advance notice to the Company by the holder
regarding the number of Warrant Shares which the holder intends to purchase, the
warrant becomes exercisable over a three-year period beginning December 31, 1999
with respect to a maximum of 125,000 shares per year. The agreement also gives
the senior lender the right to have both the Issued Shares and the Warrant
Shares registered for resale under the Securities Act of 1933 in prescribed
installments over a staggered period of time, and provides certain customary
antidilution protection with respect to the Warrant Shares and 625,000 of the
Issued Shares for which resale registration is delayed.
The Subscription and Stock Purchase Agreement also provides for certain put and
call options with respect to the Issued Shares. Under the put option, the senior
lender will have the right (upon specified advance written notice) once each
calendar year for three years, beginning December 31, 1999, to require the
Company to purchase up to 388,889 of the Issued Shares at a price of $1.50 per
share. This right will only be exercisable, however, if the average closing bid
price of the Company's Common Stock for the five trading days prior to the date
of the exercise of the put option is less than $1.50. Under the call option, the
Company has the right (but not the obligation), exercisable at any time, while
the senior lender holds the 1,166,667 issued shares (for which registration is
not delayed under the agreement), to purchase all or any of the portion of such
shares at $3.00 per share. The senior lender did not exercise its right at
December 31, 1999 to have the Company purchase up to 388,889 shares.
WGI, LLC Agreements
On August 10, 1998, the Company's Board of Directors approved (subsequently
approved by the shareholders) a new Credit Agreement between the Company and
WGI, LLC, to be effective as of May 8, 1998 (the "WGI Credit
Page 38 of 58
<PAGE>
Agreement"), pursuant to which WGI will lend the Company up to $25,000 on a
revolving basis for a three-year term ending May 8, 2001. Additional terms of
the WGI Credit Agreement are as follows:
o Maximum funding of $25,000, available in increments of $100 in excess
of the minimum funding of $100.
o Secured by a security interest in all of the Company's assets,
subordinate to the security interests of the Company's senior lender.
o Funds borrowed may be used for any purpose approved by the Company's
directors and executive officers, including repayment of any other
existing indebtedness of the Company.
o During the term of the WGI Credit Agreement, WGI, LLC is entitled to
have two designees nominated by the Company for election to its Board
of Directors at the Company's Annual Meeting of Shareholders; Messrs.
Walsh and Greenwood are the Board nominees designated by WGI, LLC
pursuant to this provision.
Pursuant to the WGI Credit Agreement, WGI received warrants to purchase up to
5,000,000 shares of the Company's Common Stock at $1.75 per share, with the
following additional terms:
1) The warrants vest at the rate of 200,000 warrants for each $1,000
increase in the largest balance owed at any one time over the term of the
Credit Agreement (as of December 31, 1999, the largest outstanding balance
to date has been $19,810, which means that warrants to acquire 4,217,956
shares of Common Stock were vested, approved, issued and exercised as of
such date);
2) The warrants have registration rights no more favorable than the
equivalent provisions in the currently outstanding warrants issued to
principal shareholders of the Company, except that such rights include
three demand registrations; and
3) The warrants contain antidilution provisions which require that the
number of shares subject to such warrants shall be adjusted in connection
with any future issuance of the Company's Common Stock (or of other
securities exercisable for or convertible into Common Stock) such that the
aggregate number of shares issued or issuable subject to these Warrants
(assuming eventual vesting as to the full 5,000,000 shares) will always
represents ten percent of the total number of shares of the Company's
Common Stock on a fully diluted basis.
The fair market value using the Black-Scholes option pricing model for the
warrants was $4,467 and has been shown as a debt discount in the accompanying
balance sheets. These warrants expire August 17, 2003.
As of December 31, 1999, the Company had not made any antidilution adjustments
to the above warrants based on the formula described above, although the Company
intends to calculate an appropriate initial antidilution adjustment in the
current year, which will take into account all additional issuances of shares,
options and warrants from December 1998 through the transactions approved by
shareholders at the 1999 Annual Meeting which was held on December 31, 1999.
In order to further assist the Company in meeting its ongoing liquidity needs,
WGI, LLC entered into a Reimbursement Agreement as of June 30, 1999 whereby it
made certain direct payments to a third party licensor on the Company's behalf
and provided additional collateral and guarantees in connection with the
Company's Credit Agreement with its senior lender. Specifically, WGI, LLC:
(1) Posted additional T-bills as collateral for the term loan portion in
the amount of $8,500, bringing the total amount of such collateral
posted by WGI to $25,500;
Page 39 of 58
<PAGE>
(2) Posted additional T-bills as collateral for additional advances under
the revolving term loan portion in the amount of $5,626.
(3) Provided additional firm guarantees of the Company's obligations in
the amount of $5,000, plus additional contingent guarantees of up to
$2,500 (the amount of which will be fixed based on the results of an
appraisal of the Company's Umbro License and fixed assets), bringing
the maximum amount of the Company's indebtedness guaranteed by WGI,
LLC to $20,000.
(4) Made certain cash payments on behalf of the Company directly to a
third-party licensor in the amount of $2,100.
As a mechanism for reimbursing WGI, LLC for payments made on the Company's
behalf outside of the terms of the WGI Credit Agreement, as well as for any loss
that it might suffer as a result of a decision by the senior lender to proceed
against the guarantees and/or collateral posted by WGI with respect to the
Company's obligations under its senior loan, the Company has entered into a
Reimbursement Agreement and related Promissory Note with WGI, LLC, effective as
of June 30, 1999, having the following key terms:
Indebtedness under the Reimbursement Agreement will be unsecured and will
be subordinated to the Company's obligations to its senior lender.
The Reimbursement Agreement will remain outstanding for as long as WGI, LLC
is obligated under any guarantees, or has any collateral posted, with
respect to the Company's obligations under agreements with its senior
lender or until all obligations under the Reimbursement Agreement are
repaid, whichever is later.
The Promissory Note created in connection with the Reimbursement Agreement
will have a nominal principal amount of up to $53,226, with $2,100 of
principal indebtedness initially outstanding (due to the licensor payment
described above). The Company's principal indebtedness under the note will
automatically increase from time to time in an amount equal to any payments
made by WGI, LLC pursuant to any of the senior lender guarantees, plus the
value of any WGI collateral which is offset by the senior lender against
the Company's obligations. The Promissory Note will be amended in 2000 to
increase the nominal principal amount to $56,776 in order to reflect
additional collateral and guarantees posted by WGI, LLC in 1999.
Indebtedness under the Reimbursement Agreement will bear interest at the
rate of eight percent per annum, payable in annual installments either in
cash or (at the Company's option) with shares of Common Stock valued at the
then-current market price.
The principal amount of the Company's indebtedness under the Reimbursement
Agreement will be payable at any time upon demand of WGI, LLC.
As compensation to WGI, LLC for the opportunity cost and additional risk
involved in issuing the guarantees and posting the collateral in support of the
Company's financing arrangements as described above, and in consideration of
WGI's agreement to leave these arrangements in place at least through March 12,
2004 (the initial term of the Credit Agreement), the shareholders approved the
issuance of additional shares of Common Stock to WGI, LLC based on the following
formula: the Company will issue shares of Common Stock having a fair market
value of $200 with respect to each $1,000 (or fraction thereof) which WGI either
has paid on the Company's behalf to third parties or has placed at risk in the
form of new guarantees and/or collateral in support of the Company's Revolving
Credit and Term Loan Agreement with the senior lender and its participating
banks (a total of $23,726). Based on a fair market value of $1.125 per share for
the Common Stock (the closing price on June 30,1999), this resulted in the
issuance of 4,217,956 additional shares of Common Stock to WGI, LLC.
Page 40 of 58
<PAGE>
In a prior year, the Company signed a promissory note for $3,000 with a related
party, FS Signal Associates I. The promissory note was due on April 30, 1997,
subject to the terms of the subordination agreement with the Company's senior
lender. Interest was payable at maturity at the prime rate, as defined, plus 3%.
In connection with this promissory note, accrued interest payable to FS Signal
Associates I was approximately $2,005 and $1,670 as of December 31, 1999 and
1998, respectively.
Interest expense in the consolidated statements of operations includes interest
to related parties of $2,325, $2,211 and $11,081 during 1999, 1998, and 1997,
respectively.
The Company made cash payments for interest of $9,757, $4,366 and $2,349 during
1999, 1998, and 1997, respectively. The aggregate future scheduled maturities of
debt for the five years subsequent to December 31, 1999, are as follows:
2000 $ 98,355(a)
2001 16,549
2002 3,807
2003 19
2004 2,100
--------
$120,830
(a) Includes $48,032 which by its terms is non-current. However, since the
Company is in default of its Revolving Credit, Term Loan and Security
Agreement, and is expected to continue to be in default in the first
quarter of 2000, GAAP requires that the term loans be classified as a
current liability through the term of the loan is longer than one year.
The fair value of the Company's debt approximates the carrying amount due to the
short-term nature of the instruments.
5. Capital Stock
In January 1999, the Company's shareholders approved the 1999 Stock Incentive
Plan (the "1999 Plan") which superseded the Company's 1985 Stock Option Plan
(the "1985 Plan"). No additional stock option grants are anticipated under the
1985 Plan. The stock options under the 1985 Plan outstanding as of December 31,
1999 typically have terms ranging from three to ten years and vest over periods
from one to four years from date of grant.
The 1999 Plan provides for the grant of up to five million shares of the
Company's Common Stock in the form of options, stock compensation awards and
other stock-based awards. Options granted under the 1999 Plan as of December 31,
1999 have five year terms and vest either as of the grant date or over a period
of two years from the date of grant. Stock compensation awards under the 1999
Plan constitute shares of the Company's Common Stock issued to the recipient as
of the date of grant.
The Company accounts for its stock-based compensation under APB No. 25, under
which no compensation expense has been recognized for stock options granted with
exercise prices equal to or greater than the fair value of the Company's Common
Stock on the date of grant. The Company adopted SFAS No. 123 for disclosure
purposes. For SFAS No. 123 purposes, the fair value of each option and warrant
grant has been estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for 1999, 1998,
and 1997, respectively: risk-free interest rate of 5.25%, 5.63%, and 6.11%,
expected life of 8.0, 7.0 and 3.0 years, expected dividend yield of 0% and
expected volatility of 89% for 1999 and 71% 1998 and 1997. Using these
assumptions, the fair value of the employee stock options and warrants
(excluding warrants issued to lenders) granted in 1999, 1998 and 1997 is $5,358,
$7,537, and $2,743, respectively, which would be amortized as compensation
expense over the vesting period of the options. Compensation expense recognized
under APB No. 25 in 1999, 1998 and 1997 is $0. Had compensation cost for the
plan been determined in accordance with SFAS No. 123, utilizing the assumptions
detailed above, the Company's pro forma
Page 41 of 58
<PAGE>
net loss would have been $52,479, $43,303 and $31,049 for the years ending
December 31, 1999, 1998 and 1997, respectively. Pro forma net loss per share
would have been $1.08, $1.33 and $2.45 for the years ending December 31, 1999,
1998 and 1997, respectively.
The pro forma effect on net loss in this disclosure may not be representative of
the pro forma effect on net loss in future years because it does not take into
consideration expense related to grants made prior to 1995.
A summary of the Company's stock option activity for 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ----------------------------- -----------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 2,404,850 $2.33 2,648,350 $2.69 493,600 $5.29
Granted, at market price 0 $0.00 430,000 $1.76 1,700,000 $2.12
Granted, at below market price 0 $0.00 0 $0.00 65,000 $2.38
Granted, at above market price 200,000 $1.00 350,000 $1.75 682,000 $2.38
Exercised 0 $0.00 0 $0.00 0 $0.00
Canceled or expired (431,400) $2.89 (1,023,500) $2.82 (292,250) $3.38
Outstanding, end of year 2,173,450 $2.05 2,404,850 $2.33 2,648,350 $2.69
Exercisable, at end of year 1,705,116 $2.22 623,684 $3.17 380,600 $5.38
Weighted average fair value of
At market price N/A $0.96 $1.31
At below market price N/A N/A $1.26
At above market price $1.00 $1.05 $ .46
</TABLE>
There are 2,173,450 options outstanding as of December 31, 1999, having exercise
prices between $1.00 and $7.06 with a weighted average price of $2.05 and a
weighted average remaining contractual life of 2.96 years. Of these options
1,705,116 were exercisable at year's end with a weighted average price of $2.22.
The remaining 468,334 options have exercise prices between $1.00 and $2.38 with
a weighted average price of $2.25.
In connection with the 1998 issuance of the Series G1 Convertible Stock, the
Series F Preferred Stock was exchanged in full for the Series H preferred Stock.
In the first quarter of 1999, WGI waived its right to receive $997 in preferred
dividends that would have accrued in relation to the Series H Preferred Stock
during the first quarter of 1999. WGI has not waived any other right to receive
preferred dividends that accrued after the end of the first quarter of 1999.
The Company also issued 62,500 warrants to the placement agent and another
100,000 warrants to the purchasers of the Series G1 Preferred Stock. These
warrants, using the Black-Scholes Option Pricing Model, were valued at
approximately $196. The statement of shareholders' deficit reflects the face
amount of the 5% Series G1, less the value of the warrants issued and other
costs of issuance. Accretion and accrued dividends for 1998 were $55 and $73,
respectively. The new Series H Preferred Stock is identical to the Series F
Preferred Stock in every respect except that the Series H Preferred Stock will
be junior in priority to the Company's 5% Series G1 Convertible Preferred Stock.
On March 3, 1999, the Company completed the private placement of $5 million of
5% Convertible Debentures due March 3, 2002 with two institutional investors.
The Company received $102 in cash net of debt issuance costs and exchanged
Series G1 Preferred Stock for the balance. The Company utilized the net cash
proceeds from issuance of these Debentures to redeem all of the remaining
outstanding shares of the Company's 5% Series G1 Convertible Preferred Stock
(following the conversion of $348 stated value (including accrued dividends) of
such stock into 331,140 shares of the Company's Common Stock effective February
26, 1999, by two other institutional investors). The transaction also reflects
the Company's decision to forego the private placement of an additional $5,000
of 5% Series G2 Preferred Stock under the original purchase agreement with the
Series G1 Preferred investors. In connection with the sale of the $5,000 of
Debentures, the Company issued 2,500,000 warrants to purchase the Company's
Common Stock at $1.00 per share with a
Page 42 of 58
<PAGE>
term of five years. The fair market value, using the Black-Scholes option
pricing model, of the above mentioned warrants of approximately $2,250 has been
capitalized and included in the consolidated balance sheet as a debt discount.
These costs are being amortized over the term of the Debentures. Effective
September 14, 1999, in connection with the Company's late payment of interest
that was due July 1, 1999 and the holders' waiver of the associated Event of
Default, the Company agreed with the two holders of the Debentures that (A) the
Debentures would be amended to eliminate an election that the Company previously
had to make interest payments in either stock or cash and (B) the conversion
price for the debentures would remain fixed at $2.00 per share of Common Stock
until December 31, 1999, at which time the holders may adjust the conversion
price to $1.00 per share unless Signal procures the posting of not less than
$10,000 of new collateral in support of additional funding under its GMAC loan
on or before such date (in which case the Company may elect to adjust the
conversion price to $1.25 per share of Common Stock which election the Company
has made).
Under its Restated Articles of Incorporation, as amended, the Company has the
authority to issue 1,600,000 shares of preferred stock having no par value,
issuable in series, with the designation, powers, preferences, rights,
qualifications and restrictions to be established by the board of directors. At
December 31, 1999, the Company had authorized 400 shares of Series A Preferred
Stock, 250 shares of Series B Preferred Stock, and 1,000 shares of Series C
Preferred Stock, and 20,000 shares of Series E Preferred Stock, and 1,000 shares
of Series F Preferred Stock.
A summary of the Company's warrant activity for 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ----------------------------- -----------------------------
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, at
Beginning of year 14,571,106 $2.05 10,889,560 $4.21 9,754,560 $5.22
Issued, at market price 0 $0.00 8,816,546 $1.75 250,000 $2.38
Issued, at above market price 4,475,000 $1.73 162,500 $3.05 5,710,000 $1.86
Issued, at below market price 2,500,000 $1.00 $0.00 250,000 $2.50
Exercised 0 $0.00 $0.00 (4,630,000) $3.01
Canceled or expired (300,000) $7.06 (5,297,500) $6.02 (445,000) $7.06
Outstanding, at end of year 22,199,106 $1.70 14,571,106 $2.05 10,889,560 $4.21
Exercisable, at end of year 15,081,146 $2.16 11,138,075 $2.13 9,824,560 $4.40
Weighted average fair value of
warrants granted:
At market price $ N/A $1.27 $1.22
At below market price $1.27 N/A $1.69
At above market price $1.50 $1.21 $0.46
</TABLE>
Of the 22,199,106 warrants outstanding at December 31, 1999, 21,967,046 have
exercise prices between $1.00 and $3.125, with a weighted average exercise price
of $1.60 and a weighted average remaining contractual life of 5.27 years. Of
these warrants, 14,849,086 are exercisable with a weighted average exercise
price of $1.65. The remaining 232,060 warrants, all of which are presently
exercisable, have exercise prices of $8.52 or $11.61, with a weighted average
exercise price of $11.10 and a weighted average remaining contractual life of
1.85 years.
6. Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
reporting and income tax bases using enacted tax rates in effect for the year in
which the differences are expected to reverse.
There was no income tax provision or benefit recorded during the years ended
December 31, 1999, 1998 and 1997, due to the losses sustained by the Company.
Page 43 of 58
<PAGE>
Deferred income tax assets and liabilities for 1999 and 1998 reflect the impact
of temporary differences between the amount of assets and liabilities for
financial reporting and income tax reporting purposes. The Company has
established a valuation allowance for the entire amount of the net deferred tax
asset due to the uncertainty regarding the realizability of these assets.
Temporary differences and carry forwards which give rise to deferred tax assets
as of December 31, 1999 and 1998 are as follows (in thousands):
1999 1998
---------------------------
Deferred tax assets:
Tax loss carry forwards $ 114,600 $ 95,425
Inventory reserves 418 1,135
Accounts receivable reserves 95 1,748
Accrued interest 2,419
Nonrecurring charges 1,229
Other 1,719
---------------------------
Total deferred tax asset 117,532 101,256
Valuation allowance (117,532) (101,017)
Deferred tax liabilities:
LIFO to FIFO change (239)
---------------------------
Net deferred tax asset $ 0 $ 0
===========================
The Company and its subsidiaries file a consolidated federal income tax return.
At December 31, 1999, the Company had tax loss carryforwards of approximately
$302,000 which expire in years 2000 through 2019 if not utilized earlier. At the
time certain subsidiaries were acquired, they had tax loss carry forwards of
$17,400, $11,800, and $3,021, respectively, which are included above. These tax
loss carry forwards are subject to annual limitations imposed for the change in
ownership (as defined in Section 382 of the Internal Revenue Code) and
application of the consolidated income tax return rules.
The Company did not pay any income taxes in 1999, 1998 and 1997.
The provisions for income taxes differs from the amount computed using the
federal statutory rate of 34% as a result of the following:
Year ended December, 1999 1998 1997
- -------------------- --------------------------------------
Tax at federal statutory rate (34)% (34)% (34)%
Increase in valuation allowance 34% 34% 34%
--------------------------------------
-0- -0- -0-
======================================
7. Restructuring Charges
In the fourth quarter of 1998, the Company reevaluated its business strategy.
The reevaluation resulted in a shift from a capital-intensive manufacturing
company to a sales and marketing company with lower fixed costs. In connection
with the reevaluation of the Company's business strategy, the Company analyzed
the performance of its operations and divisions. This analysis indicated that
significant strategic and operational changes would be necessary, including the
closure of the Big Ball operations and the Chattanooga and Tazewell locations,
as well as the sale of the Heritage division and Grand Illusion.
Page 44 of 58
<PAGE>
In January 1999, the Company completed the sale of its Heritage division to
Heritage Sportswear, LLC, a new company formed by certain former members of
management of the Heritage division. Under the terms of the sale dated January
20, 1999, the Company retained accounts receivable and accounts payable of
approximately $100 and $500, respectively, and received cash consideration of
$2,500 and a note receivable of $400, subject to post closing adjustments. The
note receivable bears principal interest at 10% with accrued interest payable
with each principal payment, payable over five years.
The Company reached a decision during the fourth quarter of 1998 to close the
Big Ball operations, as well as the Chattanooga and Tazewell facilities.
In the first quarter of 1999, Signal closed its offices and warehouses in
Chattanooga, Tennessee and its production facilities in Tazewell, Tennessee and
shut down substantially all of its operations located there. Signal relocated
its sales and merchandising offices to New York, New York and relocated the
corporate offices and all accounting and certain related administrative
functions to Avenel, New Jersey.
In the second quarter of 1999, Signal closed its warehouse and printing facility
in Houston, Texas and shut down substantially all of its operations located
there (except for certain artist functions). The Houston facility was the
location for the design, manufacture, and sale of the company's Big Ball Sports
line of products. Signal relocated the sales and design functions to New York,
New York and has outsourced all of the manufacturing functions for the Big Ball
Sports line to third parties. The Company's negative gross profit for the second
quarter of 1999 includes $1,900 related to closeout goods and $500 from customer
chargebacks related to the Big Ball shutdown.
In July 1999, the Company completed the sale of its GIDI Holdings, Inc.
subsidiary (also known as Grand Illusion) to the previous president of the
Company. Under the terms of the sale dated July 31, 1999, the Company sold all
of the issued and outstanding common stock of GIDI Holdings in consideration of
the assumption by the buyer of $900 of short-term liabilities of GIDI Holdings
(including the release of any guarantees of the Company of such obligations).
This resulted in the Company recognizing a loss on sale of $85. The Company also
retained 35 shares of Series A Preferred Stock in GIDI Holdings. The Preferred
Stock has the following attributes: (a) Par value of $10,000 per share, (b)
senior to all other classes of capital stock in GIDI Holdings, (c) cumulative 6%
cash dividends accrue and are payable semi-annually on June 30 and December 31
each year, (d) if GIDI Holdings or its assets are sold within 18 months after
the last share of Preferred Stock has been redeemed, the Preferred Holders are
entitled to receive 35% of all proceeds of sale in excess of $1,000, (e) veto
rights on any organic change in GIDI Holdings, (f) convertible (in the
aggregate) into 35% of the common stock of GIDI Holdings, and (g) starting
December 31, 1999, mandatory redemption of 6 shares each 6 months.
Management also assessed (1) the realizability of the goodwill recorded for Big
Ball and Grand Illusion when they were acquired in late 1997 and (2) the fair
value of the assets associated with Big Ball and Grand Illusion and those
associated with the Chattanooga and Tazewell plant locations. The determination
of goodwill impairment for Big Ball and Grand Illusion was based on the
Company's plans to close down Big Ball and the expected loss resulting from the
sale of Grand Illusion. Neither Big Ball nor Grand Illusion was expected to
provide further cash flows sufficient to recover any of the remaining goodwill,
and the goodwill was deemed fully impaired. Accordingly, the Company recorded a
$4,542 charge in 1998 to write-off the remaining goodwill resulting from the Big
Ball and Grand Illusion acquisitions.
Both of these actions are due to continuing operating losses and the uncertainty
about the Company's ability to return the divisions to profitability. Net sales
and net operating losses for Big Ball and Grand Illusion for 1999, 1998 and 1997
were as follows (in thousands):
Big Ball Grand Illusion
-------- --------------
1999
----
Net Sales $2,327 $1,991
Net Loss $1,840 $28
Page 45 of 58
<PAGE>
1998
----
Net Sales $7,638 $3,091
Net Loss $6,885 $1,153
1997
----
Net Sales $1,362 $ 347
Net Loss $ 445 $ 167
In connection with the decisions discussed above, the Company recorded a $2,758
restructuring charge in 1998, which was composed of the write-down of fixed
assets of the aforementioned divisions and locations, employee termination
benefits, and other exit costs such as lease buyouts, contract buyouts, legal
and professional costs associated with plant closures, and cost of employees
incurred after operations cease that are associated with the closing of the
Chattanooga location.
8. Pension and Retirement Plans
The Company sponsors a defined contribution plan for employees. The Company
makes contributions to the plan equal to a percentage of the participants'
contributions within certain limitations. The Company recognized expense related
to this plan of $19, $120 and $121, in 1999, 1998 and 1997, respectively. The
Company's policy is to fund amounts accrued annually.
Certain former employees of Signal participate in a defined benefit pension plan
negotiated with a union (multi-employer plan) that no longer represents any
employee of the Company. The total multi-employer withdrawal liability was
approximately $69 as of December 31, 1998, which was paid in 1999.
9. Valuation and Qualifying Accounts
Valuation and qualifying accounts by classification amounted to the following as
of December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Balance at Charged to
beginning costs and Balance at
period expense Other Deductions end of period
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Deducted from asset accounts
Allowance to reduce inventories
to net realizable value $ 3,023 $ 599 $ 2,523 $ 1,099
Allowance for doubtful accounts 2,443 134 0 2,326 251
-------------------------------------------------------------------------------------
$ 5,466 $ 733 0 $ 4,849 $ 1,350
Year ended December 31, 1998
Deducted from asset accounts
Allowance to reduce inventories
to net realizable value $ 4,561 $ 1,194 $ 2,732 $ 3,023
Allowance for doubtful accounts 1,887 601 45(1) 2,443
-------------------------------------------------------------------------------------
$ 6,448 $ 1,795 0 $ 2,777 $ 5,466
Page 46 of 58
<PAGE>
Year ended December 31, 1997
Deducted from asset accounts
Allowance to reduce inventories
to net realizable value $ 3,544 $ 4,202 $ 3,185 $ 4,561
Allowance for doubtful accounts 1,573 107 391(2) 184(1) 1,887
-------------------------------------------------------------------------------------
$ 5,117 $ 4,309 391 $ 3,369 $ 6,448
</TABLE>
(1) Uncollectable accounts written off, net of recoveries.
(2) Represents allowance for doubtful accounts acquired in acquisition.
10. Commitments and Contingencies
Operating Leases
The Company occupies sales and administrative offices and uses certain equipment
under operating lease arrangements. Rent expense aggregated approximately $1,048
in 1999, $1,377 in 1998 and $1,229 in 1997. Future minimum rental commitments
for all noncancelable operating leases as of December 31, 1999 are as follows:
2000 $885
2001 654
2002 493
2003 475
2004 456
Thereafter 821
------
$3,784
======
Real estate taxes, insurance, and maintenance expense are generally obligations
of the Company.
Letters of Credit Supported by Related Parties
The Company uses letters of credit (which are supported by commitments from
entities controlled by FS Signal) to assist the Company in certain matters.
During 1997, the Company entered into a Reimbursement Agreement and a Promissory
Note with FS Signal whereby the Company agreed to repay amounts that FS Signal
pays in support of these letters of credit. At December 31, 1999, the Company
had $3,981 in current portion of long-term due to FS Signal for creditor
drawdowns on these letters of credit, which were provided by FS Signal in 1999
($2,000) and prior years.
Letters of Credit
Outstanding letters of credit were $12,054 as of December 31, 1999.
Royalty and Other Commitments
Pursuant to the term of various license agreements, the Company is obligated to
pay future minimum royalties as follows as of December 31, 1999:
2000 $3,516
2001 2,910
2002 2,426
2003 960
------
$9,812
======
The Company has accrued all minimum royalties due as of December 31, 1999.
Page 47 of 58
<PAGE>
Financial Advisor Agreement
Effective May 9, 1997 the Company entered into an agreement with Weatherly
Financial ("Weatherly") pursuant to which Weatherly was engaged to act as
financial advisor to the Company on an exclusive basis with respect to
evaluating, pricing, negotiating and closing mergers and acquisitions and other
investments and arranging financing on the Company's behalf ( the "Weatherly
Agreement"). The Weatherly Agreement had a term of two years, subject to the
Company's right to terminate the agreement upon ninety days' prior written
notice after May 8, 1998. Weatherly was to be compensated for these services
through: (a) a $5 base monthly fee and (b) prescribed additional success fees
for completed financing or acquisition transactions arranged through Weatherly's
assistance. In addition, Weatherly was granted warrants, effective May 9, 1997,
to purchase 805,000 shares of the Company's Common Stock at $2.50 per share in
connection with such services. These warrants vest upon achievement of certain
business objectives with respect to the Company's business performance which
were part of an overall arrangement that also included additional warrant
opportunities. Subject to its fiduciary duties, the Company also agreed to use
its efforts to cause two persons selected by Weatherly to be nominated for
election to the Company's Board of Directors at each annual meeting through the
term of the Agreement.
When the Weatherly Agreement was executed, all of the parties thereto
anticipated that Thomas A. McFall and John W. Prutch, in their capacities as
associates of Weatherly, would play a significant role in performing the
services to be provided to the Company by Weatherly, and, in such capacity,
would receive a significant portion of the compensation payable under the
Weatherly Agreement. In connection with the Company's subsequent employment of
Mr. McFall as CEO of the Company, and Mr. Prutch as President of the Company,
the Company renegotiated the Weatherly Agreement, replacing it with an
agreement approved by the Board of Directors on August 10, 1998 to be effective
as of May 8, 1998, directly with Messrs. McFall and Prutch.
Under the terms of the May 8, 1998 Agreement, the Warrants previously issued to
Weatherly were assigned 50% to Mr. McFall and 50% to Mr. Prutch, and have been
repriced to $1.75 per share. Each of Messrs. McFall and Prutch also were issued
additional warrants, with a term of ten years, for the purchase of up to
1,902,273 shares of Common Stock at an exercise price of $1.75 per share. By an
agreement dated as of July 31, 1999, Mr. Prutch and Mr. McFall each assigned
768,258 warrants to Mr. Howard Weinberg, then Chief Financial Officer of the
Company, for his services to the Company as well as his services rendered to the
Company in connection with the activities covered by the Company's agreement
with Messrs. Prutch and McFall. Mr. Weinberg's warrants are subject to the same
terms and conditions as the Prutch and McFall warrants. All of these warrants
are subject to a new vesting schedule which provides that 33.4% of the warrants
(513,195 shares for each of Messrs. McFall, Prutch and Weinberg) are immediately
exercisable. Mr. Prutch also assigned to Mr. McFall all future rights to receive
compensation in any form pursuant to the May 8, 1998 Agreement.
Each of the three remaining incremental installments of 22.2% of the total
warrants (approximately 341,107 shares for each of Messrs. McFall, Prutch and
Weinberg) will vest on the basis of the achievement of goals concerning
prescribed increases in the Company's annual pre-tax earnings and/or the average
public trading price of its Common Stock over any period of 120 consecutive
calendar days. The warrants also will contain customary anti-dilution provisions
and piggyback registration rights, and Messrs. McFall, Prutch and Weinberg will
be restricted in their ability to dispose of the Common Stock issuable under the
Warrants without the prior consent of WGI, LLC.
In connection with the Company's sale of Grand Illusion, Mr. Prutch resigned as
President and as a director of the Company, and the Company and Mr. Prutch
agreed to terminate their May 8, 1998 agreement as of July 31, 1999. The May 8,
1998 agreement with Mr. McFall remains in effect. Under the terms of the
termination of that agreement, Mr. Prutch retained 1,536,515 warrants and was
issued 83,333 shares of the Company's Common Stock pursuant to the Company's
1999 Stock Incentive Plan in satisfaction of all obligations of that Company to
him under the May 8, 1998 Agreement. Mr. Prutch was also paid $50 in severance
payments during 1999.
Page 48 of 58
<PAGE>
The May 8, 1998 agreement also provides that Messrs. McFall and Prutch (prior to
the assignment of rights from Mr. Prutch to Mr. McFall and the termination of
the May 8, 1998 agreement with Mr. Prutch as of July 31, 1999), collectively,
will receive a success fee equal to three percent of the proceeds of any
financing transactions which they participate in developing, negotiating and
closing with third parties for the benefit of the Company, a portion of which
may be paid in additional equity under certain circumstances. They also
(collectively until the termination/assignment of Mr. Prutch's rights) will
receive a success fee in connection with identifying, negotiating and closing
any Acquisition Transactions (as defined in the agreement) equal to three
percent of the Aggregate Consideration paid by the Company (as defined in the
Agreement). All cash payments to Mr. McFall (and formerly Mr. Prutch) are
subject to reduction by the amount of any compensation which they receive in
their capacities as officers of the Company.
Guarantee
In connection with the sale of property, plant and equipment in a prior year,
the Company guaranteed certain debt of the purchaser. The balance outstanding at
December 31, 1999 was approximately $1,600. The purchaser's operations have
recently been curtailed and there is no assurance that normal operations will
shortly resume. The Company has provided for an estimated loss, after
liquidation of related collateral, of $700 which is included in selling, general
and administrative expenses for the year ended December 31, 1999.
Legal Proceedings
The Company is a party to various legal proceedings incidental to its business.
The ultimate disposition of these matters is not presently determinable but will
not, in the opinion of management, have a material adverse effect on the
Company's financial condition or results of operations.
On April 5, 1999, litigation was filed against the Company by former employees
of the Company's LaGrange, Georgia facility, which the Company closed in
December 1996, alleging that the Company violated the provisions of the WARN Act
in connection with the closing of the LaGrange facility. This litigation was
settled by the Company in December 1999 for an amount not material to the
financial condition or results of operations of the Company.
The Company is also in a dispute regarding certain finished garment purchases
from a third party vendor. The vendor had delivered a portion of the garments
pursuant to the Company's purchase agreement when a dispute arose between the
Company and the vendor concerning quality problems and failure of the goods to
meet the Company's specifications. At that time, the Company was obligated under
the agreement for the purchase of additional goods for which the Company did not
take delivery. The Company is asserting breach of contract against the vendor
for both failure of quality and timely delivery. The vendor is asserting breach
of contract against the Company. No lawsuit has been filed. The Company has
reserved $1,000 to cover anticipated costs relating to the resolution of its
dispute with this third party vendor, including legal fees. This $1,000 charge
is reflected in selling, general and administrative expenses for 1998 in the
accompanying consolidated statements of operations.
On April 14, 1999, litigation was commenced against the Company and an affiliate
of the Company's principal shareholders ("Shareholder Affiliate") by a
consulting and investment advisory services company alleging the Company and/or
the Shareholder Affiliate owes the plaintiff fees in connection with the
Company's acquisition of the business and assets of Tahiti Apparel in March
1999. The Company and the Shareholder Affiliate have independently filed answers
denying the allegations in the litigation complaint. The Company has accrued
$400 for legal fees and other potential costs of this litigation.
Page 49 of 58
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The following information previously was reported by the Company in Current
Reports on Form 8-K dated July 21, 1999 and August 20, 1999, in connection with
the resignation of Arthur Andersen LLP as the Company's independent public
accountants and the subsequent appointment of the firm of Goldstein Golub
Kessler LLP as the Company's independent public accountants.
July 21, 1999 Form 8-K:
(a) On July 21, 1999, Arthur Andersen LLP ("Andersen"), resigned as the
independent public accountants and auditors of Signal Apparel Company,
Inc. (the "Registrant"). The Registrant is currently in the process of
selecting an independent public accountant as a successor to Andersen.
During the Registrant's latest two fiscal years and the subsequent
period through July 21, 1999, the date on which Andersen resigned as
the Registrant's independent public accountants and auditors, there
were no disagreements between the Registrant and Andersen on any
matter relating to accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which if not
resolved to Andersen's satisfaction would have caused it to make
reference to the subject matter of such disagreement in connection
with its reports. Andersen's reports on the Registrant's financial
statements for the fiscal years ended December 31, 1997 and 1998 were
modified when issued with respect to an explanatory paragraph
describing a going concern issue; however, such reports did not
otherwise contain any adverse opinions or disclaimers of opinion, nor
were such reports modified as to audit scope, accounting principles,
or other uncertainty.
On July 16, 1999, Andersen issued a memorandum on internal control
structure relating to the year ended December 31, 1998. That
memorandum described certain deficiencies in internal control relating
to: (i) communications between accounting and executive management;
(ii) missing source documentation; (iii) general ledger closing
procedures; and (iv) account reconciliations.
The deficiencies noted in the Andersen memorandum resulted, in large
part, from the move of the Registrant's Corporate Headquarters from
Chattanooga, Tennessee to Avenel, New Jersey in the period from
December 1998 through January 1999. A near-complete turnover in
accounting personnel occurred during this period in addition to the
disruption in the Registrant's management information and financial
reporting systems that resulted from this move.
Prior to the receipt of the Andersen Memorandum, the Registrant
engaged the services of GDL Management Services Division of Mahoney
Cohen & Company, C.P.A., P.C. to upgrade the Registrant's accounting
function. This engagement has been expanded to address specifically
the issues raised by the Andersen Memorandum.
In response to the Andersen Memorandum, the Registrant has taken steps
to:
1. Implement more thorough policies and procedures to ensure more
complete and timely communications between its accounting
department and management regarding any activities having
significant financial implications so that such activities will
be appropriately reflected in the Registrant's books and records;
2. Update and publish its formal policies and procedures with
respect to document retention and storage in order to facilitate
distribution to appropriate accounting personnel; and
3. Update and publish its formal month-end closing procedures and
account reconciliation procedures to reduce to a reasonably low
level the possibility that the absence or weakness of such
procedures might result in inaccuracies in the Registrant's
financial statements.
Page 50 of 58
<PAGE>
Additionally, the Registrant has addressed staffing issues in
order to improve the supervision and review of accounting matters
generally.
The Registrant has authorized Andersen to respond fully to the
inquiries of the Registrant's successor accountant. The
Registrant has provided Andersen with a copy of the disclosures
contained in this Form 8-K, and has requested that Andersen
furnish the Registrant with a letter addressed to the Securities
and Exchange Commission stating whether it agrees with the
statements made by the Registrant therein.
August 20, 1999 Form 8-K:
(a) On August 20, 1999, the Registrant appointed the accounting firm of
Goldstein Golub Kessler LLP ("Goldstein") as the Registrant's
independent public accountants and auditors, effective immediately.
The decision to engage Goldstein as the Registrant's accountants and
auditors was approved by the full Board of Directors. During the
Registrant's two most recent fiscal years and the subsequent interim
period through August 20, 1999, Goldstein was not consulted with
respect to any of the items referred to in Item 304(a)(2) of
Regulation S-K.
PART III
Those portions of the Company's Proxy Statement for its 1999 Annual Meeting of
Shareholders described below are incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Election of Directors and Executive Officers
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation Information and Employment Agreements
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Compensation Committee Interlocks and Insider Participation and Certain
Relationships and Related Transactions
Page 51 of 58
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)1. Financial Statements and Schedules
The financial statements are incorporated by reference under Part II, Item
8 and are set forth in the Index to Financial Statements and Schedules
found in Part II, Item 8.
(a)2. Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts (included herewith in
audited financial statements)
All other schedules are omitted as the required information is inapplicable
or the information is presented in the consolidated financial statements or
related notes.
(a)3. Exhibits
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference (to SEC
Number Description of Exhibit File No. 1-2782) or Filed Herewith
------ ---------------------- --------------------------------------
<S> <C> <C>
2.1 Asset Purchase Agreement dated as of December 17, 1998, by and Exhibit 10.1 to current report on Form 8-K dated
among the Company, Tahiti Apparel, Inc. and the stockholders March 22, 1999.
of Tahiti Apparel, Inc.
2.2 Amendment, dated March 16, 1999, to Asset Purchase Agreement Exhibit 10.2 to current report on Form 8-K dated
dated as of December 17, 1998, by and among the Company, March 22, 1999.
Tahiti Apparel, Inc. and the stockholders of Tahiti
Apparel, Inc.
2.3 Second Amendment, dated April 15, 1999, to Asset Purchase Exhibit 10.1 to Form 10-Q for the quarter ended
Agreement dated as of December 17, 1998, by and among the April 3, 1999.
Company, Tahiti Apparel, Inc. and the stockholders of
Tahiti Apparel, Inc.
3.1 Restated Articles of Incorporation of Signal Apparel Company, Filed Herewith.
Inc. as amended through January 5, 2000.
3.2 Copy of Bylaws as amended March 23, 1992. Exhibit 3-2 to Form 10-K for the year ended
December 31, 1991.
4.1 Form of 5% Convertible Debentures, due March 3, 2003, of Exhibit 4.1 to Current Report on Form 8-K dated
Signal Apparel Company, Inc. March 3, 1999.
10.1 Warrant Purchase Agreement, dated as of March 1, 1991, Exhibit 10.25 to Form 10-K for the year ended
between the Company, The Shirt Shed, Inc. and Licensing December 31, 1991.
Corporation of America.
10.2 Warrant No. 002 issued to Licensing Corporation of America, Exhibit 10.1 to the Form 10-Q for the quarter
covering 193,386 shares of the Company's Common Stock, ended September 30, 1994.
dated as of July 27, 1991 and expiring July 22, 2001.
</TABLE>
Page 52 of 58
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference (to SEC
Number Description of Exhibit File No. 1-2782) or Filed Herewith
------ ---------------------- --------------------------------------
<S> <C> <C>
10.3 Warrant No. 003 issued to Licensing Corporation of America, Exhibit 10.2 to the Form 10-Q for the quarter
covering 38,674 shares of the Company's Common Stock, ended September 30, 1994.
dated as of April 30, 1993 and expiring April 30, 2003.
10.4 Promissory Note dated March 31, 1994 between the Company Exhibit 10.2 to Form 10-Q for the quarter ended
and FS Signal Associates 1. March 31, 1994.
10.5 Subordination Agreement, dated March 30, 1994, between the Exhibit 10.47 to Form 10-K for the year ended
Company, FS Signal Associates and BNY Financial Corporation. December 31, 1993.
10.6 Real Estate Mortgage, Security Agreement, Assignment of Lease Exhibit 10.4 to current report on Form 8-K filed
and Rents and Fixture filing dated March 31, 1995 between The on May 10, 1995.
Shirt Shed and Walsh Greenwood.
10.7 First Amendment dated August 10, 1995, to Real Estate Mortgage, Exhibit 10.102 to Form 10-K for the year ended
Security Agreement, Assignment of Lease and Rents and Fixture December 31, 1995.
Filing dated March 31, 1995, between The Shirt Shed and Walsh
Greenwood.
10.8 Reimbursement Agreement and related Promissory Note dated Exhibit 10.108 to Form 10-K for the year ended
January 30, 1997, among the Company, FS Signal Associates December 31, 1996.
Limited Partnership and FS Signal Associates II Limited
Partnership, concerning renewal and guaranty arrangements
with respect to certain letters of credit.
10.9 Stock Purchase Agreement, dated October 31, 1997, by and Exhibit 2-1 to Current Report on Form 8-K dated
among the Company, Lee Ellis and Jimmy Metyko. November 5, 1997.
10.10 Stock Purchase Agreement, dated October 31, 1997, by and Exhibit 2-2 to Current Report on Form 8-K dated
among the Company and Elizabeth Miller. November 5, 1997.
10.11 Convertible Preferred Stock Purchase Agreement dated Exhibit 10.1 to Current Report on Form 8-K dated
September 17, 1998, among the Company and four institutional September 17, 1998.
purchasers of the Company's 5% Convertible Preferred Stock,
Series G1.
10.12 Registration Rights Agreement dated September 17, 1998, Exhibit 10.2 to Current Report on Form 8-K dated
among the Company and four institutional purchasers of September 17, 1998.
the Company's 5% Convertible Preferred Stock, Series G1.
10.13 Warrants to purchase Common Stock, issued to purchasers of Exhibit 10.3 to Current Report on Form 8-K dated
Series G1 Preferred Stock, dated September 17, 1998. September 17, 1998.
</TABLE>
Page 53 of 58
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference (to SEC
Number Description of Exhibit File No. 1-2782) or Filed Herewith
------ ---------------------- --------------------------------------
<S> <C> <C>
10.14 Warrants to purchase Common Stock, issued to placement agent Exhibit 10.4 to Current Report on Form 8-K dated
for Series G1 Preferred Stock, dated September 17, 1998. September 17, 1998.
10.15 Securities Purchase Agreement dated March 3, 1999, among the Exhibit 10.1 to Current Report on Form 8-K dated
Company and two institutional purchasers of the Company's March 3, 1999.
5% Convertible Debentures due March 3, 2003.
10.16 Registration Rights Agreement dated March 3, 1999, among the Exhibit 10.2 to Current Report on Form 8-K dated
Company and two institutional purchasers of the Company's March 3, 1999.
5% Convertible Debentures due March 3, 2003.
10.17 Form of Warrants to purchase Common Stock issued to purchasers Exhibit 10.3 to Current Report on Form 8-K dated
of 5% Convertible Debentures, dated March 3, 1999. March 3, 1999.
10.19 Agreement, dated March 16, 1999, between Tahiti Apparel, Inc. Exhibit 10.4 to Current Report on Form 8-K dated
and Ming Yiu Chan, together with related Form of Promissory March 22, 1999.
Note (assumed by the Company at closing).
10.20 Stock Resale Agreement, dated March 16, 1999, between the Exhibit 10.5 to Current Report on Form 8-K dated
Company, Tahiti Apparel, Inc.,Zvi Ben-Haim, Michael Harary March 22, 1999.
and Ming Yiu Chan.
10.21 Registration Rights Agreement, dated March 16, 1999, between Exhibit 10.6 to Current Report on Form 8-K dated
the Company, Tahiti Apparel, Inc.,Zvi Ben-Haim, Michael March 22, 1999.
Harary and Ming Yiu Chan.
10.22 Securities Transfer Agreement, dated March 16, 1999, between Exhibit 10.9 to Current Report on Form 8-K dated
the Company and Zvi Ben-Haim. March 22, 1999.
10.23 Securities Transfer Agreement, dated March 16, 1999, between Exhibit 10.10 to Current Report on Form 8-K dated
the Company and Michael Harary. March 22, 1999.
10.24 Form of Warrants to be issued to each of Zvi Ben-Haim and Exhibit 10.11 to Current Report on Form 8-K dated
Michael Harary under Securities Transfer Agreements dated March 22, 1999.
March 16, 1999.
10.25 Revolving Credit, Term Loan and Security Agreement, dated Exhibit 10.12 to Current Report on Form 8-K dated
March 12, 1999, between the Company and GMAC [as successor March 22, 1999.
to BNY Financila Corporation (individually and as Agent)].
</TABLE>
Page 54 of 58
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference (to SEC
Number Description of Exhibit File No. 1-2782) or Filed Herewith
------ ---------------------- --------------------------------------
<S> <C> <C>
10.26 Second Amended and Restated Factoring Agreement, dated March Exhibit 10.13 to Current Report on Form 8-K dated
12, 1999, between the Company and GMAC (as successor to BNY March 22, 1999.
Financial Corporation).
10.27 Subscription and Stock Purchase Agreement, dated March 12, Exhibit 10.14 to Current Report on Form 8-K dated
1999, between the Company and GMAC [as successor to March 22, 1999.
BNY Financial Corporation].
10.28 Form of Warrants to purchase the Company's Common Stock issued Exhibit 10.15 to Current Report on Form 8-K dated
to GMAC [as successor to BNY Financial Corporation, dated March 22, 1999.
March 12, 1999.
10.29 Letter Agreement dated May 26, 1999 amending the Revolving Exhibit 10.2 to Form 10-Q/A, Amendment No. 1 to
Credit, Term Loan and Security Agreement dated March 12, 1999 Form 10-Q for the quarter ended April 3, 1999.
between the Company and its senior lender, BNY Financial
Corporation (in its own behalf and as agentfor other
participating lenders), and waiving compliance with certain
provisions thereof.
10.30 Letter Agreement dated August 23, 1999 amending the Revolving Exhibit 10.6 to Form 10-Q Form 10-Q for the
Credit, Term Loan and Security Agreement dated March 12, 1999 quarter ended July 3, 1999.
between the Company and its senior lender, BNY Financial
Corporation (in its own behalf and as agentfor other
participating lenders), and waiving compliance with certain
provisions thereof.
10.31 Letter Agreement dated November 15, 1999 amending the Revolving Exhibit 10.6 to Form 10-Q for the quarter ended
Credit, Term Loan and Security Agreement dated March 12, 1999 October 2, 1999.
between the Company and its senior lender, BNY Financial
Corporation (in its own behalf and as agent for other
participating lenders), and waiving compliance with certain
provisions thereof.
10.32 Restructuring Agreement dated as of November 21, 1997 between Exhibit 10.1 to Form 10-Q for the quarter ended
the Company and WGI, LLC. July 3, 1999
10.33 Warrant to Purchase 4,500,000 shares of Common Stock issued to Exhibit 10.2 to Form 10-Q for the quarter ended
WGI, LLC, dated December 30, 1997. July 3, 1999
10.34 Warrant to Purchase 5,000,000 shares of Common Stock issued to Exhibit 10.4 to Form 10-Q for the quarter ended
WGI, LLC, dated December 30, 1997. July 3, 1999
10.35 Credit Agreement dated as of May 8, 1998 among the Company, Exhibit 10.3 to Form 10-Q for the quarter ended
three subsidiaries of the Company (The Shirt Shed, Inc., GIDI July 3, 1999
Holdings, Inc. and Big Ball Sports, Inc.) and WGI, LLC.
10.36 Letter Agreement dated May 14, 1999 containing waiver of Exhibit 10.3 to Form 10-Q/A, Amendment No. 1 to
dividends on the Company's Series II Preferred Stock for the Form 10-Q for the quarter ended April 3, 1999.
First Quarter of 1999 by WGI, LLC, the sole holder of
such stock.
</TABLE>
Page 55 of 58
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference (to SEC
Number Description of Exhibit File No. 1-2782) or Filed Herewith
------ ---------------------- --------------------------------------
<S> <C> <C>
10.37 Reimbursement Agreement and related Promissory Note dated Filed Herewith.
June 30, 1999, among the Company and WGI, LLC, concerning
collateral and guaranty arrangements with respect to the
Company's senior bank financing.
10.38 Letter Agreement dated August 10, 1998 among the Company, Exhibit 10.5 to Form 10-Q for the quarter ended
Thomas A. McFall and John W. Prutch. July 3, 1999.
10.39 Stock Purchase Agreement dated as of July 31, 1999 by and Exhibit 10.1 to Form 10-Q for the quarter ended
among the Company (as Seller) and John Prutch (as Buyer) October 2, 1999.
concerning sale of all of the outstanding common stock of
GIDI Holdings, Inc.
10.40 Warrant Certificate to purchase 1,536,515 shares of the Exhibit 10.2 to Form 10-Q for the quarter ended
Company's Common Stock issued to John Prutch as of October 2, 1999.
August 1, 1999.
10.41 Letter Agreement dated as of August 1, 1999 concerning the Exhibit 10.4 to Form 10-Q for the quarter ended
Revolving Credit, Term Loan and Security Agreement dated October 2, 1999.
March 12, 1999 between the Company and its senior lender,
GMAC Commercial Credit LLC (as successor to BNY Financila
Corporation, in its own behalf and as agent for other
participating lenders), waiving compliance with certain
provisions thereof.
10.42 Stock Pledge and Security Agreement and Collateral Assignment Exhibit 10.5 to Form 10-Q for the quarter ended
of Stock Purchase Agreement, dated as of August 1, 1999 October 2, 1999.
between the Company and its senior lender, GMAC Commercial
Credit LLC (as successor to BNY Financial Corporation, in its
own behalf and as agent for other participating lenders),
concerning Series A Preferred Stock of GIDI Holdings, Inc.
10.43 Letter Agreement dated September 14, 1999 regarding the Exhibit 10.7 to Form 10-Q for the quarter ended
Company's 5% Convertible Subordinated Debentures due October 2, 1999.
March 3, 2002.
10.44 Signal Apparel Company, Inc. 1999 Stock Incentive Plan Filed Herewith.
10.45 Separation Agreement with David E. Houseman, dated as of Exhibit 10.35 to Form 10-K for the year ended
October 1, 1998. December 31, 1998.
10.46 Separation Agreement dated as of July 31, 1999 by and among Exhibit 10.3 to Form 10-Q for the quarter ended
the Company and John W. Prutch. October 2, 1999.
10.47 Employment Agreement, dated March 16, 1999, between the Exhibit 10.7 to Current Report on Form 8-K dated
Company and Zvi Ben-Haim. March 22, 1999.
</TABLE>
Page 56 of 58
<PAGE>
<TABLE>
<CAPTION>
Exhibit Incorporation by Reference (to SEC
Number Description of Exhibit File No. 1-2782) or Filed Herewith
------ ---------------------- --------------------------------------
<S> <C> <C>
10.48 Employment Agreement, dated March 16, 1999, between the Company Exhibit 10.8 to Current Report on Form 8-K dated
and Michael Harary. march 22, 1999.
10.49 Lease Agreement dated as of May 1, 1997, for Tahiti Apparel New Filed Herewith.
York Showroom.
10.50 Lease Agreement dated as of August 21, 1997, for Tahiti Apparel Filed Herewith.
New York Executive Offices.
10.51 Sublease Agreement dated as of May 8, 1998, for the Company's Filed Herewith.
principal executive offices in Avenel, New Jersey.
10.52 Letter Agreement dated March 17, 2000 amending the Revolving Filed Herewith.
Credit, Term Loan and Security Agreement dated March 12, 1999
between the Company and its senior lender, GMAC Commercial
Credit LLC (as successor to BNY Financial Corporation, in its
own behalf and as agent for other participating lenders), and
waiving compliance with certain provisions thereof.
21 List of Subsidiaries Filed Herewith.
23.1 Consent of Goldstein Golub Kessler LLP Filed Herewith.
23.2 Consent of Arthur Andersen LLP Filed Herewith.
27 Financial Data Schedule Filed Herewith (EDGAR version only).
</TABLE>
Page 57 of 58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Stephen Walsh
-------------------------
Stephen Walsh
Chief Executive Officer
Date: March 29, 2000
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below or on counterparts thereof by the following persons on
behalf of the registrant and in the capacities and on the date indicated.
Name Capacity Date
- ---- -------- ----
/s/ Henry L. Aaron Director March 29, 2000
- ------------------
Henry L. Aaron
/s/ Zvi Ben-Haim Director March 29, 2000
- ------------------
Zvi Ben-Haim
/s/ Barry F. Cohen Director March 29, 2000
- ------------------
Barry F. Cohen
/s/ Paul R. Greenwood Director March 29, 2000
- ------------------
Paul R. Greenwood
/s/ Michael Harary Director March 29, 2000
- ------------------
Michael Harary
/s/ Thomas A. McFall Director March 29, 2000
- ------------------
Thomas A. McFall
/s/ Stephen Walsh Director, March 29, 2000
- ------------------ Chairman of the Board and
Stephen Walsh Chief Executive Officer
/s/ Kenneth L. Larsen Chief Accounting Officer March 29, 2000
- ------------------ (principal financial officer)
Kenneth L. Larsen
RESTATED ARTICLES OF INCORPORATION
OF
SIGNAL APPAREL COMPANY, INC.
(formerly Wayne-Gossard Corporation)
FIRST: The name of the Corporation is Signal Apparel Company, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Indiana is 1 North Capitol Avenue in Indianapolis, Indiana 46204. The
name of the registered agent of the Corporation at such address is The
Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may now or hereafter be organized under the
Business Corporation Law of the State of Indiana.
FOURTH: The total number of shares of capital stock of all classifications
which the Corporation shall have authority to issue is One Hundred Fifty-One
Million Six Hundred Thousand (151,600,000) shares, divided into two classes, as
follows: One Hundred Fifty Million (150,000,000) shares of Common Stock having a
par value of $.01 per share, One Million Six Hundred Thousand (1,600,000) shares
of Preferred Stock having no par value.
A. Authorized and unissued shares of the Common Stock may be issued from
time to time as additional shares of the Common Stock outstanding at the date of
these Restated Articles or, as provided in Division B, shares of Common Stock or
Preferred Stock may be issued in one or more additional series, all for such
consideration as the Board of Directors may determine. All shares of any one
series shall be of equal rank and identical in all respects.
B. Authority is hereby expressly granted to the Board of Directors by the
affirmative vote of 75% of the Directors from time to time to create additional
series of Common Stock and Preferred Stock and, in connection with the creation
of each such series, to fix by the resolution or resolutions providing for the
issuance of shares thereof, the number of shares of such series, and the
designations, powers, preferences and rights and the qualifications, limitations
or restrictions thereof.
FIFTH: The business and affairs of the Corporation shall be managed by the
Board of Directors consisting of not less than 5 nor more than 10 persons. The
exact number of Directors within the limitations specified in the preceding
sentence shall be fixed from time to time by the Board of Directors pursuant to
a resolution adopted by a majority of the entire Board of Directors. The
Directors need not be elected by ballot unless required by the Bylaws of the
Corporation.
<PAGE>
Subject to the rights of the holders of any series of Preferred Stock then
outstanding to elect directors pursuant to any resolution adopted by the Board
of Directors pursuant to the authority granted thereby, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall be filled
by a majority vote of the directors then in office, and any director so chosen
shall hold office for a term expiring at the next annual meeting of
stockholders. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Meetings of the Board of Directors may be conducted through the use of any
means of communication by which all the Directors participating may
simultaneously hear each other during the meeting, including telephone
conference calls. A director participating in a meeting by such means is deemed
to be present in person at the meeting.
Whenever these Restated Articles require the affirmative vote 75% of the
members of the Board of Directors to take any action, if 75% of the number of
members of the Board of Directors is not a whole number, then the number of
votes required shall be determined in accordance with the following sentence. If
75% of the number of members of the Board of Directors is greater than a whole
number but less than such whole number plus .5, then the number of votes
required shall be such whole number. If 75% of the number of members of the
Board of Directors is greater than or equal to .5 plus such whole number, then
the number of affirmative votes required shall be the next higher whole number.
SIXTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Indiana, the Board of Directors is expressly authorized to
adopt, amend or repeal the Bylaws of the Corporation by majority vote.
SEVENTH: Special Meetings of stockholders of the Corporation may be called
upon not less than 10 nor more than 60 days' written notice by the Board of
Directors pursuant to a resolution approved by 75% of the entire Board of
Directors.
EIGHTH: Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party or
threatened to be made a party to or was or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee
<PAGE>
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Indiana Business Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxed or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Article shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition: provided, however, that, if the Indiana
Business Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of any undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Article or otherwise. The Corporation may, by action of
its Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is
<PAGE>
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct which make it permissible under the Indiana Business
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in the Indiana Business Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the right
to the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Restated Articles, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Indiana Business Corporation Law.
<PAGE>
ANNEX 1
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES A PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
[Pursuant to Section 23-1-25-2 of the
Business Corporation Law of the State of Indiana]
RESOLVED that, pursuant to authority conferred upon the Board of Directors
by the Restated Articles of Incorporation, the Board of Directors hereby
provides for the issuance of a series of Non-Convertible Preferred Stock of the
Corporation to consist of 400 shares, and hereby fixes the voting powers,
designations, references and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series, in addition to those set forth in the Certificate of
Incorporation, as follows:
SECTION 1
DESIGNATION AND RANK
1.1. DESIGNATION. This certificate authorizes a single Series
of Non-Convertible Preferred Stock designated "SERIES A PREFERRED STOCK"
(hereinafter called the "SERIES A PREFERRED"). The number of authorized shares
constituting the Series A Preferred is 400. Shares of the Series A Preferred
shall be issued at a stated value of $100,000.00 per share (the "STATED VALUE").
The number of authorized shares of the Series A Preferred shall not be
increased.
1.2. RANK. With respect to the payment of dividends and other
distributions with respect to the capital stock of the Corporation, including
the distribution of the assets of the Corporation upon liquidation, the Series A
Preferred shall be senior to all other series and classes of preferred stock of
the Corporation, whether such series and classes are now existing or
<PAGE>
are created in the future, and shall be senior to all other series and classes
of capital stock of the Corporation, whether such series and classes are now
existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
2.1. DIVIDEND RATE. From the date of issuance, dividends shall accrue on
each share of Series A Preferred at an annual rate equal to fifteen percent
(15%) multiplied by the Stated Value, compounded quarterly. The annual rate at
which such dividends shall accrue is hereinafter referred to as the "DIVIDEND
RATE."
2.2. ACCRUAL AND PAYMENT. Dividends on each share of Series A Preferred
shall be payable in cash, shall be cumulative and compounded quarterly and shall
accrue from the date of original issuance of such share, whether or not declared
by the Board of Directors or a committee thereof, and except as otherwise
provided herein, dividends on the Series A Preferred shall be payable, when and
as declared by the Board of Directors or a committee thereof, on December 31,
March 31, June 30 and September 30 (or, if such day is not a Business Day, on
the next Business Day thereafter) of each year, commencing on September 30, 1993
(each such date being hereinafter referred to as a "DIVIDEND PAYMENT DATE"), to
holders of record as they appear on the books of the Corporation on such record
date, not exceeding 60 days preceding the relevant Dividend Payment Date, as may
be determined by the Board of Directors or a committee thereof in advance of the
payment of the particular dividend. Dividends shall be paid on each Dividend
Payment Date with respect to the quarterly period ending on such Dividend
Payment Date. Dividends in arrears may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of record on such
date, not exceeding 60 days preceding the payment date thereof, as may be fixed
by the Board of Directors or a committee thereof. Dividends payable on the
Series A Preferred for any period less than a full quarterly period shall be
computed at the Dividend Rate per annum based on a 360-day year of twelve 30-day
months. "BUSINESS DAY" shall mean any day excluding Saturday, Sunday and any day
which shall be, in the State of New York, a legal holiday or a day on which
banking institutions are authorized by law to close. In the event that the
Corporation fails to declare and pay full quarterly dividends on any given
Dividend Payment Date, such dividends shall be compounded as follows: additional
dividends, in an amount equal to the accrued and unpaid dividends on such share
of Series A Preferred multiplied by the Dividend Rate, shall accrue with respect
to each share of Series A Preferred until all accrued and
<PAGE>
unpaid dividends shall have been paid. Any reference herein to accrued dividends
shall include the additional dividends payable with respect to the Series A
Preferred pursuant to the preceding sentence.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So long as any shares of
Series A Preferred are outstanding, no dividend or distribution shall be
declared or paid or set aside for payment on the common stock of the Corporation
or on any other stock of the Corporation ranking junior to the Series A
Preferred as to dividends, nor shall any common stock or any other stock of the
Corporation ranking junior to the Series A Preferred be redeemed, purchased or
otherwise acquired for any consideration (or any moneys paid to or made
available for a sinking fund for the redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for shares of common
stock or other stock of the Corporation ranking junior to the Series A Preferred
as to dividends) unless, in each case, full cumulative dividends on all
outstanding shares of the Series A Preferred shall have been declared and paid
through and including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF SERIES A SHARES ON WINDING-UP OF THE CORPORATION. In
the event of any voluntary or involuntary liquidation, dissolution, winding-up
of affairs of the Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to the Series A
Preferred, the holders of shares of Series A Preferred shall be entitled to be
paid, out of the assets of the Corporation available for distribution to its
shareholders, an amount per share equal to the Stated Value, plus all accrued
and unpaid dividends (the Stated Value plus such accrued and unpaid dividends
constituting the "LIQUIDATED VALUE"). Neither the consolidation nor merger of
the Corporation with or into any other corporation or corporations, nor the sale
or lease of all or substantially all of the assets of the Corporation, shall
itself be deemed to be a liquidation, dissolution or winding-up of the affairs
of the Corporation within the meaning of any of the provisions of this Section
3.
3.2. PRO RATA DISTRIBUTION. If, upon distribution of the Corporation's
assets in liquidation, dissolution, winding-up or other similar event, the net
assets of the corporation to be distributed among the holders of shares of
Series A Preferred and any other class or series of stock of the Corporation
ranking on a parity with the Series A Preferred as to distributions upon
<PAGE>
liquidation are insufficient to permit payment in full to such holders of the
preferential amounts to which they are entitled, then the entire net assets of
the Corporation shall be distributed among the holders of shares of Series A
Preferred and such other class or series of stock ratably in proportion to the
full amounts to which they would otherwise be respectively entitled and such
distributions may be made in cash or in property taken at its fair value (as
determined in good faith by the Board of Directors), or both, at the election of
the Board of Directors.
3.3. PRIORITY. All of the preferential amounts to be paid to the holders of
the Series A Preferred and the holders of any other class or series of stock of
the Corporation ranking on a parity with the Series A Preferred as to
distributions upon liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of the Corporation to, the holders of the common stock of the
Corporation and any other class or series of stock of the Corporation which is
junior to the Series A Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. GENERAL. The holders of shares of Series A Preferred shall have only
such voting rights as are expressly set forth herein or otherwise provided by
law.
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of the shares of the
Series A Preferred are outstanding, except where the vote or written consent of
the holders of a greater number of shares of the Corporation is required by law
or by the Restated Articles of Incorporation, and in addition to any other vote
required by law, without the prior consent of the holders of two-thirds (2/3) of
the outstanding shares of Series A Preferred, given in person or by proxy,
either in writing or at a special meeting called for that purpose, neither the
Corporation nor any of the Corporation's direct or indirect subsidiaries shall
take any of the following actions:
(a) the amendment or repeal of any provision of, or the addition of any
provision to, the Restated Articles of Incorporation or By-Laws of the
Corporation if such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of,
the Series A Preferred;
(b) the reclassification of any common stock into shares having any
preference or priority as to dividends or the
<PAGE>
distribution of assets upon liquidation superior to or on a parity with any
such preference or priority of the Series A Preferred;
(c) the application of any of its assets (in excess of one percent (1%) of
its net worth on an annual basis) to the redemption, retirement, purchase
or other acquisition directly or indirectly, through subsidiaries or
otherwise, of any shares of common stock, except for purchases of the
Corporation's Common Stock on the open market or purchases from employees
of the Corporation upon termination of employment or pursuant to any rights
of first refusal held by the Corporation; or
(d) the creation, authorization or issuance, directly or indirectly, of any
equity security having any preference or priority as to dividends or the
distribution of assets upon liquidation superior to any such preference or
priority of the Series A Preferred.
The holders of the Series A Preferred shall be entitled to notice of any meeting
of the stockholders of the Corporation.
SECTION 5
MISCELLANEOUS
5.1. HEADING OF SUBDIVISIONS. The headings of the various Sections and
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
5.2. SEVERABILITY OF PROVISIONS. If any right, preference or limitation of
the Series A Preferred set forth in this resolution (as such resolution may be
amended from time to time) is invalid, unlawful or incapable of being enforced
by reason of any rule of law or public policy, all other rights, preferences and
limitations set forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
<PAGE>
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES B PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
[Pursuant to Section 23-1-25-2 of the
Business Corporation Law of the State of Indiana]
RESOLVED that, pursuant to authority conferred upon the Board of Directors
by the Restated Articles of Incorporation, the Board of Directors hereby
provides for the issuance of a series of Junior Non-Convertible Preferred Stock
of the Corporation to consist of 250 shares, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such class, as follows:
SECTION 1
DESIGNATION AND RANK
1.1. DESIGNATION. This certificate authorizes a single Series of
Non-Convertible Preferred Stock designated "SERIES B PREFERRED STOCK"
(hereinafter called the "SERIES B PREFERRED"). The number of authorized shares
constituting the Series B Preferred is 250. Shares of the Series B Preferred
shall be issued at a stated value of $100,000.00 per share (the "STATED VALUE").
The number of authorized shares of the Series B Preferred shall not be
increased.
1.2. RANK. With respect to the payment of dividends and other distributions
with respect to the capital stock of the Corporation, including the distribution
of the assets of the Corporation upon liquidation, the Series B Preferred shall
be junior to the Company's Series A Preferred Stock, but senior to
<PAGE>
all other series and classes of preferred stock of the Corporation, whether such
series and classes are now existing or are created in the future, and shall be
senior to all other series and classes of capital stock of the Corporation,
whether such series and classes are now existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
2.1. DIVIDEND RATE. From the date of issuance dividends shall accrue on
each share of Series B Preferred at an annual rate equal to twelve and one-half
percent (12.5%) multiplied by the Stated Value, compounded quarterly. The annual
rate at which such dividends shall accrue is hereinafter referred to as the
"DIVIDEND RATE."
2.2. ACCRUAL AND PAYMENT. Dividends on each share of Series B Preferred
shall be payable in cash, shall be cumulative, compounded quarterly and shall
accrue from the date of original issuance of such share, whether or not declared
by the Board of Directors or a committee thereof, and except as otherwise
provided herein, dividends on the Series B Preferred shall be payable, when and
as declared by the Board of Directors or a committee thereof, on December 31,
March 31, June 30 and September 30 (or, if such day is not a Business Day, on
the next Business Day thereafter) of each year, commencing on September 30, 1993
(each such date being hereinafter referred to as A "DIVIDEND PAYMENT DATE"), to
holders of record as they appear on the books of the Corporation on such record
date, not exceeding 60 days preceding the relevant Dividend Payment Date, as may
be determined by the Board of Directors or a committee thereof in advance of the
payment of the particular dividend. Dividends shall be paid on each Dividend
Payment Date with respect to the quarterly period ending on such Dividend
Payment Date. Dividends in arrears may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of record on such
date, not exceeding 60 days preceding the payment date thereof, as may be fixed
by the Board of Directors or a committee thereof. Dividends payable on the
Series B Preferred for any period less than a full quarterly period shall be
computed at the Dividend Rate per annum based on a 360-day year of twelve 30-day
months. "BUSINESS DAY" shall mean any day excluding Saturday, Sunday and any day
which shall be, in the State of New York, a legal holiday or a day on which
banking institutions are authorized by law to close. In the event that the
Corporation fails to declare and pay full quarterly dividends on any given
Dividend Payment Date, such dividends shall be compounded quarterly, as follows:
additional dividends, in an amount equal to the accrued and unpaid dividends on
such share of Series B Preferred multiplied by the Dividend Rate, shall accrue
with respect to each share of Series B Preferred until all accrued
<PAGE>
and unpaid dividends shall have been paid. Any reference herein to accrued
dividends shall include the additional dividends payable with respect to the
Series B Preferred pursuant to the preceding sentence.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So long as any shares of
Series B Preferred are outstanding, no dividend or distribution shall be
declared or paid or set aside for payment on the common stock of the Corporation
or on any other stock of the Corporation ranking junior to the Series B
Preferred as to dividends, nor shall any common stock or any other stock of the
Corporation ranking junior to the Series B Preferred be redeemed, purchased or
otherwise acquired for any consideration (or any moneys paid to or made
available for a sinking fund for the redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for shares of common
stock or other stock of the Corporation ranking junior to the Series B Preferred
as to dividends) unless, in each case, full cumulative dividends on all
outstanding shares of the Series B Preferred shall have been declared and paid
through and including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF SERIES B SHARES ON WINDING-UP OF THE CORPORATION. In
the event of any voluntary or involuntary liquidation, dissolution, winding-up
of affairs of the Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to the Series B
Preferred, the holders of shares of Series B Preferred shall be entitled to be
paid, out of the assets of the Corporation available for distribution to its
shareholders, an amount per share equal to the Stated Value, plus all accrued
and unpaid dividends (the Stated Value plus such accrued and unpaid dividends
constituting the "LIQUIDATION VALUE"). Neither the consolidation nor merger of
the Corporation with or into any other corporation or corporations, nor the sale
or lease of all or substantially all of the assets of the Corporation, shall
itself be deemed to be a liquidation, dissolution or winding-up of the affairs
of the Corporation within the meaning of any of the provisions of this Section
3.
3.2. PRO RATA DISTRIBUTION. If, upon distribution of the Corporation's
assets in liquidation, dissolution, winding-up or other similar event, the net
assets of the Corporation to be distributed among the holders of shares of
Series B Preferred and any other class or series of stock of the Corporation
ranking on a parity with the Series B Preferred as to distributions upon
liquidation are insufficient to permit payment in full to such holders of the
preferential amounts to which they are entitled, then the entire net assets of
the Corporation remaining after all
<PAGE>
required distributions have been made to holders of shares of Series A Preferred
Stock and of any other class or series of Stock of the Corporation ranking
senior to the Series B Preferred Stock shall be distributed among the holders of
shares of Series B Preferred and any other class or series of stock ranking on a
parity with the Series B Preferred Stock ratably, in proportion to the full
amounts to which they would otherwise be respectively entitled and such
distributions may be made in cash or in property taken at its fair value (as
determined in good faith by the Board of Directors), or both, at the election of
the Board of Directors.
3.3. PRIORITY. All of the preferential amounts to be paid to the holders of
the Series B Preferred and the holders of any other class or series of stock of
the Corporation ranking on a parity with the Series B Preferred as to
distributions upon liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of the Corporation to, the holders of the common stock of the
Corporation and any other class or series of stock of the Corporation which is
junior to the Series B Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. GENERAL. The holders of shares of Series B Preferred shall have only
such voting rights as are expressly set forth herein or otherwise provided by
law.
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of the shares of the
Series B Preferred are outstanding, except where the vote or written consent of
the holders of a greater number of shares of the Corporation is required by law
or by the Restated Articles of Incorporation, and in addition to any other vote
required by law, without the prior consent of the holders of two-thirds (2/3) of
the outstanding shares of Series B Preferred, given in person or by proxy,
either in writing or at a special meeting called for that purpose, neither the
Corporation nor any of the Corporation's direct or indirect subsidiaries shall
take any of the following actions:
(a) the amendment or repeal of any provision of, or the addition of any
provision to, the Restated Articles of Incorporation or By-Laws of the
Corporation if such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of,
the Series B Preferred;
(b) the reclassification of any common stock into shares having any
preference or priority as to dividends or the distribution of assets upon
liquidation superior to or on a parity with any such preference or priority
of the Series B
<PAGE>
Preferred;
(c) the application of any of its assets (in excess of one percent (1%) of
its net worth on an annual basis) to the redemption, retirement, purchase
or other acquisition directly or indirectly, through subsidiaries or
otherwise, of any shares of common stock, except for purchase of the
Corporation's Common Stock on the open market or purchases from employees
of the Corporation upon termination of employment or pursuant to any rights
of first refusal held by the Corporation; or
(d) the creation, authorization of issuance, directly or indirectly, of any
equity security having any preference or priority as to dividends or the
distribution of assets upon liquidation superior to any such preference or
priority of the Series B Preferred, other than any such creation,
authorization or issuance of shares of the Company's Series A Preferred.
The holders of Series B Preferred shall be entitled to notice of any meeting of
the stockholders of the Corporation.
SECTION 5
MISCELLANEOUS
5.1. HEADINGS OF SUBDIVISIONS. The headings of the various Sections and
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
5.2. SEVERABILITY OF PROVISIONS. If any right, preference or limitation of
the Series B Preferred set forth in this resolution (as such resolution may be
amended from time to time) is invalid, unlawful or incapable of being enforced
by reason of any rule of law or public policy, all other rights, preferences and
limitations set forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
<PAGE>
ANNEX 3
VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES C PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
SECTION 1
DESIGNATION AND RANK
1.1. DESIGNATION. The number of authorized shares constituting the "Series
C Preferred Stock" (hereinafter called the "SERIES C PREFERRED") is 1,000.
Shares of the Series C Preferred shall be issued at a stated value of
$100,000.00 per share (the "STATED VALUE"). The number of authorized shares of
the Series C Preferred may be increased by the affirmative vote of 75% of the
Board of Directors.
1.2. RANK. With respect to the payment of dividends and other distributions
with respect to the capital stock of the Corporation, including the distribution
of the assets of the Corporation upon liquidation, the Series C Preferred shall
be junior to the Corporation's Series A Preferred Stock and the Corporation's
Series B Preferred Stock, but senior to all other series and classes of
preferred stock of the Corporation, whether such series and classes are now
existing or are created in the future, and shall be senior to all other series
and classes of capital stock of the Corporation, whether such series and classes
are now existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
2.1. DIVIDEND RATE. From the date of issuance dividends shall accrue on
each share of Series C Preferred at an annual rate equal to twelve and one-half
percent (12.5%) multiplied by the Stated Value, compounded quarterly. The annual
rate at which such dividends shall accrue is hereinafter referred to as the
"DIVIDEND RATE."
<PAGE>
2.2. ACCRUAL AND PAYMENT. Dividends on each share of Series C Preferred
shall be payable in cash, shall be cumulative, compounded quarterly and shall
accrue from the date of original issuance of such share, whether or not declared
by the Board of Directors or a committee thereof, and except as otherwise
provided herein, dividends on the Series C Preferred shall be payable, when and
as declared by the Board of Directors or a committee thereof, on December 31,
March 31, June 30 and September 30 (or, if such day is not a Business Day, on
the next Business Day thereafter) of each year, commencing on June 30, 1994
(each such date being hereinafter referred to as a "DIVIDEND PAYMENT DATE"), to
holders of record as they appear on the books of the Corporation on such record
date, not exceeding 60 days preceding the relevant Dividend Payment Date, as may
be determined by the Board of Directors or a committee thereof in advance of the
payment of the particular dividend. Dividends shall be paid on each Dividend
Payment Date with respect to the quarterly period ending on such Dividend
Payment Date. Dividends in arrears may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of record on such
date, not exceeding 60 days preceding the payment date thereof, as may be fixed
by the Board of Directors or a committee thereof. Dividends payable on the
Series C Preferred for any period less than a full quarterly period shall be
computed at the Dividend Rate per annum based on a 360-day year of twelve 30-day
months. "BUSINESS DAY" shall mean any day excluding Saturday, Sunday and any day
which shall be, in the State of New York, a legal holiday or a day on which
banking institutions are authorized by law to close. In the event that the
Corporation fails to declare and pay full quarterly dividends on any given
Dividend Payment Date, such dividends shall be compounded quarterly, as follows:
additional dividends, in an amount equal to the accrued and unpaid dividends on
such share of Series C Preferred multiplied by the Dividend Rate, shall accrue
with respect to each share of Series C Preferred until all accrued and unpaid
dividends shall have been paid. Any reference herein to accrued dividends shall
include the additional dividends payable with respect to the Series C Preferred
pursuant to the preceding sentence.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So long as any shares of
Series C Preferred are outstanding, no dividend or distribution shall be
declared or paid or set aside for payment on the common stock of the Corporation
or on any other stock of the Corporation ranking junior to the Series C
Preferred as to dividends, nor shall any Common Stock or any other stock of the
Corporation ranking junior to the Series C Preferred be redeemed, purchased or
otherwise acquired for any consideration (or any moneys paid to or made
available for a sinking fund for the redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for shares of common
stock or other stock of the Corporation ranking junior to the Series C
<PAGE>
Preferred as to dividends) unless, in each case, full cumulative dividends on
all outstanding shares of the Series C Preferred shall have been declared and
paid through and including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF SERIES C SHARES ON WINDING-UP OF THE CORPORATION. In
the event of any voluntary or involuntary liquidation, dissolution, winding-up
of affairs of the Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to the Series C
Preferred, the holders of shares of Series C Preferred shall be entitled to be
paid, out of the assets of the Corporation available for distribution to its
shareholders, an amount per share equal to the Stated Value, plus all accrued
and unpaid dividends (the Stated Value plus such accrued and unpaid dividends
constituting the "LIQUIDATION VALUE"). Neither the consolidation nor merger of
the Corporation with or into any other corporation or corporations, nor the sale
or lease of all or substantially all of the assets of the Corporation, shall
itself be deemed to be a liquidation, dissolution or winding-up of the affairs
of the Corporation within the meaning of any of the provisions of this Section
3.
3.2. PRO RATA DISTRIBUTION. If, upon distribution of the Corporation's
assets in liquidation, dissolution, winding-up or other similar event, the net
assets of the Corporation to be distributed among the holders of shares of
Series C Preferred and any other class or series of stock of the Corporation
ranking on a parity with the Series C Preferred as to distributions upon
liquidation are insufficient to permit payment in full to such holders of the
preferential amounts to which they are entitled, then the entire net assets of
the Corporation remaining after all required distributions have been made to
holders of shares of Series A Preferred Stock, Series B Preferred Stock and of
any other class or series of Stock of the Corporation ranking senior to the
Series C Preferred shall be distributed among the holders of shares of Series C
Preferred and any other class or series of stock ranking on a parity with the
Series C Preferred ratably, in proportion to the full amounts to which they
would otherwise be respectively entitled and such distributions may be made in
cash or in property taken at its fair value (as determined in good faith by the
Board of Directors), or both, at the election of the Board of Directors.
3.3. PRIORITY. All of the preferential amounts to be paid to the holders of
the Series C Preferred and the holders of any other class or series of stock of
the Corporation ranking on a
<PAGE>
parity with the Series C Preferred as to distributions upon liquidation shall be
paid or set apart for payment before the payment or setting apart for payment of
any amount for, or the distribution of any assets of the Corporation to, the
holders of the common stock of the Corporation and any other class or series of
stock of the Corporation which is junior to the Series C Preferred as to
distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. GENERAL. The holders of shares of Series C Preferred shall have only
such voting rights as are expressly set forth herein or otherwise provided by
law.
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of the shares of the
Series C Preferred are outstanding, except where the vote or written consent of
the holders of a greater number of shares of the Corporation is required by law
or by the Restated Articles of Incorporation, and in addition to any other vote
required by law, without the prior consent of the holders of two-thirds (2/3) of
the outstanding shares of Series C Preferred, given in person or by proxy,
either in writing or at a special meeting called for that purpose, neither the
Corporation nor any of the Corporation's direct or indirect subsidiaries shall
take any of the following actions:
(a) the amendment or repeal of any provision of, or the addition of any
provision to, the Restated Articles of Incorporation or By-Laws of the
Corporation if such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of, the
Series C Preferred;
(b) the reclassification of any common stock into shares having any
preference or priority as to dividends or the distribution of assets upon
liquidation superior to or on a parity with any such preference or priority of
the Series C Preferred;
(c) the application of any of its assets (in excess of one percent (1%) of
its net worth on an annual basis) to the redemption, retirement, purchase or
other acquisition directly or indirectly, through subsidiaries or otherwise, of
any shares of common stock, except for purchase of the Corporation's Common
Stock on the open market or purchases from employees of the Corporation upon
termination of employment or pursuant to any rights of first refusal held by the
Corporation; or
<PAGE>
(d) the creation, authorization or issuance, directly or indirectly, of any
equity security having any preference or priority as to dividends or the
distribution of assets upon liquidation superior to any such preference or
priority of the Series C Preferred, other than any such creation, authorization
or issuance of shares of the Corporation's Series A Preferred Stock or Series B
Preferred Stock.
The holders of Series C Preferred shall be entitled to notice of any meeting of
the stockholders of the Corporation.
<PAGE>
ANNEX 4
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES D PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
----------
[Pursuant to Section 23-1-25-2 of the
Business Corporation Law of the State of Indiana]
----------
RESOLVED, that, pursuant to authority conferred upon the Board of Directors
by the Restated Articles of Incorporation, the Board of Directors hereby
provides for the issuance of a series of Redeemable Preferred Stock of the
Corporation to consist of 100 shares, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitation or restrictions thereof, of the shares of
such series, in addition to those set forth in the Certificate of Incorporation,
as follows:
SECTION 1
DESIGNATION AND RANK
1.1 DESIGNATION. This certificate authorizes a single series of redeemable
Preferred Stock designated "Series D Preferred Stock" (hereinafter called the
"SERIES D PREFERRED"). The number of authorized shares constituting the Series D
Preferred Stock is 100. Shares of the Series D Preferred shall be issued at a
stated value of $100,000.00 per share (the "Stated Value"). The number of
authorized shares of the Series D Preferred may be increased by the affirmative
vote of 75% of the Board of Directors.
1.2. RANK. With respect to the payment of dividends and other distributions
with respect to the capital stock of the Corporation, including the distribution
of the assets of the
<PAGE>
Corporation upon liquidation, the Series D Preferred shall be junior to the
Corporation's Series A Preferred Stock, the Corporation's Series B Preferred
Stock and the Corporation's Series C Preferred Stock and senior to all other
series and classes of preferred stock of the Corporation, whether such series
and classes are now existing or are created in the future, and shall be senior
to all other series and classes of capital stock of the Corporation, whether
such series and classes are now existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
2.1. DIVIDEND RATE. From the date of issuance, dividends shall accrue on
each share of Series D Preferred at an annual rate equal to ten percent (10%)
multiplied by the Stated Value, compounded quarterly. The annual rate at which
such dividends shall accrue is hereinafter referred to as the "DIVIDEND RATE".
2.2. ACCRUAL AND PAYMENT. Dividends on each share of Series D Preferred
shall be payable in cash, shall be payable in cash, shall be cumulative,
compounded quarterly and shall accrue from the date of original issuance of such
share, whether or not declared by the Board of Directors, or a committee
thereof, and except as otherwise provided herein, dividends on the Series D
Preferred shall be payable, when and as declared by the Board of Directors, or a
committee thereof, on December 31, March 31, June 30 and September 30 (or, if
such day is not a Business Day, on the next Business Day thereafter) of each
year, commencing on December 31, 1994 (each such date being hereinafter referred
to as a "DIVIDEND PAYMENT DATE"), to holders of record as they appear on the
books of the Corporation on such record date, not exceeding 60 days preceding
the relevant Dividend Payment Date, as may be determined by the Board of
Directors or a committee thereof in advance of the payment of the particular
dividend. Dividends shall be paid on each Dividend Payment Date with respect to
the quarterly period ending on such Dividend Payment Date. Dividends in arrears
may be declared and paid at any time, without reference to any regular Dividend
Payment Date, to holders of record on such date, not exceeding 60 days preceding
the payment date thereof, as may be fixed by the Board of Directors or a
committee thereof. Dividends payable on the Series D Preferred for any period
less than a full quarterly period shall be computed at the Dividend Rate per
annum based on a 360-day year of twelve 30-day months. "BUSINESS DAY" shall mean
any day excluding Saturday, Sunday and any day which shall be, in the State of
New York, a legal holiday or a day on which
<PAGE>
banking institutions are authorized by law to close. In the event that the
Corporation fails to declare and pay full quarterly dividends on any given
Dividend Payment Date, such dividends shall be compounded quarterly, as follows:
additional dividends, in an amount equal to the accrued and unpaid dividends on
such share of Series D Preferred multiplied by the Dividend Rate, shall accrue
with respect to each share of Series D Preferred until all accrued and unpaid
dividends shall have been paid. Any reference herein to accrued dividends shall
include the additional dividends payable with respect to the Series D Preferred
pursuant to the preceding sentence.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So long as any shares of
Series D Preferred are outstanding, no dividend or distribution shall be
declared or paid or set aside for payment on the common stock of the Corporation
or on any other stock of the Corporation ranking junior to the Series D
Preferred as to dividends, nor shall any Common Stock or any other stock of the
Corporation ranking junior to the Series D Preferred be redeemed, purchased or
otherwise acquired for any consideration (or any moneys paid to or made
available for a sinking fund for the redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for shares of common
stock or other stock of the Corporation ranking junior to the Series D Preferred
as to dividends) unless, in each case, full cumulative dividends on all
outstanding shares of the Series D Preferred shall have been declared and paid
through and including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF SERIES D SHARES ON WINDING-UP OF THE CORPORATION. In
the event of any voluntary or involuntary liquidation, dissolution, winding-up
of affairs of the Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to the Series D
Preferred, the holders of shares of Series D Preferred shall be entitled to be
paid, out of the assets of the Corporation available for distribution to its
shareholders, an amount per share equal to the Stated Value, plus all accrued
and unpaid dividends (the Stated Value plus such accrued and unpaid dividends
constituting the "LIQUIDATION VALUE"). Neither the consolidation nor merger of
the Corporation with or into any other corporation or corporations, nor the sale
or lease of all or substantially all of the assets of the Corporation, shall
itself be a liquidation, dissolution or winding-up of the affairs
<PAGE>
of the Corporation within the meaning of any of the provisions of this Section
3.
3.2. PRO RATA DISTRIBUTION. If, upon distribution of the Corporation's
assets in liquidation, dissolution, winding-up or other similar event, the net
assets of the Corporation to be distributed among the holders of shares of
Series D Preferred and any other class or series of stock of the Corporation
ranking on a parity with the Series D Preferred as to distributions upon
liquidation are insufficient to permit payment in full to such holders of the
preferential amounts to which they are entitled, then the entire net assets of
the Corporation remaining after all required distributions have been made to
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and of any other class or series of Stock of the Corporation
ranking senior to the Series D Preferred shall be distributed among the holders
of shares of Series D Preferred and any other class or series of stock ranking
on a parity with the Series D Preferred ratably, in proportion to the full
amounts to which they would otherwise be respectively entitled and such
distributions may be made in cash or in property taken at its fair value (as
determined in good faith by the Board of Directors), or both, at the election of
the Board of Directors.
3.3. PRIORITY. All of the preferential amounts to be paid to the holders of
the Series D Preferred and the holders of any other class or series of stock of
the Corporation ranking on a parity with the Series D Preferred as to
distributions upon liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of the Corporation to, the holders of the common stock of the
Corporation and any other class or series of stock of the Corporation which is
junior to the Series D Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. GENERAL. The holders of shares of Series D Preferred shall have only
such voting rights as are expressly set forth herein or otherwise provided by
law.
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of the shares of the
Series D Preferred are outstanding, except where the vote or written consent of
the holders of a greater number of shares of the Corporation is required by law
or by the Restated Articles of Incorporation, and in addition to any other vote
required by law, without the prior consent of the holders of
<PAGE>
two-thirds (2/3) of the outstanding shares of Series D Preferred, given in
person or by proxy, either in writing or at a special meeting called for that
purpose, neither the Corporation nor any of the Corporation's direct or indirect
subsidiaries shall take any of the following actions:
(a) the amendment or repeal of any provision of, or the addition of
any provision to, the Restated Articles of Incorporation or By-Laws of the
Corporation if such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of,
the Series D Preferred;
(b) the reclassification of any common stock into shares having any
preference or priority as to dividends or the distribution of assets upon
liquidation superior to or on a parity with any such preference or priority
of the Series D Preferred;
(c) the application of any of its assets (in excess of one percent
(1%) of its net worth on an annual basis) to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries
or otherwise, of any shares of common stock, except for purchase of the
Corporation's Common Stock on the open market or purchases from employees
of the Corporation upon termination of employment or pursuant to any rights
of first refusal held by the Corporation; or
(d) the creation, authorization or issuance, directly or indirectly,
of any equity security having any preference or priority as to dividends or
the distribution of assets upon liquidation superior to any such preference
or priority of the Series D Preferred, other than any such creation,
authorization or issuance of shares of the Corporation's Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock.
The holders of Series D Preferred shall be entitled to notice of any meeting of
the stockholders of the Corporation
SECTION 5
REDEMPTION RIGHTS
<PAGE>
5.1. MANDATORY REDEMPTION. Each outstanding share of Series D Preferred
shall be redeemed by the Corporation on the date which is the fifth-year
anniversary of the Closing Date (as such term is defined in that certain
Put/Call Agreement, dated November 14, 1994, by and among the Corporation, MW
Holdings, L.P., Marvin Winkler and Sherri Winkler) (the "REDEMPTION DATE"), at a
redemption price equal to the Stated Value per share, together with accrued and
unpaid dividends thereon to the date fixed for redemption, without interest (the
"REDEMPTION PRICE"), to the extent the Corporation shall have funds legally
available for such payment and subject to the rights of the holders of the
Corporation's Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock.
5.2. STATUS OF PURCHASED OR REDEEMED SERIES D PREFERRED. Shares of Series D
Preferred which have been issued and reacquired in any manner, including shares
purchased or redeemed, shall (upon compliance with any applicable provisions of
the laws of the State of Indiana) have the status of authorized and unissued
shares of the class of Preferred Stock undesignated as to series and may be
redesignated and reissued as part of any series of the Preferred Stock;
provided, however, that no such issued and reacquired shares of Series D
Preferred shall be reissued or sold as Series D Preferred.
5.3. PROCEDURE FOR REDEMPTION. The Corporation shall give notice of
redemption of the Series D Preferred by first class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the Redemption Date,
to each holder of record of the outstanding Series D Preferred at such holder's
address as they appear on the books of the Corporation on such record date. Each
such notice shall state: (a) the Redemption Date; (b) the number of shares of
Series D Preferred to be redeemed; (c) the Redemption Price; (d) the place or
places where certificates for such shares are to be surrendered for payment of
the Redemption Price; and (e) that dividends on the Series D Preferred Date.
Notice having been mailed as aforesaid, from and after the Redemption Date
(unless default shall be made by the Corporation in providing money for the
payment of the Redemption Price of the Series D Preferred shares called for
redemption) dividends on the shares of Series D Preferred so called for
redemption shall cease to accrue, and said shares shall no longer be deemed to
be outstanding and shall have the status of authorized but unissued shares of
Preferred Stock, unclassified as to series, and shall not be reissued as shares
of Series D Preferred, and all rights of the holders thereof as holders of the
Series D Preferred (except the right to receive from the Corporation the
Redemption Price) shall cease. Upon surrender in accordance with said notice of
the certificates
<PAGE>
for any shares of Series D Preferred so redeemed (properly endorsed or assigned
for transfer, if the Board of Directors of the Corporation shall so require and
the notice shall so state), such shares shall be redeemed by the Corporation at
the Redemption Price.
SECTION 6
MISCELLANEOUS
6.1. HEADINGS OF SUBDIVISIONS. The headings of the various Sections and
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provision hereof.
6.2. SEVERABILITY OF PROVISIONS. If any right, preference or limitation of
the Series D Preferred set forth in this resolution (as such resolution may be
amended from time to time) is invalid, unlawful or incapable of being enforced
by reason of any rule of law or public policy, all other rights, preferences and
limitations set forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
<PAGE>
ANNEX 5
VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES E PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
SECTION 1
DESIGNATION AND RANK
1.1. DESIGNATION. The number of authorized shares constituting the "Series
E Preferred Stock" (hereinafter called the "SERIES E PREFERRED") of Signal
Apparel Company, Inc. (the "CORPORATION") is 20,000. Shares of the Series E
Preferred shall be issued at a stated value of $1,000.00 per share (the "STATED
VALUE"). The number of authorized shares of the Series E Preferred may be
increased by the affirmative vote of 75% of the Board of Directors.
1.2. RANK. With respect to the payment of dividends and other distributions
with respect to the capital stock of the Corporation, including the distribution
of the assets of the Corporation upon liquidation, the Series E Preferred shall
be junior to the Corporation's Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, and Series D Preferred Stock, but senior to all
other series and classes of preferred stock of the Corporation, whether such
series and classes are now existing or are created in the future, and shall be
senior to all other series and classes of capital stock of the Corporation,
whether such series and classes are now existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
<PAGE>
2.1. DIVIDEND RATE. From the date of issuance dividends shall accrue on
each share of the Series E Preferred at an annual rate equal to seven percent
(7%) per annum multiplied by the Stated Value, or $70 per share per year for
each full year. The annual rate at which such dividends shall accrue is
hereinafter referred to as the "DIVIDEND RATE."
2.2. ACCRUAL AND PAYMENT. Dividends on each share of the Series E Preferred
shall be payable at the option of the Corporation (i) in cash or (ii) by the
issuance of that number of whole shares of the Corporation's common stock (the
"COMMON STOCK") computed by dividing the amount of the dividend by the market
price applicable to such dividend. For the purposes of this Section 2, "market
price" means the average of the daily closing bid prices of the Common Stock for
a period of the last five (5) consecutive trading days preceding the date of
calculating the market price. The closing price for each trading day shall be
(i) for any period during which the Common Stock shall be listed for trading on
a national securities exchange, the last reported bid price per share of the
Common Stock as reported by the primary stock exchange, or the NASDAQ Stock
Market, if the Common Stock is quoted on the NASDAQ Stock Market. Dividends on
each share of the Series E Preferred shall accrue from the date of original
issuance of such share, whether or not declared by the Board of Directors or a
committee thereof, and except as otherwise provided herein, dividends on the
Series E Preferred shall be payable, when and as declared by the Board of
Directors or a committee thereof, on December 31, March 31, June 30 and
September 30 (or, if such day is not a Business Day, as defined hereafter, on
the next Business Day thereafter) of each year, (each such date being
hereinafter referred to as a "DIVIDEND PAYMENT DATE"), to holders of record as
they appear on the books of the Corporation on such record date, not exceeding
60 days preceding the relevant Dividend Payment Date, as may be determined by
the Board of Directors or a committee thereof in advance of the payment of the
particular dividend. Dividends shall be paid at a rate of $17.50 per share for
each full calendar quarter on each Dividend Payment Date with respect to the
quarterly period ending on such Dividend Payment Date. Dividends in arrears may
be declared and paid at any time, without reference to any regular Dividend
Payment Date, to holders of record on such date, not exceeding 60 days preceding
the payment date thereof, as may be fixed by the Board of Directors or a
committee thereof. Dividends payable on the Series E Preferred for any period
less than a full quarterly period shall be computed at the Dividend Rate per
annum based on a 360-day year of twelve 30-day months. "BUSINESS DAY" shall mean
any day excluding Saturday, Sunday and any day that shall be, in the State of
New York, a legal holiday or a day on which banking
<PAGE>
institutions are authorized by law to close. If any cumulative dividends in
respect of the Series E Preferred are not paid in full, the owners of all series
of the Series E Preferred shall participate ratably in any payment of
accumulated dividends.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So long as any shares of
the Series E Preferred are outstanding, no dividend or distribution shall be
declared or paid or set aside for payment on the Common Stock or on any other
capital stock of the Corporation ranking junior to the Series E Preferred as to
dividends, nor shall the Common Stock or any other stock of the Corporation
ranking junior to the Series E Preferred be redeemed, purchased or otherwise
acquired for any consideration (or any moneys paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by the
Corporation (except by conversion into or exchange for shares of the Common
Stock or other stock of the Corporation ranking junior to the Series E Preferred
as to dividends) unless, in each case, full cumulative dividends on all
outstanding shares of the Series E Preferred shall have been declared and paid
through and including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF THE SERIES E PREFERRED ON WINDING-UP OF THE
CORPORATION. In the event of any voluntary or involuntary liquidation,
dissolution, winding-up of affairs of the Corporation or other similar event,
before any distribution is made upon any class of stock of the Corporation
ranking junior to the Series E Preferred, the holders of shares of the Series E
Preferred shall be entitled to be paid, out of the assets of the Corporation
available for distribution to its shareholders, an amount per share equal to the
Stated Value, plus all accrued and unpaid dividends (the Stated Value plus such
accrued and unpaid dividends constituting the "LIQUIDATION VALUE"), whether or
not such accrued and unpaid dividends have been declared by the Board of
Directors of the Corporation. Neither the consolidation nor merger of the
Corporation with or into any other corporation or corporations, nor the sale or
lease of all or substantially all of the assets of the Corporation, shall itself
be deemed to be a liquidation, dissolution or winding-up of affairs of the
Corporation within the meaning of any of the provisions of this Section 3.
3.2. PRO RATA DISTRIBUTION. If, upon distribution of the Corporation's
assets in liquidation, dissolution, winding-up
<PAGE>
of affairs or other similar event, the net assets of the Corporation to be
distributed among the holders of shares of the Series E Preferred and any other
class or series of stock of the Corporation ranking on a parity with the Series
E Preferred as to distributions upon liquidation are insufficient to permit
payment in full to such holders of the preferential amounts to which they are
entitled, then the entire net assets of the Corporation remaining after all
required distributions have been made to holders of shares of the Corporation's
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and of any other class or series of stock of the
Corporation ranking senior to the Series E Preferred shall be distributed among
the holders of shares of the Series E Preferred and any other class or series of
stock ranking on a parity with the Series E Preferred ratably, in proportion to
the full amounts to which they would otherwise be respectively entitled and such
distributions may be made in cash or in property taken at its fair value (as
determined in good faith by the Board of Directors), or both, at the election of
the Board of Directors.
3.3. PRIORITY. All of the preferential amounts to be paid to the holders of
the Series E Preferred and the holders of any other class or series of stock of
the Corporation ranking on a parity with the Series E Preferred as to
distributions upon liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of the Corporation to, the holders of the Common stock of the
Corporation and any other class or series of stock of the Corporation that is
junior to the Series E Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. GENERAL. The holders of shares of the Series E Preferred shall have
only such voting rights as are expressly set forth herein or otherwise provided
by law. Shares of the Series E Preferred shall not give their holders any
pre-emptive rights to acquire any other securities issued by the Corporation at
any time in the future.
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of the shares of the
Series E Preferred are outstanding, except where the vote or written consent of
the holders of a greater number of shares of the Corporation is required by law
or by the Restated Articles of Incorporation, and in addition to any other vote
required by law, without the prior consent of the holders of two-
<PAGE>
thirds (2/3) of the outstanding shares of the Series E Preferred, given in
person or by proxy, either in writing or at a special meeting called for that
purpose, neither the Corporation nor any of the Corporation's direct or indirect
subsidiaries shall take any of the following actions:
(a) the amendment or repeal of any provision of, or the addition of
any provision to, the Restated Articles of Incorporation or By-Laws of the
Corporation if such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of,
the Series E Preferred;
(b) the reclassification of any common stock into shares having any
preference or priority as to dividends or the distribution of assets upon
liquidation superior to or on a parity with any such preference or priority
of the Series E Preferred;
(c) the application of any of its assets (in excess of one percent
(1%) of its net worth on an annual basis) to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries
or otherwise, of any shares of Common Stock, except for purchase of the
Common Stock on the open market or purchases from employees of the
Corporation upon termination of employment or pursuant to any rights of
first refusal held by the Corporation; or
(d) the creation, authorization or issuance, directly or indirectly,
of any equity security having any preference or priority as to dividends or
the distribution of assets upon liquidation superior to or on parity with
any such preference or priority of the Series E Preferred, other than the
issuance of shares of the Corporation's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock.
The holders of the Series E Preferred shall be entitled to notice of any meeting
of the stockholders of the Corporation.
SECTION 5
CONVERSION
<PAGE>
5.1 For the purposes of conversion, shares of the Series E Preferred shall
be valued at $1,000.00 per share ("VALUE"), and, if converted at the option of a
shareholder, shares of the Series E Preferred shall be converted into shares of
the Common Stock at the price per share equal to the lower of the (i) product of
.60 multiplied by the average daily closing bid prices of the Common Stock for
the period of five (5) consecutive trading days immediately preceding the date
of conversion of the shares of the Series E Preferred or (ii) product of .60
multiplied by the average daily closing bid prices of the Common Stock for the
period of 5 consecutive trading days immediately preceding the date of closing
of the offering of the Series E Preferred (the lower of (i) or (ii) is
hereinafter referred to as the "SHAREHOLDER CONVERSION PRICE"). The closing
price for each trading day shall be determined as provided in the last sentence
of Section 5.3.
5.2 Any holder of the Series E Preferred (an "ELIGIBLE HOLDER") at any time
after the later of January 2, 1996 and the 40th day following the date of the
closing of the sale of the Series E Preferred may convert up to 100% of its
holdings of the Series E Preferred.
5.3 Notwithstanding any other provisions of this Section 5, the Corporation
may, at its sole option, but shall not be obligated to, at any time, and from
time to time, on and after the 75th day after the date of closing of the
offering of the Series E Preferred, and upon written notice delivered to each of
the Eligible Holders not less than 30 days prior to any date stipulated by the
Corporation for the conversion of shares of the Series E Preferred (the
"CONVERSION DATE"), require the Eligible Holders, on a pro-rata basis, to
convert all or any portion of their shares of the Series E Preferred into shares
of the Common Stock at a price per share equal to the lower of the (i) product
of .60 multiplied by the average daily closing bid prices of the Common Stock
for the period of five (5) consecutive trading days immediately preceding the
date of closing of the offering of the Series E Preferred or (ii) product of .60
multiplied by the average daily closing bid prices of the Common Stock for the
period of five (5) consecutive trading days immediately preceding the Conversion
Date (the lower of (i) or (ii) is hereinafter referred to as the "CORPORATION
CONVERSION PRICE"); PROVIDED, HOWEVER, that an Eligible Holder shall have the
right in accordance with Section 5.2 hereof, at such holder's option, to convert
all or a portion of the shares of the Series E Preferred held by such holder
into shares of the Common Stock at the Shareholder Conversion Price, by the
Eligible Holder giving written notice to the Corporation prior to the Conversion
Date
<PAGE>
that it elects to convert a stated number of shares of the Series E Preferred
into shares of the Common Stock and by surrender of the share certificates
representing the shares of the Series E Preferred to be converted in accordance
with Section 5.4 hereof. The closing price for each trading day shall be for any
period during which the Common Stock shall be listed for trading on a national
securities exchange, the last reported bid price per share of the Common Stock
as reported by the primary stock exchange, or the NASDAQ Stock Market, if the
Common Stock is quoted on the NASDAQ Stock Market.
5.4 The conversion right granted by Section 5.2 hereof may be exercised
only by an Eligible Holder of the Series E Preferred, in whole or in part, by
the surrender of the share certificate or share certificates representing the
shares of the Series E Preferred to be converted at the principal office of the
Corporation (or at such other place as the Corporation may designate in written
notice sent to the holder by first-class mail, postage prepaid, at its address
shown on the books of the Corporation) against delivery of that number of whole
shares of the Common Stock as shall be computed by dividing (1) the aggregate
Value of the shares of the Series E Preferred so surrendered plus any accrued
but unpaid dividends thereon, if any, by (2) the Shareholder Conversion Price in
effect at the time of such surrender. On each Conversion Date, all shares of the
Series E Preferred required by the Corporation to be converted, without any
action on the part of the holder thereof, shall be deemed automatically
converted into that number of whole shares of the Common Stock as shall be
computed by dividing (1) the aggregate Value of the shares of the Series E
Preferred so converted plus any accrued but unpaid dividends thereon, if any, by
(2) the Corporation Conversion Price in effect at the time of such exercise. In
the event of any exercise of the conversion right (whether at the initiative of
an Eligible Holder or of the Corporation) of the Series E Preferred granted
herein (i) share certificates representing shares of the Common Stock purchased
by virtue of such exercise shall be delivered to such holder forthwith, and (ii)
unless all the holder's shares of the Series E Preferred have been fully
converted, a new share certificate representing the shares of the Series E
Preferred not so converted, if any, shall also be delivered to such holder
forthwith. The share certificates representing shares of the Common Stock so
purchased shall be dated the date of such surrender and the holder making such
surrender shall be deemed for all purposes to be the holder of the Common Stock
so purchased as of the date of such surrender.
5.5 All shares of the Common Stock that may be issued upon conversion of
shares of the Series E Preferred will, upon
<PAGE>
issuance, be duly issued, fully paid and nonassessable and free from all taxes,
liens, and charges with respect to the issue thereof. At all times that any
shares of the Series E Preferred are outstanding, the Corporation shall have
authorized, and shall have reserved for the purpose of issuance upon such
conversion, a sufficient number of shares of the Common Stock to provide for the
conversion into shares of the Common Stock of all shares of the Series E
Preferred then outstanding at the then effective Shareholder Conversion Price or
the Corporation Conversion Price, as the case may be. Without limiting the
generality of the foregoing, if, at any time, the Shareholder Conversion Price
or the Corporation Conversion Price, as the case may be, is decreased, the
number of shares of the Common Stock authorized and reserved for issuance upon
the conversion of shares of the Series E Preferred shall be proportionately
increased.
5.6 The number of shares of the Common Stock issued upon conversion of
shares of the Series E Preferred and the Shareholder Conversion Price or the
Corporation Conversion Price, as the case may be, shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
5.6.1. In the case of any amendment to the Restated Articles of
Incorporation to change the designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect of the Common Stock or
division of the Common Stock into series, the rights of the holders of
shares of the Series E Preferred shall be adjusted so as to provide that
upon conversion thereof the holder of shares of the Series E Preferred
being converted shall procure, in lieu of each share of the Common Stock
theretofore issuable upon such conversion, the kind and amount of shares,
other securities, money and property receivable upon such designation,
change or division by the holder of one share of the Common Stock issuable
upon such conversion had conversion occurred immediately prior to such
designation, change or division. The Series E Preferred shall be deemed
thereafter to provide for adjustment that shall be nearly equivalent as may
be practicable to the adjustments provided for in this Section 5. The
provisions of this subsection 5.6.1 shall apply in the same manner to
successive reclassifications, changes, consolidations and mergers.
5.6.2. If the Corporation, at any time while any shares of the Series
E Preferred are outstanding, shall amend the Restated Articles of
Incorporation so as to change the Common Stock into a different number of
<PAGE>
shares, the Shareholder Conversion Price or the Corporation Conversion
Price, as the case may be, shall be proportionately reduced, in case of
such change increasing the number of shares of the Common Stock, as of the
effective date of such increase, or if the Corporation shall take a record
of holders of the Common Stock for the purpose of such increase, as of such
record date, whichever is earlier, or the Shareholder Conversion Price or
the Corporation Conversion Price, as the case may be, shall be
proportionately increased, in the case of such change decreasing the number
of shares of the Common Stock, as of the effective date of such decrease
or, if the Corporation shall take a record of holders of the Common Stock
for the purpose of such decrease, as of such record date, whichever is
earlier.
5.6.3. If the Corporation, at any time while any of the Series E
Preferred are outstanding, shall pay a dividend payable in shares of the
Common Stock, the Shareholder Conversion Price or the Corporation
Conversion Price, as the case may be, shall be adjusted, as of the date the
Corporation shall take a record of the holders of the Common Stock for the
purpose of receiving such dividend (or if no such record is taken, as of
the date of payment of such dividend), so that each Eligible Holder of
shares of the Series E Preferred converted after such time shall be
entitled to receive the aggregate number and kind of shares of the Common
Stock that, if such shares of the Series E Preferred had been converted
immediately prior to such time, such holder would have owned upon such
conversion and been entitled to receive by virtue of such dividend.
5.7 Whenever the Shareholder Conversion Price or the Corporation Conversion
Price, as the case may be, shall be adjusted pursuant to Section 5.6 hereof, the
Corporation shall make a certificate signed by its President or a Vice President
and by its Treasurer, Assistant Treasurer, Secretary or Assistant Secretary,
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board made any determination
hereunder), and the Shareholder Conversion Price or the Corporation Conversion
Price, as the case may be, after giving effect to such adjustment, and shall
cause copies of such certificates to be mailed (by first-class mail, postage
prepaid) to each holder of the Series E Preferred at its address shown on
<PAGE>
the books of the Corporation. The Corporation shall make such certificate and
mail it to each such holder promptly after each adjustment.
5.8 No fractional shares of the Common Stock shall be issued in connection
with any conversion of shares of the Series E Preferred, but in lieu of such
fractional shares, the Corporation shall make a cash payment therefor equal in
amount to the product of the applicable fraction multiplied by the Shareholder
Conversion Price or the Corporation Conversion Price, as the case may be, then
in effect.
5.9 No shares of the Series E Preferred which have been converted into
shares of the Common Stock shall be reissued by the Corporation; PROVIDED,
HOWEVER, that each such share, after being retired and canceled, shall be
restored to the status of an authorized but unissued share of the Series E
Preferred and may thereafter be issued as a share of the Series E Preferred.
<PAGE>
ANNEX 6
VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES F PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
SECTION 1
DESIGNATION AND RANK
1. DESIGNATION. The number of authorized shares constituting the "SERIES F
PREFERRED STOCK" (hereinafter called the "SERIES F PREFERRED") of Signal Apparel
Company, Inc. (the "CORPORATION") is one thousand (1,000). Shares of the Series
F Preferred shall be issued at a stated value of $100,000.00 per share (the
"STATED VALUE"). The number of authorized shares of the Series F Preferred may
be increased by the affirmative vote of 75% of the Board of Directors.
2. RANK. With respect to the payment of dividends and other distributions
with respect to the capital stock of the Corporation, including the distribution
of the assets of the Corporation upon liquidation, the Series F Preferred shall
be equal to the Corporation's Series A Preferred Stock and senior to all other
series and classes of preferred stock of the Corporation, whether such series
and classes are now existing or are created in the future, and shall be senior
to all other series and classes of capital stock of the Corporation, whether
such series and classes are now existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
2.1. DIVIDEND RATE. From the date of issuance dividends shall accrue on
each share of the Series F Preferred at
<PAGE>
an annual rate equal to nine percent (9%) per annum multiplied by the Stated
Value, or $9,000.00 per share per year for each full year. The annual rate at
which such dividends shall accrue is hereinafter referred to as the "DIVIDEND
RATE."
2.2. ACCRUAL AND PAYMENT. Dividends on each share of the Series F Preferred
shall be payable in cash. Dividends on each share of the Series F Preferred
shall accrue from the date of original issuance of such share, whether or not
declared by the Board of Directors or a committee thereof, and except as
otherwise provided herein, dividends on the Series F Preferred shall be payable,
when and as declared by the Board of Directors or a committee thereof, annually
on December 31 (or, if such day is not a Business Day, as defined hereafter, on
the next Business Day thereafter) of each year, (each such date being
hereinafter referred to as a "DIVIDEND PAYMENT DATE"), to holders of record as
they appear on the books of the Corporation on such record date, not exceeding
60 days preceding the relevant Dividend Payment Date, as may be determined by
the Board of Directors or a committee thereof in advance of the payment of the
particular dividend. Dividends shall be paid at a rate of $9,000.00 per share
for each full calendar year on each Dividend Payment Date with respect to the
yearly period ending on such Dividend Payment Date. Dividends in arrears may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to holders of record on such date, not exceeding 60 days preceding the
payment date thereof, as may be fixed by the Board of Directors or a committee
thereof. Dividends payable on the Series F Preferred for any period less than a
full yearly period shall be computed at the Dividend Rate per annum based on a
360-day year of twelve 30-day months. "BUSINESS DAY" shall mean any day
excluding Saturday, Sunday and any day that shall be, in the State of New York,
a legal holiday or a day on which banking institutions are authorized by law to
close. If any cumulative dividends in respect of the Series F Preferred are not
paid in full, the owners of all series of the Series F Preferred shall
participate ratably in any payment of accumulated dividends.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So long as any shares of
the Series F Preferred are outstanding, no dividend or distribution shall be
declared or paid or set aside for payment on the Common Stock or on any other
capital stock of the Corporation ranking junior to the Series F Preferred as to
dividends, nor shall the Common Stock or any other stock of the Corporation
ranking junior to the Series F Preferred be redeemed, purchased or otherwise
acquired for any consideration (or any moneys paid to or made available for a
sinking fund for the redemption of any shares of any such stock) by the
Corporation
<PAGE>
(except by conversion into or exchange for shares of the Common Stock or other
stock of the Corporation ranking junior to the Series F Preferred as to
dividends) unless, in each case, full cumulative dividends on all outstanding
shares of the Series F Preferred shall have been declared and paid through and
including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF THE SERIES F PREFERRED ON WINDING-UP OF THE
CORPORATION. In the event of any voluntary or involuntary liquidation,
dissolution, winding-up of affairs of the Corporation or other similar event,
before any distribution is made upon any class of stock of the Corporation
ranking junior to the Series F Preferred, the holders of shares of the Series F
Preferred shall be entitled to be paid, out of the assets of the Corporation
available for distribution to its shareholders, an amount per share equal to the
Stated Value, plus all accrued and unpaid dividends (the Stated Value plus such
accrued and unpaid dividends constituting the "LIQUIDATION VALUE"), whether or
not such accrued and unpaid dividends have been declared by the Board of
Directors of the Corporation. Neither the consolidation nor merger of the
Corporation with or into any other corporation or corporations, nor the sale or
lease of all or substantially all of the assets of the Corporation, shall itself
be deemed to be a liquidation, dissolution or winding-up of affairs of the
Corporation within the meaning of any of the provisions of this Section 3.
3.2. PRO RATA DISTRIBUTION. If, upon distribution of the Corporation's
assets in liquidation, dissolution, winding-up of affairs or other similar
event, the net assets of the Corporation to be distributed among the holders of
shares of the Series F Preferred and any other class or series of stock of the
Corporation ranking on a parity with the Series F Preferred as to distributions
upon liquidation are insufficient to permit payment in full to such holders of
the preferential amounts to which they are entitled, then the entire net assets
of the Corporation remaining after all required distributions have been made to
holders of any other class or series of stock of the Corporation ranking senior
to the Series F Preferred shall be distributed among the holders of shares of
the Series F Preferred and any other class or series of stock ranking on a
parity with the Series F Preferred ratably, in proportion to the full amounts to
which they would otherwise be respectively entitled, and such distributions may
be made in cash or in property taken at its fair
<PAGE>
value (as determined in good faith by the Board of Directors), or both, at the
election of the Board of Directors.
3.3. PRIORITY. All of the preferential amounts to be paid to the holders of
the Series F Preferred and the holders of any other class or series of stock of
the Corporation ranking on a parity with the Series F Preferred as to
distributions upon liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of the Corporation to, the holders of the Common Stock of the
Corporation and any other class or series of stock of the Corporation that is
junior to the Series F Preferred as to distributions upon liquidation.
SECTION 4
VOTING AND PREEMPTIVE RIGHTS
4.1. GENERAL. The holders of shares of the Series F Preferred shall have
only such voting rights as are expressly set forth herein or otherwise provided
by law. Shares of the Series F Preferred shall not give their holders any
preemptive rights to acquire any other securities issued by the Corporation at
any time in the future.
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of the shares of the
Series F Preferred are outstanding, except where the vote or written consent of
the holders of a greater number of shares of the Corporation is required by law
or by the Restated Articles of Incorporation, and in addition to any other vote
required by law, without the prior consent of the holders of two-thirds (2/3) of
the outstanding shares of the Series F Preferred, given in person or by proxy,
either in writing or at a special meeting called for that purpose, neither the
Corporation nor any of the Corporation's direct or indirect subsidiaries shall
take any of the following actions:
(a) the amendment or repeal of any provision of, or the addition of
any provision to, the Restated Articles of Incorporation or By-Laws of the
Corporation if such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of,
the Series F Preferred;
(b) the reclassification of any common stock into shares having any
preference or priority as to dividends or the distribution of assets upon
liquidation superior to or on
<PAGE>
a parity with any such preference or priority of the Series F Preferred;
(c) the application of any of its assets (in excess of one percent
(1%) of its net worth on an annual basis) to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries
or otherwise, of any shares of Common Stock, except for purchase of the
Common Stock on the open market or purchases from employees of the
Corporation upon termination of employment or pursuant to any rights of
first refusal held by the Corporation; or
(d) the creation, authorization or issuance, directly or indirectly,
of any equity security having any preference or priority as to dividends or
the distribution of assets upon liquidation superior to or on parity with
any such preference or priority of the Series F Preferred, other than the
issuance of shares of the Corporation's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock eries D Preferred Stock or Series
E Preferred Stock.
The holders of the Series F Preferred shall be entitled to notice of any meeting
of the stockholders of the Corporation.
SECTION 5
CONVERSION
5.1 Shares of the Series F Preferred Stock shall not be
convertible by their terms, at the option of either the Corporation or the
holders thereof, into shares of the Common Stock or into any other security of
the Corporation.
<PAGE>
ANNEX 7
CERTIFICATE OF DESIGNATION OF
5% CONVERTIBLE PREFERRED STOCK, SERIES G1
OF SIGNAL APPAREL COMPANY, INC.
Pursuant to Section 23-1-25-2 of the
Business Corporation Law of the State of Indiana
Section 1. Designation, Amount, Par Value, Stated Value and Rank. The
series of preferred stock shall be designated as Convertible Preferred Stock,
Series G1 (the "Series G1 Preferred Stock"), and the number of shares so
designated shall be 5,000 (which shall not be subject to increase without the
consent of each of the Holders of the Series G1 Preferred Stock ("Holders")).
Each share of Series G1 Preferred Stock, no par value, shall have a stated value
of $1,000 per share (the "Stated Value").
The Series G1 Preferred Stock shall rank senior to the Junior Securities
(as defined in Section 8) as to dividends, distributions and upon liquidation,
dissolution or winding up. No class of equity securities of the Company will be
senior or pari passu to the Series G1 Preferred Stock, other than the Series G2
Preferred Stock, as to dividends, distributions and upon liquidation,
dissolution or winding up.
Section 2. Dividends.
(a) Holders of Series G1 Preferred Stock shall be entitled to receive, out
of funds legally available therefor, and the Company shall pay, cumulative
dividends at the rate per share (as a percentage of the Stated Value per share)
equal to 5% per annum, payable semi-annually, commencing on the first to occur
of either January 1 or July 1 following the Closing Date (as defined in Section
8), in cash or shares of Common Stock (as defined in Section 8) at the option of
the Company (subject to the terms and conditions set forth herein). Dividends on
the Series G1 Preferred Stock shall be calculated on the basis of a 360-day
year, shall accrue daily commencing on the Original Issue Date (as defined in
Section 8), and shall be deemed to accrue from such date and be cumulative
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.
Accrued and unpaid dividends of the Series G1 Preferred Stock for any shares
which are being converted shall be paid on the date on which such Series G1
Preferred Stock is converted. Except as
<PAGE>
otherwise provided herein, if at any time the Company pays less than the total
amount of dividends then accrued on account of the Series G1 Preferred Stock,
such payment shall be distributed ratably among the Holders based upon the
number of shares held by each Holder. The Company shall provide the Holders
semi-annual notice of its intention to pay dividends in cash or shares of Common
Stock for any dividends that may be payable upon conversion in the six month
period beginning on January 1 or July 1 and including the dividend payable on
January 1 or July 1. Such notice shall be delivered to all Holders not less than
5 Trading Days prior to January 1 and July 1 of each year for so long as shares
of Series G1 Preferred Stock are outstanding. If the Company fails to give such
notice, such dividends shall be paid in cash. If semi-annual dividends are paid
in shares of Common Stock, the number of shares of Common Stock payable as such
dividend to each Holder shall be equal to the quotient obtained by dividing (a)
the cash amount of such dividend payable to such Holder on such dividend payment
date by (b) the Average Per Share Market Value. As used herein, the "Average Per
Share Market Value" means the average of the Per Share Market Value for the five
Trading Days prior to such dividend payment date.
(b) Notwithstanding anything to the contrary contained herein, the Company
may not issue shares of Common Stock in payment of dividends (and must deliver
cash in respect thereof) on the Series G1 Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held as treasury stock, is
insufficient to pay such dividends in shares of Common Stock;
(ii) the shares of Common Stock to be issued in respect of such
dividends are not registered for resale pursuant to an effective
registration statement that names the recipient of such dividend as a
selling shareholder thereunder and may not be sold without volume
restrictions pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act");
(iii) the shares of Common Stock to be issued in respect of such
dividends are not authorized for listing on the NYSE or such other
registered national exchange on which the Common Stock is then listed for
trading; or
(iv) the Company has failed to timely satisfy its obligations pursuant
to any Conversion Notice (as defined in Section 5(a)(ii)).
<PAGE>
(c) If the Company intends to issue shares of Common Stock in payment of
dividends and such issuance of shares of Common Stock would result in the
recipient thereof beneficially owning, in accordance with the provisions of Rule
13d-3 promulgated under the Securities Exchange Act, as amended or superseded,
or any successor statute or rule promulgated by the Commission, more than 4.999%
of the issued and outstanding shares of Common Stock, the Company shall
accumulate but shall not declare such stock dividend until such time as (i) the
payment of such dividend would not result in the recipient thereof beneficially
owning more than 4.999% of the issued and outstanding shares of Common Stock
after taking such dividend into account or (ii) such recipient has complied with
the filing requirements of Section 13(d) of the Exchange Act.
(d) Notwithstanding anything to the contrary contained herein, if the Per
Share Market Value is 150% of the Closing Price (as defined in Section 8) for
five (5) consecutive Trading Days, dividends shall cease to accrue on the Series
G1 Preferred Stock as of such fifth Trading Day.
(e) So long as any Series G1 Preferred Stock shall remain outstanding or
unconverted, except pursuant to existing agreements of the Company on the date
hereof, neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 8), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities.
Section 3. Voting Rights. Except as otherwise provided herein and as
otherwise required by law, the Series G1 Preferred Stock shall have no voting
rights. However, so long as any shares of Series G1 Preferred Stock are
outstanding, the Company shall not and shall cause its subsidiaries not to,
without the affirmative vote of the Holders of all of the shares of the Series
G1 Preferred Stock then outstanding, (a) alter or change adversely the powers,
preferences or rights given to the Series G1 Preferred Stock, (b) alter or amend
this Certificate of Designation, (c) authorize or create any class of stock
ranking senior as to dividends or distribution of assets upon a Liquidation (as
defined in Section 4) or otherwise to the Series G1 Preferred Stock, except for
any series of Series G2 Preferred
<PAGE>
Stock issued and sold in accordance with the Purchase Agreement, (d) amend its
Articles of Incorporation, bylaws or other charter documents so as to affect
adversely any rights of any Holders, (e) increase the authorized number of
shares of Series G1 Preferred Stock, (f) sell all or substantially all of its
assets, or (g) enter into any agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Series G1 Preferred Stock an
amount equal to the Stated Value plus all accrued but unpaid dividends per
share, whether declared or not, before any distribution or payment shall be made
to the Holders of any Junior Securities, and if the assets of the Company shall
be insufficient to pay in full all amounts due to the Holders, then the entire
assets to be distributed to the Holders shall be distributed among the Holders
and the Holders of all securities ranking pari passu to the Series G1 Preferred
Stock ratably in accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. A sale, conveyance
or disposition of all or substantially all of the assets of the Company or the
consummation by the Company of a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each Holder.
Section 5. Conversion.
(a) (i) Each share of Series G1 Preferred Stock shall be convertible into
shares of Common Stock (subject to reduction pursuant to Section 5(a)(ii)
and Section 5(a)(iv) at the Conversion Ratio (as defined in Section 8) at
the option of the Holder in whole or in part at any time after the Original
Issue Date. The Holders shall effect conversions by surrendering to the
Company the certificate or certificates representing the shares of Series
G1 Preferred Stock to be converted, together with a copy of the form of
conversion notice attached hereto as Exhibit A (the "Conversion Notice").
Each Conversion Notice shall specify the Holder, the number of shares of
Series G1 Preferred Stock to be converted and the date on which such
conversion
<PAGE>
is to be effected, which date may not be prior to the date the Holder
delivers such Conversion Notice by facsimile (the "Conversion Date"). If no
Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date that the Conversion Notice is deemed delivered pursuant
to Section 9. Subject to Sections 5(b) and 5(a)(ii) hereof, each Conversion
Notice, once given, shall be irrevocable. If the Holder is converting less
than all shares of Series G1 Preferred Stock represented by the certificate
or certificates tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall promptly deliver to such Holder (in the manner and within the time
set forth in Section 5(b)) a new certificate for such number of shares of
Series G1 Preferred Stock as have not been converted.
(ii) The Company shall not be obligated to issue any shares of Common
Stock upon conversion of Series G1 Preferred Stock if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock
which the Company may issue upon conversion of Series G1 Preferred Stock
(the "Issuance Maximum") without breaching the Company's obligations under
the rules or regulations of NYSE, or the market or exchange where the
Common Stock is then traded, except that such limitation shall not apply in
the event that the Company (a) obtains the approval of its shareholders as
required by the applicable rules of NYSE, or the market or exchange where
the Common Stock is then traded, (or any successor rule or regulation) for
issuances of Common Stock in excess of such amount or (b) obtains a written
opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the Holders of
a majority of the Preferred Stock then outstanding. Until such approval or
written opinion is obtained, no purchaser of Series G1 Preferred Stock
pursuant to the Purchase Agreement (as defined in Section 8) (the
"Purchasers") shall be issued, upon conversion of Series G1 Preferred
Stock, shares of Common Stock in an amount greater than the product of (i)
the Issuable Maximum multiplied by (ii) a fraction, the numerator of which
is the number of shares of Series G1 Preferred Stock issued to such
Purchaser pursuant to the Purchase Agreement and the denominator of which
is the aggregate amount of shares of the Series G1 Preferred Stock issued
to all the Purchasers pursuant to the Purchase Agreement ("Cap Allocation
Amount"). In the event that any Purchaser shall sell or otherwise transfer
any of such Purchaser's Series G1 Preferred Stock, the transferee shall
<PAGE>
be allocated a pro rata portion of such Purchaser's Cap Allocation Amount.
In the event that any Holders of Series G1 Preferred Stock shall convert
all of such Holder's Series G1 Preferred Stock into a number of shares of
Common Stock which, in the aggregate, is less than such Holder's Cap
Allocation Amount, then the difference between such Holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such
Holder shall be allocated to the respective Cap Allocation Amounts of the
remaining Holders of Series G1 Preferred Stock on a pro rata basis in
proportion to the number of Series G1 Preferred Stock then held by each
such Holder. If on the Conversion Date applicable to any conversion, the
number of shares of Common Stock issuable upon conversion of the Series G1
Preferred Stock submitted for conversion exceeds such Holder's Cap
Allocation Amount of an applicable Issuable Maximum, then the Company shall
redeem such excess number of shares of Preferred Stock, or fraction
thereof, for an amount equal to (a) such number of shares of Preferred
Stock multiplied by (b) the Redemption Price Per Share. Such redemption
amount shall be paid by the Company as promptly as possible but in any
event within seven days after the Conversion Date. If the Company fails to
pay such amounts within seven days of the Conversion Date, then (I) such
amounts shall bear interest at the rate or 15% per annum until paid in
full, (II) at the option of the Holder of such Series G1 Preferred Stock
submitted for conversion, such Holder may void such conversion and have the
Company return such Series G1 Preferred Stock and (III) if so directed by
the Holders of at least two-thirds (2/3) of the Series G1 Preferred Stock
then outstanding, including shares of Series G1 Preferred Stock submitted
for conversion but which have not been redeemed, the Company shall
immediately delist the Common Stock from the exchange or automated
quotation system on which the Common Stock is traded which has given rise
to the Issuable Maximum and have the Common Stock at such Holders' option,
traded on the electronic bulletin board or the "pink sheets".
<PAGE>
(iii) In no event shall a Holder be permitted to convert any shares of
Series G1 Preferred Stock in excess of the number of such shares upon the
conversion of which, (x) the number of shares of Common Stock beneficially
owned by such Holder (other than shares of Common Stock issuable upon
conversion of shares of Series G1 Preferred Stock) plus (y) the number of
shares of Common Stock issuable upon the conversion of such shares of
Series G1 Preferred Stock, would be equal to or exceed (z) 4.999% of the
number of shares of Common Stock then issued and outstanding, including
shares issuable on conversion of the Series G1 Preferred Stock held by such
Holder after application of this Section 5(a)(iii). As used herein,
beneficial ownership shall be determined in accordance with Section 13(d)
of the Exchange Act and the rules thereunder. Nothing contained herein
shall be deemed to restrict the right of a Holder to convert such shares of
Series G1 Preferred Stock at such time as such conversion will not violate
the provisions of this paragraph. The limitations of this Section 5(a)(iii)
shall not apply to any redemption pursuant to Section 5(a)(ii) nor shall
they apply if a Holder has complied with the filing requirements of Section
13(d) of the Exchange Act.
(iv) In no event shall a Holder be allowed to convert more than
thirty-three percent (33%) in any one calendar month of the total number of
shares of Series G1 Preferred Stock originally purchased on the Original
Issue Date, and no conversion of shares of Series G1 Preferred Stock shall
be allowed prior to the earlier of the effectiveness of the Underlying
Shares Registration Statement or the 90th day after the Closing Date.
Notwithstanding the foregoing, the conversion restriction set forth in this
Section 5(a)(iv) shall not apply (A) at any time on and after the date of
the issuance by the Company of any securities (other than the Series G1 or
G2 Preferred Stock) convertible into or exchangeable or exercisable for
Common Stock at a conversion price, exchange price or exercise price which
may vary with the market price of the Common Stock and which security is
convertible, in whole or in part, prior to 90 days after the later of (i)
the date the Underlying Shares Registration Statement is declared effective
or (ii) the issuance date of such convertible security, (B) on and after
any date on which the Common Stock is not listed on The Nasdaq National
Market, The New York Stock Exchange or The American Stock Exchange has been
suspended from trading (excluding suspensions of not more than one day
resulting from business announcements), or any such delisting or suspension
is
<PAGE>
threatened or pending, (C) on or after any date on which there shall have
occurred an event constituting a Change of Control Transaction (as defined
in Section 8), (D) on or after any date on which there shall have been an
announcement of a bona fide tender offer, merger, exchange offer or other
transaction to purchase 50% or more of the Common Stock, (E) on or after
any date on which the Company has breached a material representation or
warranty or a material covenant hereunder or under the Purchase Agreement
or Registration Rights Agreement, (F) to conversions at a Conversion Price
not less than the Fixed Strike Price then in effect or (G) at any time the
Company consummates an issuance or sale of securities under Section 3.11(i)
of the Purchase Agreement whereby such issuance or sale is for a price no
less than the Per Share Market Value.
(v) Proxy Statement. Unless otherwise consented to in writing by the
Holders of 2/3 of the Series G1 Preferred Stock then outstanding, the
Company shall provide each stockholder entitled to vote at the next meeting
of stockholders of the Company, which meeting shall not be later than
January 31, 1999 (the "Stockholder Meeting Deadline"), a proxy statement,
which has been previously reviewed by the Holders of the Series G1
Preferred Stock and a counsel of their choice, soliciting each such
stockholder's affirmative vote at such stockholder meeting for approval of
the Company's issuance of all of the Securities (as defined in the Purchase
Agreement), and the Company shall use its best efforts to solicit its
stockholders' approval of such issuance of the Securities and cause the
Board of Directors of the Company to recommend to the stockholders that
they approve such proposal. If the Company fails to hold a meeting of its
stockholders by the Stockholder Meeting Deadline then, as partial relief
(which remedy shall not be exclusive of any other remedies available at law
or in equity), the Company shall pay to each Holder of Series G1 Preferred
Stock an amount in cash per share of Series G1 Preferred Stock equal to the
product of (i) the Stated Value of the Series G1 Preferred Stock;
multiplied by (ii) .025; multiplied by (iii) the quotient of (x) the number
of days after the Stockholder Meeting Deadline that a meeting of the
Company's stockholders is not held, divided by (y) 30. The Company shall
make the payments referred to in the immediately preceding sentence within
five days of the earlier of (I) the holding of the meeting of the Company's
stockholders, the failure of which resulted in the requirement to make such
payments, and (II) the last day of each 30-day period beginning on the
<PAGE>
Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate
of 2.0% per month (pro rated for partial months) until paid in full.
(b) (i) Not later than three (3) Trading Days after any Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other
than those required by Section 3. l(b) of the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Series G1 Preferred Stock, including accrued but
unpaid dividends if the Company has elected to pay accrued dividends in
stock pursuant to Section 2 (subject to reduction pursuant to Section
5(a)(ii) and Section 5(a)(iii)) and (ii) one or more certificates
representing the number of shares of Series G1 Preferred Stock not
converted, and (iii) a bank check in the amount of accrued and unpaid
dividends (if the Company has elected to pay accrued dividends in cash
pursuant to Section 2). Upon request of the Holder, any certificate or
certificates required to be delivered by the Company under this Section 5
shall be electronically delivered through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
If in the case of any Conversion Notice such certificate or certificates,
including for purposes hereof, any shares of Common Stock to be issued on
the Conversion Date on account of accrued but unpaid dividends hereunder,
are not delivered to or as directed by the applicable Holder by the third
Trading Day after the Conversion Date, the Holder shall be entitled at any
time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion by written notice to the Company, in
which event the Company shall immediately return the certificates
representing the shares of Series G1 Preferred Stock for which Common Stock
was not delivered pursuant to such conversion.
(ii) If the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section 5, including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of
accrued but unpaid dividends hereunder, on or prior to the third Trading
Day after the Conversion Date (the "Delivery Date"), the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty, $5,000
per day until such certificates are delivered. If the Company fails to
deliver to the Holder such certificate or certificates pursuant to
<PAGE>
this Section prior to the 15th day after the Conversion Date, the Company
shall, at the Holder's option (i) redeem, from funds legally available
therefor at the time of such redemption, such number of shares of Series G1
Preferred Stock then held by such Holder, as requested by such Holder, and
(ii) pay all accrued but unpaid dividends on account of the Series G1
Preferred Stock for which the Company shall have failed to issue Common
Stock certificates hereunder, in cash. If such Holder opts to redeem any
number of shares of Series G1 Preferred Stock pursuant to this Section
5(b)(ii), then the Company shall immediately notify all other Holders of
such Holder's election to redeem and, at any other Holders' option, which
shall be exercised within two business days thereof, redeem, from funds
legally available therefor at the time of such redemption, such number of
shares of Series G1 Preferred Stock then held by such other Holder, as
requested by such Holder, which redemption shall be simultaneous with other
redemptions referred to above. The redemption price shall be equal to the
sum of (A) the aggregate of all accrued but unpaid dividends, plus (B) the
number of shares of Series G1 Preferred Stock then held by such Holder
multiplied by (1) the average Per Share Market Value for the five Trading
Days immediately preceding (x) the Conversion Date or (y) the date of
payment in full by the Company of such prepayment price, whichever is
greater, multiplied by, (2) the Conversion Ratio calculated on the
Conversion Date. If the Holder has requested that the Company redeem shares
of Series G1 Preferred Stock pursuant to this Section and the Company fails
for any reason to pay the redemption price referenced above within seven
days after such notice is deemed delivered pursuant to Section 5(i), the
Company will pay interest on the redemption price at a rate of 15% per
annum, in cash to such Holder, accruing from such seventh day until the
redemption price and any accrued interest thereon is paid in full. Nothing
herein shall limit a Holder's right to pursue actual damages for the
Company's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein (including,
without limitation, damages relating to any purchase of shares of Common
Stock by such Holder to make delivery on a sale effected in anticipation of
receiving certificates representing shares of Common Stock upon conversion,
such damages to be in an amount equal to (A) the aggregate amount paid by
such Holder for the shares of Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by such Holder from the
sale of the shares of Common Stock issued by the Company pursuant to such
conversion), and such Holder shall have the
<PAGE>
right to pursue all remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
(iii) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), by the Delivery Date and after the Delivery
Date the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver to the satisfaction of a sale by such
Holder of the Underlying Shares which the Holder anticipated receiving on
the Delivery Date upon such conversion (a "Buy-In"), then the Company shall
pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (A) the Holder's total purchase
price (including brokerage commissions, if any) for the shares of Common
Stock purchased for a Buy-In exceeds (B) the aggregate Conversion Price for
the number of shares of Common Stock in the Buy-In for which such
conversion was not timely honored. For example, if the Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of $10,000 aggregate
Conversion Price for the number of shares of Common Stock in the Buy-In,
the Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In.
(c) (i) The conversion price for each share of Series G1 Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the
lesser of (a) 110% of the Closing Price (the "Fixed Strike Price") and (b)
100% of the average of the Per Share Market Value on any five (5) Trading
Days during the Look-Back Period (excluding Short Days).
(ii) If during any period (a "Black-out Period"), a Holder is unable
to sell any Common Stock issued or issuable upon conversion of Preferred
Stock immediately due (a) to the postponement of filing or delay or
suspension of effectiveness of a registration statement, (b) because the
Company has otherwise informed such Holder that an existing prospectus
cannot be used at that time in the sale or transfer of such Common Stock or
(c) the failure to have enough shares of Common Stock registered, such
Holder shall have the option but not the obligation on any Conversion Date
within ten Trading Days following the expiration of the Black-out Period of
using the Conversion Price applicable on
<PAGE>
such Conversion Date or any Conversion Price selected by such Holder that
would have been applicable had such Conversion Date been at any earlier
time during the Black-out Period or within the ten Trading Days thereafter.
(iii) Notwithstanding the foregoing, (a) if the Underlying Shares
Registration Statement is not filed on or prior to the 30th day after the
Original Issue Date, or (b) the Company fails to file with the Commission a
request for acceleration in accordance with Rule 12dl-2 promulgated under
the Exchange Act within five (5) Trading Days of the date that the Company
is notified (orally or in writing, whichever is earlier) by the Commission
that an Underlying Shares Registration Statement will not be "reviewed," or
not subject to further review, or (c) if the Underlying Shares Registration
Statement is not declared effective by the Commission on or prior to the
90th day after the Original Issue Date, or (d) if such Underlying Shares
Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement)
at any time prior to the expiration of the "Effectiveness Period" (as such
term as defined in the Registration Rights Agreement), without being
succeeded within fifteen Trading Days by a subsequent Underlying Shares
Registration Statement filed with and declared effective by the Commission,
or (e) if trading in the Common Stock shall be suspended or if the Common
Stock is delisted for any reason for more than three Trading Days in the
aggregate, or (f) if the conversion rights of the Holders are suspended for
any reason other than as prevented by Section 5(a)(iii), or (g) if the
Company breaches in a material respect any covenant or other material term
or condition to this Certificate of Designations, the Purchase Agreement
(other than a representation or warranty contained therein), the
Registration Rights Agreement or any other agreement, document, certificate
or other instrument delivered in connection with the transactions
contemplated hereby or thereby, and such breach continues for a period of
thirty days after written notice thereof to the Company, or (h) if the
Company elects to convene a shareholders meeting pursuant to Section
5(a)(ii) and fails to convene a meeting of shareholders within the time
periods specified in Section 5(a)(ii) or does so convene a meeting of
shareholders within such time period but fails to obtain Shareholder
Approval at such meeting, or (i) if the Company has breached Section 3(n)
of the Registration Rights Agreement (any such failure or breach being
referred to as an "Event," and for purposes
<PAGE>
of clauses (a), (c) and (f) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five day period is exceeded,
or for purposes of clause (d) the date which such fifteen Trading
Day-period is exceeded, or for purposes of clause (e) the date on which
such three Trading Day period is exceeded, or for clause (g) the date on
which such thirty day period is exceeded, being referred to as "Event
Date"), the Conversion Price (a) shall be decreased by 1% as of the Event
Date and shall be decreased an additional 1% per month after the Event Date
(pro rated for partial months) until the earlier to occur of the second
month anniversary after the Event Date and such time as the applicable
Event is cured for any Event pertaining to clause (a), (b) or (c) above or
(b) shall be decreased 2% as of the Event Date and shall be decreased an
additional 2% per month after the Event Date (pro rated for partial months)
until the earlier to occur of the second month anniversary after the Event
Date and such time as the applicable Event is cured for any Event
pertaining to clauses (d) through (i) above. Commencing the second month
anniversary after the Event Date, the Company shall pay to the Holders
$70,000 per month until the applicable Event is cured (each Holder being
entitled to receive such portion of such amount as equals its pro rata
portion of the Series G1 Preferred Stock then outstanding). Any decrease in
the Conversion Price pursuant to this Section shall continue
notwithstanding the fact that the Event causing such decrease has been
subsequently cured. Additionally, if the Company has failed to file a
registration statement as required by the Registration Rights Agreement
within 60 days after the Closing Date or if any registration statement
required to be filed by the Company pursuant to the Registration Rights
Agreement has not been declared effective by the Commission within 90 days
of the date it was required to file such registration statement pursuant to
the Registration Rights Agreement or if the Company has let any
registration statement required to be filed pursuant to the Registration
Rights Agreement lapse for a period of 15 consecutive days, then each
Holder shall have the option to require the Company to redeem the balance
of such Holder's Series G1 Preferred Stock, together with all accrued but
unpaid dividends, in cash at a redemption price equal to the sum of (A) the
aggregate of all accrued but unpaid dividends, plus (B) the number of
shares of Series G1 Preferred Stock then held by such Holder multiplied by
(l) the average Per Share Market Value for the five Trading Days
immediately preceding (x) the date of the redemption request notice or (y)
the date of payment in full by the Company of such prepayment price,
whichever is
<PAGE>
greater, multiplied by, (2) the Conversion Ratio calculated on the
redemption date. If the Holder has requested that the Company redeem shares
of Series G1 Preferred Stock pursuant to this Section 5(iii) and the
Company fails for any reason to pay the redemption price as calculated
above within five days after such notice is deemed delivered, the Company
will pay interest on the redemption price at a rate of 15% per annum, in
cash to such Holder, accruing from such fifth day until the redemption
price and any accrued interest thereon is paid in full. The provisions of
this Section 5(iii) are not exclusive and shall in no way limit the
Company's obligations under the Registration Rights Agreement.
(iv) If the Company, at any time while any shares of Series G1
Preferred Stock are outstanding, (a) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Junior
Securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Fixed Strike Price shall be multiplied by a
fraction, (A) the numerator of which shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such
event and (B) the denominator of which shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to
this Section 5(c)(iv) shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
<PAGE>
(v) If the Company, at any time while any shares of Series G1
Preferred Stock are outstanding, shall issue rights or warrants to all
Holders of Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Per Share Market Value
of Common Stock at the record date mentioned below, the Fixed Strike Price
shall be multiplied by a fraction, of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of shareholders
entitled to receive such rights or warrants. However, upon the expiration
of any right or warrant to purchase Common Stock the issuance of which
resulted in an adjustment in the Fixed Strike Price pursuant to this
Section 5(c)(iii), if any such right or warrant shall expire and shall not
have been exercised, the Fixed Strike Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Fixed Strike Price made pursuant to the provisions of
this Section 5 after the issuance of such rights or warrants) had the
adjustment of the Fixed Strike Price made upon the issuance of such rights
or warrants been made on the basis of offering for subscription or purchase
only that number of shares of Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
(vi) If the Company, at any time while shares of Series G1 Preferred
Stock are outstanding, shall distribute to all of the Holders of Common
Stock (and not to Holders of Series G1 Preferred Stock) evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in Sections 5(c)(iv) and (vi)
above), then in each such case the Fixed Strike Price at which each share
of Series G1 Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior
to the record date fixed for determination of shareholders entitled
<PAGE>
to receive such distribution by a fraction of which the denominator shall
be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and of which the numerator shall be such Per Share
Market Value of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of
Common Stock as determined by the Board of Directors in good faith;
provided, however, that in the event of a distribution exceeding ten
percent of the net assets of the Company, such fair market value shall be
determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized
standing (an "Appraiser") selected in good faith by the Holders of a
majority in interest of the shares of Series G1 Preferred Stock then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an
additional Appraiser meeting the same qualifications, in good faith, in
which case the fair market value shall be equal to the average of the
determinations by each such Appraiser. In either case the adjustments shall
be described in a statement provided to the Holders of Series G1 Preferred
Stock of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(vii) All calculations under this Section 5 shall be made to the
nearest cent or the nearest l/l00th of a share, as the case may be.
(viii) Whenever the Conversion Price is adjusted pursuant to Section
5(c)(iv), (v) or (vi), the Company shall promptly mail to each Holder of
Series G1 Preferred Stock, a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(ix) In case of (A) any reclassification of the Common Stock, (B) any
consolidation or merger of the Company with or into another person pursuant
to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or
(ii) less than 51% of the outstanding shares of the capital stock of the
surviving entity will be held by the same shareholders of the Company prior
to such
<PAGE>
reclassification, consolidation or merger, (C) the sale or transfer of all
or substantially all of the assets of the Company, (D) any compulsory share
exchange pursuant to which the Common Stock is converted into other
securities, cash or property, (E) suspension from listing or delisting of
the Common Stock from The New York Stock Exchange or The Nasdaq National
Market for a period of five consecutive days, (F) the Company's notice to
any Holder, including by way of public announcement, at any time, of its
intention, for any reason, not to comply with proper requests for
conversion of any shares of Series G1 Preferred Stock into shares of Common
Stock, or (G) a breach by the Company of any representation, warranty,
covenant or other term or condition of the Purchase Agreement, the
Registration Rights Agreement, this Certificate of Designation or any other
agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby or hereby, except to
the extent that such breach would not have a Material Adverse Effect (as
defined in Section 2.1(a) of the Purchase Agreement) and except, in the
case of a breach of a covenant which is curable, only if such breach
continues for a period of at least ten days after the Company knows or
reasonably should have known of the existence of such breach (clauses (A)
through (G) above are referred to as a "Redemption Event"), in the case of
(A), (B), (C) and (D), the Holders of the Series G1 Preferred Stock then
outstanding shall have the right thereafter to convert such shares only
into the shares of stock and other securities, cash and property receivable
upon or deemed to be held by Holders of Common Stock following such
Redemption Event, and the Holders of the Series G1 Preferred Stock shall be
entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which such
shares of Series G1 Preferred Stock could have been converted immediately
prior to such Redemption Event would have been entitled; provided, however,
that on and after the date of any Redemption Event, each Holder shall have
the option to require the Company to redeem, from funds legally available
therefor at the time of such redemption, its shares of Series G1 Preferred
Stock at a price per share equal to the product of (i) the average Per
Share Market Value for the five Trading Days immediately preceding (1) the
effective date, the date of the closing, date of occurrence or the date of
the announcement, as the case may be, of the Redemption Event triggering
such redemption right or (2) the date of payment in full by the Company of
the redemption price hereunder, whichever is greater, and (ii) the
Conversion Ratio calculated on the date of the closing, date of occurrence
or the effective date, as the case may be, of the Redemption Event
triggering such redemption right, as the case may be or, at the option of
Holder, on
<PAGE>
the date of submission of a Redemption Notice. The entire redemption price
shall be paid in cash, and the terms of payment of such redemption price
shall be subject to the provisions set forth in Section 6(b). In the case
of (A), (B), (C) and (D), the terms of any such Redemption Event shall
include such terms so as to continue to give to the Holder of Series G1
Preferred Stock the right to receive the securities, cash or property set
forth in this Section 5(c)(vii) upon any conversion or redemption following
such Redemption Event. This provision shall similarly apply to successive
Redemption Events.
(x) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the Holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
D. the approval of any shareholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is
converted into other securities, cash or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Series G1 Preferred Stock, and
shall cause to be mailed to the Holders of Series G1 Preferred Stock at
their last addresses as they shall appear upon the stock books of the
Company, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice
<PAGE>
shall not include any material non-public information) stating (x) the date
on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the Holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
Holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. Holders are
entitled to convert shares of Series G1 Preferred Stock during the 30-day
period commencing the date of such notice to the effective date of the
event triggering such notice.
(xi) If the Company (i) makes a public announcement that it intends to
enter into a Change of Control Transaction (as defined in Section 8) or
(ii) any person, group or entity (including the Company, but excluding a
Holder or any affiliate of a Holder) publicly announces a bona fide tender
offer, exchange offer or other transaction to purchase 50% or more of the
Common Stock (such announcement being referred to herein as a "Major
Announcement" and the date on which a Major Announcement is made, the
"Announcement Date"), then, in the event that a Holder seeks to convert
shares of Series G1 Preferred Stock on or following the Announcement Date,
the Conversion Price shall, effective upon the Announcement Date and
continuing through the earlier to occur of the consummation of the proposed
transaction or tender offer, exchange offer or other transaction and the
Abandonment Date (as defined below), be equal to the lesser of (A) the
Conversion Price in effect on the Trading Day immediately preceding the
Announcement Date for such Series G1 Preferred Stock and (B) the Conversion
Price on such Conversion Date. "Abandonment Date" means with respect to any
proposed transaction or tender offer, exchange offer or other transaction
for which a public announcement as contemplated by this paragraph has been
made, the date upon which the Company (in the case of clause (i) above) or
the person, group or entity (in the case of clause (ii) above) publicly
announces the
<PAGE>
termination or abandonment of the proposed transaction or tender offer,
exchange offer or another transaction which caused this paragraph to become
operative.
(d) The Company covenants that it will not take any action which might
materially and adversely affect the rights of the Holders of Series G1 Preferred
Stock (different than or distinguished from the effect generally on rights of
Holders of any class of the Company's capital stock).
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Series G1 Preferred Stock and payment of
dividends on Series G1 Preferred Stock, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders of Series G1 Preferred Stock, not less than 150% of such
number of shares of Common Stock as shall (subject to any additional
requirements of the Company as to reservation of such shares set forth in the
Purchase Agreement) be issuable (taking into account the adjustments of Section
5(c)) upon the conversion of all outstanding shares of Series G1 Preferred Stock
and payment of dividends hereunder (without regard to any limitations on
conversion). The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and freely tradable.
(f) Upon a conversion hereunder, the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Per Share Market Value at such time. If the Company elects
not, or is unable, to make such a cash payment, the Holder of a share of Series
G1 Preferred Stock shall be entitled to receive, in lieu of the final fraction
of a share, one whole share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on conversion
of Series G1 Preferred Stock shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate.
(h) Shares of Series G1 Preferred Stock converted into Common Stock shall
be canceled and shall have the status of authorized but unissued shares of
undesignated stock.
<PAGE>
(i) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile or sent by a
nationally recognized overnight courier service, addressed to the attention of
the Chief Executive Officer and to the Secretary of the Company at the facsimile
telephone number or address of the principal place of business of the Company as
set forth in the Purchase Agreement. Any and all notices or other communications
or deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile or sent by a nationally recognized overnight
courier service, addressed to each Holder of Series G1 Preferred Stock at the
facsimile telephone number or address of such Holder appearing on the books of
the Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
7:00 p.m. (Eastern Time), (ii) the date after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section later than 7:00 p.m. (New York Time) on any
date and earlier than 11:59 p.m. (Eastern Time) on such date, (iii) upon
receipt, if sent by a nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
(j) Adjustment to Fixed Strike Price. In order to prevent dilution of the
rights granted under this Certificate of Designation, the Fixed Strike Price
will be subject to adjustment from time to time as provided in this Section
5(j).
(i) Adjustment of Fixed Strike Price upon Issuance of Common Stock. If
and whenever on or after the Closing Date, the Company issues or sells, or
is deemed to have issued or sold, any shares of Common Stock (other than
the Underlying Shares, Warrant Shares or shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock Plan
(as defined below)) for a consideration per share less than the Fixed
Strike Price in effect immediately prior to such issuance or sale, then
immediately after such issue or sale, the Fixed Strike Price then in effect
shall be reduced to an amount equal to the consideration per share of
Common Stock of such issuance or sale. If and whenever on or after the
Closing Date, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than the Underlying Shares, Warrant
Shares, shares of Common Stock deemed to have been
<PAGE>
issued by the Company in connection with an Approved Stock Plan (as defined
below) or shares of Common Stock issued or deemed to have been issued as
consideration for an acquisition by the Company of a license or of a
division, assets or business (or stock constituting any portion thereof)
from another person) for a consideration per share which is (A) greater
than the Fixed Strike Price in effect immediately prior to such issuance or
sale and (B) less the average of the Per Share Market Values on the five
consecutive trading days immediately preceding the date of such issuance or
sale (the price in this clause (B) is herein referred to as "Market
Price"), then immediately after such issue or sale, the Fixed Strike Price
then in effect shall be reduced to an amount equal to the product of (x)
the Fixed Strike Price in effect immediately prior to such issue or sale
and (y) the quotient determined by dividing (1) the sum of (I) the product
of (A) the Market Price and (B) the number of shares of Common Stock Deemed
Outstanding (as defined below) immediately prior to such issue or sale, and
(II) the consideration, if any, received by the Company upon such issue or
sale, by (2) the product of (I) the Market Price and (II) the number of
shares of Common Stock Deemed Outstanding (as defined below) immediately
after such issue or sale. For purposes of determining the adjusted Fixed
Strike Price under this Section 5(j)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants any
rights or options to subscribe for or to purchase Common Stock or any stock
or other securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible
Securities") and the price per share for which Common Stock is issuable
upon the exercise of such Options or upon conversion or exchange of such
Convertible Securities is less than the Fixed Strike Price in the case of
the first sentence of Section 5(j)(i), or the Market Price in the case of
the second sentence of Section 5(j)(i) (collectively, the "Applicable
Price"), then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For purposes of
this Section 5(j)(i)(A), the "price per share for which Common Stock is
issuable upon exercise of such Options or upon conversion or exchange of
such Convertible Securities" is determined by dividing (I) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
<PAGE>
exercise of all such Options, plus in the case of such Options which relate
to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of
such Convertible Securities and the conversion or exchange thereof, by (II)
the total maximum number of shares of Common Stock issuable upon exercise
of such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No adjustment of the
Fixed Strike Price shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such Options
or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange is less
than the Applicable Price, then the maximum number of shares of Common
Stock issuable upon conversion or exchange of such Convertible Securities
shall be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this Section
5(j)(i)(B), the "price per share for which Common Stock is issuable upon
such conversion or exchange" is determined by dividing (I) the total amount
received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No adjustment of the Fixed Strike Price shall be
made upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of the Fixed Strike Price had been or are to be made pursuant to
other provisions of this Section 5(j)(i), no further adjustment of the
Fixed Strike Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If there is a change
at any time in (i) the purchase price provided for in any Options, (ii) the
additional consideration, if any, payable upon the issue, conversion or
exchange of any Convertible Securities or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock, then the Fixed Strike Price in effect at the time of such change
shall be readjusted to the Fixed Strike Price which would have been in
effect at such time had such Options or Convertible Securities still
<PAGE>
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold; provided that no adjustment shall be
made if such adjustment would result in an increase of the Fixed Strike
Price then in effect.
(D) Certain Definitions. For purposes of determining the adjusted
Fixed Strike Price under this Section 5(j)(i), the following terms have
meanings set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan or
agreement which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to
any employee, officer, director or consultant.
(II) "Common Stock Deemed Outstanding" means, at any given time,
the number of shares of Common Stock issued and outstanding at such
time, plus the number of shares of Common Stock deemed to be
outstanding pursuant to Sections 5(j)(i)(A) and 5(j)(i)(B) hereof
regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any shares of Common
Stock issuable upon conversion of the shares of Series G1 Preferred
Stock or exercise of the Warrants.
(E) Effect on Fixed Strike Price of Certain Events. For purposes of
determining the adjusted Fixed Strike Price under this Section 5(j)(i), the
following shall be applicable:
(I) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will
be deemed to be the net amount received by the Company therefor. In
case any Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair
value of such consideration, except where such consideration consists
of securities, in which case the amount of consideration received by
the Company will be the arithmetic average of the Per Share Market
Values of such security for the five (5) consecutive Trading Days
immediately preceding the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity the amount of consideration therefor
will be deemed to be the fair value of such portion of the net assets
and business of
<PAGE>
the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair value
of any consideration other than cash or securities will be determined
jointly by the Company and the Holders of a majority of the shares of
Series G1 Preferred Stock then outstanding. If such parties are unable
to reach agreement within ten (10) days after the occurrence of an
event requiring valuation (the "Valuation Event"), the fair value of
such consideration will be determined within forty-eight (48) hours of
the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser selected by the Company. The determination of such
appraiser shall be binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.01.
(III) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by
or for the account of the Company, and the disposition of any shares
so owned or held will be considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(ii) Certain Events. If any event occurs of the type contemplated by
the provisions of Section 5(j)(i) (subject to the exceptions stated
therein) but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion
Price so as to protect the rights of the Holders of the shares of Series G1
Preferred Stock; provided, however, that no such adjustment will increase
the Conversion Price as otherwise determined pursuant to this Section 5(j).
<PAGE>
Section 6. Redemptions.
(a) All outstanding and unconverted shares of Series G1 Preferred Stock on
the 3rd anniversary of the Original Issue Date shall be, at the Holders' option,
converted pursuant to Section 5(a)(ii) or redeemed by the Company pursuant to
this Section 6(a), from funds legally available therefor at a price per share
equal to the product of (i) the average Per Share Market Value for the five
Trading Days immediately preceding (1) the 3rd anniversary of the Original Issue
Date or (2) the date of payment in full by the Company of the redemption price
hereunder, whichever is greater, and (ii) the Conversion Ratio calculated on the
3rd anniversary of the Original Issue Date, plus any accrued but unpaid
dividends on such shares. Thereafter, all shares of Series G1 Preferred Stock
shall cease to be outstanding and shall have the status of authorized but
undesignated preferred stock. The entire redemption price shall be paid in cash.
(b) If any portion of the applicable redemption price under Section 6(a)
shall not be paid by the Company within seven (7) calendar days after the date
due, interest shall accrue thereon at the rate of 15% per annum until the
redemption price plus all such interest is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). In addition, if any portion of
such redemption price remains unpaid for more than seven (7) calendar days after
the date due, the Holder of the Series G1 Preferred Stock subject to such
redemption may elect, by written notice to the Company given within 30 days
after the date due, to either (i) demand conversion in accordance with the
formula and the time frame therefor set forth in Section 5 of all of the shares
of Series G1 Preferred Stock for which such redemption price, plus accrued
liquidated damages thereof, has not been paid in full (the "Unpaid Redemption
Shares"), in which event the Per Share Market Price for such shares shall be the
lower of the Per Share Market Price calculated on the date such redemption price
was originally due and the Per Share Market Price as of the Holder's written
demand for conversion, or (ii) invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (i) above, the Company shall within five Trading Days of its receipt of
such election deliver to the Holder the shares of Common Stock issuable upon
conversion of the Unpaid Redemption Shares subject to such Holder conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than five Trading Days from receipt of Holder's notice of such
election, return to the Holder all of the Unpaid Redemption Shares.
<PAGE>
Section 7. Company's Right to Redeem in Lieu of Conversion. Subject to the
terms and conditions of this Section 7 below, at any time after the Issuance
Date, and so long as the Company has provided appropriate notice as described
below, the Company may elect to redeem shares of Series G1 Preferred Stock
submitted for conversion in lieu of converting such shares of Series G1
Preferred Stock, provided that the Conversion Price for such shares of Series G1
Preferred Stock on the Conversion Date is less than the applicable Redemption
Trigger Price (appropriately adjusted for any stock split, stock dividend,
combination or other similar transaction) (a "Company Redemption in Lieu of
Conversion").
(a) Redemption Price of Company Redemption in Lieu of Conversion. The
"Redemption Price of Company Redemption in Lieu of Conversion" shall be an
amount per Preferred Share equal to the product of (A) the Conversion Ratio of
the shares of Series G1 Preferred Stock on the applicable Conversion Date and
(B) the Per Share Market Value on the Conversion Date.
(b) Mechanics of Company Redemption in Lieu of Conversion. The Company
shall exercise its right to redeem by delivering written notice by facsimile and
overnight courier ("Notice of Company Redemption in Lieu of Conversion") to (i)
each Holder of the shares of Series G1 Preferred Stock and (ii) the Transfer
Agent. Such Notice of Company Redemption in Lieu of Conversion shall indicate
(A) the maximum, if any, aggregate dollar amount of Redemption Price of Company
Redemption in Lieu of Conversion which the Company will pay for any Company
Redemption in Lieu of Conversion, (B) each Holder's pro rata allocation of such
maximum amount, (C) the dollar price which is less than the Fixed Strike Price
in effect on the Closing Date (subject to adjustment for any stock split, stock
dividend, combination or other similar transaction) which shall constitute the
"Redemption Trigger Price" for the Redemption in Lieu of Conversion Period (as
defined below) for the applicable month, and (D) confirm the time period during
which the Company may effect Company Redemption in Lieu of Conversion, which
period ("Redemption in Lieu of Conversion Period") shall begin on and include
the first date of the calendar month which is at least five business days after
the date of receipt by all the Holders of the Notice of Company Redemption in
Lieu of Conversion and shall end on and include the last date of such calendar
month. If the Company elects to limit the Redemption Price of Company Redemption
in Lieu of Conversion which it will pay out for redemptions of shares of Series
G1 Preferred Stock submitted for redemption during the Redemption in Lieu of
Conversion Period, the Company shall allocate for redemption from each Holder of
shares of Series G1 Preferred
<PAGE>
Stock an amount of the Redemption Price of Company Redemption in Lieu of
Conversion equal to such Holder's pro rata amount (based on the number of shares
of Series G1 Preferred Stock held by such Holder on the date of the Notice of
Company Redemption in Lieu of Conversion relative to the total number of shares
of Series G1 Preferred Stock outstanding on such date). Notwithstanding anything
in this Section 7(b), the Company shall convert shares of Series G1 Preferred
Stock pursuant to Section 5 if the Conversion Date for shares of Series G1
Preferred Stock submitted for conversion is (i) before the beginning, or after
the termination, of the Redemption in Lieu of Conversion Period, (ii) for a
Conversion Price greater than or equal to the Redemption Trigger Price
(appropriately adjusted for stock splits, stock dividends, combinations and
other similar transactions) or (iii) are in excess of such Holder's pro rata
allocation of the maximum Redemption Price of Company Redemption in Lieu of
Conversion indicated in its Notice of Company Redemption in Lieu of Conversion.
(c) Payment of Redemption Price. The Company shall pay the applicable
Redemption Price of Company Redemption in Lieu of Conversion to the Holder of
the shares of Series G1 Preferred Stock being redeemed in cash within three
Trading Days after the Conversion Date. If the Company shall fail to pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to such
Holder within three Trading Days after the Conversion Date, in addition to any
remedy such Holder of shares of Series G1 Preferred Stock may have under this
Certificate of Designations and the Purchase Agreement, such unpaid amount shall
bear interest at the rate of 1.5% per month until paid in full. Until the
Company pays such unpaid applicable Redemption Price of Company Redemption in
Lieu of Conversion in full to each Holder, each Holder of shares of Series G1
Preferred Stock submitted for redemption pursuant to this Section 7(c) and for
which the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid, shall have the option, in lieu of redemption, (A)
to require the Company to promptly return to such Holder all of the shares of
Series G1 Preferred Stock that were submitted for redemption by such Holder
under this Section 7(c) and for which the applicable Redemption Price of Company
Redemption in Lieu of Conversion has not been paid or (B) to convert those
shares of Series G1 Preferred Stock for which the applicable Redemption Price of
the Company Redemption in Lieu of Conversion has not been paid at a Conversion
Price equal to the lesser of (I) the Conversion Price applicable to such
conversion on the Conversion Date and (II) the Conversion Price which would have
been in effect on the 4th Trading Day after the Conversion Date, by sending
written notice thereof to the Company via
<PAGE>
facsimile (the "Void Company Redemption Notice"). Upon the Company's receipt of
such Void Company Redemption Notice(s) requesting the return of the shares of
Series G1 Preferred Stock and prior to payment of the full applicable redemption
price to each Holder, (i) the Company's Redemption in Lieu of Conversion shall
be null and void with respect to those shares of Series G1 Preferred Stock
submitted for redemption and for which the applicable redemption price has not
been paid, (ii) the Company shall immediately return any shares of Series G1
Preferred Stock submitted to the Company by each Holder for redemption under
this Section 7(c) and for which the applicable Redemption Price of Company
Redemption in Lieu of Conversion has not been paid and (iii) the Fixed Strike
Price of such returned shares of Series G1 Preferred Stock shall be adjusted to
the lesser of (I) the Conversion Price applicable to such conversion on the date
on which such shares of Series G1 Preferred Stock were originally presented for
conversion and (II) the Conversion Price which would have been in effect on the
4th Trading Day after the Conversion Date. If the Company fails to timely effect
a Company Redemption in Lieu of Conversion in accordance with this Section 7(c),
the Company shall not be allowed to submit another Notice of Company Redemption
in Lieu of Conversion without (i) the prior written consent of Holders of at
least two-thirds (2/3) of the shares of Series G1 Preferred Stock then
outstanding or (ii) evidence reasonably satisfactory to Holders of at least
two-thirds (2/3) of the shares of Series G1 Preferred Stock then outstanding
that the Company has immediately available funds for the redemption procedure.
Section 8. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Change of Control Transaction" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Section 13(d)(3) of the Exchange Act), other than WGI, LLC or
any of its Affiliates, of in excess of 50% of the voting securities of the
Company, (ii) a replacement of more than one-half of the members of the
Company's board of directors which is not approved by a majority of those
individuals who are members of the board of directors on the date hereof, or
their duly elected successors who are directors immediately prior to such
transaction, in one or a series of related transactions, (iii) the merger of the
Company with or into another entity, unless following such transaction, the
Holders of the Company's securities continue to hold at least 50% of such
securities following such transaction, (iv) consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, or (v) the execution by the Company of an agreement to which the
Company is a party or
<PAGE>
by which it is bound, providing for any of the events set forth above in (i),
(ii), (iii) or (iv).
"Closing Date" means the date of the closing of the purchase and sale of
the Series G1 Preferred Stock.
"Closing Price" means the average of the Per Share Market Value of the
Common Stock for 10 Trading Days ending on the Series G1 Closing Date, provided,
however, that such average shall be calculated using only the eight (8) Trading
Days which do not include the single highest and single lowest Per Share Market
Value during such 10 Trading Day period.
"Commission" means the United States Securities and Exchange Commission, or
any successor to such agency.
"Common Stock" means the Company's common stock, $.01 par value per share,
of the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which the numerator
is the sum of (a) Stated Value, plus (b) accrued but unpaid dividends (including
any accrued but unpaid interest thereon), but only to the extent not paid in
shares of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other equity securities
of the Company which are junior in rights and liquidation preference to the
Series G1 Preferred Stock.
"Look-Back Period" means, for any Conversion Date, the forty-four (44)
Trading Days immediately preceding such Conversion Date. For each day after the
90th day from the Filing Date that the registration statement required pursuant
to the Registration Rights Agreement is not effective, a day will be added to
the Look-Back Period.
"NYSE" means The New York Stock Exchange.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Series G1 Preferred Stock regardless of the number of transfers of
any particular shares of Series G1 Preferred Stock and regardless of the number
of certificates which may be issued to evidence such Series G1 Preferred Stock.
<PAGE>
"Per Share Market Value" means on any particular date (a) the closing bid
price per share of the Common Stock on such date on the NYSE or other registered
national stock exchange on which the Common Stock is then listed or if there is
no such price on such date, then the closing bid price on such exchange or
quotation system on the date nearest preceding such date, or (b) if the Common
Stock is not listed then on the NYSE or any registered national stock exchange,
the closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the NYSE or in the National Quotation Bureau Incorporated
or similar organization or agency succeeding to its functions of reporting
prices) at the close of business on such date, or (c) if the Common Stock is not
then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
in interest of the shares of the Series G1 Preferred Stock; provided, however,
that the Company, after receipt of the determination by such Appraiser, shall
have the right to select an additional Appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
Appraiser; and provided, further that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Purchase Agreement" means the Convertible Series G1 Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, among the Company and
the original Holders of the Series G1 Preferred Stock.
"Redemption Price Per Share" means, with respect to each share of the
Series G1 Preferred Stock, the greater of (A)(i) the average Per Share Market
Value of such shares for the five (5) Trading Days immediately preceding the
Conversion Date multiplied by (ii) the number of shares equal to the Conversion
Ratio on the Conversion Date, and (B)(1) the Stated Value of such shares, plus
any accrued but unpaid dividends on such shares, multiplied by (2) 120%.
"Shareholder Approval" means the approval by a majority of the total votes
cast on the proposal, in person or by proxy, at a meeting of the shareholders of
the Company held in accordance with the Company's Restated Articles of
Incorporation and by-laws, of the issuance by the Company of shares of Common
Stock exceeding the Issuable Maximum as a consequence of the conversion
<PAGE>
of Series G1 Preferred Stock into Common Stock at a price less than the greater
of the book or market value on the Original Issue Date as and to the extent
required pursuant to the Rules of the NYSE (or any successor or replacement
provision thereof).
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Original Issue Date, by and among the Company and the original
Holders.
"Short Day" means any Trading Day on which a Holder shall have consummated
a short sale or short sales of the Common Stock in an amount equal to at least
5% of the aggregate pro rata amount of the Series G1 Purchase Price and Series
G2 Purchase Price (as such terms are defined in the Purchase Agreement) paid by
such Holder.
"Trading Day" means (a) a day on which the Common Stock is traded on the
NYSE or other registered national stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not listed on the NYSE or any
registered national stock exchange, a day or which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Shares" means the number of shares of Common Stock into which
the Shares are convertible and the shares or Common Stock issuable upon payment
of dividends thereon, in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Shares Registration Statement" means the registration
statement, to be filed by the Company with the Commission under the Securities
Act of 1933, as amended, in accordance with the terms of the Purchase Agreement,
for resale of the Underlying Shares by the Holders.
Section 9. Notices. Except as otherwise provided in the event of conversion
of shares of Series G1 Preferred Stock, all notices or other communications
required hereunder shall be in
<PAGE>
writing and shall be sent either (a) by courier, or (b) by telecopy as well as
by registered or certified mail, and shall be regarded as properly given in the
case of a courier upon actual delivery to the proper place of address; in the
case of telecopy, on the day received, if received by 7:00 p.m. EST, if properly
addressed and sent without transmission error to the correct number (provided
that confirmation of such transmission has been mechanically or electronically
generated and is retained in sender's files); in the case of a letter for which
a telecopy could not be successfully transmitted or receipt of which could not
be confirmed as herein provided, three days after the registered or certified
mailing date if the letter is properly addressed and postage prepaid; and shall
be regarded as properly addressed if sent to the parties or their
representatives at the addresses given below:
To the Company: Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Phone: (423) 752-2032
Fax: (423) 752-2040
with copies to: Witt, Gaither & Whitaker, P.C.
1100 SunTrust Bank Building
736 Market Street
Chattanooga, Tennessee 37402
Attn: Steven R. Barrett
Phone: (423) 265-8881
Fax: (423) 266-4138
To the Holders: Brown Simpson Strategic Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Phone: (212) 247-8200
Fax: (212) 247-1329
Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Phone: (212) 247-8200
Fax: (212) 247-1329
<PAGE>
with copies to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attn: Diane B. Muse
Phone: (214) 969-4694
Fax: (214) 969-4343
To the Holders: Heracles Fund Ltd.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Phone: (212) 698-0588
Fax: (212) 698-0505
Themis Partners, L.P.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Phone: (212) 698-0588
Fax: (212) 698-0505
with copies to: Katten Muchin & Zavis
525 West Monroe Street - Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert Brantman
Phone: (312) 902-5289
Fax: (312) 902-1061
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
Section 10. Lost or Stolen Certificates. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any stock certificates representing Series G1 Preferred Stock,
and, in the case of loss, theft or destruction, of any indemnification
undertaking by the Holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of such Series G1 Stock
certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tendor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the Holder
contemporaneously requests the Company to convert such Series G1 Preferred Stock
into Common Stock.
Section 11. Remedies Characterized. Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this
<PAGE>
Certificate of Designation shall be cumulative and in addition to all other
remedies available under this Certificate of Designation, at law or in equity
(including a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a Holder's
right to pursue actual damages for any failure by the Company to comply with the
terms of this Certificate of Designation. The Company covenants to each Holder
of Series G1 Preferred Stock that there shall be no characterization concerning
this instrument other than as expressly provided herein. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder thereof
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Holders of the Series G1 Preferred Stock and that, in the event of any
breach may be inadequate. The Company therefore agrees that, in the event of any
such breach or threatened breach, the Holders of the Series G1 Preferred Stock
shall be entitled, in addition to all other available remedies, to an injection
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
Section 12. Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Designation shall limit or modify any
more general provision contained herein. This Certificate of Designation shall
be deemed to be jointly drafted by the Company and all Purchasers (as defined in
this Purchase Agreement) and shall not be construed against any person as the
drafter hereof.
Section 13. Failure or Indulgence Not Waiver. No failure or delay on the
part of a Holder of Series G1 Preferred Stock in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the
Registered Holder in order to
Convert shares of Series G1
Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series G1
Convertible Preferred Stock indicated below, into shares of common stock, par
value $.01 per share (the "Common Stock"), of Signal Apparel Company, Inc. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations: ---------------------------------------
Date to Effect Conversion
---------------------------------------
Number of shares of Series G1
Preferred Stock to be Converted
---------------------------------------
Number of shares of Common Stock to
be Issued
----------------------------------------
Applicable Conversion Price
----------------------------------------
Signature
----------------------------------------
Name
----------------------------------------
Address
<PAGE>
ANNEX 8
VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES H PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
----------
SECTION 1
DESIGNATION AND RANK
1.1. Designation. The number of authorized shares constituting the "Series
H Preferred Stock" (hereinafter called the "Series H Preferred") of Signal
Apparel Company, Inc. (the "Corporation") is one thousand (1,000). Shares of the
Series H Preferred shall be issued at a stated value of $100,000.00 per share
(the "Stated Value"). The number of authorized shares of the Series H Preferred
may be increased by the affirmative vote of 75% of the Board of Directors.
1.2. Rank. With respect to the payment of dividends and other distributions
with respect to the capital stock of the Corporation, including the distribution
of the assets of the Corporation upon liquidation, the Series H Preferred shall
be subordinate to the Corporation's Series G1 Preferred Stock and Series G2
Preferred Stock, shall be equal to the Corporation's Series A Preferred Stock
and Series F Preferred Stock, and shall be senior to the Corporation's Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series
E Preferred Stock, and shall be senior to all series and classes of the common
stock of the Corporation.
SECTION 2
DIVIDEND RIGHTS
<PAGE>
2.1. Dividend Rate. From the date of issuance dividends shall accrue on
each share of the Series H Preferred at an annual rate equal to nine percent
(9%) per annum multiplied by the Stated Value, or $9,000.00 per share per year
for each full year. The annual rate at which such dividends shall accrue is
hereinafter referred to as the "Dividend Rate."
2.2. Accrual and Payment. Dividends on each share of the Series H Preferred
shall be payable in cash. Dividends on each share of the Series H Preferred
shall accrue from the date of original issuance of such share, whether or not
declared by the Board of Directors or a committee thereof, and except as
otherwise provided herein, dividends on the Series H Preferred shall be payable,
when and as declared by the Board of Directors or a committee thereof, annually
on December 31 (or, if such day is not a Business Day, as defined hereafter, on
the next Business Day thereafter) of each year, (each such date being
hereinafter referred to as a "Dividend Payment Date"), to holders of record as
they appear on the books of the Corporation on such record date, not exceeding
60 days preceding the relevant Dividend Payment Date, as may be determined by
the Board of Directors or a committee thereof in advance of the payment of the
particular dividend. Dividends shall be paid at a rate of $9,000.00 per share
for each full calendar year on each Dividend Payment Date with respect to the
yearly period ending on such Dividend Payment Date. Dividends in arrears may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to holders of record on such date, not exceeding 60 days preceding the
payment date thereof, as may be fixed by the Board of Directors or a committee
thereof. Dividends payable on the Series H Preferred for any period less than a
full yearly period shall be computed at the Dividend Rate per annum based on a
360-day year of twelve 30-day months. "Business Day" shall mean any day
excluding Saturday, Sunday and any day that shall be, in the State of New York,
a legal holiday or a day on which banking institutions are authorized by law to
close. If any cumulative dividends in respect of the Series H Preferred are not
paid in full, the owners of all series of the Series H Preferred shall
participate ratably in any payment of accumulated dividends.
2.3. Dividends or Distributions to Junior Stock. So long as any shares of
the Series H Preferred are outstanding, no dividend or distribution shall be
declared or paid or set aside for payment on the Common Stock or on any other
capital stock of the Corporation ranking junior to the Series H Preferred as to
dividends, nor shall the Common Stock or any other stock of the Corporation
ranking junior to the Series H Preferred be redeemed, purchased or otherwise
acquired for any consideration (or any moneys paid to or made available for a
sinking fund for the
<PAGE>
redemption of any shares of any such stock) by the Corporation (except by
conversion into or exchange for shares of the Common Stock or other stock of the
Corporation ranking junior to the Series H Preferred as to dividends) unless, in
each case, full cumulative dividends on all outstanding shares of the Series H
Preferred shall have been declared and paid through and including the most
recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. Preferences of the Series H Preferred on Winding-up of the
Corporation. In the event of any voluntary or involuntary liquidation,
dissolution, winding-up of affairs of the Corporation or other similar event,
before any distribution is made upon any class of stock of the Corporation
ranking junior to the Series H Preferred, the holders of shares of the Series H
Preferred shall be entitled to be paid, out of the assets of the Corporation
available for distribution to its shareholders, an amount per share equal to the
Stated Value, plus all accrued and unpaid dividends (the Stated Value plus such
accrued and unpaid dividends constituting the "Liquidation Value"), whether or
not such accrued and unpaid dividends have been declared by the Board of
Directors of the Corporation. Neither the consolidation nor merger of the
Corporation with or into any other corporation or corporations, nor the sale or
lease of all or substantially all of the assets of the Corporation, shall itself
be deemed to be a liquidation, dissolution or winding-up of affairs of the
Corporation within the meaning of any of the provisions of this Section 3.
3.2. Pro Rata Distribution. If, upon distribution of the Corporation's
assets in liquidation, dissolution, winding-up of affairs or other similar
event, the net assets of the Corporation to be distributed among the holders of
shares of the Series H Preferred and any other class or series of stock of the
Corporation ranking on a parity with the Series H Preferred as to distributions
upon liquidation are insufficient to permit payment in full to such holders of
the preferential amounts to which they are entitled, then the entire net assets
of the Corporation remaining after all required distributions have been made to
holders of any other class or series of stock of the Corporation ranking senior
to the Series H Preferred shall be distributed among the holders of shares of
the Series H Preferred and any other class or series of stock ranking on a
parity with the Series H Preferred ratably, in proportion to the full amounts to
which they would otherwise be respectively entitled, and such
<PAGE>
distributions may be made in cash or in property taken at its fair value (as
determined in good faith by the Board of Directors), or both, at the election of
the Board of Directors.
3.3. Priority. All of the preferential amounts to be paid to the holders of
the Series H Preferred and the holders of any other class or series of stock of
the Corporation ranking on a parity with the Series H Preferred as to
distributions upon liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the distribution of
any assets of the Corporation to, the holders of the Common Stock of the
Corporation and any other class or series of stock of the Corporation that is
junior to the Series H Preferred as to distributions upon liquidation.
SECTION 4
VOTING AND PREEMPTIVE RIGHTS
4.1. General. The holders of shares of the Series H Preferred shall have
only such voting rights as are expressly set forth herein or otherwise provided
by law. Shares of the Series H Preferred shall not give their holders any
preemptive rights to acquire any other securities issued by the Corporation at
any time in the future.
4.2. Consent for Certain Actions. So long as any of the shares of the
Series H Preferred are outstanding, except where the vote or written consent of
the holders of a greater number of shares of the Corporation is required by law
or by the Restated Articles of Incorporation, and in addition to any other vote
required by law, without the prior consent of the holders of two-thirds (2/3) of
the outstanding shares of the Series H Preferred, given in person or by proxy,
either in writing or at a special meeting called for that purpose, neither the
Corporation nor any of the Corporation's direct or indirect subsidiaries shall
take any of the following actions:
(a) the amendment or repeal of any provision of, or the addition of
any provision to, the Restated Articles of Incorporation or By-Laws of the
Corporation if such action would alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of,
the Series H Preferred;
(b) the reclassification of any common stock into shares having any
preference or priority as to dividends or the distribution of assets upon
liquidation superior to or on
<PAGE>
a parity with any such preference or priority of the Series H Preferred;
(c) the application of any of its assets (in excess of one percent
(1%) of its net worth on an annual basis) to the redemption, retirement,
purchase or other acquisition directly or indirectly, through subsidiaries
or otherwise, of any shares of Common Stock, except for purchase of the
Common Stock on the open market or purchases from employees of the
Corporation upon termination of employment or pursuant to any rights of
first refusal held by the Corporation; or
(d) the creation, authorization or issuance, directly or indirectly,
of any equity security having any preference or priority as to dividends or
the distribution of assets upon liquidation superior to or on parity with
any such preference or priority of the Series H Preferred, other than the
issuance of shares of the Corporation's Series A Preferred Stock, Series G1
Preferred Stock, or Series G2 Preferred Stock.
The holders of the Series H Preferred shall be entitled to notice of any meeting
of the stockholders of the Corporation.
SECTION 5
CONVERSION
5.1 Shares of the Series H Preferred Stock shall not be convertible by
their terms, at the option of either the Corporation or the holders thereof,
into shares of the Common Stock or into any other security of the Corporation.
REIMBURSEMENT AGREEMENT
This Reimbursement Agreement dated as of this 30th day of June, 1999 is by
and between: Signal Apparel Company, Inc. ("Signal"), an Indiana Corporation
having a place of business in Chattanooga, Tennessee; and WGI, LLC, a New York
limited liability company with its principal place of business in Greenwich,
Connecticut ("WGI").
W I T N E S S E T H
WHEREAS, WGI has posted certain Treasury bills in the aggregate amount of
Thirty-one Million One Hundred Twenty-six Thousand and No/100 Dollars
($31,126,000.00) as collateral (the "Collateral") to secure the obligations of
Signal and its subsidiaries to Signal's senior lender, BNY Financial Corporation
("BNY");
WHEREAS, WGI has issued certain firm guarantees in the aggregate amount of
Seventeen Million Five Hundred Thousand and No/100 Dollars ($17,500,000) and
certain additional contingent guarantees of up to Two Million Five Hundred
Thousand and No/100 Dollars ($2,500,000.00) with respect to the obligations of
Signal and its subsidiaries to BNY (collectively, the "guarantees");
WHEREAS, WGI has made certain cash payments totaling Two Million One
Hundred Thousand and No/100 Dollars ($2,100,000.00) on Signal's behalf to
certain third party licensors (the "Licensor Payments");
WHEREAS, in consideration of the benefit to Signal of the making of the
Licensor Payments, the posting of the Collateral and the issuance of the
guarantees, Signal has agreed to reimburse WGI for the amount of the Licensor
Payments as well as for any loss that WGI might suffer as a result of a decision
by BNY to proceed against the Collateral and/or the guarantees to satisfy the
obligations of Signal and its subsidiaries to BNY; and
<PAGE>
WHEREAS, Signal acknowledges that the full amount of the Licensor Payments,
as well as the amount of any future loss that WGI might suffer as a result of a
decision by BNY to proceed against the Collateral and/or the guarantees to
satisfy the obligations of Signal and its subsidiaries to BNY shall be deemed an
advance of funds to Signal under a certain Promissory Note ("Promissory Note")
of even date herewith, in the form attached hereto as Exhibit A, having a total
principal amount not to exceed Fifty-three Million Two Hundred Twenty-six
Thousand and No/100 Dollars ($53,226,000.00) by Signal to WGI.
NOW THEREFORE, in consideration of One Dollar and the mutual covenants and
agreements herein contained, Signal and WGI agree as follows:
1. Signal agrees and understands that the full amount of the Licensor
Payments made on Signal's behalf by WGI, as well as any loss that WGI might
suffer as a result of a decision by BNY to proceed against the Collateral and/or
the guarantees, shall be deemed an advance of funds to Signal by WGI under and
pursuant to the Promissory Note and shall be repaid to WGI in accordance with
the terms and conditions set forth therein.
2. The obligations of Signal under this Agreement shall be absolute and
unconditional and shall remain in full force and effect until the later of: (a)
the expiration of the guarantees and/or the withdrawal of the Collateral, or (b)
payment in full of all amounts due under the Promissory Note; provided, however,
that all of the obligations of Signal under this Agreement and under the
Promissory Note shall be subordinated in priority of payment to full payment of
all of the obligations of Signal and its subsidiaries under all agreements with
BNY and its participating banks, and further provided, that the obligations of
Signal under this Agreement shall be equal in priority of payment (i) to all of
the obligations of Signal to WGI pursuant to that certain Credit Agreement dated
as of May 8, 1998 (together with all amendments
2
<PAGE>
thereto) between Signal, The Shirt Shed, Inc., GIDI Holdings, Inc., Big Ball
Sports, Inc., and WGI and (ii) to all of the obligations of Signal to FS Signal
Associates Limited Partnership and FS Signal Associates II Limited Partnership
pursuant to that certain Reimbursement Agreement and related promissory note
dated as of January 30, 1997.
3. Signal covenants and agrees that a default under any one or more of any
outstanding obligations of Signal to BNY or WGI, including, without limitation,
under the Promissory Note or this Reimbursement Agreement, all whether now
existing or hereafter arising shall, at WGI's option, constitute a default
hereunder and under the Promissory Note.
4. No amendment or waiver of any provision of this Reimbursement Agreement
nor consent to any departure by WGI therefrom shall be effective unless the same
shall be in writing and signed by the parties hereto, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
5. The rights and remedies of WGI under this Reimbursement Agreement shall
be cumulative and not exclusive of any rights or remedies which it would
otherwise have, and no failure or delay by WGI in exercising any right shall
operate as a waiver of it, nor shall any single or partial exercise of any power
or right preclude its other or further exercise or the exercise of any other
power or right.
6. This Reimbursement Agreement is a continuing obligation and shall be
binding upon Signal, WGI and their successors and assigns; provided, that Signal
may not assign all or any part of this Reimbursement Agreement without the prior
written consent of WGI.
7. Signal assumes all risks of the acts or omissions of BNY in proceeding
against the Collateral and/or guarantees.
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8. To the extent that Signal makes a payment or payments to WGI, which
payment or payments, or any part thereof, is subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to any
person or party under any bankruptcy or insolvency law, state or federal law,
common law or equitable cause, then to the extent such payment or repayment, the
liability or part thereof which has been paid, reduced or satisfied by the
amount so repaid shall be reinstated and included with the obligations as of the
date that such initial payment reduction or satisfaction occurred.
9. Signal agrees to pay all costs and expenses, if any, in connection with
the administration or enforcement of this Reimbursement Agreement, the
Promissory Note and such other documents which may be delivered in connection
with this Reimbursement Agreement.
10. Any provision of this Reimbursement Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction and the remaining portion of such provision
and all other remaining provisions will be construed to render them enforceable
to the fullest extent.
11. This Reimbursement Agreement shall be governed by and construed in
accordance with the law of the State of New York. Any judicial proceeding
brought against Signal with respect to this Reimbursement Agreement or
Promissory Note may be brought in any court of competent jurisdiction in the
State of New York and, by execution and delivery of this Reimbursement
Agreement, Signal (a) accepts, generally and unconditionally, the nonexclusive
jurisdiction of such courts and any related appellate court, and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Reimbursement Agreement or the
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Promissory Note and (b) irrevocably waives any objection it may now or hereafter
have as to the venue of any such suit, action or proceeding brought in such a
court or that such court is an inconvenient forum. Signal hereby waives personal
service of process and consent that service of process upon it, and service so
made shall be deemed completed on the third business day after such service is
deposited in the mail. Nothing herein shall affect the right to serve process in
any other manner permitted by law or shall limit the right of WGI to bring
proceedings against Signal in the courts of any other jurisdiction. Any judicial
proceeding brought by Signal against WGI involving, directly or indirectly, any
matter in any way arising out of, related to, or connected with this
Reimbursement Agreement or the Promissory Note shall be brought only in a court
located in the State of New York.
12. This Reimbursement Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and constitute one
and the same instrument, and shall be binding upon the parties, their successors
and assigns.
[This space intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Avenel, New Jersey by their proper and duly
authorized officers as of the day and year first above written.
WGI, LLC SIGNAL APPAREL COMPANY, INC.
By /s/ Paul R. Greenwood By /s/ Robert J. Powell
--------------------------------- ---------------------
Title Manager Title Vice President
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PROMISSORY NOTE
$53,226,000.00 Avenel, New Jersey
June 30, 1999
FOR VALUE RECEIVED, the undersigned promises to pay to the order of WGI,
LLC ("WGI"), within fifteen (15) days after demand, a principal sum of up to
FIFTY-THREE MILLION TWO HUNDRED TWENTY-SIX THOUSAND AND NO/100 DOLLARS
($53,226,000.00) with principal in the amount of TWO MILLION ONE HUNDRED
THOUSAND AND NO/100 DOLLARS ($2,100,000.00) initially outstanding. Additional
principal will automatically become outstanding, in an amount equal to any
payments made by WGI pursuant to any of the guarantees issued by WGI to BNY
Financial Corporation ("BNY") guarantying the obligations of the undersigned and
its subsidiaries plus the value of any collateral posted by WGI which is offset
by BNY against the obligations of the undersigned and its subsidiaries, as such
payments or offsets occur. Any outstanding principal shall bear interest at the
rate of Eight Percent (8.0%) per annum, payable in annual installments
commencing June 30, 2000 either in cash or, at the option of the undersigned,
through issuance and delivery to WGI of shares of the undersigned's Common Stock
valued at the then-current market price. For purposes of the preceding sentence,
"then-current market price" shall be deemed to be the closing price per share
for the Common Stock on the New York Stock Exchange (or on any other national
securities exchange or national securities market on which the Common Stock may
then be traded if it is not listed for trading on the New York Stock Exchange)
on the last trading day prior to the date on which any such installment of
interest is due and payable.
The maker and all other parties liable herefor, whether principal,
guarantor, endorser or otherwise, hereby severally waive presentment, notice and
protest, and waive all recourse to suretyship and guarantorship defenses
generally, including, but not limited to, any extensions of time for payment or
performance which may be granted to the makers or to any other liable party, any
modifications or amendments to this promissory note or any documents securing
payment and performance hereof, any act or omission to act by or on behalf of
the holder hereof, any invalidity or unenforceability of any security given
herefor, any release of security, any release of any liable party or parties,
whether any such release is intentional, unintentional or by operation of law,
and all other indulgences of any type which may be granted by the holder hereof
to the maker or any other liable party herefor, and does also agree to pay all
costs of collection of the indebtedness evidenced hereby, including reasonable
attorneys' fees which may be incurred in connection therewith.
All payments due hereunder shall be made to WGI at its principal office at
One East Putnam Avenue, Greenwich, CT 06830, or to such other parties or
addresses as the holder hereof may from time to time designate in writing to the
maker or other parties liable herefor. This note evidences a loan for business
and commercial purposes, and not for personal, family or household purposes.
No invalidity or unenforceability of any provision of this promissory note
shall affect in any way the validity or enforceability of the remaining
obligations or portions hereof. This promissory note shall be construed in
accordance with the laws of the State of New York.
<PAGE>
This Promissory Note is executed and delivered in accordance with a certain
Reimbursement Agreement of near or even date herewith between the undersigned,
and WGI, and is subject to the terms, conditions and limitations contained in
said Reimbursement Agreement.
WITNESS: SIGNAL APPAREL COMPANY, INC.
_____________________ By: /s/ Robert J. Powell
---------------------
Its: Vice President, duly authorized
2
SIGNAL APPAREL COMPANY, INC.
STOCK INCENTIVE PLAN
EFFECTIVE JANUARY 1, 1999
SECTION 1. PURPOSE
The purpose of this 1999 Stock Incentive Plan (the "Plan") is to advance
the interests of Signal Apparel Company, Inc. by enhancing its ability to
attract and retain key employees, directors, consultants and others who are in a
position to contribute to the Company's future growth and success.
SECTION 2. DEFINITIONS
Award Any Option, Stock Appreciation Right, Performance
Share, Restricted Stock or Unrestricted Stock
awarded under the Plan.
Board The Board of Directors of the Company.
Code The Internal Revenue Code of 1986, as amended
from time to time.
Committee A committee of not less than two members of the
Board appointed by the Board to administer the
Plan, provided that if and when the Common Stock
is registered under Section 12 of the Securities
Exchange Act of 1934, each member of the Committee
shall be a "non-employee director" within the
meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 ("Rule 16b-3").
Common Stock or Stock The Common Stock, $.01 par value per share, of
Signal Apparel Company, Inc.
Company Signal Apparel Company, Inc. and, except where the
context otherwise requires, all present and future
subsidiaries of the Company as defined in Sections
424(f) of the Code.
Designated Beneficiary The beneficiary designated by a Participant, in a
manner determined by the Committee, to receive
amounts due or exercise rights of the Participant
in the event of the Participant's death. In the
absence of an effective designation by a
Participant, Designated Beneficiary shall mean the
Participant's estate.
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Fair Market Value With respect to Common Stock or any other
property, the fair market value of such property
as determined by the Board in good faith or in
the manner established by the Board from time to
time.
Incentive Stock Option An option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is
intended to meet the requirements of Section 422
of the Code or any successor provision.
Nonstatutory Stock Option An option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is
not intended to be an Incentive Stock Option.
Option An Incentive Stock Option or a Nonstatutory Stock
Option.
Participant A person selected by the Committee to receive an
Award under the Plan.
Performance Shares Shares of Common Stock which may be earned by the
achievement of performance goals awarded to a
Participant under Section 8.
Plan Administrator The Board or, to the extent that the Board elects
to delegate such administrative functions to the
Committee, the Committee.
Reporting Person A person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
Restricted Period The period of time selected by the Committee
during which shares subject to a Restricted Stock
Award may be repurchased by or forfeited to the
Company.
Restricted Stock Shares of Common Stock awarded to a Participant
under Section 9.
Stock Appreciation Right A right to receive any excess in Fair Market Value
or "SAR" of shares of Common Stock over the exercise price
awarded to a Participant under Section 7.
Unrestricted Stock Shares of Common Stock awarded to a Participant
under Section 9(c).
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SECTION 3. ADMINISTRATION
The Plan will be administered by the Plan Administrator. The Plan
Administrator shall have authority to make Awards and (subject to any
restrictions contained herein or in the terms of an individual Award) to amend
any outstanding Award, and to adopt, amend and repeal such administrative rules,
guidelines and practices relating to the Plan as it shall deem advisable from
time to time, and to interpret the provisions of the Plan. The Plan
Administrator's decisions shall be final and binding. No member of the Board or
the Committee shall be liable for any action or determination relating to the
Plan made in good faith in the capacity of such body as Plan Administrator. All
decisions of the Plan Administrator pursuant to the Plan shall be final and
binding on all persons having or claiming any interest in the Plan or in any
Award.
SECTION 4. ELIGIBILITY
All of the Company's employees, officers, directors, consultants and
advisors who are expected to contribute to the Company's future growth and
success, other than persons who have irrevocably elected not to be eligible, are
eligible to be Participants in the Plan. For this purpose, the grant of new
Awards in substitution for outstanding Awards shall be deemed to constitute a
new grant of additional Awards separate from the original grant of Awards that
are to be canceled. Incentive Stock Options may be awarded only to persons
eligible to receive Incentive Stock Options under the Code.
SECTION 5. STOCK AVAILABLE FOR AWARDS
(a) Subject to adjustment under subsection (b) below, Awards may be made
under the Plan for up to 5,000,000 shares of Common Stock. If any Award in
respect of shares of Common Stock expires or is terminated unexercised or is
forfeited for any reason or settled in a manner that results in fewer shares
outstanding than were initially awarded, the shares subject to such Award or so
surrendered, as the case may be, to the extent of such expiration, termination,
forfeiture or decrease, shall again be available for award under the Plan;
subject, however, in the case of Incentive Stock Options, to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
(b) In the event that the Plan Administrator, in its sole discretion,
determines that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or other similar transaction affects the Common Stock such that an
adjustment is required in order to preserve the benefits or potential benefits
intended to be made available under the Plan, then the Plan Administrator,
subject, in the case of Incentive Stock Options, to any limitation required
under the Code, shall equitably adjust any or all of (i) the number and kind of
shares in respect of which Awards may be made under the Plan, (ii) the number
and kind of shares subject to outstanding Awards, and (iii) the award, exercise
or conversion price with respect to any of the foregoing, and if considered
appropriate, the Plan Administrator may make provision for a cash payment with
respect to an outstanding Award, provided that the number of shares subject to
any Award shall always be a whole number.
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(c) The Plan Administrator may grant Awards under the Plan in substitution
for stock and stock based awards held by employees of another corporation who
concurrently become employees of the Company as a result of a merger or
consolidation of the employing corporation with the Company or a Subsidiary or
the acquisition by the Company or a subsidiary of property or stock of the
employing corporation. The substitute Awards shall be granted on such terms and
conditions as the Plan Administrator considers appropriate in the circumstances.
SECTION 6. STOCK OPTIONS
(a) General.
(i) Subject to the provisions of the Plan, the Plan Administrator may award
Incentive Stock Options and Nonstatutory Stock Options, and determine the number
of shares to be covered by each option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder.
(ii) The Plan Administrator shall establish the exercise price of each
Option at the time such Option is awarded. In the case of Incentive Stock
Options, such price shall not be less than 100% of the Fair Market Value of the
Common Stock on the date of award.
(iii) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Plan Administrator may specify in the applicable
Award or thereafter. The Plan Administrator may impose such conditions with
respect to the exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable.
(iv) Options granted under the Plan may provide for the payment of the
exercise price by delivery of cash or check in an amount equal to the exercise
price of such Options or, to the extent permitted by the Plan Administrator at
or after the award of the Option, by (A) delivery of shares of Common Stock
owned by the optionee, valued at their Fair Market Value on the date of such
option exercise, (B) delivery of a promissory note of the optionee to the
Company on terms determined by the Plan Administrator, (C) delivery of an
irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price, (D) payment of such other lawful
consideration as the Plan Administrator may determine, or (E) any combination of
the foregoing.
(v) In the event an optionee pays some or all of the exercise price of an
Option by delivery of shares of Common Stock pursuant to clause 6(a)(iv)(A)
above, the Plan Administrator may provide for the automatic award of an option
for up to the number of shares so delivered.
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(vi) Each Option granted under the Plan by its terms shall not be
transferable by the optionee otherwise than by will, or by the laws of descent
and distribution, and shall be exercised during the lifetime of the optionee
only by him. No Option or interest therein may be transferred, assigned, pledged
or hypothecated by the optionee during his lifetime, whether by operation of law
or otherwise, or be made subject to execution, attachment or similar process.
(vii) The Plan Administrator may at any time accelerate the time at which
all or any part of an Option may be exercised.
(b) Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(i) All Incentive Stock Options granted under the Plan shall, at the time
of grant, be specifically designated as such in the option agreement covering
such Incentive Stock Options. The Option exercise period shall not exceed ten
years from the date of grant.
(ii) If any employee to whom an Incentive Stock Option is to be granted
under the Plan is, at the time of the grant of such option, the owner of stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (after taking into account the attribution of stock
ownership rule of Section 424(d) of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:
(x) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair
Market Value of one share of Common Stock at the time of grant;
and
(y) The Option exercise period shall not exceed five years from the
date of grant.
(iii) For so long as the Code shall so provide, options granted to any
employee under the Plan (and any other incentive stock option plans of the
Company) which are intended to constitute Incentive Stock Options shall not
constitute Incentive Stock Options to the extent that such options, in the
aggregate, become exercisable for the first time in any one calendar year for
shares of Common Stock with an aggregate Fair Market Value (determined as of the
respective date or dates of grant) of more than $100,000.
(iv) No Incentive Stock Option may be exercised unless, at the time of such
exercise, the Participant is, and has been continuously since the date of grant
of his or her Option, employed by the Company, except that:
(x) an Incentive Stock Option may be exercised (to the extent
exercisable on the date the Participant ceased to be an employee of
the Company) within the period of three months after the date the
Participant ceases to be
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an employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), provided, that the
agreement with respect to such Option may designate a longer exercise
period and that any exercise after such three-month period shall be
treated as the exercise of a Nonstatutory Stock Option under the Plan;
(y) if the Participant dies while in the employ of the Company, or
within three months after the Participant ceases to be such an
employee, the Incentive Stock Option (to the extent otherwise
exercisable on the date of death) may be exercised by the
Participant's Designated Beneficiary within the period of one year
after the date of death (or within such lesser period as may be
specified in the applicable Option agreement); and
(z) if the Participant becomes disabled (within the meaning of Section
22(e)(3) of the Code or any successor provision thereto) while in the
employ of the Company, the Incentive Stock Option may be exercised (to
the extent otherwise exercisable on the date of death) within the
period of one year after the date of such disability (or within such
lesser period as may be specified in the Option agreement). In the
event of the Participant's death during this one-year period, the
Incentive Stock Option may be exercised by the Participant's
Designated Beneficiary within the period of one year from the date the
Participant became disabled or within such lesser period as may be
specified in the applicable Option agreement.
For all purposes of the Plan and any Option granted hereunder, (i) "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations) and (ii) any option may
provide that if such Option shall be assumed or a new Option substituted
therefor in a transaction to which Section 424(a) of the Code applies,
employment by such assuming or substituting corporation (hereinafter called the
"Successor Corporation") shall be considered for all purposes of such Option to
be employment by the Company. Notwithstanding the foregoing provisions, no
Incentive Stock Option may be exercised after its expiration date.
SECTION 7. STOCK APPRECIATION RIGHTS
(a) The Plan Administrator may grant Stock Appreciation Rights entitling
recipients on exercise of the SAR to receive an amount, in cash or Stock or a
combination thereof (such form to be determined by the Plan Administrator),
determined in whole or in part by reference to appreciation in the Fair Market
Value of the Stock between the date of the Award and the exercise of the Award.
A Stock Appreciation Right shall entitle the Participant to receive, with
respect to each share of Stock as to which the SAR is exercised, the excess of
the share's Fair Market Value on the date of exercise over its Fair Market Value
on the date the SAR was granted. The Plan Administrator also may grant Stock
Appreciation Rights that provide that, following a change in control of the
Company (as defined by the Board or the Plan Administrator at the time of the
Award), the holder of such SAR will be entitled to receive, with respect to each
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share of Stock subject to the SAR, an amount equal to the excess of a specified
value (which may include an average of values) for a share of Stock during a
period preceding such change in control over the Fair Market Value of a share of
Stock on the date the SAR was granted.
(b) Stock Appreciation Rights may be granted in tandem with, or
independently of, Options granted under the Plan. A Stock Appreciation Right
granted in tandem with an option which is not an Incentive Stock Option may be
granted either at or after the time the Option is granted. A Stock Appreciation
Right granted in tandem with an Incentive Stock Option may be granted only at
the time the Option is granted.
(c) When Stock Appreciation Rights are granted in tandem with Options, the
following provisions will apply:
(i) The Stock Appreciation Right will be exercisable only at such time
or times, and to the extent, that the related Option is exercisable
and will be exercisable in accordance with the procedure required for
exercise of the related Option.
(ii) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related Option,
except that a Stock Appreciation Right granted with respect to less
than the full number of shares covered by an Option will not be
reduced until the number of shares as to which the related Option has
been exercised or has terminated exceeds the number of shares not
covered by the Stock Appreciation Right.
(iii)The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
(iv) A Stock Appreciation Right granted in tandem with an Incentive
Stock Option may be exercised only when the market price of the Stock
subject to the Option exceeds the exercise price of such Option.
(d) A Stock Appreciation Right not granted in tandem with an Option will
become exercisable at such time or times, and on such conditions, as the Plan
Administrator may specify.
(e) The Plan Administrator may at any time accelerate the time at which all
or any part of the SAR may be exercised.
SECTION 8. PERFORMANCE SHARES
(a) The Plan Administrator may make Performance Share Awards entitling
recipients to acquire shares of Stock upon the attainment of specified
performance goals. The Plan Administrator may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Plan Administrator in its sole discretion shall
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determine the performance goals applicable under each such Award, the periods
during which performance is to be measured, and all other limitations and
conditions applicable to the awarded Performance Shares; provided, however, that
the Plan Administrator may rely on the performance goals and other standards
applicable to any other performance plans of the Company in setting the
standards for Performance Share Awards under the Plan.
(b) Performance Share Awards and all rights with respect to such Awards may
not be sold, assigned, transferred, pledged or otherwise encumbered.
(c) A Participant receiving a Performance Share Award shall have the rights
of a stockholder only as to shares actually received by the Participant under
the Plan and not with respect to shares subject to an Award but not actually
received by the Participant. A Participant shall be entitled to receive a stock
certificate evidencing the acquisition of shares of Stock under a Performance
Share Award only upon satisfaction of all conditions specified in the agreement
evidencing the Performance Share Award.
(d) The Plan Administrator may at any time accelerate or waive any or all
of the goals, restrictions or conditions imposed under any Performance Share
Award.
SECTION 9. RESTRICTED AND UNRESTRICTED STOCK
(a) The Board may grant Restricted Stock Awards entitling recipients to
acquire shares of Stock, subject to the right of the Company to repurchase all
or part of such shares at their purchase price (or to require forfeiture of such
shares if purchased at no cost) from the recipient in the event that conditions
specified by the Plan Administrator in the applicable Award are not satisfied
prior to the end of the applicable Restricted Period or Restricted Periods
established by the Plan Administrator for such Award. Conditions for repurchase
(or forfeiture) may be based on continuing employment or service or achievement
of pre-established performance or other goals and objectives.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Plan Administrator,
during the applicable Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Board may determine. Any certificates issued in
respect of shares of Restricted Stock shall be registered in the name of the
Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the Restricted Period, the Company (or such
designee) shall deliver certificates representing such shares to the Participant
or if the Participant has died, to the Participant's Designated Beneficiary.
(c) The Plan Administrator may, in its sole discretion, grant (or sell at a
purchase price determined by the Board, which shall not be lower than 75% of
Fair Market Value on the date of sale) to Participants shares of Stock free of
any restrictions under the Plan ("Unrestricted Stock").
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(d) The purchase price for each share of Restricted Stock and Unrestricted
Stock shall be determined by the Plan Administrator and may not be less than the
par value of the Common Stock. Such purchase price may be paid in the form of
past services or such other lawful consideration as is determined by the Board.
(e) The Plan Administrator may at any time accelerate the expiration of the
Restricted Period applicable to all, or any particular, outstanding shares of
Restricted Stock.
SECTION 10. GENERAL PROVISIONS APPLICABLE TO AWARDS
(a) Applicability of Rule 16b-3.
Those provisions of the Plan which make an express reference to Rule 16b-3
shall apply to the Company only at such time as the Company's Common Stock is
registered under the Securities Exchange Act of 1934, or any successor
provision, and then only to Reporting Persons.
(b) Documentation.
Each Award under the Plan shall be evidenced by an instrument delivered to
the Participant specifying the terms and conditions thereof and containing such
other terms and conditions not inconsistent with the provisions of the Plan as
the Plan Administrator considers necessary or advisable. Such instruments may be
in the form of agreements to be executed by both the Company and the
Participant, or certificates, letters or similar documents, acceptance of which
will evidence agreement to the terms thereof and of this Plan.
(c) Plan Administrator's Discretion.
Each type of Award may be made alone, in addition to or in relation to any
other type of Award. The terms of each type of Award need not be identical, and
the Plan Administrator need not treat Participants uniformly. Except as
otherwise provided by the Plan or a particular Award, any determination with
respect to an Award may be made by the Plan Administrator at the time of award
or at any time thereafter.
(d) Termination of Status.
Subject to the provisions of Section 6(b)(iv), the Plan Administrator shall
determine the effect on an Award of the disability, death, retirement,
authorized leave of absence or other termination of employment or other status
of a Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Designated Beneficiary may
exercise rights under such Award.
(e) Mergers, Etc.
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In the event of a consolidation or merger or sale of all or substantially
all of the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity (an "Acquisition"), or in the event of a liquidation of the
Company, the Board or the board of directors of any corporation assuming the
obligations of the Company, may, in its discretion, take any one or more of the
following actions as to outstanding Awards: (i) provide that such Awards shall
be assumed, or substantially equivalent Awards shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof) on such terms as
the Board determines to be appropriate, (ii) upon written notice to
Participants, provide that all unexercised options or SARs will terminate
immediately prior to the consummation of such transaction unless exercised by
the Participant within a specified period following the date of such notice,
(iii) in the event of an Acquisition under the terms of which holders of the
Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the Acquisition (the "Acquisition Price"),
make or provide for a cash payment to Participants equal to the difference
between (A) the Acquisition Price times the number of shares of Common Stock
subject to outstanding Options or SARs (to the extent then exercisable at prices
not in excess of the Acquisition Price) and (B) the aggregate exercise price of
all such outstanding Options or SARs in exchange for the termination of such
Options and SARS, and (iv) provide that all or any outstanding Awards shall
become exercisable or realizable in full prior to the effective date of such
Acquisition. Notwithstanding the foregoing, in the event of an Acquisition, then
all of the outstanding Options granted hereunder shall become exercisable
immediately prior to such Acquisition.
(f) Withholding.
The Participant shall pay to the Company, or make provision satisfactory to
the Plan Administrator for payment of, any taxes required by law to be withheld
in respect of Awards under the Plan no later than the date of the event creating
the tax liability. In the Plan Administrator's discretion, and subject to such
conditions as the Plan Administrator may establish, such tax obligations may be
paid in whole or in part in shares of Common Stock, including shares retained
from the Award creating the tax obligation, valued at their Fair Market Value.
The Company may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Participant.
(g) Deferral of Compensation.
The Plan Administrator shall determine whether an Award shall be made in
conjunction with deferral of the Participant's salary, bonus or other
compensation, or any combination thereof, and whether such deferred amounts may
be:
(i) forfeited to the Company or to other Participants, or any
combination thereof, under certain circumstances (which may
include, but need not be limited to, certain types of
termination of employment or performance of services for the
Company and its Affiliates);
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(ii) subject to increase or decrease in value based upon the
attainment of or failure to attain, respectively, certain
performance measures; and/or
(iii) credited with income equivalents (which may include, but need
not be limited to, interest, dividends or other rates of return)
until the date or dates of payment of the Award, if any.
(h) Foreign Nationals.
Awards may be made to Participants who are foreign nationals or employed
outside the United States on such terms and conditions different from those
specified in the Plan as the Plan Administrator considers necessary or advisable
to achieve the purposes of the Plan or comply with applicable laws.
(i) Amendment of Award.
Either the Board or the Plan Administrator may amend, modify or terminate
any outstanding Award, including substituting therefor another Award of the same
or a different type, changing the date of exercise or realization and converting
an Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
(j) Cancellation and New Grant of Options.
Both the Board and the Plan Administrator shall have the authority to
effect, at any time and from time to time, with the consent of the affected
optionees, (i) the cancellation of any or all outstanding options under the Plan
and the grant in substitution therefor of new Options under the Plan covering
the same or different numbers of shares of Common Stock and having an option
exercise price per share which may be lower or higher than the exercise price
per share of the cancelled Options or (ii) the amendment of the terms of any and
all outstanding Options under the Plan to provide an option exercise price per
share which is higher or lower than the then current exercise price per share of
such outstanding Options.
(k) Conditions on Delivery of Common Stock.
The Company will not be obligated to deliver any shares of Common Stock
pursuant to the Plan or to remove restrictions from shares previously delivered
under the Plan (i) until all conditions of the Award have been satisfied or
removed, (ii) until, in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with, (iii) if the
outstanding Common Stock is at the time listed on any stock exchange, until the
shares to be delivered have been listed or authorized to be listed on such
exchange upon official notice of notice of issuance, and (iv) until all other
legal matters in connection with the issuance and delivery of such shares have
been approved by the Company's counsel. If the sale of Common Stock has not been
registered under the Securities Act of 1933, as amended, the
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Company may require, as a condition to exercise of the Award, such
representations or agreements as the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
Common Stock bear an appropriate legend restricting transfer.
SECTION 11. MISCELLANEOUS
(a) No Right To Employment or Other Status.
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to
continued employment or service for the Company. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder.
Subject to the provisions of the applicable Award, no Participant or
Designated Beneficiary shall have any rights as a stockholder with respect to
any shares of Common Stock to be distributed under the Plan until he or she
becomes the record holder thereof.
(c) Exclusion from Benefit Computations.
No amounts payable upon exercise of Awards granted under the Plan shall be
considered salary, wages or compensation to Participants for purposes of
determining the amount or nature of benefits that Participants are entitled to
under any insurance, retirement or other benefit plans or programs of the
Company.
(d) Effective Date and Term.
(i) Effective Date. The Plan shall become effective when adopted by
the Board of Directors, but no Incentive Stock Option granted under
the Plan shall become exercisable unless and until the Plan shall have
been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve months after the dtoe of the
Board's adoption of the Plan, no Options previously granted under the
Plan shall be deemed to be Incentive Stock Options and no Incentive
Stock Options shall be granted thereafter. Amendments to the Plan not
requiring stockholder approval shall become effective when adopted by
the Board of Directors; amendments requiring stockholder approval
shall become effective when adopted by the Board of Directors, but no
Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was
required to enable the Company to grant such Incentive Stock Option to
a particular optionee) unless and until such amendment shall have been
approved by the Company's stockholders.
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If such stockholder approval is not obtained within twelve months of
the Board's adoption of such amendment, any Incentive Stock Options
granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the
Company to grant such Option to a particular optionee. Subject to the
limitations set forth in this Section 11(d), Awards may be made under
the Plan at any time after the effective date and before the date
fixed for termination of the Plan.
(ii) Termination. The Plan shall terminate upon the earlier of (i) the
close of business on the day next preceding the tenth anniversary of
the date of its adoption by the Board of Directors, or (ii) the date
on which all shares available for issuance under the Plan shall have
been issued pursuant to Awards under the Plan. Awards outstanding on
such date shall continue to have force and effect in accordance with
the provisions of the instruments evidencing such Awards.
(e) Amendment of Plan.
The Board may amend, suspend or terminate the Plan or any portion thereof
at any time, provided that no amendment shall be made without stockholder
approval if such approval is necessary to comply with any applicable tax, stock
exchange or other regulatory requirement. Prior to any such approval, Awards may
be made under the Plan expressly subject to such approval.
(f) Governing Law.
The provisions of the Plan shall be governed by and interpreted in
accordance with the laws of the State of Indiana.
Adopted by the Board of Directors
of Signal Apparel Company, Inc.
effective January 1, 1999
13
OFFICE LEASE AGREEMENT
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LEASE AGREEMENT
1411 BROADWAY
NEW YORK, NEW YORK
THIS LEASE AGREEMENT ("Lease") is entered into as of the Date, and by and
between the Landlord and Tenant, identified in Section 1.1 below.
1. BASIC LEASE DEFINITIONS, EXHIBITS AND ADDITIONAL DEFINITIONS.
1.1 Basic Lease Definitions. In this Lease, the following defined terms shall
have the meanings indicated.
(a) "Date" means the date of full execution of this Lease, which is as of
May 1, 1997.
(b) "Landlord" means 1411 TRIZECHAHN-SWIG, L.L.C., a Delaware limited
liability company.
(c) "Tenant" means TAHITI APPAREL, INC., a New Jersey corporation
authorized to do business in New York.
(d) "Premises" means those premises located on the twenty-ninth (29th)
floor of the Building, as shown by diagonal lines on the floor-plan
attached hereto as Exhibit A.
(e) "Area of the Premises" means, for purposes of this Lease, the
equivalent of 7,867 rentable square feet.
(f) "Use" means general office use and showrooms for the conduct of
Tenant's apparel business and no other use, but subject to the
provisions of this Lease and the certificate of occupancy for the
Building.
(g) "Term" means the duration of this Lease, which will be approximately
eight (8) years, beginning on the "Commencement Date" (as defined in
Section 3.1 below) and ending on the "Expiration Date" (as
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defined in this Section 1.1), unless terminated or canceled earlier
pursuant to the provisions of this Lease or by law.
(h) The "Expiration Date" means September 30, 2005.
(i) "Base Rent" means the Rent payable pursuant to Section 4.1, which
shall be in the following annual amounts with respect to each Lease
Year:
Annual Monthly
Lease Year(s) Base Rent Base Rent
------------- -------------- -----------
1 - 8 $306,813.00 $25,567.75
(j) "Base Rent Exclusive of Electricity" means the applicable amount
during each Lease Year as follows:
Annual Monthly
Base Rent Base Rent
Exclusive of Exclusive of
Lease Year(s) Electricity Electricity
------------- ------------ ------------
1 - 8 $283,212.00 $23,601.00
(k) "Tenant's Share" means .745%.
(1) "Base Tax Year" means the twelve month fiscal year ending June 30,
1998.
(m) "Base Wage Rate" means the Wage Rate in effect on January 1st of the
calendar year 1997.
(n) "Base Utility Year" means Landlord's Fiscal Year ending December 31,
1997.
(o) "Electric Inclusion Date" shall mean the Date.
(p) "Security Deposit" means $150,000.00, which amount is subject to
reduction as provided in Section 23.1 of this Lease.
(q) "Landlord's Building Address" -means:
1411 TrizecHahn-Swig, L.L.C. c/o TrizecHahn
Office Properties Inc. 1411 Broadway
New York, New York 10018,
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Attention: General Manager
(r) "Landlord's General Address" means:
1411 TrizecHahn-Swig, L.L.C.
c/o TrizecHahn Office Properties Inc.
500 W. Madison, Suite 2200
Chicago, IL 60661
Attention: Portfolio Manager
(s) "Tenant's Notice Address" means:
Tahiti Apparel, Inc.
1411 Broadway
New York, New York 10018
Attention: ___________________
(t) "Tenant's Invoice Address" means:
Tahiti Apparel, Inc.
1411 Broadway
New York, New York 10018
Attention: ___________________
(u) "Broker(s)" means the following broker or brokers: Fashion Realty
Group Ltd.
(v) "Liability Insurance Amount" means 55,000,000.
1.2 Exhibits.
The Exhibits listed below are attached to and incorporated in this Lease.
In the event of any inconsistency between such Exhibits and the terms and
provisions of this Lease, the terms and provisions of the Exhibits shall
control. The Exhibits to this Lease are:
Exhibit A - Floor Plan Delineating the Premises
Exhibit B - Possession and Leasehold Improvements Agreement
Exhibit C - Occupancy Estoppel Certificate
Exhibit D - Rules and Regulations
Exhibit E - Land Description
Exhibit F - Form of Letter of Credit
Exhibit G - Operating Cost Adjustment
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1.3 Additional Definitions.
In addition to the terms defined in Section 1.1 and other Sections of this
Lease, the following defined terms when used in this Lease shall have the
meanings indicated:
(a) "Additional Rent" means the Rent payable under the provisions of
Section 4.2 and Section 4.4.
(b) "Alteration(s)" means any and 311 improvements, installations,
changes, additions, renovations, replacements and/or restorations made
in, to or upon the Premises.
(c) "Building" means the office and retail building commonly known as 1411
Broadway, New York, located on the Land and in which the Premises are
located.
(d) "Building Systems" means the central heating, ventilating, air
conditioning, plumbing, electric, life safety, mechanical, wiring,
sprinkler, Class E, sewerage, water, mechanical, elevator and other
systems installed by Landlord in the core and shell of the Building,
and all other fixtures, equipment and appurtenances and systems
installed by Landlord in the core and shell of the Building.
(e) "Common Areas" means certain interior and exterior common and public
areas located on the Land and in the Building as may be designated by
Landlord for the non-exclusive use in common by Tenant, Landlord and
other tenants, and their employees, guests, customers, agents and
invitees. If the Building is connected to other buildings by
underground tunnels or elevated bridges over public streets, Common
Areas will include such bridges and tunnels; provided, however, that
Landlord and owners of such other buildings will have the right in
their sole discretion to adopt rules and regulations relating to bride
and tunnel use.
(f) "Fiscal Year" means Landlord's fiscal year, which ends on December
31st of each calendar year and may be changed at Landlord's
discretion.
(g) "Force Majeure" means any acts of God, governmental restriction,
requirements of Law, strikes, labor disturbances, shortages of or
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<PAGE>
inability to obtain materials or supplies, or any other cause or event
beyond Landlord's reasonable control by which Landlord shall be
hindered, delayed or prevented from performance of any act under this
Lease.
(h) "Holidays" shall mean all Federal, State, City and banking holidays
and Building Service Employees and Operating Engineer's Union contract
holidays now or hereafter in effect.
(i) "Insurance Boards" shall mean and include the National Board of Fire
Underwriters, the New York Board of Fire Underwriters, and any other
body having similar jurisdiction, and the New York Fire Insurance
Exchange, and any other body establishing insurance premium rates.
(j) "Land" means the real property known as 1411 Broadway, New York, New
York, as more particularly described in Exhibit E, less any portions
that may be conveyed separately from the Building by Landlord from
time to time, plus any additional real property located proximate to
the Land that may be operated by Landlord from time to time in
conjunction with the Land.
(k) "Laws" means any and all present or future federal, state, county,
borough, municipality or local laws, statutes, ordinances, rules,
regulations or orders of any and all governmental or
quasi-governmental authorities having jurisdiction, including the
Americans with Disabilities Act of 1990, NYC Local Laws No. 5 of 1973,
No. 16 of 1984 and No. 58 of 1988, each as amended from time to time,
and all Laws then in effect relating to asbestos.
(1) "Lease Year" means each successive period of approximately 12 calendar
months during the Term, ending annually on the last day of the month
in which the Expiration Date shall occur, except that (i) the number
of months (or parts thereof) during which Tenant shall receive a
credit representing all or any part of Base Rent at the commencement
of the Term shall be added to the first Lease Year and (ii) if the
Commencement Date shall not occur on
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the first day of a month, then the first Lease Year shall be greater
than 12 months by the number of days from the Commencement Date to the
last day of the month in which the Commencement Date shall occur.
(m) "Prime Rate" means the rate of interest announced from time to time by
Citibank, N.A., or any successor to it, as its prime rate. If
Citibank, N.A. or any successor to it ceases to announce a prime rate,
Landlord will designate a reasonably comparable financial institution
for purposes of determining the Prime Rate.
(n) "Rent" means the Base Rent, Base Rent Exclusive of Electricity,
Additional Rent and all other amounts required to be paid by Tenant
under this Lease.
(o) "Tax Year" means every twelve (12) consecutive month period, all or
any part of which occurs during the Term, commencing each July I or
such other date as shall be the first day of the fiscal tax year of
the City of New York or other governmental agency responsible for the
collection of Taxes.
(p) "Taxes" shall mean (whether represented by one or more bills) the
total of all real estate taxes, levies, license fees and assessments
(including water rates and sewer rents), whether general or special,
foreseen or unforeseen, ordinary or extraordinary, of any nature
whatsoever, now or hereafter levied, confirmed, charged, payable or
imposed upon or attributable to, the Land, the Building and/or
Landlord's interest therein. Any special assessment or levy
(including, without limitation, any "Business Improvement District"
assessments) which is imposed upon the Land, the Building or
Landlord's interest therein shall be deemed to be included in the term
"Taxes"; and if, due to a future change in or addition to the method
of taxation, a gross receipts, capital, capital
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<PAGE>
stock or other tax shall be levied against Landlord or the owner of
the Building and/or the Land in substitution for or in lieu of or as
an additional part of any tax in the nature of real estate tax or
assessment, such gross receipts, capital, capital stock or other tax
(whether or not directly imposed upon, or based upon, the assessed
valuation of the Building, the Land or Landlord's interest therein)
shall be deemed to be included in the term "Taxes", but only to the
extent of the amount thereof that would be levied if Landlord's
interest in the Land and Building were the only assets of Landlord.
Tenant acknowledges that Taxes may increase during the Term and that
if the Building or Land, or both, are currently subject to a Taxes
abatement program and such program ceases to benefit the Building or
Land, or both, during the Term, Taxes will increase.
(q) "Wage Rate" shall mean the minimum regular hourly rate of wages
(applicable to experienced employees") in effect for each calendar
year (whether or not paid by Landlord or any contractor employed by
Landlord) plus the average hourly rate of all fringe benefits and all
other sums (applicable to experienced employees") required to be paid
to qr for the benefit of porters and cleaners (hereinafter defined) in
Class A office buildings at' or in the vicinity of the Building
pursuant to an agreement between the Realty Advisory Board on Labor
Relations, Incorporated (or any successor thereto) and the Local
(currently 3213-32J) of the Service Employees International Union,
AFL-CIO, which has or would have jurisdiction over the Building, or
any successor thereto (the "Labor Agreement"). If there shall be no
Labor Agreement in effect prescribing a Wage Rate for porters and
cleaners, computations and payments shall thereupon be made upon the
basis of the regular hourly wage rate and fringe benefits payable to
or on behalf of porters and cleaners by Landlord or by Landlord's
service contractors during each year (the "Wage Schedule").
Furthermore, if the regular employment of porters and cleaners shall
occur on days or during hours when overtime or other premium pay rates
are in effect pursuant to the Labor Agreement (or the Wage Schedule,
as the case maybe), then the -term "regular hourly rate of wages" as
used herein shall be deemed to mean the average hourly wage rate for
the hours in a calendar week during which porters and cleaners are
employed. Fringe benefits shall
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<PAGE>
include sums paid for incentive pay, guaranteed pay plans,
contributions to pension, welfare, retirement and safety funds,
vacations (based on the age of the Building), contract holidays,
leaves of absence, bonuses, social security (on regular earnings,
overtime earnings, and on all fringe benefits), unemployment,
disability benefits, health, life, accident and other insurance and
any taxes payable on account of wages and/or fringe benefits. The term
"porters and cleaners" shall mean that classification of
nonsupervisory employees employed in and about office buildings in the
Borough of Manhattan (whether or not employed in the Building) who
devote a major portion of their time to general cleaning, maintenance
and miscellaneous services essentially of a non-technical and
non-mechanical nature and are the type of employees who were formerly
designated porters and female cleaners and are now included in the
classification of "Class A Others" in the Labor Agreement.
2. GRANT OF LEASE.
2.1 Demise.
Subject to the terms, covenants, conditions and provisions of this Lease,
Landlord leases to Tenant and Tenant leases from Landlord the Premises,
together with the non-exclusive right to use the Common Areas, for the
Term.
2.2 Quiet Enjoyment.
Landlord covenants that during the Term Tenant shall have quiet and
peaceable possession of the Premises, subject to the terms, covenants,
conditions and provisions of this Lease, and Landlord shall not disturb
such possession except as expressly provided in this Lease.
2.3 Landlord And Tenant Covenants.
Landlord covenants to observe and perform all of the terms, covenants and
conditions applicable to Landlord in this Lease. Tenant covenants to pay
the Rent when due, and to observe and perform all of the terms, covenants
and conditions applicable to Tenant in this Lease.
3. TERM.
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<PAGE>
3.1 Commencement Date.
"Commencement Date" shall mean the first day of the Term, which shall be
the date on which Landlord shall deliver possession of the Premises to
Tenant. After the Commencement Date, within ten (10) days after the request
of Landlord, Tenant shall execute and deliver to Landlord an occupancy
certificate in the form of Exhibit C annexed hereto and made a part hereof
setting forth the Commencement Date, Expiration Date and such other matters
as are set forth therein (the "Occupancy Certificate"), but the failure of
Tenant to execute and deliver the Occupancy Certificate shall in no way
reduce any of Tenant's obligations or Landlord's rights under this Lease.
Prior to the Commencement Date, Landlord shall cooperate with Tenant to
assist Tenant in efficiently scheduling Tenant's initial construction in
the Premises by keeping Tenant informed from time to time of Landlord's
best estimate of the date on which Landlord anticipates that Landlord will
deliver possession of the Premises to Tenant, which information may be
given to Tenant orally.
3.2 Early Occupancy.
Tenant shall have no right to enter the Premises until Landlord shall
tender possession, unless Tenant shall obtain Landlord's prior written
consent to such entry. If Tenant shall take possession of all or any part
of the Premises with Landlord's prior consent for any purpose prior to the
Commencement Date, then all of the covenants and conditions of this Lease
shall bind both parties with respect to all of the Premises, and Tenant
shall pay Landlord Rent in accordance with the provisions of Section 3 of
this Lease commencing on the date Tenant shall have first taken possession
of the Premises at the rates applicable to the first Lease Year (excluding
any periods of excused or free rent, if any). No early occupancy under this
Section 3.2 shall change the Commencement Date or the Expiration Date,
unless otherwise provided in Section 3.1 above.
3.3 Delayed Occupancy.
3.3.1 If Landlord shall be unable to give possession of the Premises
to Tenant within any specific period or on any specific date by reason of
the fact-that the Premises are not ready for occupancy, or by reason of the
failure of a prior tenant or occupant thereof to vacate the Premises or
deliver possession of the Premises to Landlord, or for
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any other reason, Landlord shall not be subjected to any damages or other
liability, or be deemed in default under this Lease, for the failure to
give possession of the Premises on such date or within such period. No such
failure to give possession of the Premises within any period or on any
specific date shall affect the validity of this Lease or the obligations of
Tenant hereunder or be deemed to extend the Term, but the Rent payable
under this Lease shall not commence until Landlord shall have given
possession of the Premises to Tenant in the condition required under this
Lease or the Premises shall be available for occupancy by Tenant, provided,
however, that if such failure to give possession has been caused by any act
or omission of Tenant, there shall be no abatement or postponement of Rent.
Landlord shall not be subject to any liability for any delay in completing
any work, repairs, improvements or decorations expressly required to be
made to the Premises by Landlord.
3.3.2 Tenant hereby waives any rights to rescind this Lease which
Tenant might otherwise have pursuant to Section 223-a of the Real Property
Law of the State of New York, or pursuant to any other law of like import
now or hereafter in force.
3.4 Surrender.
Upon the expiration or other cancellation or termination of the Term (such
date, as applicable, being hereinafter referred to as the "Surrender
Date"), Tenant shall immediately vacate and surrender possession of the
Premises to Landlord in good order, repair and condition, except for
ordinary wear and tear. Upon the expiration or other termination of the
Term, Tenant shall (a) remove all Alterations to the Premises which are
required to be removed by Tenant upon the expiration or earlier termination
of the Term pursuant to the provisions of Section 10 or any other
applicable provisions of this Lease, and restore the Premises to the
condition existing prior to the installation of such Alterations (it being
understood that such removal and restoration shall be performed subject to
the provisions of Article 10 of this Lease), and (b) remove all of Tenant's
trade fixtures, office furniture, office equipment and other personal
property from the Premises. Tenant shall immediately repair any damage
caused by such removal or, at Landlord's option, pay Landlord on demand the
reasonable cost of repairing any damage to the Premises or Building caused
by the removal of any such items. Any of Tenant's property remaining in the
Premises will be conclusively deemed to have been abandoned by Tenant and
may
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be appropriated, stored, sold, destroyed or otherwise disposed of by
Landlord without further notice to or demand upon Tenant, and without
liability or obligation to account to or compensate Tenant, and Tenant will
pay Landlord on demand all costs incurred by Landlord relating to such
abandoned property.
3.5 Holding Over.
3.5.1 Tenant shall not hold over at any time and Landlord may exercise
any and all remedies at law or in equity to recover possession of the
Premises, as well as any damages incurred by Landlord, due to Tenant's
failure to vacate the Premises and deliver possession to Landlord as
required by this Lease. If Tenant shall fail to surrender the Premises to
Landlord on the Surrender Date in accordance with the provisions of Section
3.4 above, Tenant shall pay to Landlord, as use and occupancy for each
month or fraction thereof during which Tenant continues to occupy the
Premises after the Expiration Date (the "Continued Occupancy Period"), an
amount of money (the "Occupancy Payment") equal to one hundred fifty (150%)
percent of the monthly Base Rent payable during the last year of the Term
plus one-twelfth (1/12) of the annual Additional Rent payable under Section
4 of this Lease during the last year of the Term. Tenant shall make the
Occupancy Payment, without notice or demand, on the first day of each and
every month during the Continued Occupancy Period. The receipt and
acceptance by Landlord of all or any portion of the Occupancy Payment shall
not be deemed a waiver or acceptance by Landlord of Tenant's breach of
Tenant's covenants and agreements under Section 3.4 or this Section 3.5, or
a waiver by Landlord of Landlord's right to institute any summary holdover
proceedings against Tenant, or a waiver by Landlord of any other of
Landlord's rights or remedies against Tenant in such event as provided for
in this Lease or under law.
3.5.2 In addition to making all required Occupancy Payments, Tenant
shall, in the event of Tenant's failure to surrender the Premises on the
Surrender Date in accordance with the provisions of Section 3.4 above, also
indemnify and hold Landlord harmless from and against any and all payments
Landlord may be required to make to a succeeding tenant of the Premises
resulting from any delay by Tenant in so surrendering the Premises, and any
reasonable attorneys' fees, disbursements and court costs incurred by
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Landlord in connection with obtaining possession of the Premises from
Tenant.
3.5.3 Tenant expressly waives, for itself and for any person claiming
by, through or under Tenant, any rights which Tenant or any such persons
may have under the provisions of Section 2201 of the New York Civil
Practice Law and Rules, and of any successor law of like import then in
force, in connection with any summary holdover proceedings which Landlord
may institute to enforce the provisions of this Section 3.
3.5.4 Tenant's obligation to observe or perform each and every one of
the covenants set forth in Section 3.4 and this Section 3.5 shall survive
the expiration or other termination of the Term.
4. RENT.
4.1 Base Rent.
Commencing on the Commencement Date and continuing throughout the Term,
Tenant agrees to pay Landlord Base Rent in accordance with the following
provisions, except that Landlord hereby grants to Tenant a credit against
the first five (5) monthly installments of Base Rent becoming due under
this Lease in the sum of $23,601.00 per month. Base Rent during each Lease
Year (or portion of a Lease Year) shall be payable in monthly installments
in the amount specified for such Lease Year (or portion) in Section 1.1(i),
in advance, on or before the first day of each and every month during the
Term. However, if the Term commences on other than the first day of a month
or ends on other than the last day of a month, Base Rent for such month
will be appropriately prorated. Tenant shall pay the first monthly
installment of Base Rent becoming due under this Lease upon execution and
delivery of this Lease by Landlord and Tenant.
4.2 Additional Taxes
4.2.1 Tenant agrees to pay to Landlord, as Additional Rent, for each
Tax Year subsequent to the Base Tax Year that contains any part of the
Term, an amount ("Tenant's Tax Payment") equal to Tenant's Share of the
amount by which Taxes for such Tax Year exceed Taxes for the Base Tax Year.
Prior to or as soon as practicable after the beginning of each Tax Year
subsequent to the Base Tax Year,
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Landlord shall submit a statement to Tenant (the "Tax Statement") setting
forth Tenant's Tax Payment. Tenant's Tax Payment shall be payable in two
(2) equal installment, the first of which shall be due and payable on the
June 1 immediately preceding the commencement of the Tax Year with respect
to which a Tax Statement shall be rendered and the second of which shall be
due and payable on the December 1 immediately preceding the second half of
such Tax Year, provided, however, that if Landlord shall render any Tax
Statement after or less than ten (10) days prior to the date on which a Tax
Payment would otherwise be due, then such payment shall be due ten (10)
days after Landlord shall have rendered such Tax Statement.
4.2.2 If, following the delivery of any Tax Statement, Landlord shall
receive a refund of Taxes with respect to a Tax Year for which Tenant has
paid any Additional Rent under the provisions of this Section 4.2, Tenant's
Share of the net proceeds of such refund, after deduction of legal fees,
appraiser's fees and other expenses incurred in obtaining reductions and
refunds and collecting the same (and after deduction of such expenses for
previous Tax Years which were not offset by tax refunds for such Tax Years)
shall be applied and allocated to the periods for which the refund was
obtained and, if Tenant shall not be in default of any of Tenant's
obligations under this Lease, Landlord shall, at Landlord's option, refund
or credit to Tenant, Tenant's Share of the net proceeds of such refund. In
no event shall any refund or credit due to Tenant hereunder exceed Tenant's
Tax Payment paid by Tenant for such particular Tax Year. In no event shall
Tenant have the right to seek from the taxing authority any refund or
reduction of Taxes. If, prior to the delivery of a Tax Statement to Tenant
with respect to a particular Tax Year, Landlord shall obtain a reduction in
Taxes for that Tax Year, then Tenant shall pay to Landlord, within fifteen
(15) days following the issuance to Tenant of a bill therefor, an amount
equal to Tenant's Share of all costs and expenses (including legal,
appraisal and, other expert fees) incurred by Landlord in obtaining such
reduction.
4.2.3 If there shall be a reduction or refund of Taxes for the Base
Tax Year, Landlord shall furnish to Tenant a revised statement indicating
the Taxes payable with respect to the Base Tax Year as so finally
determined and all prior and future payments of Tenant's Share of increases
in Taxes provided for in this Section 4.2 shall be recalculated
accordingly. Any additional payment due for any Tax Year shall be made by
Tenant within fifteen (15) days after the furnishing to Tenant of the
revised Tax Statement.
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4.3 Intentionally Deleted.
4.4 Porter's Wage.
4.4.1 Commencing on July 1, 1998, if the Wage Rate for any calendar
year during the term of this Lease shall be greater than the Base Wage
Rate, Tenant shall pay to Landlord, as Additional Rent, for such calendar
year, a sum (the "Wage Rate Payment") equal to the product obtained by
multiplying (i) the number of cents (including any fractions of a cent) by
which the Wage Rate exceeds the Base Wage Rate by (ii) the number of
rentable square feet in the Area of the Premises. Prior to or as soon as
practicable after the commencement of each calendar year during the Term
after the calendar year in which the Base Wage Rate shall be computed,
Landlord shall issue a statement (the "Wage Rate Statement") to Tenant
indicating the amount of the Wage Rate Payment due pursuant to the
provisions of this Section 4.4 for such calendar year, and Tenant shall pay
one-twelfth (1/12) of the Wage Rate Payment to Landlord, together with the
Base Rent, on the first (1st) day of each calendar month during such
calendar year, except that Tenant's obligation to pay Additional Rent
pursuant to the provisions of this Section 4.4.1 shall commence to accrue
on July 1, 1998. If Landlord shall render a Wage Rate Statement after the
first day of any calendar year, then Tenant shall pay the portion of the
Wage Rate Payment allocable to the period commencing on January 1 and
ending on the last day of the month in which Landlord shall have given
Tenant the Wage Rate Statement within fifteen (15) days after the issuance
of said Wage Rate Statement.
4.4.2 In the event that any increase in the Wage Rate shall be made
retroactive or apply to a period prior to the issuance of the Wage Rate
Statement by Landlord, Tenant shall pay to Landlord the amount of such
retroactive adjustment, for such prior period, within fifteen (15) days
after being billed therefor.
4.4.3 The computation under this Section 4.4 is intended to constitute
an escalation index, and is not
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intended to reflect the actual costs of wages or expenses for the operation
of the Building.
4.5 Adjustments Of And Revisions To Payments Of Additional Rent
If this Lease shall commence on a day other than the first day of a Tax
Year or calendar year, or shall terminate on a day other than the last day
of a Tax Year or calendar year, then Tenant's Tax Payment and/or Tenant's
Wage Rate Payment applicable to the Tax Year or calendar year in which such
commencement or termination shall occur shall be prorated on the basis of
the number of days within such Tax Year and/or calendar year that are
within the Term, except that, notwithstanding anything to the contrary
contained in this Lease, Tenant's obligation to pay Additional Rent
pursuant to the provisions of Section 4.4 shall commence to accrue as of
July I, 1998 and shall be prorated for calendar year 1998 based upon such
effective date. Tenant's obligation to pay Additional Rent which has
accrued but not been paid allocable to periods prior to the expiration or
earlier termination of the Term (if any) and Landlord's obligation to
refund Taxes under this Section 4 shall survive such expiration or earlier
termination. Landlord shall have the right to render a corrected or revised
Tax Statement or Porter's Wage Statement at any time and from time to time
during the. Term, and Landlord's failure to render any Tax Statement or
Wage Rate Statement or revision thereto during the Tax Year or calendar
year to which such statement shall relate shall not prejudice Landlord's
right to render any such statement at any later time.
4.6 Terms Of Payment.
All Base Rent, Additional Rent and other Rent will be paid to Landlord in
lawful money of the United States of America, at Landlord's Building
Address ,or to such other person or at such other place as Landlord may
from time to time designate in writing, without notice or demand and
without right of deduction, abatement or setoff, except as otherwise
expressly provided in this Lease.
4.7 Interest On Late Payments.
All Base Rent and Additional Rent payable under this Lease by Tenant to
Landlord, if not paid within ten (10) days of the date on which the same
shall be due, will bear interest from the due date until paid at the lesser
of the highest interest rate permitted by law or 4% in excess of the
then-current Prime Rate. All other amounts payable under this Lease by
Tenant shall bear interest at the aforesaid
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rate from the due date until paid if the same shall not be paid within ten
(10) days after the date on which the same shall be due.
4.8 Right To Accept Payments.
No receipt by Landlord of an amount less than Tenant's full amount due will
be deemed to be other than payment "on account", nor will any endorsement
or statement on any check or any accompanying letter effect or evidence an
accord and satisfaction. Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance or pursue any right of
Landlord. No payments by Tenant to Landlord after the expiration or other
termination of the Term, or after the giving of any notice (other than a
demand for payment of money) by Landlord to Tenant, will reinstate,
continue or extend the Term or make ineffective any notice given to Tenant
prior to such payment. After notice or commencement of a suit, or after
final judgment granting Landlord possession of the Premises, Landlord may
receive and collect any sums of Rent due under this Lease, and such receipt
will not void any notice or in any manner affect any pending suit or any
judgment obtained.
4.9 Insufficient Funds.
If any check delivered to Landlord in full or partial payment of any
amounts due to Landlord pursuant to the terms of this Lease shall not be
honored by reason of insufficient or uncollected funds or for any other
reason, then Tenant shall pay to Landlord a service charge on account
thereof in the amount of Two Hundred ($200.00) Dollars, which charge shall
be due and payable as Additional Rent with the next monthly installment of
Base Rent.
4.10 Change In Laws.
If all or any part of the Base Rent or Additional Rent shall at any time
become uncollectable, reduced or required to be refunded by virtue of any
Laws (including rent control or stabilization laws), then, for the period
prescribed by said Laws, Tenant shall pay to Landlord the maximum amounts
permitted pursuant to said Laws, and Tenant shall execute and deliver such
agreement(s) and take such other steps as Landlord may request and as may
be legally permissible to permit Landlord to collect the maximum rent
which, from time to time during the continuance of such legal rent
restriction, may be legally permissible (and not
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in excess of the amounts then reserved therefor under this Lease). Upon the
expiration or other legal termination of the applicable period of time
during which such amounts shall be uncollectable, reduced or refunded: (a)
the Base Rent and Additional Rent shall become and shall thereafter be
payable in accordance with the amounts reserved- herein for the periods
following such expiration or termination, and (b) Tenant shall pay to
Landlord as additional rent, within sixty (60) days after demand, all
uncollected, reduced or refunded amounts that would have been payable for
the above-said period absent such Laws.
4.11 Lockbox
If Landlord shall direct Tenant to pay Base Rent or Additional Rent to a
"lockbox" or other depository whereby checks issued in payment of Base Rent
and/or Additional Rent are initially cashed or deposited by a person or
entity other than Landlord (albeit on Landlord's authority), then, for any
and all purposes under this Lease, Landlord shall not be deemed to have
accepted such payment if within said ten (10) day period, Landlord shall
have refunded (or attempted to refund) such payment to Tenant.
4.12 Substitution Of Porter's Wage Escalation
Landlord, by written notice to Tenant, may elect once during the Term to
substitute for the Wage Rate Payment and adjustment pursuant to Section
4.4, an adjustment pursuant to Exhibit G for the calendar year specified in
such notice and all subsequent calendar years during the Term. In such
event, the provisions of Exhibit G shall apply in place of the Wage Rate
Payment calculation set forth in Section 4.4 for such year or years.
5. CONDITION OF PREMISES.
By taking possession of the Premises hereunder, Tenant accepts the Premises
as being in good order, condition and repair, and otherwise in as is and
where is condition as of the Commencement Date. Except as may be expressly
set forth in this Lease, including Exhibit B, Landlord shall not be
obligated to perform any work or make any improvements, Alterations,
renovations or installations in the Premises to prepare the Premises for
Tenant's occupancy. Subject to the provisions of Article 10 of this Lease
and all other applicable provisions governing the performance of
Alterations in the Premises, except as otherwise expressly
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provided in Exhibit B, Tenant shall perform all work and supply all
materials and labor necessary to prepare the Premises for Tenant's
occupancy, at Tenant's sole cost and expense. Tenant acknowledges that
neither Landlord, nor any employee, agent or contractor of Landlord has
made any representation or warranty concerning the Land, Building, Common
Areas or Premises, or the suitability of either for the conduct of Tenant's
business. Landlord reserves, for Landlord's exclusive use, any of the
following (other than those installed by or for Tenant's exclusive use)
that may be located in the Premises: janitor closets, stairways and
stairwells; fans, mechanical, electrical, telephone and similar rooms; and
elevator, pipe and other vertical shafts, flues and ducts.
6. USE AND OCCUPANCY.
6.1 Use.
6.1.1 Tenant agrees to use and occupy the Premises only for the Use
described in Section 1.1 and no other use.
6.1.2 The use of the Premises permitted under Section 6.1 (a) shall
not include, and Tenant shall not use, or permit the use of, the Premises
or any part thereof for: (i) the offices or business of a governmental or
quasi-governmental bureau, department or agency, foreign or domestic,
including an autonomous governmental corporation or diplomatic or trade
mission; or (ii) the conduct or maintenance of any gambling or gaming
activities; or any political activities or any club activities; or a
school; or employment or placement agency; or messenger service; or for the
manufacturing, storage, shipping or receiving of goods (except as otherwise
expressly provided in Section 6.1.3 below); or for retail sales; or for the
cooking or distribution of food.
6.1.3 Solely as an incident to Tenant's use of the Premises for the
Use, and subject to compliance with the certificate of occupancy affecting
the Premises, Tenant may (i) install and operate one or more "warming
pantries" in the Premises containing a "Dwyer" type kitchenette unit
containing a sink, refrigerator, microwave oven and employee dining area
and (ii) use up to twenty (20%) percent of the usable area of the Premises
for the production of samples. Tenant shall procure all licenses and
permits (if any) which may be required in connection with such incidental
uses, at Tenant's cost and expense.
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The aforesaid incidental uses shall be subject to all of the other terms
and conditions of this Lease, including without limitation, the provisions
of Article .1-0 of this Lease.
6. Compliance.
6.2.1 Tenant agrees to use the Premises in a safe, careful and proper
manner, and, at Tenant's expense, to comply with all Laws now or hereafter
existing (including, without limitation, the certificate of occupancy for
the Premises and/or the Building, the Americans with Disabilities Act of
1990, NYC Local Laws No. 5 of 1973, No. 16 of 1984 and No. 58 of 1988, each
as amended from time to time, and all Laws then in effect relating to
asbestos and all orders, rules and regulations of Insurance Boards) that
shall impose upon Landlord or Tenant any obligation, order or duty with
respect to: (a) the Premises (including, without limitation, any
improvements or Alterations in the Premises) or Tenant's occupancy, use or
manner of use of the Premises or (b) any part of the Building other than
the Premises if such obligation, order or duty shall arise from (i) the
specific use or manner of any use or occupancy of the Premises by Tenant or
any person claiming through or under Tenant, or (ii) a condition created by
Tenant or any person claiming under or through Tenant or any or their
respective agents, contractors, employees, licensees, guests or invitees
(including, without limitation, any Alteration or improvement in the
Premises), or (iii) a breach of Tenant's obligations under this Lease or
the negligence of Tenant or its agents, contractors, employees, licensees,
guests or invitees.
6.2.2 Tenant acknowledges receipt of advice from Landlord that a
sprinkler distribution system is currently installed in the Premises. As
part of Tenant's Initial Work and any other Alterations performed by Tenant
in the Premises during the Term, Tenant shall make all modifications and
additions to the sprinkler distribution system in the Premises to comply
with all applicable Laws, at Tenant's cost. If any Insurance Boards or Laws
shall require installation of any other fire protection devices or any
changes, modifications, alterations or additions thereto or to the
sprinkler system then existing in the Premises for any reason attributable
to Tenant's use of the Premises (including, without limitation, any
Alterations installed by Tenant in the Premises or Building), or if any
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such installation or equipment becomes necessary to prevent the imposition
of a penalty or charge against the full allowance for a sprinkler or fire
extinguishing system in the fire insurance rate as fixed by Insurance
Boards, or by any fire insurance company, then Tenant, at Tenant's expense,
shall promptly make such installation within the Premises and supply such
changes, modifications, alterations, additions or other equipment.
6.2.3 Landlord and Tenant agree that, during the Term, each will
comply with all Laws governing, and all procedures established by Landlord
for, the use, abatement, removal, storage, disposal or transport of any
substances, chemicals or materials declared to be, or regulated as,
hazardous or toxic under any applicable Laws ("Hazardous Substances") and
any required or permitted alteration, repair, maintenance, restoration,
removal or other work in or about the Premises, Building or Land that
involves or affects any Hazardous Substances. Each party will indemnify and
hold the other and the other's "Affiliates" (as defined in Section 13.1)
harmless from and against any and all claims, costs and liabilities
(including reasonable attorneys' fees) arising out or in connection with
any breach by such party of its covenants under this Section 6.2.3. The
parties' obligations under this Section 6.2.3 will survive the expiration
or early termination of the Term.
6.3 Occupancy.
Tenant shall not do or permit anything to be done which obstructs or
interferes with other tenants' rights or with Landlord's providing Building
services, or which injures or annoys other tenants. Tenant shall not cause,
maintain or permit any nuisance in or about the Premises and shall kedp the
Premises free of debris, and anything of a dangerous, noxious, toxic or
offensive nature or which could create a fire hazard or undue vibration.,
heat or noise. Tenant shall not make or permit any use of the Premises
which may jeopardize any insurance coverage for the Building or Premises,
increase the cost of insurance or require additional insurance coverage for
the Building or Premises or which will invalidate or be in conflict with
the terms of the New York State standard form of fire insurance with
extended coverage. If by reason of Tenant's failure to comply with the
provisions of this Section 6.3, (a) any insurance coverage shall be
jeopardized, then Landlord shall have the option to terminate this Lease or
(b)
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insurance premiums shall be increased, then Landlord may require Tenant to
immediately pay Landlord as Rent the amount of the increase in insurance
premiums.
6.4 Covenants.
Tenant expressly acknowledges that irreparable injury will result to
Landlord in the event of a breach of any of the covenants made by Tenant in
this Article, 6, and it is agreed that, in the event of such breach,
Landlord shall be entitled, in addition to any other remedies available, to
an injunction to restrain the violation thereof. Breach of any of Tenant's
covenants under this Article shall also constitute an Event of Default
pursuant to the provisions of Article 20 hereof.
6.5 Window Washing.
Tenant shall not clean, or permit, suffer or allow to be cleaned, any
windows in the Premises from the outside in violation of Section 202 of the
Labor Law or any other Laws.
7. SERVICES AND UTILITIES.
7.1 Landlord's Operation Of The Building.
During the Term, subject to the provisions of this Lease, Landlord shall
operate and maintain the Building as a first class office building in
accordance with the standards from time to time prevailing for comparable
first-class office buildings in midtown Manhattan.
7.2 Landlord's Standard Services.
Subject to the provisions of this Lease, Landlord shall provide the
following services:
(a) Maintain and make all necessary repairs and replacements to the
Common Areas of the Building, all structural elements of the Building and
the Building Systems, but excluding those portions of the Premises and the
Building required to be repaired or maintained by Tenant pursuant to
Section 9 of this Lease. There shall be no allowance to Tenant for a
diminution of rental value or interruption of business, and no liability on
the part of Landlord, by reason of inconvenience, annoyance or injury to
business arising from Landlord, Tenant or others making any repairs in or
to any portion of the Building or Building Systems or the Premises,
provided that Landlord shall use reasonable efforts to minimize
interference with
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the conduct of Tenant's business in the Premises during the performance of
any repairs (without incurring overtime or premium labor charges).
(b) Provide Building standard elevator service on usual business days
(but in no event on Saturdays or Sundays), holidays excepted, from 8 A.M.
to 6 P.M., and have one elevator on call at all other days and times.
(c) Operate the central air-conditioning, heating and ventilating
system installed by Landlord in the Building during the applicable seasons
on usual business days (but in no event on Saturdays or Sundays), holidays
excepted, from 8:30 A.M. to 5:30 P.M. Tenant expressly acknowledges that
the windows are hermetically sealed and will not open and Landlord makes no
representation as to the habitability of the Premises at any time the
central ventilating and air conditioning systems are not in operation.
Tenant hereby expressly waives any claims against Landlord arising out of
the cessation of operation of the central air conditioning, heating and
ventilating systems, or the suitability of the Premises when same are not
in operation or due to normal scheduling or for the reasons set forth in
Section 7.3. Landlord shall not be liable for the failure of the air
conditioning system if such failure results from the occupancy of the
Premises by more than an average of one person for each 100 square feet in
any separate room or area or if Tenant installs and operates machines,
incandescent lighting and appliances the total connected electrical load of
which exceeds 5 watts per square foot of usable area in any separate room
or area.
(d) Furnish hot and cold New York City water for lavatory and drinking
and office cleaning purposes. If Tenant requires, uses or consumes water
for any other purpose, or installation becomes required by Laws or Landlord
so elects for the Building generally, Tenant agrees that Tenant shall (or
Landlord may at Tenant's cost) install a meter or meters or other means to
measure Tenant's water consumption, and Tenant further agrees to pay for
the cost of the meter or meters and the installation thereof, and to pay
for the maintenance of said meter equipment and/or to pay Landlord's cost
of other means of measuring such water consumption by Tenant. Tenant shall
reimburse Landlord for the cost of all water consumed (including costs of
generating hot water) as measured by said meter or meters or as otherwise
measured, including
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sewer rents, as additional rent within thirty (30) days after bills are
rendered.
(e) Landlord shall provide access to the Building to Tenant seven (7)
days per week, twenty-four (24) hours per day, subject to the provisions of
this Lease.
7.4 Interruption Of Services.
Landlord reserves the right to stop the furnishing of any Building services
and the service of any of the Building Systems to perform repairs or
Alterations which, in Landlord's judgment, shall be necessary or desirable
or when necessary by reason of accident or emergency. If any of the
Building Systems or services required to be provided by Landlord pursuant
to this Section 7 or Section 8 below shall be interrupted, curtailed or
stopped, Landlord shall use reasonable efforts with due diligence to resume
such service; provided, however, that Landlord shall have no liability
whatsoever by reason of any such interruption, curtailment or stoppage of
any of such services (whether the same shall be interrupted, curtailed or
stopped while Landlord shall be performing any repairs or Alterations or
when Landlord shall be prevented from supplying or furnishing the same by
reason of Laws, the failure of any public utility or governmental authority
serving the Building to supply electricity, water, steam, oil or other
fuel, strikes, lockouts, the difficulty of obtaining materials after the
use of due diligence, accidents or by any other cause beyond Landlord's
reasonable control or for any other reason), including, without limitation,
any liability for damages to Tenant's personal property or for interruption
of business caused by any such interruption or stoppage, nor shall the same
constitute an actual or constructive eviction or entitle Tenant to any
abatement or diminution of the Rent payable under this Lease or in any
manner or for any purpose relieve Tenant from any of its obligations under
this Lease.
7.5 Changes In Laws.
In the event any governmental entity promulgates or revises any law. or
issues mandatory controls relating to the use or conservation of energy,
water, light or electricity, or the provision of any other utility or
service furnished by Landlord in the Building, Landlord may take any
appropriate action to comply with such provision of law or mandatory
controls, including the making of alterations to the Building subject,
however, to the terms and conditions of
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this Lease. Neither Landlord's actions nor its failure to act shall entitle
Tenant to any damages, abate or suspend Tenant's obligation to pay Base
Rent and Additional Rent or constitute or be construed as a constructive or
other eviction of Tenant except as otherwise specifically set forth herein.
8. ELECTRIC AND UTILITY ADJUSTMENT
8.1 Rent Inclusion
Subject to the provisions of this Section 8, Landlord shall furnish the
electricity that Tenant shall reasonably require in the Premises for normal
business office purposes on a rent inclusion basis, i.e., there shall be no
charge to Tenant for such electricity, such electricity being included in
Landlord's services which are covered by the Base Rent reserved hereunder.
The foregoing inclusion within Base Rent is based upon (i) normal use of
the Premises between the hours of 8:00 A.M. to 5:30 P.M. on Mondays through
Fridays (except holidays) with normal lighting and with the operation of
appliances and equipment normally used in business offices, and (ii) the
electric rate schedule in effect on the date set forth in Section 8.3. The
cost of electricity for any and all "Electricity Intensive Equipment" (as
such term is defined in the immediately following sentence) which may be
located in the Premises is not included within the Base Rent. For the
purposes of this Lease, the term: "Electricity Intensive Equipment" shall
mean any and all supplementary air conditioning systems, mainframe
computers, copying centers, and any other appliances and equipment which
consume greater amounts of electricity than the appliances and equipment
normally used in business offices as of the date hereof. Landlord shall not
be liable in any way to Tenant for any failure or defect in the supply or
character of electricity, steam or other utilities furnished to the
Premises by reason of any requirement, act or omission of the public
utility serving the Building with electricity or steam or for any other
reason not attributable to Landlord. Tenant shall furnish and install all
lighting tubes, lamps, bulbs and ballasts required in the Premises, at
Tenant's expense, or shall pay Landlord's charges therefor on demand.
8.2 Electric Usage
Tenant's use of electricity in the Premises shall not at any time exceed
the capacity of any of the electrical
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conductors, machinery and equipment in or otherwise servicing the Premises.
In order to ensure that such capacity is not exceeded and to avert possible
adverse effect upon the electric service in the Building, Tenant shall not,
without Landlord's prior written consent in each instance, which consent
shall not be unreasonably withheld provided that the capacity of the
conductors, machinery and equipment serving the Premises shall not be
exceeded, connect any fixtures, machinery, appliances or equipment, except
a usual type and quantity of small office machines and lighting (which
exception shall not be construed to include any Electricity Intensive
Equipment), to the Building electric distribution system or make any
alteration or addition to Tenant's appliances or equipment or the electric
system of the Premises. 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 upon Landlord's demand. As a
condition to undertaking said work, Landlord may require Tenant to furnish
Landlord with security satisfactory to Landlord securing payment of the
cost of said work. As a further condition to granting such consent,
Landlord may require Tenant to agree to an increase in the Base Rent by an
amount which will reflect the cost of the additional service to be
furnished by Landlord, i.e., the potential additional electricity to be
made available to Tenant based upon the estimated additional capacity of
any additional risers or other equipment. In the event that Tenant shall
add any fixtures, machinery, appliances or equipment (including, without
limitation, any Electricity Intensive Equipment), Landlord may also require
Tenant to agree to an increase in the Base Rent by an amount which will
reflect the increased value to Tenant or cost to Landlord of the
electricity to be furnished to Tenant, whichever is greater. If Landlord
and Tenant cannot agree on any such increase in the Base Rent, such amount
shall be determined by an independent electrical engineer or consultant, to
be selected by Landlord and paid by Tenant. When the amount of such
increase is so determined, the parties shall execute an agreement
supplementary hereto, to reflect such increase in the amount of Base Rent
stated in Section 1.1, effective from the date such additional service is
made available to Tenant or from the date of the increase of such usage, as
determined by such electrical consultant or engineer; but such increase
shall be effective from such date even if such supplementary agreement is
not executed.
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8.3 Utility Rates
8.3.1 If the public utility rate schedule for the supply of electric
current to the Building shall be increased subsequent to the Electric
Inclusion Date set forth in Section 1.1 (or subsequent thereto but
retroactive to prior dates) or if there shall be an increase in the fuel
adjustment or taxes or if additional taxes, surcharges, energy charges, or
charges of any kind shall be imposed upon the sale or furnishing of such
electricity, the portion of the Base Rent in the amount equal to the
difference between the Base Rent and the Base Rent Exclusive of Electricity
shall be increased to reflect the same percentage increase in said rate
schedule, fuel adjustment, tax, surcharge or charges, as the case may be,
or the additional cost to Landlord of the services being furnished based
upon said increases, whichever is greater. The amounts of such increases
shall be determined by an independent electrical engineer or consultant
selected by Landlord, which determination shall be binding on Tenant. When
the amount of any such increase shall be determined, the parties shall,
upon the request of the other, execute an agreement supplementary hereto to
reflect such adjustments in the amount of the Base Rent stated in this
Lease, effective from the date of such increase in Landlord's cost of
furnishing electricity; but such increases shall be effective from such
date whether or not such a supplementary agreement is executed.
8.3.2. If at any time during the Term, the rates, fuel adjustments,
taxes, surcharges, energy charges or charges of any other kind imposed by
or through the utility furnishing the same (collectively, the "Costs") for
obtaining "Building Steam" and/or "Building Light and Power", as
hereinafter defined, shall by reason of increases therein or additions
thereto be in excess of the Costs of obtaining Building Steam or Building
Light and Power, respectively, for the Base Utility Year, Tenant shall pay
to Landlord annually, as additional rent, an amount equal to Tenant's Share
of such respective increases in Costs. For the purposes of this Section
8.3.2, and so that seasonal and other variable fluctuations in actual usage
can be disregarded, it is agreed that "Building Steam" shall be deemed to
mean the fixed amount of 75,916 of steam, and "Building Light and Power"
(which is exclusive of electricity used directly by tenants) shall be
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deemed to mean the fixed amount of 5,832,944 KWH of electricity. If
Landlord shall use a substitute fuel in place of steam, Landlord may
thereafter substitute such fuel for Building Steam hereunder, and shall
compute the fixed base therefor at a reasonable estimate of one year's
consumption, for the years following the substitution (in addition to steam
increases theretofore computed).
8.4 Electrical Surveys.
8.4.1 Landlord shall also have the right from time to time to have an
independent electrical engineer or consultant selected by Landlord survey
the electricity consumed by Tenant in the Premises, and if such electrical
engineer or consultant determines that the cost to Landlord or value to
Tenant of electricity furnished to Tenant annually exceeds the difference
between the Base Rent and the Base Rent Exclusive of Electricity, as set
forth in Section 1.1, the Base Rent shall be increased to an amount equal
to (i) the Base Rent Exclusive of Electricity, plus (ii) the value to
Tenant or cost to Landlord, whichever is more, of the electricity furnished
to Tenant hereunder based upon the findings of said electrical engineer or
consultant. The cost of said survey shall be paid by Landlord. The findings
of such electrical engineer or consultant shall be binding and conclusive
on Tenant. When the amount of any such increase shall be determined, the
parties shall, upon the request of the other, execute an agreement
supplementary hereto to reflect such increase in the amount of the Base
Rent stated in this Lease, effective from the date of such increased usage;
but such increases shall be effective from such date whether or not such a
supplementary agreement is executed.
8.4.2 Notwithstanding anything to the contrary contained in this
Section 8.4, if Tenant shall dispute the result of any survey conducted by
an independent electrical engineer or consultant selected by Landlord
("Landlord's Survey"), Tenant shall have the right, for a period of thirty
(30) days following Tenant's receipt of the results of Landlord's Survey,
to have Tenant's own electrical engineer or consultant conduct a survey of
the electric consumption in the Premises ("Tenant's Survey") and deliver
the same to Landlord. The cost of Tenant's Survey shall be paid by Tenant.
If the results of Tenant's Survey indicate a variation of less than ten
(10(degree)0) percent from the results of Landlord's Survey, Landlord's
Survey shall be
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binding and conclusive on both parties. In the event that the results of
Tenant's Survey indicate a variation of ten (10%) percent or more from the
results of Landlord's Survey and such dispute cannot be resolved by
Landlord's and Tenant's consultants within thirty (30) days, such dispute
shall be resolved by a third electrical engineer or consultant, who shall
be selected by the two electrical engineers or consultants who shall have
already made such surveys and whose fees shall be paid for equally by
Tenant and Landlord. The determination of the third electrical engineer or
consultant shall be binding on Landlord and Tenant.
8.5 Discontinuance Of Service.
Landlord reserves the right to discontinue furnishing electricity to Tenant
in the Premises at any time upon not less than thirty (30) days notice to
Tenant but in any event sufficiently in advance to enable Tenant, acting
with reasonable due diligence, to arrange for electric service directly
from the public utility company furnishing electric service to the
Building. If Landlord shall exercise such right of termination, this Lease
shall continue in full force and effect and shall be unaffected thereby,
except only that, from and after the effective date of such termination,
Landlord shall not be obligated to furnish electricity to Tenant and the
Base Rent payable under this Lease shall be reduced to the amount set forth
as the Base Rent Exclusive of Electricity in Section 1.1. If Landlord so
discontinues furnishing electric energy to Tenant, Tenant shall arrange to
obtain electricity directly from the public utility company furnishing
electric service to the Building. Such electricity may be furnished to
Tenant by means of the then existing Building system feeders, risers and
wiring to the extent that the same are available, suitable and safe for
such purposes. All meters and additional panel boards, feeders, risers,
wiring and other conductors and equipment which may be required to obtain
electricity directly from %such public utility company shall be installed
and maintained by Tenant at its expense. Such discontinuance shall not be
deemed a lessening or diminution of services within the meaning of any
present or future Laws or Ordinances.
8.6 Use In Premises
Tenant covenants and agrees that at no time will the connected electrical
load in the Premises exceed five (5)
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watts per square foot of usable area contained in the Premises.
8.7 Change In Laws.
If the public utility furnishing electricity to the Building, or any Laws
and Ordinances, shall institute or require a change in the manner in which
electricity is to be furnished or paid for, and such change reasonably
necessitates an appropriate modification of this Section 8, Tenant agrees
to execute such modification, provided, however, that in no event shall the
Base Rent or Base Rent Exclusive of Electricity be reduced to an amount
below the amounts thereof stated in Section 1.1 of this Lease. Tenant
agrees to fully and timely comply with all rules and regulations of the
public utility applicable to Tenant or the Premises.
8.8 Payments.
Any payments due under this Section 8 for less than a calendar year at the
commencement or end of the Term shall be equitably prorated. If any taxes
are or shall be imposed upon Landlord's furnishing of electricity, Tenant
shall reimburse Landlord therefor upon demand.
8.9 Submeters.
In Landlord's sole discretion and notwithstanding anything to the contrary
contained in this Lease, Landlord may elect to install one or more
submeters to measure Tenant's electricity consumption, and, from and after
the date such submeter(s) shall be installed and shall be operational,
Tenant shall pay to Landlord, as additional rent and within ten (10) days
following rendition of a bill therefor, an amount equal to the product of a
charge for Tenant's electric consumption at Landlord's cost for furnishing
the same, multiplied by one hundred five (105%) percent. If Landlord shall
make the aforesaid election under this Section 8.9, then, from and after
the date of installation and operation of such submeters, the Base Rent
payable under this Lease shall be reduced to the amount set forth as the
Base Rent Exclusive of Electricity in Section 1.1(h).
8.10 Statements.
Landlord's failure to render any statement under the provisions of this
Section 8 shall not prejudice Landlord's right to render such statement at
any time thereafter or to render a statement under this Section 8 for prior
or
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subsequent periods. The obligations of Tenant with respect to any payment
required to be made pursuant to the provisions of this Section 8 shall
survive the expiration or sooner termination of the Term.
9. REPAIRS AND MAINTENANCE OF PREMISES; ACCESS TO PREMISES BY LANDLORD.
9.1 Repairs By Tenant.
Subject to the terms of Sections 13 and 15, and except to the extent
Landlord is required or elects to perform or pay for certain maintenance or
repairs in accordance with said Sections, Tenant shall, at Tenant's sole
expense, at all times during the Term, maintain in good order and repair
and in compliance with all applicable Laws, the Premises and all fixtures,
glass, appurtenances and equipment therein, including, without limitation,
promptly and adequately repairing, restoring and/or replacing all portions
that are damaged or broken, including, without limitation, the entire
distribution system for all of the Building Systems that serve the Premises
up to the point at which such distribution system connects to the Building
System, i.e., (i) Tenant's entire air' distribution ceiling duct system to
the point at which the same connects to the main distribution duct for the
Premises located in the core area of the Building (but not the perimeter
heating/cooling units located around the perimeter of the Premises, which
units shall be repaired by Landlord except to the extent to which the same
are damaged by Tenant), (ii) Tenant's entire electrical system to the panel
box that services the Premises, (iii) all water and waste lines and
fixtures to the point at which the same connect to the vertical pipes and
wet columns located in the core of the Building, (iv) the portion of the
"Class E" fire safety system within the Premises and (v) any and all
supplemental and other systems located in and/or exclusively serving the
Premises, whether or not such repairs pertain to improvements in the
Premises furnished or installed by Landlord, but excluding the core
Building Systems, rough floor, rough ceiling, exterior walls and load
bearing columns in the Premises, whether such repairs, replacements or
restorations shall be foreseen or unforeseen, ordinary or extraordinary.
Tenant shall also repair, restore and/or replace all damage and injury to
the Premises (including, without limitation, any portion of the Building
Systems therein) or to any portion of the Building or the Building Systems
outside of the Premises (including, without limitation, the rough floor,
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the rough ceiling, exterior walls and load bearing columns and other
structural elements) caused by or arising from any acts or omissions of
Tenant or Tenant's agents, contractors or employees. All repairs and other
work performed by Tenant or Tenant's contractors (which shall be subject to
Landlord's approval) shall (i) be performed in compliance with all of the
provisions of Section 10 of this Lease, (ii) be performed in a first-class
workmanlike manner using only grades of materials at least equal in quality
to Building standard materials and (iii) comply with all insurance
requirements and all applicable Laws.
9.2 Failure To Maintain Premises; Landlord's Right To Cure.
If Tenant shall fail to perform any of its obligations under Section 9.1,
then Landlord may, upon not less than ten (10) days' prior notice to Tenant
(except in case of actual or suspected emergency, in which case no notice
shall be required) perform such obligations and Tenant shall pay as Rent to
Landlord the cost of such performance, including an amount sufficient to
reimburse Landlord for overhead and supervision, within ten (10) days after
demand from Landlord.
9.3 Landlord's Right To Perform Repairs To Building Systems.
In any case in which Tenant shall be required or shall desire to make any
repairs or perform any Alterations or other work pursuant to this Article
or Articles 6 or 10 and such repairs, Alterations or other work shall
affect the Building Systems or areas outside of the Premises, Landlord may,
in Landlord's discretion, elect to make such repairs or to perform such
Alterations or other work for and on behalf of Tenant, but at Tenant's sole
cost and expense. In such event, Tenant shall reimburse Landlord, as Rent,
for the reasonable cost incurred by Landlord to perform such repairs and/or
Alterations or other work in accordance with the standards of first class
office buildings in midtown Manhattan, within ten (10) days after Landlord
shall furnish a statement to Tenant of the amount thereof.
9.4 Access To Premises By Landlord.
9.4.1 Tenant shall permit Landlord and Landlord's agents,
representatives, contractors and employees and public utilities servicing
the Building to enter the Premises at all reasonable times upon reasonable
prior notice (except in case of actual or suspected emergency in which
event no notice shall be required), which notice may be oral, whether or
not Tenant shall be present, for any of
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the following purposes: (i) to examine or inspect the Premises, (ii) to
show the Premises to existing or prospective mortgagees, lenders or ground
lessors or to prospective purchasers, (iii) to comply with any Laws or the
requirements of any insurance policies or Encumbrance affecting the
Building, (iv) to perform any Alterations, repairs, improvements,
additions, replacements or restorations which Landlord shall deem necessary
or desirable, (v) to comply with any of Landlord's obligations under this
Lease, (vi) to exercise any right or remedy of Landlord under this Lease,
including, without limitation, Landlord's rights to cure any default of
Tenant under this Lease (provided that any notice of default Landlord shall
give to Tenant shall also serve as any prior notice required to be given
under this Section 9.2.1 and no further notice of Landlord's entry under
this Section shall be required) and (vii) during the last eighteen (18)
months of the Term, to show the Premises to prospective tenants. Landlord
shall have the right to take any materials and equipment into the Premises
that may be required while any repairs, restorations, improvements,
replacements, additions or Alterations are being performed and such
performance shall not constitute an actual or constructive eviction in
whole or in part or entitle Tenant to any abatement of the Rent payable
under this Lease (except as otherwise expressly provided in Section 13) or
other compensation for interruption to or loss of business or subject
Landlord to any other liability. Landlord shall use reasonable efforts to
minimize interference in the normal conduct of Tenant's business during any
such entry by Landlord, provided that Landlord shall not be obligated to
employ labor at overtime or premium pay rates. If Tenant shall not be
present when any entry into the Premises shall be necessary or desirable,
Landlord and Landlord's agents, representatives, contractors or employees
may enter the Premises without rendering Landlord or such parties liable,
provided that such parties shall use reasonable care under the
circumstances to avoid damage to Tenant's property and Alterations.
9.4.2 Without incurring any liability to Tenant, Landlord may permit
access to the Premises and open the same, whether or not Tenant shall be
present, upon demand of any receiver, trustee, assignee for the benefit of
creditors, sheriff, marshal or court officer entitled to, or purporting to
be entitled to, such access for the purpose of taking possession of, or
removing, Tenant's
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property or for any other lawful purpose (but by this provision any action
by Landlord hereunder shall not be deemed a recognition by Landlord that
the person or official permitted to such access has any right to such
access or interest in or to this Lease, or in or to the Premises), or upon
demand of any representative of the fire, police, building, sanitation or
other department of the city, state or federal governments.
9.4.3. Any reservation of a right by Landlord to enter upon the
Premises and to make or perform any repairs, Alterations or other work in,
to or about the Premises which, in the first instance, is the obligation of
Tenant pursuant to this Lease, shall not be deemed to: (i) impose any
obligation on Landlord to do so, (ii) render Landlord liable (to Tenant or
any third party) for the failure to do so, or (iii) relieve Tenant from any
obligation to indemnify Landlord as otherwise provided elsewhere in this
Lease.
9.5 Notice Of Damage.
Tenant shall notify Landlord promptly after Tenant learns of (a) any fire
or other casualty in the Premises; (b) any damage to or defect in the
Premises, including the fixtures and equipment in the Premises, for the
repair of which Landlord might be responsible; and (c) any damage to or
defect in any parts of appurtenances of the Building's sanitary,
electrical, heating, air conditioning, elevator or other systems located in
or passing through the Premises.
9.6 Janitorial Services.
Except as set forth in Section 7 above, Tenant shall, at Tenant's expense,
keep the Premises clean and in order, to the reasonable satisfaction of
Landlord, and for that purpose shall use its own employees or employ a
person, firm or corporation who or which shall be subject to the prior
written approval of Landlord. In order to insure effective security in the
Building, Tenant acknowledges the reasonableness of Landlord, at its
option, to designate a party to be so employed by Tenant and to act as
maintenance and cleaning contractor for any waxing, polishing, lamp
replacement, cleaning and maintenance work in the Premises, so long as such
party is a reputable person, firm or corporation that charges no more than
the rates in effect for comparable services in similar type buildings.
Landlord
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expressly reserves the right to exclude from the Building any person, firm
or corporation attempting to perform any such work or furnish any of such
services without Landlord's prior written approval or not so designated by
Landlord.
9.7 Energy Conservation.
Tenant agrees to abide by all requirements which Landlord may reasonably
prescribe for the proper protection and functioning of the Building Systems
and the furnishing of the Building services. Tenant agrees to keep all
windows closed white- the air-conditioning, heating and ventilating system
is in operation. Tenant further agrees to cooperate with Landlord in any
energy conservation effort pursuant to a program or procedure promulgated
or recommended by ASHRAE or any Laws.
10. ALTERATIONS.
10.1 Alterations By Tenant.
10.1.1 Subject to the provisions of this Section 10 and to other
applicable provisions of this Lease, Tenant may from time to time, at
Tenant's expense, perform Alterations in and to the Premises to better
adapt the same to its business, provided that any such Alteration shall (a)
not alter the exterior of the Building in any way or affect the exterior
appearance of the Building; (b) not be structural or exceed or adversely
affect the capacity, maintenance, operating cost or integrity of the
Building's structure or any of its components, including, without
limitation, the Building Systems; (c) not affect the certificate of
occupancy for the Building or necessitate the performance of any work by
Landlord in the Building; (d) comply with all applicable Laws (including
the Americans with Disabilities Act of 1990, NYC Local Laws No. 5 of 1973,
No. 16 of 1984 and No. 58 of 1988, each as amended from time to time, and
all Laws then in effect relating to asbestos) and all orders, rules and
regulations of Insurance Boards; (e) be made only with the prior written
consent of Landlord, which consent will not be unreasonably withheld or
unduly delayed with respect to non-structural Alterations to be performed
entirely within the Premises; (f) not violate any agreement (including,
without limitation, any Encumbrance) which affects the Building or binds
Landlord; and (g) not be subject to any lien, encumbrance, chattel
mortgage, security interest,
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charge of any kind whatsoever, or any conditional sale or other similar or
dissimilar title retention agreement. Notwithstanding anything to the
contrary contained in this Section 10.1, subject to Tenant's compliance
with all of the terms and provisions of this Section 10, Tenant shall not
be required to obtain Landlord's consent to Alterations which Tenant shall
desire to make in the Premises, provided that the same are: (1) located
entirely within the Premises, (ii) non-structural, (iii) do not require the
issuance of a building notice or building permit from the New York City
Department of Buildings, (iv) do not affect the structure, exterior or
common areas of the Building or the Building Systems, (v) are at least
equal in quality to the original construction of the Building or the
current Building standards, (vi) violate, create a condition which
violates, or require Landlord to perform any work or incur any expense to
ensure compliance with any Laws and (vii) do not cost in excess of $50,000,
in the aggregate, over a twelve (12) month period, but Tenant shall
nonetheless be required to give Landlord at least ten (10) business days'
notice prior to the performance of such Alterations.
10.1.2 All Alterations shall be performed subject to and in compliance
with all of the following terms and conditions:
(a) Tenant shall not commence the performance of any Alteration until
Tenant shall have obtained Landlord's prior written approval of detailed
plans and specifications for such Alteration ("Tenant's Plans"), which
approval shall not be unreasonably withheld or unduly delayed with respect
to any Alteration as to which Landlord may not unreasonably withhold
Landlord's consent. Tenant's Plans shall be prepared by a professional
architect or engineer licensed to practice in the State of New York and
shall be in form, content and detail sufficient (x) to secure all required
governmental permits and approvals, (y) for a contractor to perform all
work shown thereon and covered thereby and (z) sufficient to determine (i)
whether such Alteration complies with all Laws, (ii) whether such
Alteration is to be performed using materials at least equal to Building
standard and (iii) the effect such Alteration shall have on the structural
components of the Building, including the Building Systems, and the
operation and maintenance of the Building. Landlord shall use reasonable
efforts to notify Tenant whether Landlord approves, disapproves or requires
additional details or
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information with respect to any complete set of Tenant's Plans submitted by
Tenant to Landlord in compliance with provisions of this Section 10.1.2(a)
within twenty (20) business days after Tenant shall have submitted the same
to Landlord, except that with respect to any Tenant's Plans for Tenant's
Initial Work (as such term is defined in Exhibit B annexed hereto) which
Tenant shall perform to prepare the Premises for Tenant's initial
occupancy, Landlord shall use reasonable efforts to notify Tenant as
aforesaid within ten (10) business days after Tenant shall have submitted a
complete set of such Tenant's Plans to Landlord.
(b) All Alterations shall be performed in compliance with all
applicable Laws. Without limiting the generality of the foregoing, Tenant
shall not commence to perform any Alteration until Tenant shall have
obtained and delivered to Landlord originals or true and complete copies of
all permits, authorization, licenses and permits required to be obtained by
applicable Laws prior to the performance of any Alteration. Tenant shall
prosecute all Alterations to completion with due diligence and promptly
upon completion of all Alterations, Tenant shall obtain all required
approvals, permits, and other "sign-offs" from all governmental authorities
having jurisdiction and shall deliver copies thereof to Landlord.
(c) All Alterations shall be performed subject to Landlord's rules and
regulations governing the construction of Alterations in the Building and
in such manner and at such times as Landlord may reasonably designate.
(d) In order to maintain and control the quality and standards of
workmanship of the Building, Tenant shall only utilize contractors and
subcontractors who shall have been approved in writing by Landlord to
perform alterations in the Building. Landlord shall at all times during the
Term maintain a list of not less than three (3) independent, responsible
contractors and subcontractors for each trade who shall be acceptable to
Landlord, except that Landlord shall have the right to designate only one
(1) approved contractor for the performance of work on the life
safety-systems of the Building and one (1) filing agent. Landlord shall
have the right to change the approved contractors set forth on such list at
any time and from time to time. Landlord shall also have the right to
refuse
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to grant access to the Building and the Premises to any contractor or
subcontractor not approved by Landlord.
(e) Tenant shall maintain, and shall cause all persons performing any
Alterations or other work in the Building on behalf of Tenant to maintain,
worker's compensation insurance, and commercial general liability insurance
(including, without limitation, completed operations and contractual
liability coverages), property damage insurance and such other insurance as
Landlord may reasonably require (with Landlord, Landlord's managing agent
and such other persons as Landlord shall reasonably designate named as
additional insureds), in amounts, with companies and in a form reasonably
satisfactory to Landlord, which insurance shall remain in effect during the
entire period in which such Alterations or other work shall be performed.
Prior the commencement of every Alteration, Tenant will deliver to Landlord
proof of all such insurance.
(f) Tenant shall perform all Alterations using materials at least
equal in quality to the original construction of the Building or Landlord's
then current Building standard..
(g) Tenant will promptly pay, when due, the cost of all Alterations
and other work performed by or on behalf of Tenant or any person claiming
through or under Tenant, and, upon completion, Tenant will deliver to
Landlord, to the extent not previously received by Landlord, evidence of
payment, contractors' affidavits and full and final waivers of all liens
for labor, services or materials.
(h) Upon completion of all Alterations, Tenant, at its expense, will
have promptly prepared and submitted to Landlord a reproducible set of the
approved Tenant's Plans for such Alterations showing all plan and field
changes .
10.1.3 In the event that Landlord shall submit Tenant's Plans to
Landlord's independent architects or engineers for review (in
contradistinction to Landlord's in house personnel), Tenant shall pay to
Landlord, as Rent, all reasonable out-of-pocket costs incurred by Landlord
for such review, within fifteen (15) days after demand. Notwithstanding the
foregoing, Landlord agrees that if Tenant shall engage Landlord's approved
consulting engineer to prepare Tenant's HVAC, electrical and other
mechanical plans and specifications, Tenant shall not be obligated to
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pay any expenses incurred by Landlord to review such plans and
specifications.
10.1.4 Except with respect to any Alterations performed by Tenant
prior to the commencement of the normal conduct of Tenant's business in the
Premises to prepare the Premises for Tenant's initial occupancy thereof,
Landlord may require Tenant to furnish to Landlord, prior to the
commencement of any Alteration which shall have an estimated cost in excess
of a sum equal to six (6) monthly installments of Base Rent, a payment and
performance bond in form and substance satisfactory to Landlord, obtained
at Tenant's expense, in an amount equal to at least 125% to of the
estimated cost of such Alteration, guaranteeing to Landlord the prompt
completion of and payment for such Alteration within a reasonable time,
free and clear of all liens, encumbrances, chattel mortgages, security
interests, conditional bills of sale and other charges, in accordance with
the plans and specifications approved by Landlord.
10.1.5 All Alterations, whether temporary or permanent in character,
made or paid for by Landlord or Tenant will, without compensation to
Tenant, become Landlord's property upon installation and shall be
surrendered to Landlord upon the expiration or earlier termination of the
Term, in good condition, ordinary wear and tear excepted, except that
Tenant shall remove, at or prior to the expiration or earlier termination
of the Term, all Specialty Alterations (hereafter defined). If Tenant shall
be required to remove any Alterations, then upon such removal, Tenant shall
restore the affected portion of the Premises to the condition existing
prior to the installation of such Alteration. For purposes of this Section,
"Specialty Alterations" shall mean any and all vaults, cooking kitchens,
subflooring structures and raised flooring systems, structural
reinforcements, auditoria, dumbwaiters, mainframe computer centers, copying
centers, libraries, internal staircases, private lavatories, medical
facilities, and any other Alterations which are not customary for
build-outs of tenants of first class office buildings in midtown Manhattan
generally and are unusually expensive to demolish or remove.
10.1.6 Tenant shall not at any time, either directly or indirectly,
use any contractors or labor or materials in the Premises if the use of
same would create any difficulty with other contractors or labor engaged by
Tenant or
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Landlord or others in the construction, maintenance or operation of the
Building or any part thereof.
10.1.7 Landlord's review, supervision, commenting on or approval of
any Alteration or aspect of work to be performed by or for Tenant (whether
pursuant to this Section 10 or otherwise) shall be solely for Landlord's
protection and, except as may otherwise be expressly provided in this
Lease, shall create no warranties or duties to Tenant or to third parties.
10.2 Alterations By Landlord.
Landlord may, without the same constituting an eviction of Tenant and
without incurring any liability to Tenant, from time to time (i) make
repairs, changes, additions, decorations, improvements and restorations to
the Building (including the Premises), Common Areas arid the Building
Systems, including, without limitation, those Building Systems necessary to
provide the services described in Section 5, (ii) install, erect, use,
maintain, repair and replace pipes, ducts, cables and conduits in and
through the Premises, provided, however, that Landlord shall, to the extent
reasonably practicable conceal or camouflage the same in or along walls,
ceilings or columns, (iii) change the arrangement, number and/or location
of public entrances, passageways, lobbies, doors, corridors, elevators,
stairs, toilets or other public parts of the 5, Building and (iv) impose
such controls as Landlord deems necessary with respect to access to the
Building by Tenant's guests and visitors, and for such purposes Landlord
may enter the Premises in accordance with the provisions of Section 9.3 of
this Lease. Subject to Landlord's compliance with requirements of Law, no
permanent change, addition or improvement made by Landlord shall (a)
materially impair access to the Premises, (b) materially reduce the usable
area of the Premises, (c) materially and adversely interfere with Tenant's
normal use of the Premises for the Use or (d) materially and adversely
interfere with the appearance of any approved Alterations Tenant shall have
installed in the Premises. Nothing contained in this Section 10.2 shall be
deemed to relieve Tenant of any duty, obligation or liability of Tenant
under this Lease to make any repair, replacement or improvement or comply
with any Laws.
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11. LIENS.
11.1 Tenant agrees to pay before delinquency all costs for work,
services or materials furnished to Tenant or any person claiming through
Tenant for the Premises, the nonpayment of which could result in any lien
against the Land, Building or Premises. Tenant will keep title to the Land,
Building and Premises free and clear of any such lien. Tenant will
immediately notify Landlord of the filing of any such lien or any pending
claims or proceedings relating to any such lien and will indemnify and hold
Landlord harmless from and against all loss, damages and expenses
(including reasonable attorneys' fees) suffered or incurred by Landlord as
a result of such lien, claims and proceedings. In case any such lien
attaches, Tenant agrees to cause it to be released and removed of record by
bonding or otherwise within thirty (30) days after the notice of the filing
of such lien shall have been given to Tenant (failing which Landlord may do
so at Tenant's sole expense), unless Tenant has a good faith dispute as to
such lien in which case Tenant may contest such lien by appropriate
proceedings so long as Tenant deposits with Landlord a bond or other
security in an amount reasonably acceptable to Landlord which may be used
by Landlord to release such lien. Upon final determination of any permitted
contest, Tenant will immediately pay any judgment rendered and cause the
lien to be released of record.
11.2 Nothing in this Lease shall be deemed or construed in any way as
constituting the consent or request of Landlord, express or implied, to any
contractor, subcontractor, laborer or materialman for the performance of
any labor or the furnishing of labor or materials for the specific
improvement, alteration to or repair of the Premises or any part thereof,
nor as giving Tenant any right, power or authority to contract for or
permit the rendering of any services or the furnishing of any material that
would give rise to the filing of any liens against the Land, Building,
Premises or any part thereof. Notice is hereby given that Landlord shall
not be liable for any work performed or to be performed at the Premises for
Tenant or any subtenant, or for any material furnished or to be furnished
at the Premises for Tenant or any subtenant upon credit, and that no
mechanic's or other lien for such work or material shall attach to or
affect the estate or interest of Landlord in and to the Land, Building or
Premises. Landlord shall have the right to post and keep posted on the
Premises any notices which Landlord
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reasonably may be required to post for the protection of Landlord the Land,
Building and/or the Premises from any lien.
12. INSURANCE.
12.1 Landlord's Insurance.
During the Term, Landlord shall provide and keep in force the following
insurance:
(a) commercial general liability insurance relating to Landlord's
operation of the Building, for personal and bodily injury and death, and
damage to others' property; and
(b) fire insurance (including standard extended coverage endorsement
perils, leakage from fire protective devices and other water damage)
relating to the Land and Building (but excluding Tenant's fixtures,
furnishings, equipment, personal property, documents, files, inventory,
stock-in-trade and work products and all leasehold improvements and
Alterations in the Premises); and
(c) loss of rental income insurance or loss of insurable gross profits
commonly insured against by prudent landlords of comparable buildings; and
(d) such other insurance (including boiler and machinery insurance) as
Landlord reasonably elects to obtain or any Building mortgagee requires.
Insurance effected by Landlord under this Section 12.1 will be in amounts
which Landlord from time to time reasonably determines sufficient as being
customarily carried by owners of comparable office buildings in midtown
Manhattan or any Building mortgagee requires; will be subject to such
deductibles and exclusions as Landlord reasonably determines; will, in the
case of insurance under Sections 12.1 (b), (c) and (d), permit the release
of Tenant from certain liability under Section 14.1 (as long as such
permission can be obtained without material additional cost and without
rendering void the protection afforded by the policy); and will otherwise
be on such terms and conditions as Landlord from time to time reasonably
determines sufficient. Tenant acknowledges that Landlord's loss of rental
income insurance policy provides that payments by the insurer may be
limited to a period of one year following the date of any damage or
destruction and that no
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insurance proceeds will be payable in the case of damage or destruction
caused by an occurrence not included in the policies described in Sections
12.1(b), (c) and (d).
12.2 Tenant's Insurance.
12.2.1. During the Term, Tenant shall provide and keep in force the
following insurance:
(a) commercial general liability insurance relating to Tenant's
business carried on, in or from the Premises and Tenant's use and occupancy
of the Premises, insuring against loss due to personal or bodily injury or
death and damage to property (including, without limitation, contractual
liability insurance), with limits of not less than the Liability Insurance
Amount for any one accident or occurrence; and
(b) all risk or fire insurance (including standard extended
endorsement perils, leakage from fire protective devices and other water
damage) insuring Tenant's fixtures, furnishings, equipment, documents,
files, work products, inventory, stock-in-trade and all leasehold
improvements and Alterations in the Premises on a full replacement cost
basis in amounts sufficient to prevent Tenant from becoming a co-insurer
and subject only to such deductibles and exclusions as Landlord may
reasonably approve; and
(c) if any boiler or machinery is operated in the Premises, boiler and
machinery insurance.
12.2.2 Landlord, Landlord's managing agent, the holder of any
Encumbrance and such additional parties as Landlord shall reasonably
designate shall be named as additional insureds in the policy described in
Section 12.2.1(a). All of the insurance policies required to be maintained
by Tenant under this Section 12 shall (a) include cross liability and
severability of interests clauses, (b) be written on an "occurrence" (and
not a "claims made") form and (c) provide that Tenant's insurance shall be
primary and not contributing to or with or be in excess of any other
insurance maintained by Landlord or any other additional insured. Landlord
and the holder of any Encumbrance shall be named as a loss payee, as its
interest may appear, in the policies described in Sections 12.2.1 (b) and
(c), and such policies shall comply with the provisions of Section 14.1
below. Tenant's insurance
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policies shall otherwise be upon such other terms and conditions as
Landlord from time to time reasonably requires and shall be issued by
insurance companies reasonably satisfactory to Landlord and which are
licensed to do business in the State of New York. Tenant shall furnish to
Landlord, on or before the Commencement Date and at least 30 days before
the expiration date of any expiring policy, either copies of current
policies or certificates evidencing such policies, or such other proofs as
may be reasonably required to establish Tenant's insurance coverage in
effect from time to time and the payment of all premiums thereon. If Tenant
shall fail to maintain any required insurance or pay any premiums thereon,
or to furnish satisfactory proof of such insurance to Landlord as required,
Landlord may, upon not less than 24-hours' notice, effect such insurance
coverage and recover from Tenant on demand any premiums paid by Landlord.
12.2.3 Whenever, in Landlord's reasonable judgment, good business
practice and changing conditions indicate a need for additional or
different types of insurance coverage, Tenant shall, upon Landlord's
request, promptly obtain such insurance coverage, at Tenant's expense,
provided that Landlord shall then require such insurance coverage from a
majority of tenants in the Building.
13. DAMAGE OR DESTRUCTION.
13.1 Termination Options.
13.1.1 If the Premises or any other portion of the Building necessary
for Tenant's occupancy of the Premises shall be damaged by fire or other
casualty, Landlord shall, promptly after learning of such damage, notify
Tenant in writing of the time necessary to demolish all damaged portions of
the Premises and repair or restore the Premises and such portions of the
Building as are necessary for Tenant's occupancy of the Premises as nearly
as practicable to the condition existing prior to such fire or other
casualty, excluding the repair and restoration of any and all leasehold
improvements, Alterations, trade fixtures, furnishings, equipment and
personal property of Tenant in the Premises (such demolition, repair and
restoration work being hereinafter referred to as "Landlord's Restoration
Work"), as estimated by a reputable architect, engineer or contractor
selected by Landlord (the "Estimate").
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13.1.2 If the Estimate shall state that Landlord's Restoration Work
cannot be completed within one (1) year from the date of such damage (or
within 60 days from the date of such damage if such damage shall have
occurred within the last 12 months of the Term), then Tenant shall have the
option to terminate this Lease by giving Landlord notice thereof within ten
(10) days after Landlord shall have given Tenant the Estimate.
13.1.3 If all or any part of the Premises or the Building is damaged
or destroyed by fire or other casualty, and (a) the Building is so damaged
(whether or not the Premises shall have been damaged) that Landlord shall
elect not to restore or repair such damage to the Building, or (b) such
damage is not insured against by the insurance policies required to be
maintained' by Landlord according to Section 12.1, or (c) the Estimate
shall state that Landlord's Restoration Work cannot be completed within one
(I) year after the date of such damage, or (d) such damage shall have
occurred within the last twelve (12) months of the Term and the Estimate
shall state that the repair or restoration of the damage to the Premises or
to any other portion of the Building necessary for Tenant's occupancy
cannot be completed within sixty (60) days from the date of such damage,
then, in any of such events, Landlord shall have the right, at its option,
to terminate this Lease by giving notice thereof to Tenant within ninety
(90) days after the date on which such fire or other casualty shall have
occurred.
13.1.3 If either party shall exercise its option to terminate this
Lease pursuant to the provisions of this Section 13.1, the Term shall
expire and this Lease will terminate thirty (30) days after Landlord or
Tenant, as the case may be, shall have given the other party such notice of
termination, as if such date were the Expiration Date (provided, however,
that Rent payable for the period commencing on the date of such damage and
ending on the date on which this Lease shall terminate shall be subject to
any abatement provided for in Section 13.3 below) and Landlord shall be
entitled to all proceeds of the insurance policy described in Section
12.2(b) applicable to any damaged leasehold improvements or Alterations in
the Premises.
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13.2 Repair Obligations.
If the Premises or the Building are damaged by fire or other casualty and
neither party shall terminate this Lease pursuant to the provisions of
Section 13.1, then Landlord shall promptly commence and diligently
prosecute Landlord's Restoration Work out of the net proceeds of insurance
received by Landlord, subject to delays for insurance adjustments and
delays caused by matters beyond Landlord's reasonable control. Landlord
shall have no liability to Tenant, including any liability for
inconvenience or annoyance or injury to the business of Tenant, resulting
in any way from damage from fire or other casualty or the repair thereof.
Tenant shall not be entitled to terminate this Lease if any required
repairs or restoration are not in fact completed within the time period set
forth in the Estimate, provided that Landlord promptly commences and
diligently pursues such repairs and restoration to completion, subject to
the provisions of this Section 13. In no event will Landlord be obligated
to repair, restore or replace any of the improvements, Alterations,
fixtures, furnishings, equipment or personal property required to be
insured by Tenant according to Section 12.2; Tenant agrees to repair,
restore or replace such improvements, Alterations, fixtures, furnishings,
equipment and personal property as soon as possible after the date of such
fire or other casualty, to at least the condition existing prior to its
damage, using materials at least equal to Building standard. However, in
connection with the performance of Landlord's Restoration Work, Landlord
may, at its option, elect to repair and restore the damage, if any, caused
to any or all of the leasehold improvements and/or Alterations required to
be insured by Tenant according to Section 12.2(b). If Landlord shall make
such election, Landlord shall be entitled to all proceeds of the insurance
policy described in Section 12 2(b) applicable to the leasehold
improvements and Alterations Landlord so elects to repair or restore.
Landlord and Tenant shall cooperate with each other. in their respective
efforts to collect insurance proceeds.
13.3 Rent Abatement.
If all of the Premises shall be damaged or destroyed or rendered
untenantable by any fire or other casualty, then the Rent shall abate, and
if only a portion of the Premises shall have been damaged or destroyed or
rendered untenantable, the Rent shall be reduced by an amount which bears
the same ratio to the total amount of Rent otherwise
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payable under this Lease as the portion of the Premises which shall have
been damaged or rendered untenantable bears to the entire Premises, in
either case for the period beginning on the date of such damage and ending
on (x) the date on which Landlord shall have substantially completed
Landlord's Restoration Work in accordance with Section 13.2 or (y) if
Landlord shall have elected to repair and restore any leasehold
improvements and Alterations in the Premises pursuant to the provisions of
Section 13.2, the date on which Landlord shall have substantially completed
both of Landlord's Restoration Work and such leasehold improvements and
Alterations; provided, however, that if Landlord shall not have elected to
repair and restore the damage, if any, caused to the leasehold improvements
or Alterations required to be insured by Tenant according to Section
12.2(b), then such abatement shall end on the earlier of the date on which
(i) Tenant shall have substantially completed the repair and restoration of
such leasehold improvements and Alterations as .nearly as practicable to
the condition existing immediately prior to such fire or other casualty, or
(ii) the ninetieth (90) day after the date on which Landlord shall have
substantially completed Landlord's Restoration Work. In no event will
Landlord be liable for any inconvenience or annoyance to Tenant or injury
to the business of Tenant resulting in any way from damage caused by fire
or other casualty or the repair of such damage, provided however that, to
the extent Tenant remains in possession of a portion of the Premises,
Landlord will take all reasonable steps to minimize the disruption to
Tenant's business and use of such portion of the Premises during the period
of repair (other than using labor at overtime or premium pay rates).
13.3 Fire Wardens.
Tenant shall throughout the Term provide fire wardens and searchers as
required under NYC Local Law No. 5. of 1973, as heretofore and/or hereafter
amended.
13.4 Express Agreement Regarding Casualty.
This Lease shall be considered an express agreement governing any case of
damage to or destruction of the Building or any part thereof by fire or
other casualty, and Section 227 of the Real Property Law of the State of
New York providing for a contingency in the absence of express agreement
and any other law of like import now or hereafter in force, shall have no
application in such case.
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14. WAIVERS AND INDEMNITIES.
14.1 Mutual Waiver Of Subrogation Rights.
14.1. Landlord shall cause each property insurance policy carried by
Landlord insuring the Building against loss, damage, or destruction by fire
or other casualty, and Tenant shall cause each property insurance policy
carried by Tenant and insuring the Premises and Tenant's Alterations,
leasehold improvements, equipment, furnishings, fixtures and contents
against loss, damage, or destruction by fire or other casualty, to be
written in a manner so as to provide that the insurance company waives all
rights of recovery by way of subrogation against Landlord or Tenant in
connection with any loss or damage covered by any such policy, even though
such loss, damage or destruction might have been occasioned by the
negligence of Landlord, Tenant or their respective agents, employees,
contractors, invitees and/or permitted subtenants or other occupants.
Neither party shall be liable to the other for the amount of such loss or
damage which is in excess of the applicable deductible, if any, caused by
fire or any of the risks enumerated in its policies, provided that such
waiver was obtainable at the time of such loss or damage. However, if such
waiver cannot be obtained, or shall be obtainable only by the payment of an
additional premium charge above that which is charged by companies carrying
such insurance without such waiver of subrogation, then the party
undertaking to obtain such waiver shall notify the other party of such fact
and such other party shall have a period of ten (10) days after the giving
of such notice to agree in writing to pay such additional premium if such
policy is obtainable at additional cost (in the case of Tenant, pro rata in
proportion of the rentable square feet in the Area of the Premises to the
total rentable area covered by such insurance); and if such other party
does not so agree or the waiver shall not be obtainable, then the
provisions of this Section 14.1 shall be null and void as to the risks
covered by such policy for so long as either such waiver cannot be obtained
or the party in whose favor a waiver of subrogation is desired shall refuse
to pay the additional premium. If the release of either Landlord or Tenant,
as set forth in the second sentence of this Section 14.1, shall contravene
any law with respect to exculpatory agreements, the liability of the party
in question shall be deemed not released, but no action or rights shall be
sought or enforced against such party unless and until all
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rights and remedies against the other's insurer are exhausted and the other
party shall be unable to collect such insurance proceeds. The waiver of
subrogation set forth in this Section 14.1 shall extend to the benefit of
the agents, Affiliated Parties (as defined in Section 14.2 below) and
employees of each party, but only if and to the extent that such waiver can
be obtained without additional charge (unless the party to be benefited
shall pay such charge). Nothing contained in this Section 14.1 shall be
deemed to relieve either party from any duty imposed elsewhere in this
Lease to repair, restore and rebuild. In the event of any permitted
sublease or occupancy (by a person other than Tenant) of all or a portion
of the Premises, all of Tenant's covenants and obligations set forth in
this Section 14.1 shall bind and be fully applicable to the subtenant or
occupant (as if such subtenant or occupant were Tenant hereunder) for the
benefit of Landlord and Landlord's agents.
14.2 Definition Of Affiliated Parties.
For purposes of this Section 14, the term "Affiliated Parties" shall mean a
party's parent, subsidiaries and affiliated corporations and its and their
partners, ventures, members, directors, officers, shareholders, agents,
servants and employees.
14.3 Tenant's Waivers.
Except to the extent caused by the willful or negligent act or omission or
breach of this Lease by Landlord or anyone for whom Landlord is legally
responsible, Landlord, its Affiliated Parties and the holder of any
Encumbrance will not be liable or in any way responsible for, and Tenant
waives all claims against Landlord, its Affiliated Parties and the holder
of any Encumbrance for any loss, injury or damage suffered by Tenant or
others relating to (a) loss or theft of, or damage to, property of Tenant
or others; (b) injury or damage to persons or property resulting from fire,
explosion, falling plaster, escaping steam or gas, electricity, water, rain
or snow, or leaks from any part of the Building or from any pipes,
appliances or plumbing, or from dampness; or (c) damage caused by other
tenants, occupants or persons in the Premises or other premises in the
Building, or caused by the public or by construction of any private or
public work. Tenant's waivers under this Section 14.3 will survive the
expiration or early termination of the Term.
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14.3 Indemnity.
14.3.1 Subject to Section 14:1 and except to the extent caused by the
willful or negligent act or omission or breach of this Lease by Landlord or
anyone for whom Landlord is legally responsible, Tenant shall defend,
indemnify and hold Landlord, Landlord's managing agent, the holder of any
Encumbrance and their respective partners (disclosed and undisclosed),
principals, members, directors, officers, shareholders, agents, servants
and employees (any or all of the foregoing hereinafter referred to as the
"Indemnified Parties") harmless from and against any and all liability,
loss, claims, demands, damages or expenses (including reasonable attorneys'
fees, disbursements and court costs) due to or arising out of (a) any
accident, injury or damage occurring on or about the Premises (including,
without limitation, accidents, injury or damage resulting in injury to
persons, death, property damage or theft) during the Term or during any
period of time prior to or after the Term that Tenant or anyone claiming
through Tenant shall have been in possession of the Premises; (b) any act,
omission or negligence of Tenant or any one claiming through or under
Tenant and any of their agents, contractors, employees, servants, licensees
or visitors; (c) any accident, injury or damage whatsoever caused to any
person or to the property of any person outside of the Premises but
anywhere within or about the Building, where such accident, injury or
damage results or is claimed to have resulted from any act, omission or
negligence of Tenant or any one claiming through or under Tenant or of any
of their respective contractors, licensees, agents, servants, employees,
invitees or visitors and (d) any breach, violation or non-performance of
any of the terms, covenants or conditions to be observed or performed by
Tenant under this Lease. Tenant's obligations under this Section 14.3 shall
survive the expiration or earlier termination of the Term.
14.3.2 If any claim, action or proceeding shall be brought against any
of the Indemnified Parties for a matter covered by the indemnity set forth
in this Section, Tenant, upon notice from the Indemnified Party, shall
defend such claim, action or proceeding by counsel reasonably acceptable to
the Indemnified Party, at Tenant's expense. Counsel for Tenant's insurer is
hereby approved. Notwithstanding the foregoing, the Indemnified Party may
retain its own counsel to assist in the defense of any claim having a
potential liability in excess of $1,000,000,
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and Tenant shall pay the reasonable fees of such attorneys. No such claim,
action or proceeding shall be settled by Tenant without the consent of
Landlord unless such settlement shall be at no cost to Landlord.
15. CONDEMNATION.
15.1 Full Taking.
If all or substantially all of the Building or Premises are taken for any
public or quasi-public use under any applicable Laws or by right of eminent
domain, or are sold to the condemning authority in lieu of condemnation,
then this Lease will terminate as of the earlier of the date on which the
condemning authority takes physical possession of or title to the Building
or Premises.
15.2 Partial Taking.
15.2.1 Landlord's Termination of Lease. If only part of the Building
or Premises is thus taken or sold, and if after such partial taking, in
Landlord's reasonable judgment, alteration or reconstruction is not
economically justified, then Landlord (whether or not the Premises are
affected) may terminate this Lease by giving written notice to Tenant
within 60 days after the taking.
15.2.2 Tenant's Termination. If over 20% of the Premises is thus taken
or sold and Landlord is unable to provide Tenant with comparable
replacement premises in the Building, Tenant may terminate this Lease if in
Tenant's reasonable judgment the Premises cannot be operated by Tenant in
an economically viable fashion because of such partial taking. Such
termination by Tenant must be exercised by written notice to Landlord given
not later than 60 days after Tenant is notified of the taking of the
Premises.
15.2.3 Effective Date of Termination. Termination by Landlord or
Tenant will be effective as of the date when physical possession of the
applicable portion of the Building or Premises is taken by the condemning
authority.
15.2.4 Election to Continue Lease. If neither Landlord nor Tenant
elects to terminate this Lease upon a partial taking of a portion of the
Premises, the Rent payable under this Lease will be diminished by an amount
allocable to the
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portion of the Premises which was so taken or sold. If this Lease is not
terminated upon a partial taking of the Building or Premises, Landlord
will, at Landlord's sole expense, promptly restore and reconstruct the
Building and Premises to substantially their former condition to the,
extent the same is feasible. However, Landlord will not be required to
spend for such restoration or reconstruction an amount in excess of the net
amount received by Landlord as compensation or damages for the part of the
Building or Premises so taken.
15.3 Awards.
As between the parties to this Lease, Landlord will be entitled to receive,
and Tenant assigns to Landlord, all of the compensation awarded upon taking
of any part or all of the Building or Premises, including any award for the
value of the unexpired Term. However, Tenant may assert a claim in a
separate proceeding against the condemning authority for the value of
Tenant's trade fixtures or personal property, the cost of moving and other
business relocation expenses and damages to Tenant's business incurred as a
result of such condemnation provided that the foregoing shall not reduce
the award payable to Landlord.
16. ASSIGNMENT AND SUBLETTING.
16.1 Limitation.
Without Landlord's prior written consent, Tenant shall not assign (by
operation of law or otherwise), mortgage, pledge, encumber or otherwise
transfer all or any of its interest under this Lease, sublet all or any
part of the Premises or permit the Premises to be used or occupied by any
party other than Tenant and its employees, .
16.2 Notice Of Proposed Transfer; Landlord's Options.
16.2.1 (a) If Tenant shall desire to (x) sublet all or substantially
all of the Premises or (y) assign Tenant's interest in this Lease, Tenant
shall submit to Landlord, prior to offering all or any such portion of the
Premises for subletting or offering to assign Tenant's interest in this
Lease, as the case may be, a notice (the "Notice of Intention") of Tenant's
intention to sublet all or a portion of the Premises or assign this Lease,
as the case may be, which notice shall set forth (a) the effective date of
the proposed assignment, if Tenant shall desire to assign Tenant's interest
in this Lease, or (b) the term of
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the proposed subletting, if Tenant shall desire to sublet all or part of
the Premises, and if Tenant desires to sublet a portion of the Premises, a
floor plan showing the portion to be sublet.
(b) (ii) If Tenant shall propose to sublet all or substantially all of
the Premises or assign Tenant's interest in this Lease, then Landlord shall
have the right-:by notice (the "Termination Notice") given to Tenant within
thirty (30) days following Landlord's receipt of the Notice of Intention,
to terminate this Lease on a date to be specified in the Termination
Notice, which date (the "Termination Date") shall be the later of (i) the
effective date of the proposed subletting or assignment, or (ii) the
sixtieth (60th) day after the date of the Termination Notice, whereupon the
Term of this Lease shall expire on the Termination Date with the same force
and effect as if such date were originally provided herein as the
Expiration Date of the Term hereof.
(ii) if Tenant shall propose to sublet a portion of the Premises, then
Landlord shall have the right, by notice (the "Elimination Notice") given
to Tenant within thirty (30) days following Landlord's receipt of the
Notice of Intention, to eliminate such portion of the Premises (the
"Eliminated Space") from the Premises for a period (the "Elimination
Period") commencing on the later to occur of (i) the effective date of the
proposed subletting, or the (ii) sixtieth (60th) day after the date of the
Elimination Notice (the "Elimination Date"), and ending on the expiration
date of the proposed subletting (the "Elimination Period") and in the event
such Elimination Notice shall be given: (1) the Eliminated Space shall be
eliminated from the Premises for the Elimination Period; (2) Tenant shall
surrender the Eliminated Space to Landlord on or prior to the Elimination
Date in the same manner as if said Elimination Date were the Expiration
Date; (3) Landlord shall have the right to make any Alterations in the
Premises which shall, in Landlord's reasonable judgment, be required to
make the Eliminated Space a self-contained rental unit with access through
corridors to the elevators and core toilets serving the Eliminated Space
(it being agreed that Landlord shall use reasonable efforts to minimize
interference with Tenant's use of the Premises caused by the performance of
such Alterations), and if the Premises shall contain any core toilets or
any corridors (including any corridors that may
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have to be constructed by Landlord pursuant to this clause (3)) providing
access from the Eliminated Space to the care area, Landlord and any tenant
or other occupant of the Eliminated Space shall have the right to use such
toilets and corridors in common with Tenant and any other permitted
occupants of the Premises, and shall have the right to install signs and
directional indicators in or about such corridors indicating the name and
location of such tenant or other occupant; (4) (a) the Base Rent shall be
reduced during the Elimination Period by the proportion which the number of
rentable square feet contained in the Area of the Eliminated Space
(calculated, for the purposes of determining the number of rentable square
feet contained in the Eliminated Space, in the same manner in which the
number of rentable square feet contained in the Area of the Premises was
determined) bears to the number of rentable square feet contained in the
Area of the Premises immediately prior to the Elimination Date (the
"Elimination Proportion"); and (b) the Additional Rent payable pursuant to
Section 4 hereof shall be reduced during the Elimination Period by the
Elimination Proportion. At the request of Landlord, Tenant shall execute
and deliver an instrument or instruments in form reasonably satisfactory to
Landlord, setting forth any modifications to this Lease contemplated in or
resulting from the operation of the foregoing provisions of this Section
16.2.1(b); however, neither Landlord's nor Tenant's failure to execute or
deliver any such instruments shall vitiate the effect of the foregoing
provisions of this Section 162.1(b).
(c) If, within thirty (30) days following Landlord's receipt of a
Notice of Intention, Landlord shall not have exercised the foregoing right
to terminate this Lease or eliminate the Eliminated Space, then Landlord's
right to so terminate this Lease or eliminate the Eliminated Space pursuant
to this Section 16.2 shall be deemed waived, but only with respect to the
particular subletting or assignment referred to in such Notice of
Intention.
(d) if Tenant shall not consummate an assignment of this Lease or a
subletting of all or such portion of the Premises as shall have been
specified in Tenant's Notice of Intention, as the case may be, within one
hundred eighty (180) days following Landlord's waiver (or deemed waiver) of
the above described termination and elimination rights, Tenant shall not
have the right to consummate such
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assignment or subletting without again complying with all of the provisions
of this Section 16.2.
16.3 Consent Not To Be Unreasonably Withheld.
If Landlord shall not exercise any of its applicable options under Section
16.2, then, provided that Tenant shall not be in default of any of Tenant's
obligations under this Lease, Landlord shall not unreasonably withhold or
delay its consent to a proposed assignment of this Lease or a proposed
subletting of the nature referred to in the Notice of Intention, provided
that each of the following conditions shall be satisfied:
(a) Tenant shall request Landlord's consent to the proposed assignment
or subletting in writing and such request shall be accompanied by, as the
case may be, (i) a statement setting forth the name and address of the
proposed assignee or subtenant and the nature of its business, (ii) the
proposed use of the Premises, (iii) financial statements prepared by an
independent certified public accountant containing the opinion of such
accountant reflecting the proposed assignee's or subtenant's current
financial condition and income and expenses for the past two (2) years, or
other evidence satisfactory to Landlord of the financial condition of the
proposed assignee or subtenant, and a fully executed copy of the proposed
assignment (which shall contain an assumption agreement complying with the
provisions of Section 16.4 below) or sublease, as the case may be. Tenant
shall also deliver to Landlord such other or additional information as
Landlord may reasonably request; and
(b) The proposed subtenant or assignee, in Landlord's reasonable
opinion, shall have sufficient financial capacity and business experience
to perform its obligations under the proposed sublease or, in the case of
an assignment, this Lease; and
(c) The use of the Premises by the proposed assignee or subtenant will
only be for purposes which, in Landlord's reasonable opinion, (i) are
lawful, (ii) are limited to the permitted Use of the Premises under this
Lease, (iii) are consistent with the general character of business carried
on by tenants of a first-class office buildings in midtown Manhattan and
with a majority of the tenants of the Building, (iv) do not conflict with
any exclusive rights or covenants not to compete in favor of any other
tenant or
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proposed tenant of the Building, (v) will not increase the likelihood of
damage Or destruction to the Building, (vi) will not cause an increase in
insurance premiums for insurance policies applicable to the Building, (vii)
will not require new tenant improvements incompatible with the
then-existing Building Systems and components and (viii) will not impose
any additional burdens or costs on Landlord in the operation of the
Building; and
(d) The proposed assignee or subtenant shall be reputable; and
(e) The proposed assignee or subtenant, or any person who directly or
indirectly controls, is controlled by, or is under common control with, the
proposed assignee or subtenant, at the time Tenant requests Landlord's
consent and at the time of the proposed transfer, shall not be a tenant or
occupant in the Building, nor a party with whom Landlord is then
negotiating or has within the past six (6) months negotiated for the
leasing of space in the Building; and
(f) The form of the proposed assignment or sublease shall comply with
the provisions of this Section 16 and shall be reasonably satisfactory to
Landlord in form and substance; and
(g) In addition to all of the foregoing, a sublease of a portion of
the Premises shall be subject to all of the following terms and conditions:
(i) The subleased premises shall be of a shape or configuration such
that the area proposed to be subleased and the remainder of the
Premises shall, in Landlord's reasonable judgment, constitute
commercially marketable separate rental units;
(ii) The subleased premises shall not be less than 2,000 square feet
and shall include at least one exterior window; and
(iii) There shall not be more than three (3) occupants of the Premises
at any time (including Tenant).
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16.4 Form Of Transfer.
16.4.1 All permitted subleases shall be subject to the following
provisions, and Landlord's consent to a proposed sublease will not be
effective or binding upon Landlord unless and until Tenant shall have
delivered to Landlord an original duly executed sublease that shall comply
with the following provisions:
(a) The term of the sublease shall end no later than one (1) day prior
to the Expiration Date of this Lease;
(b) Each sublease shall provide that (i) the sublease shall be subject
and subordinate to this Lease and to all matters to which this Lease is or
shall be subordinate, (ii) upon any termination of this Lease prior to the
date fixed as the Expiration Date, re-entry or repossession of the Premises
by Landlord under this Lease or surrender of the Premises with Landlord's
written consent, Landlord may, at its option, take over any of the right,
title and interest of Tenant, as sublessor, under such sublease, and such
subtenant shall, at Landlord's option, attorn and agree to be bound to
Landlord in accordance with the provisions of this Section 16, it being
agreed that Landlord shall nevertheless not be (1) liable for any previous
act or omission of Tenant (including any negligence of Tenant) as
sublandlord under the sublease, (2) subject to any credit, defense, offset,
claim or demand which may have previously accrued to the subtenant against
Tenant, (3) bound by any previous modification or amendment of such
sublease not consented to by Landlord or by any previous prepayment of more
than one (1) month's rent, (4) be obligated to perform any repairs or other
work beyond Landlord's obligations under this Lease or (5) liable for the
return of any security deposit except to the extent such sums have actually
been paid over to Landlord; it being understood and agreed that the
provisions of this Section 16.4.1(b) shall be self-operative, and that no
further instruments shall be required to give effect to this provision, but
that upon the request of Landlord, Tenant shall execute and deliver such
instruments to Landlord as Landlord shall reasonably request to confirm the
foregoing provisions; and
(c) Each sublease shall contain a provision requiring the subtenant to
comply with the provisions of Section 14.1 of this Lease, which provisions
shall be applicable to such
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subtenant as if such subtenant were the Tenant under this Lease.
16.4.2 No assignment shall be binding on Landlord, and Landlord's
consent to any proposed assignment of this Lease shall not be effective
until Tenant shall have delivered to Landlord a duly executed and
acknowledged original assignment and assumption agreement which shall
contain an assumption by the transferee of all of the terms, covenants,
conditions and agreements to be observed or performed by the Tenant under
this Lease, in form and substance reasonably satisfactory to Landlord.
16.5 Payments To Landlord.
16.5.1 If Landlord shall not exercise any of its options under Section
16.2 and shall give its consent to any sublease of all or part of the
Premises, Tenant shall, in consideration therefor, pay to Landlord, as
Rent, fifty (50%) percent of the amount by which any and all rents,
additional charges or other consideration payable to Tenant by the
subtenant under the sublease or any other agreement entered into in
connection therewith exceeds the Base Rent and Additional Rent payable
under this Lease accruing during the term of the sublease allocable to the
subleased space (including all sums paid for the sale or rental of Tenant's
fixtures, leasehold improvements, equipment, furniture, furnishings or
other personal property, less, in the case of the sale of any of Tenant's
furniture, fixtures or equipment, the then net unamortized or undepreciated
cost of any such fixtures, equipment, furniture, furnishings or other
personal property which were provided and installed in the subleased
premises at the sole cost and expense of Tenant and for which Landlord has
not given an allowance or other credit, determined on the basis of Tenant's
federal income tax returns), but after deducting from such rents,
additional charges or other consideration any Sublease Transaction Costs
(hereafter defined) actually incurred by Tenant. The sums payable under
this Section 16.5.1 shall be payable to Landlord as and when the same shall
be paid by the subtenant to Tenant. As used in this Section, "Sublease
Transaction Costs" shall mean any of the following sums actually incurred
by Tenant to consummate such sublease: (i) up to one and one-half brokerage
commissions at customary rates, (ii) reasonable attorneys' fees and
disbursements, (iii) any reasonable costs incurred by Tenant to separately
demise the subleased premises and
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(iv) any reasonable construction costs incurred by Tenant to prepare the
subleased premises for subtenant's occupancy thereof.
16.5.2 If Landlord shall not exercise any of its options under Section
16.2 above and shall give its consent to any assignment of Tenant's
interest in this Lease, Tenant shall, in consideration of such assignment,
pay to Landlord, as Rent, fifty (50%) percent of any and all sums and other
consideration payable to Tenant by the assignee for or by reason of such
assignment (including, but not limited to, all sums paid for the sale or
rental of Tenant's fixtures, leasehold improvements, equipment, furniture,
furnishings or other personal property less, in the case of the sale of any
of-Tenant's furniture, fixtures or equipment, the then net unamortized or
undepreciated cost of any such fixtures, equipment, furniture, furnishings
or other personal property which were provided and installed in the
Premises at the sole cost and expense of Tenant and for which Landlord has
not given an allowance or other credit, determined on the basis of Tenant's
federal income tax returns), but after deducting from such sums or other
consideration any Assignment Transaction Costs (hereafter defined) actually
incurred by Tenant. The sums payable under this Section 16.5.2 shall be
payable to Landlord as and when the same shall be paid by the assignee to
Tenant. As used in this Section, "Assignment Transaction Costs" shall mean
any of the following sums actually incurred by Tenant to consummate such
assignment: (i) up to one and one-half brokerage commissions at customary
rates, (ii) reasonable attorneys' fees and disbursements, and (iii) any
reasonable construction costs incurred by Tenant to prepare the Premises
for the assignee.
16.6 Change Of Ownership.
16.6.1 Any transfer of 51% or more of Tenant's assets or of Tenant's
stock, membership, partnership or other equity interests (including any
transfer by operation of law or by a series of transfers), and any other
direct or indirect transfer of interest effecting a change in the identity
of the persons exercising effective control of Tenant, shall be deemed an
"assignment" of this Lease requiring Landlord's prior written consent,
except as otherwise expressly provided in Sections 16.6.2 and 16.7 below.
The transfer of any outstanding capital stock of a corporation whose stock
is publicly-traded shall not,
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however, be deemed a "transfer of interest" under this Section 16.6.
16.6.2 (a) Supplementing the provisions of Section 16.6.1 hereof,
Tenant represents that, as of the date of this Lease, all of the issued and
outstanding shares of capital stock of Tenant are owned and held, with the
power to vote such stock, by [insert shareholders] (individually and
collectively, the "Shareholder"). If there shall occur one or more Stock
Transfers (as such term is defined in Section (b) of this Section 16.6.2),
pursuant to which the Shareholder shall own and hold, or have the power to
vote, in the aggregate, less than fifty-one (51%) percent of the total
issued and outstanding stock of Tenant (referred to hereinafter as a
"Controlling Stock Transfer"), the same shall (subject to the provisions of
Section (d) of this Section 16.6.2) be deemed a prohibited assignment of
Tenant's interest in this Lease unless Tenant obtains Landlord's prior
written consent thereto and otherwise complies with the provisions of this
Article 16 pertaining to an assignment of Tenant's interest under this
Lease.
(b) The term "Stock Transfer" shall mean and refer to any and all
transfers of the ownership of the respective shares of Tenant's voting
stock or any portion thereof or any and all transfers of the power to vote
such stock or any portion thereof, whether such transfer of stock ownership
or power to vote shall be effected by means of sale, assignment, bequest,
inheritance, operation of law, issuance of stock, pledge or other
encumbrance of stock, or otherwise.
(c) Tenant shall give Landlord not less than twenty (20) days prior
written notice of any intended Stock Transfer which would result in a
Controlling Stock Transfer, except that, in the case of an involuntary
Stock Transfer, Tenant shall not be deemed to have violated the foregoing
notice requirement if Tenant gives Landlord notice of such Stock Transfer
with ten (10) days-following the occurrence thereof. As part of the
required notice of any such Stock Transfer, Tenant shall include the names
of all of the new shareholders of the Tenant corporation (and, if such
shareholders shall consist of or include corporate or partnership entities,
the names and addresses of all of the shareholders, partners and/or
principals thereof), and (ii) the number and the percentage of the Tenant
corporation's stock held by each of said new shareholders,
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all as of the effective date of said Stock Transfer. From and after the
effective date of any Controlling Stock Transfer which is consented to by
Landlord, the information furnished to Landlord pursuant to clauses (i) and
(ii) of the immediately preceding sentence shall be deemed, for all
purposes under this Lease, to modify the information contained in said
clauses.
(d) Notwithstanding anything to the contrary contained in Section 16.6
of this Lease, the Shareholder(s) shall have the right without having to
obtain the consent of Landlord, and without the same constituting an
assignment hereunder, to transfer such Shareholder's stock in Tenant to any
of the following persons or entities (the Shareholder(s) and each of said
persons and entities are hereinafter collectively referred to as the
"Transferees"): any of the other Shareholders, the spouse, sibling, issue
or parent of any Shareholder or any trust for the benefit of any of such
parties, and each of the Transferees shall have the right, upon notice to
Landlord but without having to obtain Landlord's consent thereto, and
without the same constituting an assignment hereunder, to transfer such
Shareholder's stock in the Tenant to any of the other Transferees.
16.7 Permitted Transfers.
16.7.1 Provided that no Event of Default shall have occurred and
remain uncured, Tenant may, upon not less than ten (10) business days'
prior notice to Landlord, but without obtaining Landlord's consent, assign
this Lease or sublease all or any part of the Premises to an Affiliate of
Tenant (as defined in Section 16.7.3 below), for so long as such Affiliate
of Tenant shall remain an Affiliate of the Tenant initially named herein,
provided that (i) the Affiliate of Tenant shall continue to use the
Premises for the Use and for no other use and (ii) Tenant shall deliver a
duplicate original duly executed sublease or assignment and assumption
agreement evidencing such assignment or sublease to Landlord within ten
(10) days after the execution thereof, which instrument shall comply with
the provisions of Section 16.4 hereof. Notwithstanding any such assignment
or subletting, Tenant shall remain fully and primarily liable for the
obligations of the Tenant under this Lease. Any assignment or sublease
effected in accordance with the provisions of this Section 16.7 shall be
subject to all of the provisions of this Section 16
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(including, without limitation, Section 16.4), except that such assignment
or sublease shall not be subject to the provisions of Sections 16.2 and
16.5. If any time following an assignment or subletting to an Affiliate of
Tenant, such assignee or subtenant shall cease to be an Affiliate of
Tenant, then, (x) in the event of an assignment of this Lease, Tenant
shall, at least three (3) days prior to the date such assignee shall cease
to be an Affiliate of Tenant, assign this Lease back to the Tenant named
herein or to the entity which was the Tenant immediately prior to such
assignment to the Affiliate of Tenant and (y) in the event of a sublease of
all or any part of the Premises, Tenant shall, within three (3) days prior
to the date such subtenant ceases to be an Affiliate of Tenant, terminate
such sublease and, in either of said cases, cause the assignee or
subtenant, as the case may be, to vacate the Premises.
16.7.2 Provided that no Event of Default shall have occurred and
remain uncured, Tenant may, upon not less than ten (10) business days'
prior notice to Landlord, but without obtaining Landlord's consent, assign
this Lease to any corporation or other legal entity into or with which
Tenant may be merged or consolidated or to which Tenant shall sell all or
substantially all of its assets (hereinafter referred to as a "Corporate
Succession"), provided that: (i) the transferee shall have acquired all or
substantially all of the assets of Tenant and assumed all or substantially
all of the liabilities of Tenant and shall have a net worth (computed in
accordance with generally accepted accounting principles) equal to or
greater than Tenant immediately prior to such transfer (and certified
financial statements evidencing the same or other proof thereof in form and
substance reasonably satisfactory to Landlord shall have been furnished to
Landlord at the time at which Tenant shall give Landlord notice of such
proposed transfer), (ii) the transferee shall continue to use the Premises
for the Use and for no other use, (iii) the principal purpose of the
Corporate Succession shall not be the acquisition of Tenant's interest in
this Lease and (iv) the transferee shall have assumed all of the
obligations of Tenant under this Lease and a duly executed and acknowledged
duplicate original counterpart of such assumption agreement shall have been
given to Landlord not later than ten (10) days after the effective date
thereof. Any assignment effected in accordance with the provisions of this
Section 16.7 be subject to all of the provisions of
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this Section 16 (including, without limitation, Section 16.4), except that
such assignment shall not be subject to the provisions of Sections 16.2 and
16.5.
16.7.3 As used in this Section 16.7, the term "Affiliate of Tenant"
shall mean any person, corporation or other entity controlling, controlled
by or under common control with, Tenant or in which Tenant shall own at
least fifty-one (51%) percent of the voting interests (for purposes of this
definition, the word "control" and its related terms, including
"controlling," controlled by" and "under common control with," shall mean
the possession of the power to direct or cause the direction of the
management and policies of a person or entity, whether through the
ownership of voting securities, by contract, or otherwise).
16.8 Effect Of Transfers.
16.8.1 No subletting or assignment will release Tenant from any of its
obligations under this Lease unless Landlord, in Landlord's sole
discretion, agrees to the contrary in writing, and, in the event of a
permitted assignment or other transfer (other than a sublease), the
assignee or transferee shall be deemed to have assumed all of Tenant's
obligations under this- Lease and shall be jointly and severally liable
with Tenant for all of the obligations of the Tenant under this Lease.
Consent to one assignment or subletting will not be deemed a consent to any
subsequent assignment or subletting. In the event of any default by any
assignee or subtenant or any successor of Tenant in the performance of any
Lease obligation, Landlord may proceed directly against Tenant without
exhausting remedies, against such assignee, subtenant or successor. Any act
or omission of an assignee or subtenant or any person claiming under or
through any of them that violates this Lease shall be deemed a violation of
this Lease by Tenant. If this Lease shall be assigned or if the Premises
shall be sublet or occupied by anyone other than Tenant, whether or not in
violation of the provisions of this Lease, then Landlord may collect from
the assignee or transferee or, after an Event of Default shall have
occurred, from the subtenant, and Tenant hereby authorizes and directs such
party to pay to Landlord, all rent (whether or not denominated as Base
Rent, Additional Rent or otherwise), additional rent and other charges
payable pursuant to such instrument, with the net amount so
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collected applied to the Base Rent, Additional Rent and other charges
payable under this Lease, but no such acceptance of rent by Landlord from
any person other than Tenant will be deemed a waiver by Landlord of any
provision of this Section 16 (including, without limitation, Section 16.2
or 16.3) or an acceptance by Landlord of the assignee, transferee or
subtenant as a tenant, or a release of Tenant from the further performance
of the covenants and agreements to be performed by Tenant under this Lease.
16.8.2 The voluntary or other surrender of this Lease by Tenant or the
cancellation of this Lease by mutual agreement of Tenant and Landlord shall
not work a merger and, upon any termination of this Lease prior to the date
fixed as the Expiration Date for any reason, or any re-entry or
repossession of the Premises by Landlord under this Lease or any surrender
of the Premises with Landlord's written consent, Landlord shall have the
right, at Landlord's option, to take over all of the right, title and
interest of Tenant, as sublessor, in and to any and all subleases or such
of them as Landlord shall elect to take over and assume at the time of such
recovery of possession or termination. Tenant shall, upon the request of
Landlord, execute, acknowledge and deliver to Landlord such further
assignments and transfers as may be necessary to vest in Landlord the then
existing subleases and sublettings. If Landlord shall choose to take over
any such sublease, such election shall be exercised by notice to all known
subtenants in the Premises and such subtenants shall (a) be deemed to have
waived any right to surrender possession of the sublease space or to
terminate the sublease, (b) be bound to Landlord for the balance of the
term of the sublease and (c) attorn directly to Landlord under all of the
executory terms of this Lease, except that the rent shall be payable at the
rates set forth in the sublease and except that Landlord shall not be (i)
liable for any previous act, omission or negligence of Tenant, (ii) subject
to any credit, claim, defense or offset which may have previously accred to
the subtenant against Tenant, (iii) be bound by any previous modification
or amendment of the sublease made without Landlord's prior consent or by
any previous prepayment of more than one month's rent, (iv) be obligated to
perform any repairs or other work beyond Landlord's obligations under this
Lease or (v) liable for the return of any security deposit except to the
extent such sums have actually been paid over to Landlord. No further
instruments shall be required to give effect to
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this provision, but upon the request of Landlord, Tenant shall execute and
deliver such instruments to Landlord as Landlord shall reasonably request
to confirm the foregoing provisions and each subtenant shall execute and
deliver such instruments as Landlord may reasonably request to evidence
said attornment.
16.9 Miscellaneous.
16.9.1 Landlord's consent to an assignment or a sublease shall not
constitute Landlord's consent to any other or further assignment of this
Lease or to any further subletting of all or part of the Premises by Tenant
or anyone claiming through Tenant (or to the assignment of any sublease)
and shall not relieve Tenant from obtaining the prior written consent of
Landlord to any future assignment or sublease and otherwise complying with
all of the provisions of this Section 16, including, without limitation,
Section 16.2.
16.9.2 Any modification of a sublease to which Landlord shall have
consented shall constitute a new sublease subject to the provisions of this
Section 16.
16.9.3 Tenant shall pay to Landlord, as Rent, within fifteen (15) days
after demand, all reasonable out-of-pocket costs incurred by Landlord
(including reasonable legal fees and disbursements and the costs of making
any investigations as to the acceptability of any proposed assignee or
subtenant) in connection with a request by Tenant that Landlord consent to
any proposed assignment or sublease.
16.9.4 In the event of any permitted assignment of Tenant's interest
in this Lease, the terms, covenants and conditions of this Lease may be
changed, altered or modified in any manner whatsoever by Landlord and the
assignee without the consent thereto of assignor Tenant, and no such
change, alteration or modification shall release assignor Tenant from the
performance by it of any of the terms, covenants and conditions on its part
to be performed under this Lease.
17. PERSONAL PROPERTY.
17.1 Removal.
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All personal property, trade fixtures and furnishings installed in the
Premises by Tenant at Tenant's cost, other than those affixed to the
Premises so that they cannot be removed without damage and other than those
replacing an item theretofore furnished and paid for by Landlord or for
which Tenant has received a credit or allowance (a) may be removed from the
Premises from time to time in the ordinary course of Tenant's business or
in the course of making any Alterations to the Premises permitted under
Section 10.1, and (b) will be removed by Tenant at the end of the Term in
accordance with Section 3.4. Tenant will promptly repair, at its expense,
any damage to the Building resulting from the installation or removal of
Tenant's personal property in or from the Premises.
17.2 Responsibility.
Tenant will be solely responsible for all costs and expenses related to
personal property used or stored in the Premises. Tenant will pay any taxes
or other governmental impositions levied upon or assessed against such
personal property, or upon Tenant for the ownership or use of such personal
property, on or before the due date for payment. Such personal property
taxes or impositions are not included in Taxes.
18. ESTOPPEL CERTIFICATES.
Promptly upon Landlord's request after the Commencement Date, Tenant will
execute and deliver to Landlord an Occupancy Estoppel Certificate in the
form of Exhibit C. In addition, Tenant agrees that at any time and from
time to time (but on not less than 10 days' prior request by Landlord),
Tenant will execute, acknowledge and deliver to Landlord a certificate
indicating any or all of the following: (a) the Commencement Date and
Expiration Date; (b) that this Lease is unmodified and in full force and
effect (or, if there have been modifications, that this Lease is in full
force and effect, as modified, and stating the date and nature of each
modification); (c) the date, if any, through which Base Rent, Additional
Rent and any other Rent payable have been paid; (d) that no default by
Landlord, to the best of Tenant's knowledge, or Tenant exists which has not
been cured, except as to defaults stated in such certificate; if provided
such events have occurred, that Tenant has accepted the Premises and that
all improvements required to be made to the Premises by Landlord have been
completed according to this Lease; (g)
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that, except as specifically stated in such certificate, Tenant, and only
Tenant, currently occupies the Premises; and (h) such other matters as may
be reasonably requested by Landlord. Any such certificate may be relied
upon by Landlord and any prospective purchaser or present or prospective
mortgagee, deed of trust beneficiary or ground lessor of all or a portion
of the Building.
19. TRANSFER OF LANDLORD'S INTEREST; LIMITATIONS ON LANDLORD'S LIABILITY
19.1 Sale, Conveyance And Assignment.
Nothing in this Lease shall be construed to restrict Landlord's right to
sell, convey, assign or otherwise deal with the Building or Landlord's
interest under this Lease.
19.2 Effect Of Sale, Conveyance Or Assignment.
A sale, conveyance or assignment of the Building shall automatically
release Landlord from liability under this Lease from and after the
effective date of the transfer, except for any liability relating to the
period prior to such effective date; and Tenant shall look solely to
Landlord's transferee for performance of Landlord's obligations under this
Lease relating to the period after such effective date, it being understood
that from and after the date of such transfer, the term "Landlord" shall
only mean the transferee and the covenants and agreements of Landlord shall
thereafter be binding upon such transferee.
19.3 Limitations On Landlord's Liability
Any liability for damages, breach or nonperformance of this Lease by
Landlord, or arising out of the subject matter of, or the relationship
created by, this Lease, shall be collectible only out of Landlord's
interest in the Building and no personal liability has been assumed by, or
shall at any time be asserted against, Landlord, its parent and affiliated
corporations, its and their partners, venturers, directors, officers,
agents, servants and employees, or any of its or their successors or
assigns; all such liability, if any, being expressly waived and released by
Tenant.
20. RULES AND REGULATIONS.
Tenant agrees to faithfully observe and comply with the Rules and
Regulations set forth in Exhibit D and with all reasonable modifications
and additions to such Rules and
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Regulations (which will be applicable to all Building tenants) from time to
time adopted by Landlord and of which Tenant is notified in writing. If
there shall be any conflict between any such modification or addition and
any right expressly granted to Tenant under this Lease, the provisions of
this Lease shall control. Landlord's enforcement of the Rules and
Regulations will be nondiscriminatory, but Landlord will not be responsible
to Tenant for failure of any person to comply with the Rules and
Regulations.
21. TENANT'S DEFAULT AND LANDLORD'S REMEDIES.
21.1 Events Of Default
If any one or more of the following events ("Events of Default") shall
occur:
(a) Tenant shall fail to pay to Landlord the full amount of any Base
Rent or Additional Rent, or any other charge payable under this Lease by
Tenant to Landlord, on &:-before the date upon which the same shall first
become due and such failure shall continue for more than ten (10) days
after Landlord shall have given Tenant written notice thereof; or
(b) Tenant shall do anything or permit anything to be done, whether by
action or inaction, in breach of any covenant, agreement, term, provision
or condition of this Lease, or any Exhibit annexed hereto, on the part of
Tenant to be kept, observed or performed (other than a breach of the
character referred to in clause 21.1(a) above), and such breach shall
continue and shall not be fully remedied by Tenant within thirty (30) days
after Landlord shall have given to Tenant a notice specifying the same,
except in connection with a breach which cannot be remedied or cured within
said thirty (30) day period, in which event the time of Tenant within which
to cure such breach shall be extended for such time (but not in excess of
sixty (60) days after Landlord shall have given Tenant such notice) as
shall be necessary to cure the same, but only if Tenant, within such
initial thirty (30) day period, shall promptly commence and thereafter
proceed diligently and continuously to cure such breach, and provided
further that such period of time shall not be so extended as to jeopardize
the interest of Landlord in the Land and/or the Building or so as to
subject Landlord to any liability, civil or criminal); or
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(c) Any event shall occur or any contingency shall arise whereby this
Lease or the estate hereby granted or the unexpired balance of the Term of
this Lease would, by operation of law or otherwise, devolve upon or pass to
*any person, firm, association or corporation other than Tenant, except as
may be expressly authorized herein; or
(d) Tenant shall desert or abandon the Premises, or the same shall
become vacant (whether or not the keys be surrendered, and whether or not
the rent be paid, and whether or not improvements, personal property or
trade fixtures remain in the Premises), or Tenant shall fail to take
possession or move into the Premises within fifteen (15) days after the
Commencement Date; or
(e) If Tenant shall commence or institute any case, proceeding or
other action (i) seeking relief on its behalf as debtor or to adjudicate it
a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts under any existing or future Law of
any jurisdiction, relating to bankruptcy, insolvency, reorganization or
relief of debtors, or (ii) seeking appointment of a receiver, trustee,
custodian or other similar official for it or for any part of its property;
or
(f) If Tenant shall make a general assignment for the benefit of
creditors;
(g) If any case, proceeding or other action shall be commenced or
instituted against Tenant (i) seeking to have an order for relief entered
against Tenant as debtor or to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts
under any existing or future Law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
(ii) seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any part of its property, which (x) results
in any such entry of an order for relief, adjudication of bankruptcy or
insolvency or such an appointment or the issuance or entry of any other
order having a similar effect, or (y) is not contested, in good faith, by
Tenant
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within 14 days of the date such case, proceeding or other action is
instituted (or such shorter time period as may be prescribed by local
bankruptcy rule, the bankruptcy court or other applicable law) or (z)
remains undismissed for a period of 90 days; then, upon the occurrence of
any of said events, Landlord may at any time thereafter give to Tenant a
notice of termination of the Term of this Lease setting forth a termination
date three (3) days from the date of the giving of such notice, and, upon
the giving of such notice, this Lease and the term and estate hereby
granted (whether or not the Term shall theretofore have commenced) shall
expire and terminate upon the expiration of said three (3) days with the
same effect as if that day were the date hereinbefore set for the
expiration of the Term of this Lease, but Tenant shall remain liable for
damages as provided in Section 21.3 below.
21.2 Landlord's Remedies
21.2.1 If an Event of Default shall have occurred, Landlord and/or
Landlord's agents and servants, whether or not the Term of this Lease shall
have been terminated pursuant to Section 21.1, may, without notice to
Tenant, immediately or at any time thereafter reenter into or upon the
Premises or any part thereof, either by summary dispossess proceedings or
by any suitable action or proceeding at law, or by force or otherwise, to
the extent legally permitted, without being liable to indictment,
prosecution or damages therefor, and may repossess the same, and may remove
any persons or property therefrom, to the end that Landlord may have, hold
and enjoy the Premises again as and of its first estate and interest
therein. The words "reenter" "reentry" and "reentered" as used in this
Lease are not restricted to their technical legal meanings. In the event of
any termination of this Lease under the provisions of Section 21.1, or in
the event that Landlord shall reenter the Premises under the provisions of
Section 21.2, or in the event of the termination of this Lease (or of
reentry) by or under any summary dispossess or other proceeding or action
or any provision of law, Tenant shall thereupon pay to Landlord the Base
Rent, Additional Rent and any other charges payable hereunder by Tenant to
Landlord up to the time of such termination of this Lease, or of such
recovery of possession of the Premises by Landlord, as the case may be,
plus the expenses incurred or paid by Landlord in terminating this Lease or
of reentering the Premises and securing possession thereof, including
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reasonable attorneys' fees and costs of removal and storage of Tenant's
property, and Tenant shall also pay to Landlord damages as provided in
Section 21.3 below.
21.2.2. In the event of the reentry into the Premises by Landlord
under the provisions of this Section 21.2, and if this Lease shall not be
terminated, Landlord may (but shall have absolutely no obligation to do
so), not in Landlord's own name, but as agent for Tenant, relet the whole
or any part of the Premises for any period equal to or greater or less than
the remainder of the original term of this Lease, for any sum which
Landlord may deem suitable, including rent concessions, and for any use and
purpose which Landlord may deem appropriate. Such reletting may include any
improvements, personalty and trade fixtures remaining in the Premises.
21.2.3 In the event of a breach or threatened breach on the part of
Tenant with respect to any of the covenants, agreements, terms, provisions
or conditions on the part of or on behalf of Tenant to be kept, observed or
performed, Landlord shall also have the right of injunction.
21.2.4. In the event of (i) the termination of this Lease under the
provisions of this Section 21, or (ii) the reentry of the Premises by
Landlord under the provisions of this Section 21.2, or (iii) the
termination of this Lease (or reentry) 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 deposit or otherwise, but such monies shall be credited by
Landlord against any Base Rent, Additional Rent or any other charge due
from Tenant at the time of such termination or reentry or, at Landlord's
option, against any damages payable by Tenant under Section 21.3 or
pursuant to law.
21.2.5 The specified remedies to which Landlord may resort under this
Lease are cumulative and concurrent and are not intended to be exclusive of
each other or of any other remedies or means of redress to which Landlord
may lawfully be entitled at any time, and Landlord may invoke any remedy
allowed under this Lease or at law or in equity as if specific remedies
were not herein provided for, and the exercise by Landlord of any one or
more of the remedies allowed under this Lease or in law or in equity shall
not
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preclude the simultaneous or later exercise by the Landlord of any or all
other remedies allowed under this Lease or in law or in equity.
21.3 Damages
21.3.1 In the event of any termination of this Lease under the
provisions hereof or under any summary dispossess or other proceeding or
action or any provision of law, or in the event that Landlord shall reenter
the Premises under the provisions of this Lease, Tenant shall pay to
Landlord as damages, at the election of Landlord, either:
(a) a sum which at the time of such termination of this Lease or at
the time of any such reentry by Landlord, as the case may be, represents
the then value of the excess, if any, of (i) the aggregate of the
installments of Base Rent and the Additional Rent (if any) which would have
been payable hereunder by Tenant, had this Lease not so terminated or had
Landlord not reentered the Premises, for the period commencing with such
earlier termination of this Lease or the date of any such reentry, as the
case may be, and ending with the date set forth initially for the
expiration of the full term of this Lease pursuant to Sections 1 and 2,
over (ii) the aggregate rental value of the Premises for the same period
(the amounts of each of clauses (i) and (ii) being first discounted to
present value at an annual rate of six (6%) percent); or
(b) sums equal to the aggregate of the installments of Base Rent and
Additional Rent (if any) which would have been payable by Tenant had this
Lease not so terminated, or had Landlord not so reentered the Premises,
payable upon the due dates therefor specified herein following such
termination or such reentry and until the Expiration Date originally set
forth in this Lease for the expiration of the Term; provided, however, that
if Landlord shall relet the 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 and of reentering the Premises
and of securing possession thereof, including reasonable attorneys' fees
and costs of removal and storage of Tenant's property, as well as the
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expenses of reletting, including repairing, restoring and improving the
Premises for new tenants, brokers' commissions, advertising costs,
reasonable attorneys' fees, and all other similar or dissimilar expenses
chargeable against the Premises and the rental therefrom in connection with
such reletting, it being understood that such reletting may be for a period
equal to or shorter or longer than the remaining term of this Lease;
provided further, that (1) in no event shall Tenant be entitled to receive
any excess of such net rents over the sums payable by Tenant to Landlord
hereunder, (2) in no event shall Tenant be entitled in any suit for the
collection of damages pursuant to this Subdivision (b) to a credit in
respect of any net rents from a reletting except to the extent that such
net rents are actually received by Landlord prior to the commencement of
such suit, and (3) if the Premises or any part thereof should be relet in
combination with other space, then proper apportionment on a square foot
area basis shall be made of the rent received from such reletting and of
the expenses of reletting, or if relet for a period longer than the
remaining Term of this Lease, the expenses of reletting shall be
apportioned based on the respective periods.
21.3.2. For the purposes of Section (a)(i) of Section 21.3.1, the
amount of Additional Rent which would have been payable by Tenant under
Sections 4 and 8 for each year ending after such termination of this Lease
or such reentry, shall be deemed to be an amount equal to the amount of
such Additional Rent payable by Tenant for the calendar year and Tax Year
ending immediately preceding such termination of this Lease or such
reentry. Suit or suits for the recovery of such damages, or any
installments thereof, may be brought by Landlord from time to time at
Landlord's election, and nothing contained herein shall be deemed to
require Landlord to postpone suit until the date when the term of this
Lease would have expired if it had not been terminated under the provisions
of this Section 21, or under any provision of law, or had Landlord not
reentered the Premises.
Section 21.4 Miscellaneous
21.4.1 Nothing contained in this Section 21 shall be construed as
limiting or precluding the recovery by Landlord against Tenant of any sums
or damages to which, in addition to the damages particularly provided
above,
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Landlord may lawfully be entitled by reason of any default under this Lease
on the part of Tenant. The failure or refusal of Landlord to relet the
Premises or any part or parts thereof, or the failure of Landlord to
collect the rent thereof under any reletting, shall not release or affect
Tenant's liability for damages.
21.4.2 Tenant, for Tenant, and on behalf of any and all persons
claiming through or under Tenant, including creditors of all kinds, does
here by waive and surrender all right and privilege which 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 for the term
hereby demised, after Tenant shall be dispossessed or ejected therefrom by
process of law or under the terms of this Lease or after the expiration or
termination of this Lease as herein provided or pursuant-to law. Tenant
also waives the provisions of any law relating to notice and/or delay in
levy of execution in case of an eviction or dispossess of a tenant for
non-payment of rent, and of any other law of like import now or hereafter
in effect. In the event that Landlord shall commence any summary proceeding
for non-payment of rent or for holding over after the termination of this
Lease, Tenant shall not, and hereby expressly waives any right to,
interpose any counterclaim of whatever nature or description in any such
proceeding, except to the extent that by failing to interpose such
counterclaim Tenant would be barred from asserting such counterclaim in a
separate action or proceeding.
21.4.3 If Landlord shall commence a summary proceeding against Tenant
for non-payment of rent, Tenant shall reimburse Landlord, as Rent,
Landlord's -attorneys' fees and expenses, both if judgment is awarded for
Landlord, or if Tenant makes the payment subsequent to service of process
but prior to entry of judgment.
21.4.4 Nothing contained in this Lease shall limit or prejudice
Landlord's right to prove and obtain as liquidated damages in any
bankruptcy, insolvency, receivership, reorganization or dissolution
proceeding, an amount equal to the maximum allowable by any Laws governing
such proceeding in effect at the time when such damages are to be proved,
whether or not such amount be greater, equal to or less than the amounts
recoverable, either as damages or Rent, under this Lease.
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21.4.5. Upon the occurrence of an Event of Default, Landlord shall be
entitled to exercise all of the rights set forth in this Section 21 above
(including the right to terminate this Lease), notwithstanding that this
Lease provides that Landlord may cure the default or otherwise perform the
obligation of Tenant which gave rise to such Event of Default, and
regardless of whether Landlord shall have effected such cure or performed
such obligation.
21.4.6 The failure of the Landlord to enforce Landlord's rights for
violation of, or to insist upon the strict performance of any covenant,
agreement, term, provision or condition of this Lease, or any of the rules
and regulations, shall not constitute a waiver thereof, and Landlord shall
have all remedies provided herein and by applicable law with respect to any
subsequent act which would have originally constituted a violation. The
receipt by Landlord of Base Rent and/or Additional Rent with knowledge of
the breach of any covenant, agreement or condition of this Lease shall not
be deemed a waiver of such breach.
21.4.7 The provisions of this Section 21 shall survive the expiration
or sooner termination of this Lease.
21.5 Landlord's Right To Cure
Landlord may, but shall not be obligated to, cure any default by Tenant
under this Lease at any time after notice and the lapse of any cure period
specified within the conditional limitation to which such default relates,
without giving further notice and without waiving such default; provided,
however, that (i) no notice or cure period shall be required to be given in
case of actual or suspected emergency and (ii) if any other provision of
this Lease shall permit Landlord to cure a default of Tenant under such
provision, then such notice and cure period as shall be specified in such
provision shall-control and the notice and cure period under Section 21.1
shall not be required to be given. Whenever Landlord so elects, all costs
and expenses incurred by Landlord in curing any such default, including
reasonable attorney's fees and disbursements, together with interest at the
lower of four (4%) percent above the then-current Prime Rate or the highest
rate permitted by law on the amount of the costs and expenses so incurred
commencing on the date such costs
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and expenses are paid by Landlord, shall be paid by Tenant to Landlord as
Rent within thirty (30) days after demand.
22. LANDLORD'S DEFAULT AND TENANT'S REMEDIES.
22.1 Default.
If Tenant believes that Landlord has breached or failed to comply with any
provision of this Lease applicable to Landlord, Tenant will give written
notice to Landlord describing the alleged breach or noncompliance. Landlord
will not be deemed in default under this Lease if Landlord cures the breach
or noncompliance within thirty (30) days after receipt of Tenant's notice
or, if the same cannot reasonably be cured within such thirty (30) day
period, if Landlord in good faith commences to cure such breach or
noncompliance within such period and then diligently pursues the cure to
completion. Tenant will also send a copy of such notice to the holder of
any Encumbrance of whom Tenant has been notified in writing, and such
holder will also have the right to cure the breach or noncompliance within
the period of time described above.
22.2 Remedies.
If Landlord breaches or fails to comply with any provision of this Lease
applicable to Landlord, and such breach or noncompliance is not cured
within the period of time described in Section 22.1, then Tenant may
exercise any right or remedy available to Tenant at law or in equity,
except to the extent expressly waived or limited by the terms of this
Lease.
22.3 Cure By Encumbrance Holder.
If any act or omission by Landlord shall give Tenant the right, immediately
or after the lapse of time, to cancel or terminate this Lease or to claim a
partial or total eviction, Tenant shall not exercise any such right until
(a) it shall have given written notice of such act or omission to each
holder of any Encumbrance and (b) a reasonable period for remedying such
act or omission shall have elapsed following such notice and following the
time when such holder of the same (which shall in no event be less than the
period to which Landlord would be entitled under this Lease to effect such
remedy) provided such holder of an Encumbrance shall, with reasonable
diligence, give Tenant notice of its intention to remedy such act or
omission and shall commence and continue to act upon such intention.
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22.4 Enforcement Of Reasonable Consent.
Tenant hereby waives any claim against Landlord which it may have based
upon any assertion that Landlord has unreasonably withheld or unreasonably
delayed any consent or approval that, pursuant to the terms of this Lease,
is not to be unreasonably withheld by Landlord and Tenant agrees that its
sole remedy shall be an action or proceeding to enforce any such provision
or for specific performance, injunction or declaratory judgment. 1n the
event of such a determination, the requested consent or approval shall be
deemed to have been granted; provided, however, that Landlord shall have no
liability to Tenant for its refusal or failure to give such consent or
approval and the sole remedy for Landlord's unreasonably withholding or
delaying of consent or approval shall be as provided in this Section.
23. SECURITY DEPOSIT.
23.1 Amount.
23.1.1 Upon the execution of this Lease, Tenant shall deposit with
Landlord the sum set forth in Section 1.1 as the Security Deposit, as
security for the faithful performance and observance by Tenant of the
covenants, agreements, terms, provisions and conditions of this Lease. The
Security Deposit shall be deposited in a segregated interest bearing
account in a bank selected by Landlord and any interest earned on the same,
less a 1% administrative fee which shall be retained by Landlord, shall be
added to such account on Tenant's behalf. Landlord makes no representations
regarding the rate of return that shall be earned on the Security Deposit.
23.1.2 Provided that no Event of Default shall then exist, Tenant
shall have the right to reduce the Security Deposit to $100,000.00 as of
the third (3rd) anniversary of the date on which the rent credit granted
under Section 4.1 of this Lease shall have been fully applied and Tenant
shall have commenced to make full monthly payments of Base Rent under this
Lease. If Tenant shall have deposited a cash Security Deposit with
Landlord, then, provided that Tenant shall have satisfied all of the
conditions set forth in this Section 23.1.2, Landlord shall return any
unapplied amount of the Security Deposit then held by Landlord in
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excess of $100,000.00 to Tenant within sixty (60) days after the written
request of Tenant.
23.2 Use And Restoration.
If Tenant shall default in the performance of any of its obligations under
this Lease, including, without limitation, the payment of any Base Rent,
Additional Rent or other Rent or any other sums payable under this Lease,
Landlord may, at its option, use, apply or retain all or any part of the
Security Deposit for the payment of (1) any Rent in arrears or any other
sums of which Tenant shall be in default, (2) any expenses Landlord may
incur as a direct or indirect result of Tenant's failure to perform any of
Tenant's obligations under this Lease, and (3) any other losses or damages
Landlord may suffer as a direct or indirect result of Tenant's failure to
perform any of Tenant's obligations under this Lease, including, without
limitation, any damages or deficiency in the reletting of the Premises,
whether such damages or deficiency accrued before or after summary
proceedings or other re-entry by Landlord. Landlord shall not be required
to use, apply or retain the whole or any part of the Security Deposit, but
if Landlord shall use or apply all or any portion of the Security Deposit,
Tenant shall, within ten (10) days after demand, deposit with Landlord a
sum sufficient to restore the Security Deposit to the amount held by
Landlord immediately prior to such use or application. Tenant's failure to
so restore the Security Deposit shall constitute an Event of Default.
23.3 Transfers.
Tenant will not assign or encumber the Security Deposit without Landlord's
express written consent. Neither Landlord nor its successors or assigns
will be bound by any assignment or encumbrance unless Landlord has given
its consent. Landlord will have the right, at any time and from time to
time, to transfer the Security Deposit to any purchaser or lessee of the
entire Building. Upon any such transfer, Tenant agrees to look solely to
the new owner or lessee for the return of the Security Deposit.
23.4 Refund.
Provided that Tenant shall have fully and faithfully performed all of its
obligations under this Lease, Landlord shall refund the Security Deposit,
or any remaining balance, to Tenant or, at Landlord's option, to the last
assignee of Tenant's interest under this Lease, within
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sixty (60) days after the expiration or earlier termination of the Term and
Tenant's vacation and surrender of exclusive possession of the Premises to
Landlord in the condition required by the provisions of this Lease.
Landlord's obligations under this Section 23.4 shall survive the expiration
or earlier termination of the Term.
23.5 Letter Of Credit.
Notwithstanding anything to the contrary contained in Section 23.1 above,
in lieu of a cash security deposit, Tenant may deliver to Landlord a clean,
irrevocable, transferable and unconditional letter of credit (the "Letter
of Credit") issued by and drawn upon a commercial bank (hereinafter
referred to as the "Issuing Bank") which shall be a member bank of the New
York Clearinghouse Association (or; in the alternative, which shall have
offices for banking purposes in the Borough of Manhattan and shall have a
net worth of not less than 51,000,000,000, with appropriate evidence
thereof to be submitted by Tenant), which Letter of Credit shall: (i) have
a term of not less than one year, (ii) be; in the form of Exhibit F to this
Lease, (iii) be for the account of Landlord, (iv) be in the amount of the
Security Deposit, (v) except as otherwise provided in this Section 23.5,
conform and be subject to Uniform Customs and Practice for Documentary
Credits, 1993 Revision, ICC Publication No. 400, (vi) be fully transferable
by Landlord without any fees or charges therefor, (vii) provide that
Landlord shall be entitled to draw upon the Letter of Credit upon
presentation to the Issuing Bank of a sight draft only, and (viii) provide
that the Letter of Credit shall be deemed automatically renewed, without
amendment, for consecutive periods of one year each year thereafter during
the Term of this Lease, unless the Issuing Bank shall send notice (the
"Non-Renewal Notice") to Landlord by registered mail, return receipt
requested, not less than thirty (30) days next preceding the then
expiration date of the Letter of Credit that the Issuing Bank elects not to
renew such Letter of Credit, in which case Landlord shall have the right,
by sight draft on the Issuing Bank, to receive the monies represented by
the then existing Letter of Credit, and to hold and/or disburse such
proceeds pursuant to the terms of this Section 23 as cash security. Tenant
acknowledges and agrees that the Letter of Credit shall be delivered to
Landlord as security for the faithful performance and observance by Tenant
of all of tile covenants, agreements, terms, provisions and conditions of
this Lease, and that Landlord shall have the
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right to draw upon the entire Letter of Credit in any instance in which
Landlord would have the right to use, apply or retain the whole or any part
of any cash security deposited with Landlord pursuant to this Section 23.
In the event that Tenant shall elect to furnish the Letter of Credit in
lieu of cash security, all references to the "Security Deposit" in this
Section 23 shall be deemed to refer to the Letter of Credit, or any
proceeds thereof as may be drawn upon by Landlord.
24. BROKERS.
Tenant represents and warrants to Landlord that it did not negotiate or
deal with any broker or agent in connection with negotiating or
consummating this Lease except tire Broker (as defined in Section 1.1
above). Tenant shall indemnify and hold Landlord harmless from any and all
damages, claims, liabilities, costs and expenses (including, without
limitation, reasonable attorney's fees and disbursements) paid or incurred
by Landlord arising out of or in connection with any claims asserted
against Landlord by any broker or agent claiming a commission or other
compensation in connection with the leasing of the Premises by Tenant other
than the Broker, including, without limitation Julien J. Studley, Inc.
Landlord shall pay any commission due to the Broker pursuant to a separate
agreement between Landlord and the Broker.
25. SUBORDINATION.
25.1 Subordination.
This Lease is and will be subject and subordinate in all respects to any
ground lease, mortgage or deed of trust now or later encumbering the
Building, and to all their renewals, modifications, supplements,
consolidations and replacements (an "Encumbrance"). While such
subordination shall be self-operative and shall occur automatically, Tenant
agrees, upon request by and without cost to Landlord or any successor in
interest, to execute and deliver to Landlord or the holder of an
Encumbrance such instrument(s) as may be reasonably required by Landlord or
such successor in interest to evidence such subordination, within ten (10)
days after request by Landlord. In the alternative, however, the holder of
an Encumbrance may unilaterally elect to subordinate such Encumbrance to
this Lease.
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25.2 Attornment.
If the interest of Landlord is transferred to any person (a "Successor
Landlord") by reason of the termination or foreclosure, or proceedings for
enforcement, of an Encumbrance, or by delivery of a deed in lieu of such
foreclosure or proceedings, Tenant will immediately and automatically
attorn to the Successor Landlord. Upon attornment this Lease will continue
in full force and effect as a direct lease between the Successor Landlord
and Tenant, upon all of the same terms, conditions and covenants as stated
in this Lease except that a Successor Landlord shall not be (a) liable for
any previous act or omission or negligence of Landlord under this Lease,
(b) subject to any counterclaim, defense or offset not expressly provided
for in this Lease and asserted with reasonable promptness, which therefore
shall have accrued to Tenant against Landlord, (c) bound by an previous
modification or amendment of this Lease or by any previous prepayment of
more than one month's rent, unless such modification or prepayment shall
have been approved in writing by the holder of any Encumbrance through or
by reason of which the Successor Landlord shall have succeeded to the
rights of Landlord under this Lease or (d) obligated to perform any repairs
or other work beyond Landlord's obligations under this Lease. Tenant
agrees, upon request by and without cost to the Successor Landlord, to
promptly execute and deliver to the Successor Landlord such instrument(s)
as may be reasonably required by Successor Landlord to evidence such
attornment.
26. NOTICES.
All notices required or permitted under this Lease must be in writing and
will only be deemed properly given and received (a) when actually given and
received, if delivered in person to a party who acknowledges receipt in
writing; or (b) one (1) business day after deposit with a private courier
or overnight delivery service, if such courier or service obtains a written
acknowledgment of receipt; or (c) two (2) business days after deposit in
the United States mails, certified or registered mail with return receipt
requested and postage prepaid. All such notices must be transmitted by one
of the methods described above addressed to the party to receive the notice
at, in the case of notices to Landlord, both Landlord's Building Address
and Landlord's General Address, and in the case of notices to Tenant, at
Tenant's Notice Address, or, in either case, at
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such other address(es) of which either party may notify the other in
accordance with the provisions of this Section 26. Landlord shall give a
courtesy copy of any notice of default or termination to Tenant's counsel,
Wachtel & Masyr, 110 East 59th Street, New York, NY 10022 Attention: Morris
Missry, Esq., which courtesy copy Landlord may give by first class mail.
Landlord shall not be obligated to give a copy of any notice of default or
termination except as expressly provided in this Section 26.
27. MISCELLANEOUS.
27.1 Binding Effect.
Each of the provisions of this Lease shall bind and inure to the benefit
of, as the case may be, Landlord and Tenant, and their respective heirs,
successors and assigns, provided that this clause shall not be construed to
permit any transfer by Tenant in violation of the provisions of Section 16.
27.2 Complete Agreement; Modification.
All of the representations and obligations of the parties are contained in
this Lease. No modification, waiver or amendment of this Lease or of any of
its conditions or provisions shall be binding upon Landlord or Tenant
unless the same shall be in writing and shall be signed by the party
against whom enforcement shall be sought.
27.3 Delivery For Examination.
The submission of the form of this Lease for examination shall not bind
Landlord in any manner, and no obligations shall arise under this Lease
until it shall be signed and exchanged by Landlord and Tenant.
27.4 No Air Rights; Obstructions Of Light Or View; Closure.
This Lease does not grant any easements or rights for light, air or view.
Any diminution or blockage of light, air or view by any structure or
condition now or later erected will not affect this Lease or impose any
liability on Landlord. If at any time any windows of the Building
(including the Premises) are temporarily darkened, or the light, air or
view therefrom is obstructed temporarily by reason of any repairs,
improvements, maintenance or cleaning in or about the Building or
permanently by reason of a requirement of Law or the construction of any
structure that may be erected on lands in the vicinity of the Building, the
same shall be without liability to
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Landlord and without any reduction or diminution of Tenant's obligations
under this Lease and shall not be deemed to constitute an eviction.
27.5 Building Name.
Tenant will not, without Landlord's consent, use Landlord's or the
Building's name, or any facsimile or reproduction of the Building, for any
purpose; except that Tenant may use the Building's name in the address of
the business to be conducted by Tenant in the Premises. Landlord reserves
the right, upon reasonable prior notice to Tenant, to change the name or
address of the Building.
27.6 Building Standard.
The phrase "Building standard" will, in all instances, refer to the
then-current standard described in Landlord's most recently adopted
schedule of Building standard or, if no such schedule has been adopted, to
the standard which commonly prevails in and for the entire Building.
27.7 No Waiver.
No waiver of any provision of this Lease shall be implied by any failure of
either party to enforce any remedy upon the violation of such provision,
even if such violation shall be continued or repeated subsequently. No
express waiver shall affect any provision other than the provision
specified in such waiver, and only for the time and in the manner
specifically stated. No provision of this Lease shall be deemed to have
been waived by Landlord, unless such waiver shall be in a writing signed by
Landlord.
27.8 Recording; Confidentiality.
Tenant will not record this Lease, or a short form memorandum, without
Landlord's written consent and any such recording without Landlord's
written; consent shall constitute an Event of Default. Tenant shall keep
the Lease terms, provisions and conditions confidential and will not
disclose them to any other person without Landlord's prior written consent.
However, Tenant may disclose Lease terms, provisions and conditions to
Tenant's accountants, attorneys, managing employees and others in private
with Tenant, as reasonably necessary for Tenant's business purposes,
without such prior consent.
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27.9 Captions.
The captions of sections are for convenience only and will not be deemed to
limit, construe, affect or alter the meaning of such sections.
27.10 Invoices.
All bills, invoices and statements for Rent ("Invoices") to be given by
Landlord to Tenant shall be sent to Tenant's Invoice Address. Tenant may
change Tenant's Invoice Address by notice to Landlord given according to
Section 26. If Tenant shall fail to give Landlord specific written notice
of its objections to any Invoice within sixty (60) days after receipt of
any Invoice from Landlord, such Invoice shall be deemed true and correct
and binding on Tenant and Tenant may not later question the validity of
such Invoice or the underlying information or computations used to
determine any amounts stated therein.
27.11 Severability.
If any provision of this Lease shall be declared void or unenforceable by a
final judicial or administrative order, this Lease shall continue in full
force and effect, except that the void or unenforceable provision shall be
deemed deleted and replaced with a provision as similar in terms to such
void or unenforceable provision as may be possible and be valid and
enforceable.
27.12 Jury Trial.
LANDLORD AND TENANT EACH HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY LANDLORD OR TENANT AGAINST THE OTHER
WITH RESPECT TO ANY MATTER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE,
TENANTS USE AND OCCUPANCY OF THE PREMISES, OR THE RELATIONSHIP OF LANDLORD
AND TENANT. HOWEVER, SUCH WAIVER OF JURY TRIAL SHALL NOT APPLY TO ANY
CLAIMS FOR PERSONAL INJURY.
27.13 Authority To Bind.
The individuals signing this Lease on behalf of Landlord and Tenant
represent and warrant that they are empowered and duly authorized to bind
Landlord or Tenant, as the case may be, to this Lease.
27.14 Only Landlord/Tenant Relationship.
Landlord and Tenant agree that neither any provision of this Lease nor any
act of the parties will be deemed to create any relationship between
Landlord and Tenant other than the relationship of landlord and tenant.
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27.15 Covenants Independent.
The parties intend that this Lease be construed as if the covenants between
Landlord and Tenant are independent and that the Rent shall be payable
without offset, reduction or abatement for any cause, except as otherwise
expressly provided in this Lease.
27.16 Governing Law.
This Lease shall be governed by and construed according to the laws of the
State of New York. Landlord and Tenant, any subtenant, and any guarantor of
Tenant's obligations under this Lease, hereby expressly consent to the
jurisdiction of the Civil Court of the City of New York and the Supreme
Court of the State of New York with respect to any action or proceeding
between Landlord and Tenant or such party with respect to this Lease or any
rights or obligations of either party pursuant to this Lease, and agree
that venue shall lie in New York County. Tenant and any subtenant further
waive any and all rights to commence any such action or proceeding against
Landlord before any other court.
27.17 Inability To Perform
This Lease and the obligation of Tenant to pay Base Rent and Additional
Rent, and to perform and comply with all of the other covenants and
agreements hereunder on the part of Tenant to be performed or complied
with, shall in no way be affected, impaired or excused in the event that
Landlord shall be delayed, hindered or prevented by reason of Force Majeure
from performing or complying with any of the covenants and agreements to be
performed or complied with by Landlord under this Lease, or to furnish any
service or facility. No such delay or failure by Landlord in the
performance of any of Landlord's obligations under this Lease by reason of
Force Majeure shall constitute an actual or constructive eviction in whole
or in part or impose any liability upon Landlord or its agents because of
inconvenience to Tenant or injury to or interruption or loss of Tenant's
business or entitle Tenant to any diminution or abatement of rent.
27.18 No Surrender.
No act or thing done by Landlord or Landlord's agents (including, without
limitation, the acceptance of keys by any employee of Landlord or
Landlord's agents) during the Term shall be deemed to constitute an
acceptance of a
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surrender of the Premises or the termination of this Lease, and no
agreement to accept such surrender shall be valid, unless the same shall be
in writing and shall be signed by Landlord. In the event that Tenant at any
time shall desire to have Landlord sublet the Premises for Tenant's
account, Landlord or Landlord's agents are authorized to receive said keys
for such purposes without releasing Tenant from any of the obligations
under this Lease, and Tenant hereby relieves Landlord of any liability for
loss of or damage to any of Tenant's property in connection with such
subletting.
27.19 No Merger.
There shall be no merger of this Lease, or the leasehold estate created by
this Lease, with any other estate or interest in the Premises, or any part
thereof, by reason of the fact that the same person may acquire or own or
hold, directly or indirectly, (i) this Lease or the leasehold estate
created by this Lease, or any interest in this Lease or in any such
leasehold estate, and (ii) any such other estate or interest in the
Premises or any part thereof; and no such merger shall occur unless and
until all persons having an interest (including a security interest) in (a)
this Lease or the leasehold estate created by this Lease and (b) any such
other estate or interest in the Premises, or any part thereof, shall join
in a written instrument effecting such merger and shall duly record the
same.
Having read and intending to be bound by the terms and provisions of this Lease,
Landlord and Tenant have signed it as of the Date.
TENANT: LANDLORD:
1411 TRIZECHAHN-SWIG, L.L.C
TAHITI APPAREL, INC. By: TrizecHahn Office Properties,
Inc. Agent
By: /s/ Jerry Harary By: /s/ Carol A. Meyer
--------------------- -------------------------
Printed Name: Jerry Harary Printed Name: Carol A. Meyer
Title: Exec Vice Pres Title: Assistant Secretary
And By: /s/ Antonio A. Bismonte
-------------------------
Printed Name: Antonio A. Bismonte
Title: Senior Vice President
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<PAGE>
STATE OF NEW YORK )
COUNTY OF NEW YORK)
On this 7th day of August, 1997, before me personally came Jerry Harary to me
know, who being by me duly swarn, did depose and say that he is the Exec. Vice
Pres. of TAHITI APPAREL, INC., the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
KAREN V. RECCHIA /s/ Karen V. Recchia
Notary Public, State of New York --------------------
No. 24-5005729 Notary Public
Qualified in Kings . County
Cert. Filed in New York County
Commission Expires December 14, 98
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EXHIBIT A
PLAN DELINEATING THE PREMISES;
The location and dimensions of walls, partitions, columns, stairs and openings
are approximate and subject to revisions due to mechanical work, job conditions,
and requirements of governmental departments and authorities, If the space as
actually partitioned shall differ in any de minimis respect from this sketch,
the actual area as partitioned shall in all events control. No such resulting
deviation or discrepancy shall affect the rent or Tenant's obligations under
this Lease.
A
<PAGE>
EXHIBIT B
LEASEHOLD IMPROVEMENTS AGREEMENT
1. Conflicts; Terms. If there is any conflict or inconsistency between the
provisions of the Lease and the provisions of this Exhibit B, the provisions of
this Exhibit B will control. Except for those terms expressly defined in this
Exhibit B, all initially capitalized terms will have the meanings stated for
such terms in the Lease.
2. Condition. Tenant acknowledges that no representations concerning the
condition of the Premises or Building have been made by Landlord to Tenant other
than as may be expressly stated in the Lease. Tenant shall accept the Premises
on the Commencement Date in an "as is" and "where is" condition. Tenant
acknowledges that as of the Date of the Lease, the Premises are in- good order
and satisfactory condition. Landlord shall have no obligations to alter,
remodel, refurbish or improve the Premises or Building to prepare the Premises
for Tenant's occupancy. All Alterations, improvements, labor, materials,
fixtures and equipment (if any) necessary or desired by Tenant to complete
and/or prepare the Premises for Tenant's occupancy shall be promptly performed
by Tenant, at Tenant's sole cost and expense (subject to reimbursement as
provided in this Exhibit B below), in accordance with all applicable provisions
of the Lease, including, without limitation, the provisions of Section 10.
3. Landlord's Work Allowance.
A. Subject to the terms and conditions hereinafter set forth, Landlord
agrees to provide a construction allowance ("Landlord's Contribution") to
reimburse Tenant for Tenant's cost of preparing the Premises for Tenant's
occupancy thereof ("Tenant's Initial Work"), in an aggregate amount not to
exceed One Hundred Eighteen Thousand Five ($118,005.00) Dollars. ,Landlord shall
fund the portion of Landlord's Contribution then being requisitioned in the
manner set forth in Subsection 313 below, but only if all of the following
conditions shall have been satisfied:
(i) Tenant shall not be in default of any of the terms, covenants or
conditions to be performed or observed by Tenant under this Lease;
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(ii) Tenant shall have obtained, and at all times during the construction
period shall maintain, all necessary and appropriate permits, licenses,
authorizations and approvals from all governmental authorities having or
asserting jurisdiction in connection with such construction, and shall have
delivered true copies thereof to Landlord;
(iii) Tenant shall not have subleased all or any portion of the Premises;
and
(iv) Tenant shall have delivered to Landlord, for approval by Landlord: (x)
a completed requisition for payment (in form issued by the American Institute of
Architects), certified and sworn to by Tenant's architect stating or accompanied
by: (1) the amount being requested, (2) receipted invoices for all labor and
materials theretofor performed as part of Tenant's Initial Work, (3) to the best
of such architect's knowledge, the amount of Landlord's Contribution theretofor
paid to Tenant, (4) the value of labor and materials theretofore performed and
incorporated in the Premises and the aggregate value of the entire Tenant's
Initial Work to be performed, and (5) that the work completed to date has been
performed in good and workmanlike manner in accordance with the plans and
specifications approved by Landlord and in compliance with all Laws; and (y)
waivers of lien from all contractors, subcontractors and materialmen who shall
have furnished materials or supplies or performed work or services in connection
with Tenant's Initial Work.
B. Within thirty (30) days after Tenant shall have complied with all of the
conditions set forth in the foregoing Subsection 3A, Landlord shall pay to
Tenant an amount equal to that portion of Landlord's Contribution which shall
equal, on a percentage basis, that portion of Tenant's Initial Work then
completed in accordance with the provisions hereof, as certified by Tenant's
architect, less all amounts of Landlord's Contribution previously disbursed,
provided, however, that Landlord shall not be required to make more than one (1)
payment per calendar month. Landlord shall have the right to retain ten (10%)
percent of every requisition of Landlord's Contribution until: (i) all of
Tenant's, Initial Work shall have been finally completed, (ii) waivers of lien
from all contractors, subcontractors and materialmen who shall have furnished
materials or supplies or performed work or services in connection with Tenant's
Initial Work shall have been delivered to Landlord, (iii) all governmental
authorities having or asserting jurisdiction (including the Flew York City
Department of Buildings) shall
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have issued final approvals of Tenant's Initial Work and true copies thereof
shall have been delivered to Landlord, and (iv) Tenant shall have delivered to
Landlord "as built" drawings with respect to Tenant's Initial Work.
C. Landlord's obligation to pay Landlord's Contribution shall only apply to
that part of Tenant's Initial Work consisting of the installation of walls,
partitions, columns, fixtures, improvements and appurtenances permanently
attached to or built into the Premises, including the following: mechanical
systems, flooring, wall coverings, ceilings, duct work, electrical wiring,
plumbing, millwork and supplemental air conditioning systems (if any), affixed
carpeting and other floor coverings, but shall not include business and trade
fixtures, machinery, equipment or other articles of personal property,
professional fees and/or so-called "soft costs." Notwithstanding, the foregoing,
Tenant shall have the right to apply the balance (if any) of Landlord's
Contribution (but not to exceed twenty (20%) percent of Tenant's actual cost to
perform all of Tenant's Initial Work) remaining after Tenant shall have
completed Tenant's Initial Work and complied with all of the conditions set
forth in clauses (i) through (iv) of Subsection 313 above against professional
fees paid to architects and engineers and permit costs incurred by Tenant in
connection with Tenant's Initial Work.
D. Landlord shall have no obligation to pay all or any portion of
Landlord's Contribution to Tenant at any time after the expiration of the
eighteenth (18th) full calendar month following the Commencement Date (the
"Contribution Outside Date"), except any portion of Landlord's Contribution that
shall remain unpaid but that shall have become due and payable on or prior to
the Contribution Outside Date. Tenant hereby waives any and all rights to claim
or receive all or any portion of Landlord's Contribution that shall not have
become due and payable to Tenant on or before the Contribution Outside Date.
E. Tenant shall install a complete "sprinkler system" in the Premises as
part of Tenant's Initial Work or modify the existing sprinkler distribution
system in the Premises, at Tenant's cost. Said sprinkler system shall be
installed in compliance with the provisions of Section 10 of the Lease and all
applicable Laws and shall be compatible with the design of the base Building
sprinkler system. Tenant shall submit plans and specifications for said
sprinkler system to Landlord for Landlord's approval to-tether with Tenant's
Plans for Tenant's Initial Work.
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4. Landlord shall deliver Form ACP-5 (Not an Asbestos Project) promulgated by
the New York City Department of Environmental Protection to Tenant prior to the
Commencement Date.
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EXHIBIT C
OCCUPANCY ESTOPPEL CERTIFICATE
THIS OCCUPANCY ESTOPPEL CERTIFICATE ("Certificate") is given by TAHITI
APPAREL, INC. ("Tenant") to 1411 TRIZECHAHN-SWIG, L.L.C. ("Landlord"), with
respect to that certain Lease Agreement dated ___________________, 1997
("Lease"), under which Tenant has leased from Landlord certain premises located
on the twenty-ninth(29th) floor ("Premises") in the building known as 1411
Broadway, New York, NY ("Building").
In consideration of the mutual covenants and agreements stated in the
Lease, and intending that this Certificate may be relied upon by Landlord and
any prospective purchaser or present or prospective mortgagee, deed of trust
beneficiary or ground lessor of all or a portion of the. Building, Tenant
certifies as follows:
1. Except for those terms expressly defined in this Certificate, all
initially capitalized terms shall have the meanings stated for such terms in the
Lease.
2. Landlord has delivered and Tenant has accepted possession of the
Premises.
3. The Commencement Date occurred-on , 199
4. Tenant's obligation to make full monthly payments of Base Rent under the
Lease began (or will begin) on ____________, 1998.
Executed this day of _________________, 1997.
TENANT:
TAHITI APPAREL, INC.
By: __________________________
Printed Name: ________________
Title: _______________________
C
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EXHIBIT D
1411 BROADWAY
RULES AND REGULATIONS
1. Rights of Entry. Tenant will have the right to enter the Premises at any
time, but outside of Business Hours Tenant will be required to furnish proper
and verifiable identification. Landlord will have the right to enter the
Premises at all reasonable hours to perform janitorial services or clean
windows; and also at any time during the last 3 months of the Term, with
reasonable prior notice to Tenant, to show the Premises to prospective tenants.
2. Right of Exclusion. Landlord reserves the right to require each person
entering the Building to sign a register and either (i) to present a Building
pass, or (ii) to be announced to the tenant such person is visiting and to -be
accepted as a visitor by such tenant or to be otherwise properly identified.
Landlord may exclude from the Building any person who cannot comply with such
requirement. Landlord also reserves the right to require any person leaving the
Building to sign a register or to surrender any special entry pass given to such
person. If Landlord elects to excise the rights reserved above, Landlord will
furnish a Building pass to all persons designated by Tenant in writing. Finally,
Landlord reserves the right to exclude or expel from the Building any person
who, in Landlord's judgment, is intoxicated or under the influence of alcohol or
drugs.
3. Obstruction. Tenant will not obstruct or place anything in or on the
sidewalks or driveways outside the Building, or in the lobbies, corridors,
stairwells or other Common Areas. Landlord may remove, at Tenant's expense, any
such obstruction or thing without notice or obligation to Tenant.
4. Refuse. Tenant will place all refuse in the Premises in proper
receptacles provided and paid for by Tenant, or in receptacles provided by
Landlord for the Building, and will not place any litter or refuse on or in the
sidewalks or driveways outside the Building, or the Common Areas, lobbies,
corridors, stairwells, ducts or shafts of the Building.
5. Public Safety. Tenant will not throw anything out of doors, windows or
skylights, down passageways or over walls. Tenant will not use any fire exits or
stairways in the Building except in case of emergency.
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6. Keys; Locks. Landlord may from time to time install and change locks on
entrances to the Building, Common Areas and the Premises, and will provide
Tenant a reasonable number of keys to meet Tenant's requirements. If Tenant
desires additional keys, they will be furnished by Landlord and Tenant will pay
a reasonable charge for them. Tenant will not add or change existing locks on
any door in or to the Premises without Landlord's prior written consent. If with
Landlord's consent, Tenant installs lock(s) incompatible with the Building
master locking system:
(a) Landlord, without abatement of Rent, will be relieved of any
obligation under the Lease to provide any service that requires access to
the affected areas:
(b) Tenant will indemnify Landlord against any expense as a result of
forced entry to the affected areas which may be required in an emergency;
and
(c) Tenant will, at the end of the Term and at Landlord's request,
remove such lock(s) at Tenant's expense.
At the end of the Term, Tenant will promptly return to Landlord all keys
for the Building and Premises which are in Tenant's possession.
7. Aesthetics. Tenant will not attach any awnings, signs, displays or
projections to the outside or inside walls or windows of the Building which are
visible from outside the Premises without Landlord's prior written approval,
which may be withheld in Landlord's sole discretion. Tenant will use only
Building Standard lighting in areas where such lighting is visible from outside
the Building.
8. Window Treatment. If Tenant desires to attach or hang any curtains,
blinds, shades or screens to or in any window or door of the Premises, Tenant
must obtain Landlord's prior written approval. Tenant will not coat or sunscreen
the interior or exterior of any windows without Landlord's express written
consent. Tenant will not place any objects on the window sills that cause, in
Landlord's reasonable opinion, an aesthetically unacceptable appearance.
9. Directory Boards. The Building office directory boards have a limited
capacity; however, Landlord will make every reasonable effort to accommodate
Tenant's requirements.
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10. Building Control. Landlord reserves the right to control and operate
the Common Areas as well as facilities furnished for the common use of tenants
in such manner as Landlord deems best for the benefit of tenants generally.
Landlord reserves the right to prevent access to the Building during an
emergency by closing the doors or otherwise, for the safety of tenants and
protection of the Building and property in the Building.
11. Engineering Consent. All plumbing, electrical and heating, ventilating
and air conditioning ("HVAC") work for and in the Premises requires Landlord's
prior written consent to maintain the integrity of the Building's electrical,
plumbing and HVAC systems.
12. HVAC Operation. Tenant will not place objects or other obstructions on
the HVAC convectors or diffusers and will not permit any other interference with
the HVAC system. Whenever the HVAC system is operating, Tenant will cause the
shades, blinds or other window coverings in the Premises to be drawn as
reasonably required by the position of the sun.
13. Plumbing. Tenant will only use plumbing fixtures for the purpose for
which they are constructed. Tenant will pay for all damages resulting from any
misuse by Tenant or plumbing fixtures.
14. Equipment Location. Landlord reserves the right to specify where
Tenant's Business machines, mechanical equipment and heavy objects will be
placed in the Premises in order to best absorb and prevent vibration, noise and
annoyance to other tenants, and to prevent damage to the Building. Tenant will
pay the cost of any required professional engineering certification or
assistance.
15. Bicycles; Animals. Tenant will not bring into, or keep about, the
Premises any bicycles, vehicles, birds, animals (except seeing eye dogs) or
organic Christmas decor of any kind. Bicycles and vehicles may only be parked in
areas designated for such purpose.
16. Carpet Protection. In those portions of the Premises where carpet has
been provided by Landlord, Tenant will at its own expense install and maintain
pads to protect the carpet under all furniture having castors other than carpet
castors.
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17. Proper Conduct. Tenant will conduct itself in a manner which is
consistent with the character of the Building and will ensure that Tenant's
conduct will not impair the comfort or convenience of other tenants in the
Building.
18. Elevators. Any use of the elevators for purposes other than normal
passenger use (such as moving to or from the Building or delivering freight),
whether during or after Business Hours, must be scheduled through the office of
the Property Manager. Tenant will reimburse Landlord for any extra costs
incurred by Landlord in connection with any such non-passenger use of the
elevators.
19. Deliveries. Tenant will ensure that deliveries of materials and
supplies to the Premises are made through such entrances, elevators and
corridors and at such times as may from time to time be reasonably designated by
Landlord. Such deliveries may not be made through any of the main entrances to
the Building without Landlord's prior permission. Tenant will use of cause to be
used, in the Building, hand trucks or other conveyances equipped with rubber
tires and rubber side guards to prevent damage to the Building or property in
the Building. Tenant will promptly pay Landlord the cost of repairing any damage
to the Building caused by any person making deliveries to the Premises.
20. Moving. Tenant will ensure that furniture and equipment and other bulky
matter being moved to or from the Premises are moved through such entrances,
elevators and corridors and at such times as may from time to time be reasonably
designated by Landlord, and by movers or a moving company reasonably approved by
Landlord. Tenant will promptly pay Landlord the cost of repairing any damage to
the Building caused by any person moving any such furniture, equipment or matter
to or from the Premises.
21. Solicitations. Canvassing, soliciting and peddling in the Building are
prohibited and Tenant will cooperate in preventing the same.
22. Food. Only persons approved from time to time by Landlord may prepare,
solicit orders for, sell, serve or distribute food in or around the Building.
Except as may be specified in the Lease or on construction drawings for the
Premises approved by Landlord, and except for microwave cooking, Tenant will not
use the Premises for preparing or dispensing food, or soliciting of orders for
sale, serving or distribution of food.
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23. Parking Rules and Regulations. Tenant will comply with all reasonable
rules and regulations applicable to the parking facilities serving the Building
as determined by the parking facility operator.
24. Hazardous Substances. Except as may be expressly permitted by Landlord
in writing, Tenant will not store, use, release, produce, process or dispose in,
on or about, or transport to or from, the Premises, Building or Complex any
Hazardous Substances. Landlord has disclosed to Tenant that the Building
contains asbestos containing material ("ACM"). Landlord has established an ACM
management program that will govern all work in the Building that could disturb
any ACM. Regardless of any provision of the Lease to the contrary, Tenant will
not undertake any work in the Premises that could disturb any ACM without first
notifying Landlord of the proposed work and cooperating with Landlord to ensure
that such work complies with Landlord's ACM program. Tenant agrees that its
failure to comply with this Paragraph 24 will constitute a material breach of
the Lease; however, such agreement will not be deemed to limit the materiality
of any other Tenant breach of the Lease for failure to comply with any other
Rules and Regulations.
25. Employees, Agents and Invitees. In these Rules and Regulations,
"Tenant" includes Tenant's employees, agents, invitees, licensees and others
permitted by Tenant to access, use or occupy the Premises.
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EXHIBIT E
1411 BROADWAY
LAND DESCRIPTION
All that certain lot, piece or parcel of land, situate, lying and being in
the Borough of Manhattan, City, County and State of New York, bounded and
described as follows:
BEGINNING at the corner formed by the intersection of the northerly side of
West 39th Street and the westerly side of Broadway; running thence NORTHERLY,
along said westerly side of Broadway, 205 feet 1/8 of an inch to the
southwesterly corner of Broadway and West 40th Street; thence WESTERLY, along
the southerly side of West 40th Street 229 feet 6 3/8 inches to the
southeasterly corner of West 40th Street and Seventh Avenue; thence SOUTHERLY,
along the easterly side of Seventh Avenue, 197 feet 6 inches to the
northeasterly corner of Seventh Avenue and West 39th Street, and thence
EASTERLY, along the northerly side of West 39th Street, 284 feet 6 1/8 inches to
the first mentioned corner, the point or place of beginning.
E
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EXHIBIT F
LETTER OF CREDIT
NO. __________ Date ______________ Irrevocable Letter of Credit
BENEFICIARY
1411 TRIZECHAHN-SWIG, L.L.C.
c/o TrizecHahn Office Properties Inc.
1411 Broadway
New York, New York 10018
Dear Sir(s),
We hereby authorize you to value on______________ New York, N.Y.
For the account of 1411 TrizecHahn-Swig, L.L.C. up to the aggregate amount of
$______________.
Available by your drafts at sight.
Partial drawings are permitted.
This Letter of Credit may be transferred to any transferee of the interest of
the landlord under the lease dated between 1411 TrizecHahn-Swig, L.L.C., as
landlord, and __________________, as tenant.
It is a condition of this Letter of Credit that it shall be deemed to be
automatically extended for a period of one year from the present or any future
expiration date, unless we shall notify you by written notice given by
registered mail at least 30 days prior to such expiration date that we elect not
to renew it for such additional period, in which case you shall have the right
to draw on us the full amount of this Letter of Credit by your sight draft,
accompanied by your signed written statement that you are drawing under Letter
of Credit #_______________ because you have received notice of non-renewal from
us, and the accountee is still obligated to you under the above-referenced
lease.
All drafts drawn under this Credit must bear on their face the clause "Drawn
under Letter of Credit No. ___________________"
Except so far as otherwise expressly stated, this credit is subject to the
Uniform Customs and Practice for
F
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EXHIBIT G
OPERATING COST ADJUSTMENT
(Pursuant to Section 4.12)
If Landlord shall give written notice to Tenant electing to substitute an
operating cost adjustment for the Porter's Wage Escalation contained in Section
4.12, the following provisions shall apply:
4.12.1. Definitions:
(1) "Operating Cost Year" shall mean a calendar year for which
Landlord shall have made the election referred to in Section 4.12 of this
Lease, all or any part of which calendar year occurs during the Term.
(2) "Base Operating Cost Year" shall mean the calendar year
immediately preceding the Operating Cost Year referred to in the preceding
subdivision (1).
(3) "Operating Cost" shall mean all those expenses incurred by
Landlord or any contractor employed by Landlord in connection with the
operation, repair and maintenance of the Building and/or Land (and without
regard to whether such cost or expense is-treated as a current expense or a
capital expenditure for accounting or income tax purposes). Without
limiting the generality of the foregoing, "Operating Cost" shall include
the following items, whether directly incurred or through separate contract
therefor.
(a) Wages, salaries, fees, bonuses and other compensation anti
payments and payroll taxes and contributions to any social security,
unemployment insurance, welfare, pension or similar fund and payments for
other fringe benefits required by law or by union agreement (or, if the
employees or any of them are non-union, then payment for benefits
comparable to those generally required by union agreement in first-class
office buildings in the Borough of Manhattan, City of New York, which are
unionized) made to or on behalf of all employees of Landlord or any
contractor employed by Landlord performing services rendered in connection
with the
G-1
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operation, repair and maintenance of the Building and/or Land, including
without limitation:
(i) Elevator operators, if any, and starters and assistant
starters;
(ii) Window cleaners, porters, janitors, maids, cleaners,
dusters, sidewalk shovelers and miscellaneous handymen, and all of
their supervisors;
(iii) Watchmen, caretakers, security personnel and persons
engaged in patrolling and protecting the Building and all of their
supervisors;
(iv) Carpenters, engineers; firemen, mechanics, electricians,
plumbers and persons engaged in the operation, repair and maintenance
of the Building and the Building Systems and all of their supervisors;
(v) The Building manager, superintendent, assistants, clerical
and administrative personnel, if any; and
(vi) Executive personnel of Landlord or the managing agent
performing services in or for the Building, provided that if such
personnel also service other buildings a reasonable allocation of
their wages, salaries, fees and other compensation shall be made.
(b) The uniforms of all employees, and the cleaning, pressing and
repair thereof.
(c) Cleaning and maintenance costs for the Land and Building,
including the windows, sidewalks and plazas, and the costs of all labor,
supplies, equipment and materials incidental thereto.
(d) Premiums and other charges incurred by Landlord with respect to
all insurance relating to the Building and the operation and maintenance
thereof, including, without limitation:
(i) Fire and extended coverage insurance, including windstorm,
hail, explosion, riot, rioting attending a strike, civil commotion,
aircraft, vehicle and smoke insurance; (ii) Public liability
insurance;
G-2
<PAGE>
(iii) Elevator insurance;
(iv) Worker's compensation insurance;
(v) Boiler and machinery insurance;
(vi) Rent, use and occupancy insurance;
(vii) Health, accident and group life insurance on all employees;
and
(viii) War damage insurance.
(e) The cost of any fuel used in connection with the operation and
maintenance of the Building (excluding steam).
(f) Costs incurred for the operation, service, security; maintenance,
inspection, and Repairs and Alterations of the Land, the Building and the
Building systems and the costs of labor, materials, supplies and equipment
used in connection with all of the aforesaid items.
(g) Water charges and sewer rents, not reimbursed by tenants.
(h) Taxes (e.g., sales taxes and the like) upon any of the expenses
enumerated herein.
(i) Management fees of the managing agent for the Building. If there
shall be no managing agent, or if the managing agent shall be a company
owned by Landlord, the management fees shall be deemed to be an amount
equal to the fees that would customarily be charged for the management of
the Building by an independent, first-class managing agent in the Borough
of Manhattan.
(j) Administrative and clerical supplies.
(k) Cost of compliance with Laws; provided however, that any
Alteration performed to comply with any Laws which shall be classified as
-a capital expenditure for financial reporting purposes on the books of
Landlord and which shall be depreciable over longer than three (3)
G-3
<PAGE>
years shall only be included to the extent of the depreciation in any
Operating Cost Year based on straight line depreciation over its useful
life actually used for financial reporting purposes together with interest
on the annual depreciation at the rate of ten (10%) percent per annum.
(I) Costs incurred for lobby and other non-tenant area decorations and
landscaping of the Land and interior and exterior public areas of the
Building, including costs of operating public exhibits, performances, and
displays.
(m) Costs and fees for accounting, bookkeeping, auditing, consulting,
legal and other professional services.
(n) Costs of painting and decorating.
(o) Real estate, vault and other taxes, not reimbursed to Landlord by
tenants.
(p) Customary office building and landlord's trade association
membership fees and dues.
(q) Advertising and professional expenses.
Notwithstanding the foregoing, Operating Cost shall not include
expenditures for any of the following: (i) repairs or other work occasioned by
fire, windstorm or other insured casualty or hazard, to the extent that Landlord
shall receive proceeds of such insurance; (ii) leasing commissions and
advertising expenses incurred in leasing or procuring new tenants; (iii) tenant
change work (other than repairs) performed for and reimbursed to Landlord by
other tenants; (iv) repairs or rebuilding necessitated by condemnation to the
extent reimbursed by` condemnation proceeds; (v) Taxes; (vi) principal and
interest on Encumbrances; (vii) removal, encapsulation or enclosure of any
asbestos containing material in the Building; and (viii) any item which shall be
classified as a capital expenditure for financial reporting purposes on the
books of Landlord and which shall be depreciable over longer than three (3)
years shall only be included to the extent of the depreciation in any Operating
Cost Year based on straight line depreciation over its useful life actually used
for financial reporting purposes together with interest on the annual
depreciation at the rate of ten (10%) percent per annum.
G-4
<PAGE>
If Landlord shall eliminate the payment of any wages or other labor costs
or otherwise reduce Operating Cost as a result of the installation of new
devices or equipment, or by any other means, then in computing Operating Cost
the corresponding items shall be deducted from the Operating Costs for the Base
Operating Cost Year and Operating Cost Year.
4.12.2. Tenant shall pay to Landlord as additional rent for each Operating
Cost Year to which this Exhibit shall apply, an amount equal to Tenant's Share
(as defined in Section 1.1) of the amount by which the Operating Cost for such
Operating Cost Year shall exceed the Operating Cost for the Base Operating Cost
Year.
4.12.3 For each Operating Cost Year for which Landlord has exercised its
election under Section 4.12, Landlord shall furnish to Tenant a statement of the
computation of the Operating Cost for such Operating Cost Year, compared with
the statement of Operating Cost of the Base Operating Cost Year. Tenant shall
pay to Landlord, as Additional Rent, within fifteen (15) days after the
submission of such statement, an amount equal to the sum of (i) for the first
Operating Cost Year for which the election under Section 4.12 is made, the
amount billed to Tenant pursuant to the Wage Rate Statement rendered under
Section 4.4 for the Base Operating Cost Year, plus the amount shown as due in
accordance with Section 4.12.3 of this Exhibit F for the Operating Cost Year for
which the statement is rendered (such sum is herein called the "Aggregated
Escalation"); (ii) for each year subsequent to the first such Operating Cost
Year, the amount of the Aggregated Escalation plus the total of the amounts of
the Additional Rent charged pursuant either to this Exhibit F or Section 4.4,
whichever shall have been in effect, for each calendar year after such first
year subsequent to the Base Operating Cost Year to and including the year for
which the bill is rendered (such sum is hereafter called the "Total Operating
Escalation"). In addition, following the rendering of the first statement
pursuant to this Exhibit F, Tenant shall pay to Landlord in monthly installments
in advance, one-twelfth (1/12) of the amount of the preceding year's Aggregated
or Total Operating Escalation, as the case may be, which installments shall be
credited against payments due for the calendar year in which said monthly
payments are made. Subject to Section 4.5, if Landlord shall owe a refund to
Tenant by virtue of the total monthly advance payments exceeding the total due
for the particular year, Landlord shall refund such excess to Tenant, or
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<PAGE>
may if the Term has not ended, at Landlord's election, adjust future monthly
payments due hereunder to reflect said refund.
4.12.4 The statements of Operating Cost furnished by Landlord to Tenant as
provided in Section 4.12.3 of this Exhibit F shall constitute final
determinations as between Landlord and Tenant of Operating Cost for the Base
Operating Cost Year, or any succeeding Operating Cost Year, as the case may be.
4.12.5 Landlord's delay in rendering any statements under the provisions of
this Exhibit shall not prejudice its right thereafter to render such statement,
or to render a statement for any subsequent period. Tenant's obligation to pay
any amounts due under this Exhibit F and Section 4.12 shall survive the
expiration or sooner termination of the Term of this Lease.
G-6
<PAGE>
LICENSE AGREEMENT
THIS AGREEMENT, made as of the 15th day of May, 1997, by and between 1411
TRIZECHAHN-SWIG, L.L.C., a Delaware limited liability company, having an office
at c/o TrizecHahn Office Properties Inc., 1411 Broadway, New York, New York
10018 ("Licensor"), and TAHITI APPAREL, INC., a New York corporation having an
office at 1411 Broadway, New York, New York 10018 ("Licensee").
WITNESSETH:
WHEREAS, Licensee desires to use and occupy a portion of the thirty-sixth
(36th) floor in the building ("Building") known as 1411 Broadway, New York, New
York, as more particularly shown on-- -the floor plan annexed hereto as Exhibit
A and made a part hereof ("Licensed Premises");
WHEREAS, Licensee acknowledges that Licensee has no right to use or occupy
the Licensed Premises, and has requested that Licensor grant it permission to
use and occupy the same for the License Period (defined below); and
WHEREAS, Licensor is willing to allow Licensee to use and occupy the
Licensed Premises for the License Period, subject to the terms, covenants and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Licensor and Licensee hereby agree as follows:
1. Subject to and in accordance with the terms and conditions of this
Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts from
Licensor, a non-transferable license ("License") to use and occupy the Licensed
Premises during the period (the "License Period") commencing on May 1, 1997 and
ending on the date (the "License Termination Date") which is the earlier of (i)
the date on which Licensee shall vacate and deliver possession of the Licensed
Premises to Licensor in the condition required under this Agreement or (ii) one
hundred twenty (120) days after the "Commencement Date" under the lease of even
date herewith bet<veen Licensor, as landlord, and Licensee, as tenant, covering
a portion of the twenty-ninth (29th) floor of the
1
<PAGE>
building, for executive, administrative and general business offices and
showrooms for the conduct of Licensee's apparel business and for no other
purpose.
2. Licensee shall pay to Licensor as a fee ("License Fee") for the License,
the monthly sum of $33,020.00, in advance on the first day of each calendar
month commencing during the License Period, without any setoffs or deductions
whatsoever, except that Licensee shall pay the License Fee for the first month
upon the execution hereof. If the License Period shall commence or terminate on
other than the first or last day, respectively, of a calendar month, the License
Fee for such month shall be prorated.
3. Licensee shall vacate and deliver exclusive possession of the Licensed
Premises to Licensor on the License Termination Date. Licensee shall vacate and
surrender possession of the Licensed Premises at such time, substantially broom
clean, in the condition existing on the date on which this Agreement is
executed, subject to normal wear and tear, and shall remove all of its personal
property therefrom. Licensee shall have no obligation to remove any leasehold
improvements in the Licensed Premises. Licensee's obligation to observe and
perform this covenant shall survive the expiration or other termination of this
Agreement. Licensee acknowledges that Licensor is obligated to deliver
possession of the Licensed Premises to Alfred Dunner, Inc. pursuant to the
provisions of a long-term lease between Licensor, as landlord, and Alfred
Dunner, Inc., as tenant, upon the termination of this Agreement and any failure
by Licensee to deliver the Licensed Premises to Licensor timely may cause injury
to Licensor for which Licensor may hold Licensee liable.
4. This Agreement does not and shall not be deemed to constitute a lease or
a conveyance of the Licensed Premises by Licensor to Licensee, or to confer upon
Licensee any right, title, estate or interest in the Licensed Premises. This
Agreement grants to Licensee only a personal privilege to use and occupy the
Licensed Premises for the License Period on and subject to the terms and
conditions set forth herein.
5. Licensee shall not permit the whole or any portion of the Licensed
Premises to be occupied by any person or entity other than Licensee.
6. Licensee agrees to indemnify, protect, defend and save harmless Licensor
and Licensor's partners, officers, directors, contractors, agents and employees
from and against any and all
2
<PAGE>
liability (statutory or otherwise), claims, suits, demands, damages, judgments,
costs, fines, penalties, interest and expenses (including, without limitation,
reasonable counsel and other professional fees and disbursements incurred in
connection therewith) to which Landlord and/or any such partner, officer,
director, contractor, agent or employee may be subject or suffer arising from,
or in connection with: (i) any liability or claim for any injury to, or death
of, any person or persons, or damage to property (including any loss of use
thereof), occurring in or about the Licensed Premises, (ii) the use and
occupancy of the Licensed Premises, or from any work, installation or thing
whatsoever done or omitted (other than by Licensor or its agents or employees)
in or about the Licensed Premises during the License Period, (iii) any default
by Licensee in the performance of any of Licensee's obligations under this
License Agreement, and/or (iv) any act, omission, carelessness, negligence or
misconduct of Licensee or Licensee's agents, employees, contractors or visitors.
7. Licensee shall obtain and keep in full force and effect during the
License Period, at Licensee's own cost and expense, commercial general liability
insurance in a combined single limit amount of not less than $3,000,000, naming
Licensor and Licensor's managing agent as additional insureds. Said insurance is
to be written in form satisfactory to Licensor by a good and solvent insurance
company of recognized standing licensed to do business in the State of New York
and satisfactory to Licensor. Prior to the commencement of the License Period,
Licensee shall furnish to Licensor a certificate of such insurance. If Licensee
shall fail to obtain such insurance or furnish said certificate to Licensor,
Licensor may, but shall not be obligated to, obtain the same, in which event the
amount of the premium paid shall, on demand, be reimbursed by Licensee to
Licensor. Each party shall include in each of its policies insuring against
loss, damage or destruction by fire or other casualty, a waiver of the insurer's
right of subrogation against the other party. Each party hereby releases the
other party with respect to any claim (including a claim for negligence) which
it might otherwise have against the other party for loss, damage or destruction
with respect to its property (including rental value or business interruption),
occurring during the License Period to the extent to which such party is insured
under a policy containing a waiver of subrogation or naming the other party as
an additional assured, as provided in this Paragraph.
8. Licensor shall have no obligation to alter, improve, decorate, or
otherwise prepare the Licensed Premises for
3
<PAGE>
Licensee's use and occupancy. Licensee shall; not make any alterations,
decorations, installations or improvements of any kind whatsoever to the
Licensed Premises.
9. If Licensee shall default in fulfilling any of its covenants or
obligations hereunder, in addition to any other rights and remedies available to
Licensor, Licensor may terminate the License by the giving of (i) not less than
ten (10) days' written notice to Licensee in the event of any default in the
payment of any monetary obligations under this Agreement and (ii) not less than
twenty (20) days' written notice in the event of any non-monetary default,
whereupon the License shall terminate on the date set forth in said notice, and
Licensee shall vacate the Licensed Premises on said date as if that date were
the date of the expiration of the License Period as set forth herein.
10. Licensee shall, at all times, use the Licensed Premises only in a
manner which is in full compliance with all present and future laws, orders,
rules and regulations of all state, federal, municipal and local governments,
departments, commissions and boards (including the New York Board of Fire
Underwriters or any similar body) asserting jurisdiction thereover, or any
direction of any public officer pursuant to law.
11. Licensee shall, throughout the License Period, take good care of the
Licensed Premises and the fixtures and appurtenances therein, . and, at
Licensee's sole cost and expense, make all non-structural repairs thereto as and
when needed to preserve them in good working order and condition, reasonable
wear and tear, fire or other casualty, excepted, provided however, that if the
succeeding tenant of the Licensed Premises shall intend to demolish any
improvement which Licensee shall be obligated to repair under this Agreement,
Licensor shall not require Licensee to repair such improvement. Notwithstanding
the foregoing, all damage or injury to, the Licensed Premises or to any other
part of the Building, or to its fixtures, equipment and appurtenances, whether
requiring structural or non-structural repairs, caused by or resulting from
carelessness, omission, neglect or improper conduct of Licensee, or Licensee's
agents, employees, contractors or visitors, shall be repaired promptly by
Licensee at its sole cost and expense, to the satisfaction of Licensor. Licensee
shall also repair all damage to the Building and the Licensed Premises caused by
the moving of its fixtures, furniture or
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<PAGE>
equipment. All of the aforesaid repairs shall be of quality or class equal to
the original work or construction.
12. Licensee, and its employees, agents, visitors and contractors, shall
observe faithfully, and comply strictly with, all of the rules and regulations
established by Licensor.
13. This Agreement shall inure to the benefit of Licensor's successors and
assigns, and may not be modified except by a writing signed by the party to be
charged.
14. Licensee shall look only to Licensor's estate in the Building for the
satisfaction of any judgment in the event of any default by Licensor hereunder,
and no other property of Licensor shall be subject to levy, execution or other
enforcement procedure for the satisfaction of the same. Licensor's principals,
partners, members, shareholders, directors or officers shall not be liable for
the performance of any of Licensor's obligations under this Agreement. The term
"Licensor" as used in this Agreement shall mean only the owner, or the mortgagee
in possession, for the time being of the Building (or the owner of a lease of
the Building), so that in the event of any conveyance or sale thereof, or in the
event of a lease of the Building (including, without limitation, a termination
thereof), Licensor shall be and hereby is entirely freed and relieved of all
obligations of Licensor hereunder, and any successor Licensor may, at its
option, terminate the License.
15. All of the recitals contained in the "WITNESSETH" section of this
Agreement are hereby incorporated herein by reference.
5
<PAGE>
IN WITNESS WHEREOF, Licensor and Licensee have duly-executed this Agreement
as of the date hereinabove set forth.
1411 TRIZECHAHN-SWIG, L.L.C., Licensor
By: TrizecHahn Office Properties Inc.,
Agent
By: ___________________________________
Carol A. Meyer, Assistant Secretary
By: ___________________________________
Antonio A. Bismonte, Sr. Vice
President
TAHITI APPAREL, INC., Licensee
By: ___________________________________
Title: Exec Vice Pres.
Federal Identification No. 13-3675449
6
<PAGE>
STATE OF NEW YORK )
COUNTY OF NEW YORK)
On this 7th day of August, 1997, before me personally came Jerry Harary to
me known, who being by me duly swarn did depose and say that he is the Executive
Vice Pres. of TAHITI APPAREL, INC., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by
authority of the Board of Directors of said corporation.
KAREN V. RECCHIA
Notary Public, State of New York __________________________
No. 24-5005729 Notary Public
Qualified in Kings . County
Cert. Filed in New York County
Commission Expires December 14, 98
7
<PAGE>
OCCUPANCY ESTOPPEL CERTIFICATE
THIS OCCUPANCY ESTOPPEL CERTIFICATE ("Certificate") is given by TAHITI
APPAREL, INC. ("Tenant") to 1411 TRIZECHAHN-SWIG, L.L.C. ("Landlord"), with
respect to that certain Lease Agreement dated as of May 1, 1997 ("Lease"), under
which Tenant has leased from Landlord certain premises located on the
twenty-ninth (29th) floor ("Premises") in the building known as 1411 Broadway,
New York, NY ("Building").
In consideration of the mutual covenants and agreements stated in the
Lease, and intending that this Certificate may be relied upon by Landlord and
any prospective purchaser or present or prospective mortgagee, deed of trust
beneficiary or ground lessor of all or a portion of the Building, Tenant
certifies as follows:
1. Except for those terms expressly defined in this Certificate, all
initially capitalized terms shall have the meanings stated for such terms in the
Lease.
2. Landlord has delivered and Tenant has accepted possession of the
Premises.
3. The Commencement Date occurred on November 24, 1997.
4. Tenant's obligation to make full monthly payments of Base Rent under the
Lease began (or will begin) on November 24, 1997, subject to the five (5) month
partial rent credit set forth in Section 4.1 of the Lease. "
Executed this ______ day of December, 1997.
TENANT:
TAHITI APPAREL, INC.
By: __________________________
Printed Name: Jerry Haray
Title: Executive Vice President
8
500/512 Seventh Avenue Associates Landlord,
to
Tahiti Apparel, Inc. Tenant,
===============================================================================
L E A S E
===============================================================================
From 10/1/97
To 1/31/08
FROM TO
Annual Rent $117,000.00 10/1/97 9/30/02
$128,700.00 10/1/02 1/31/08
Premises 500 Seventh Avenue
7B-1 (Entire 38th St. Side)
7th Floor
<PAGE>
Agreement of Lease, made as of this 21st day of August, 1997 between
500/512 Seventh Avenue Associates, a partnership having offices in care of
Helmsley-Spear, Inc., 500/512 Seventh Avenue, party of the first part,
hereinafter referred to as "Landlord" or "Lessor," and Tahiti Apparel, Inc., a
domestic corporation having offices at New York City, party of the second part,
hereinafter referred to as "Tenant" or "Lessee."
WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the space on the 7b-1, 7th floor, as more particularly shown on the
plan annexed hereto and made a part hereof in the building known as 500 Seventh
Avenue in the borough of Manhattan, City of New York, for the term of 10 years,
4 months (or until such term shall sooner cease and expire as hereinafter
provided) to commence on the 1st day of October 1997 and to end on the 31st day
of January 2008, both dates inclusive, at an annual rent of $117,000.00 -
10/1/97-9/30/02; $128,700.00 - 10/1/02-1/31/08 which Tenant agrees to pay in
lawful money of the United States which shall be legal tender in payment of all
debts and dues, public and private, at the time of payment, in equal monthly
installments of $9,750.00 - 10/1/97-9/30/02 and $10,725.00 - 10/1/02-1/31/08, in
advance on the first day of each month during said term, at the office of
Landlord or such other place as Landlord may designate, without any set off or
deduction whatsoever, except that Tenant shall pay the first monthly
installment(s) on the execution hereof (unless this lease be a renewal).
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
and agree as follows:
RENT
FIRST: Tenant shall pay the rent and additional rent as above and as
hereinafter provided.
ADDITIONAL RENT
SECOND: (a) Tenant shall pay to Landlord, as additional rent hereunder,
in advance, on the first day of each and every month during the term hereof, all
sums expended by Landlord and/or which become due to Landlord under this lease
and under any collateral agreements relating the premises. Tenant's use and
occupancy thereof, the supplying by Landlord to Tenant of any services in
connection therewith, together with any fines or penalties imposed or assessed
by any governmental authority by reason of failure to comply with its
requirements.
(b) If Tenant shall default in the observance or performance of any term or
covenant on Tenant's part to be observed or performed under or by virtue of any
of the terms or provisions in any paragraph of this lease, Landlord may
immediately or at any time thereafter and without notice perform the same for
the account of Tenant, and if Landlord makes any expenditures or incurs any
obligations for the payment of money in connection therewith including, but not
limited to, attorneys' fees in instituting, prosecuting or defending any action
or proceeding, such sums paid or obligations incurred with interest and costs
shall be deemed to be additional rent hereunder.
(c) The receipt by Landlord at any time of any installment of the regular
stipulated rent hereunder or of any additional rent shall not be deemed to be a
waiver of any other additional
2
<PAGE>
rent then due. For the non-payment of any additional rent, Landlord shall have
all the rights and remedies which it would have in the case of a default in the
payment of the regular stipulated rent hereunder or any installment thereof.
RENT DUE UNDER OTHER LEASE AS ADDITIONAL RENT
THIRD: In the event that, at the commencement of the term of this
lease, or thereafter, Tenant shall be in default in the payment of rent to
Landlord pursuant to the terms of another lease with Landlord or with Landlord's
predecessor in interest, Landlord may, at Landlord's option and without notice
to Tenant, add the amount of such arrearages to any monthly installment of rent
payable hereunder, and the same shall be payable to Landlord as additional rent.
USE
FOURTH: Tenant shall use and occupy the demised premises for executive,
general and design offices and for no other purpose. Tenant shall not suffer or
permit the demised premises or any part thereof to be used by others for any
purpose whatsoever, without the prior written consent of Landlord in each
instance.
REQUIREMENTS OF LAW
FIFTH: Tenant at its sole expense shall comply with all laws, orders
and regulations of Federal, State, County and Municipal Authorities, and with
any direction of any public officer or officers, pursuant to law which shall
impose any violation, order or duty upon Landlord or Tenant with respect to
demised premises provided same is attributable to Tenant's particular use of the
demised premises. Tenant shall not do, or permit to be done, any act or thing
upon said premises which shall or might subject Landlord to any liability or
responsibility for injury to any person or persons or to property by reason of
any business or operation being carried on upon said premises or for any other
reason.
CERTIFICATE OF OCCUPANCY
SIXTH: Tenant will not at any time use or occupy the demised premises
in violation of the certificate of occupancy or certificate of compliance issued
for the building of which the demised premises form a part, and in the event
that any department of the City or State of New York shall hereafter at any time
contend and/or declare by notice, violation, order or in any other manner
whatsoever that the premises hereby demised are used for a purpose which is a
violation of such certificate of occupancy. Tenant shall, upon five (5) days'
written notice from Landlord, immediately discontinue said use of such premises.
Landlord represents that, as of the date hereof, the certificate of occupancy
issued for the building permits office use in the demised premises. Failure by
Tenant to discontinue such use after such notice shall be considered a default
in the fulfillment of a covenant of this lease, and Landlord shall have the
right to terminate this lease immediately, and in addition thereto shall have
the right to exercise any and all rights and privileges and remedies given to
Landlord by and pursuant to the provisions of Paragraph 40 hereof. The statement
in this lease of the nature of the business to be conducted by Tenant in demised
premises shall not be deemed or construed to constitute a representation or
guaranty by Landlord that such business may continue to be conducted in the
premises for the entire period of the lease or is lawful or permissible under
the certificate of occupancy in effect for the building of which the demised
premises form a part, or otherwise permitted by law. If
3
<PAGE>
alternations or additions, including but not limited to a sprinkler system, are
needed to permit lawful conduct of Tenant's business or to comply with the
certificate of occupancy, the same shall be made by and at the sole expense of
Tenant.
NON-HAZARDOUS USES
SEVENTH: Tenant shall not suffer any act to be done or any condition to
exist on the demised premises or any part thereof or any article to brought
thereon which may be dangerous, unless safeguarded as required by law, or by any
insurance carrier having any interest in such conduct or conditions or which
may, in law, constitute a nuisance, public or private, and as not to make void
or voidable any insurance applicable to the building, under penalty of damages
and forfeiture.
TENANT TO KEEP INSURANCE RATE LOW
EIGHTH: Tenant will conduct its business in such a manner as to enable
Landlord or other tenants in the building to obtain the lowest possible
insurance rate upon the entire building in which the demised premises are
located, consistent with Tenant's permitted use, and will, at its sole expense,
comply with all rules, orders, regulations or requirements of all public
liability, fire and insurance policies in force at any time with respect to the
demised premises, as well as all rules, orders, regulations or requirements of
the new York Board of Fire Underwriters or any other similar body, and shall not
do or permit anything to be done in or upon said premises or bring or keep
anything therein, except as now or hereafter permitted by the Fire Department,
Board of Fire Underwriters, Fire Insurance Rating Organization, or other
authority having jurisdiction and then only in such quantity and manner of
storage as not to increase the rate for fire insurance applicable to the
building, or use the premises in a manner which shall increase the rate of fire
insurance on the building of which demised premises form a part, or on property
located therein, over that in effect prior to this lease. If by reason of
failure of Tenant to comply with the provisions of this paragraph (except that
the mere use of the demised premises by Tenant consistent with Tenant's
permitted use shall not subject Tenant to the requirements of this sentence),
the fire insurance rate shall at the beginning of this lease or at any time
thereafter be higher than it otherwise would be, then Tenant shall reimburse
Landlord, as additional rent hereunder, for that part of all fire insurance
premiums thereafter paid by Landlord, which shall have been charged because of
such failure or use by Tenant, and shall make reimbursement upon the first day
of the month following such outlay by Landlord. In any action or proceeding
wherein Landlord and Tenant are parties, a schedule or "make up" of rate for the
building or demised premises issued by the New York Fire Insurance Exchange, or
other body making fire insurance rates for said premises, shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rate then applicable to said premises. Tenant shall not bring or
permit to be brought or kept in or on the demised premises, any inflammable,
combustible or explosive fluid, chemical, substance or material other than silk
or other textiles, or cause or permit any odors of cooking or other processes,
or any unusual or other objectionable odors to permeate from the demised
premises.
ASSIGNMENT, MORTGAGE AND SUBLEASING
NINTH: (a) Tenant shall not assign, mortgage or encumber this agreement
nor underlet the demised premises or any part thereof or permit the demised
premises or any part thereof to be occupied by anybody other than Tenant,
without the prior written consent of Landlord in each
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instance. The transfer of a majority of the issued and outstanding capital stock
of any corporate Lessee of this lease or a majority of the total interest in any
partnership lessee, however accomplished, and whether in a single transaction or
in a series of related or unrelated transactions, shall be deemed an assignment
of this lease. If this lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Landlord may,
after default by Tenant, collect rent from the assignee, under-tenant or
occupant, and apply the net amount collected to the rent herein reserved, but no
such assignment, underletting, occupancy or collection shall be deemed a waiver
of this covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Landlord to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Landlord to any further
assignment or underletting.
(b) If the demised premises shall be underlet in whole or in part by Tenant
or its heirs, executors, administrators, legal representatives, successors or
assigns, such party shall, within ten (10) days of such underletting, furnish
Landlord with a duplicate original of such underlease and shall, on demand of
Landlord, supply Landlord within ten (10) days of such demand, a written list of
all such under-tenants, the terms, including expiration dates of their
under-tenancies, the rents payable thereunder, and any additional information
requested by Landlord. This provision or compliance therewith, however, shall in
no event be construed to be a consent to any underletting or a waiver of the
covenant against underletting contained herein. Non-compliance by Tenant with
the provisions of this paragraph shall be deemed to be a breach of this lease.
(c) Tenant assumes and shall be responsible for and liable to Landlord, for
all acts and omissions on the part of any present or future under-tenant, their
agents, employees, servants or licensees, and any breach or violation of any of
the terms, covenants, agreements, provisions, conditions and limitations of this
lease, whether by act or omission, by any under-tenant shall constitute a breach
or violation of this lease by Tenant.
WASTE
TENTH: Throughout the term of this lease, Tenant will take good care of
the demised premises and appurtenances and suffer no waste, damage,
disfigurement or injury thereto or any part thereof.
ALTERATIONS
ELEVENTH: (a) Tenant shall make no alterations, decorations,
installations, additions or improvements in or to the demised premises,
including, but not limited to, an air-conditioning or cooling system, unit or
part thereof or other apparatus of like or other nature, nor bring materials in
connection therewith on the demised premises, without Landlord's prior written
consent, and then only by contractors or mechanics approved by Landlord, and
subject to plans and specifications approved by Landlord. Landlord's consent to
the performance by Tenant of work consisting of nonstructural alterations to the
demised premises (and to the related plans and specifications) shall not be
unreasonably withheld or delayed, provided that (i) Tenant is not then in
default under this lease (whether or not any applicable grace period has
expired), (ii) the outside appearance of the building shall not be affected,
(iii) Tenant's work shall not affect any
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structural part of the building, (iv) no part of the building outside the
demised premises shall be affected, (vi) the mechanical, electrical, plumbing
and other service and utility systems of the building shall not be affected, and
(vii) Tenant's work shall comply with the applicable provisions of this lease
and law; provided that Landlord's consent shall not be required with respect to
(but Landlord shall be notified of) any such alterations costing less than
$25,000 in the aggregate. Notwithstanding anything herein to the contrary,
Tenant shall not, in the course of performing any work, unreasonably interfere
or disturb any other tenants in the building. All such work, alterations,
decorations, installations, additions or improvements shall be done at Tenant's
sole expense and at such times (but, in any event, during normal business hours)
and in such manner as Landlord may from time to time designate. All alterations,
decorations, installations, additions or improvements upon demised premises,
made by either party, including all paneling, decorations, partitions, railings,
mezzanine floors, galleries, steam, water, and air conditioning systems and
units, shelving, electric fixtures and the like, shall become the property of
Landlord, and shall remain upon, and be surrendered with, said premises, as a
part thereof, at the end of the term or renewal term, as the case may be,
unless, in the case of special built-ins, Tenant elects to remove them, in which
event, Tenant shall repair any damage caused by such removal. All alterations,
decorations, installations, additions or improvements installed by Tenant may be
used by Tenant without additional charge for such use, and without any right in
the Landlord to remove the same in the absence of any default under this lease
during the term hereof.
(b) Tenant, at its own expense, will promptly repair all damage and injury
resulting from such removal and restore the space theretofore occupied by such
fixtures and installations to good order and condition and to character and
appearance equal to that of the area adjacent thereto, in default of any of
which Landlord may at its option cause the same to be done at Tenant's expense.
REPAIRS
TWELFTH: Tenant shall take good care of the demised premises and the
fixtures and appurtenances therein, and at its sole cost and expense make all
non-structural repairs thereto as and when needed to preserve them in good
working order and condition. All damage or injury to the demised premises and to
its fixtures, appurtenances and equipment or to the building of which the same
form a part or to its fixtures, appurtenances and equipment caused by Tenant's
moving property in or out of the building or by installation or removal of
furniture, fixtures or other property, or resulting from fire, explosion,
air-conditioning unit or system, short circuits, flow or leakage of water,
steam, illuminating gas, sewer gas, sewerage or odors or by frost or by bursting
or leaking of pipes or plumbing works or gas, or from any other cause of any
other kind or nature whatsoever due to carelessness, omission, neglect, improper
conduct or other cause of Tenant, its servants, employees, agents, visitors or
licensees shall be repaired, restored or replaced promptly by Tenant at its sole
cost and expense to the satisfaction of Landlord. All aforesaid repairs,
restorations and replacements shall be in quality and class equal to the
original work or installations. If Tenant fails to make such repairs,
restorations or replacements within a reasonable time same may be made by
Landlord at expense of Tenant and collectible as additional rent.
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LANDLORD'S LIABILITY, ALTERATIONS OR REPAIRS
THIRTEENTH: (a) Except where otherwise provided in this lease, there
shall be no allowance to Tenant for a diminution of rental value and no
liability on the part of Landlord by reason of inconvenience, annoyance or
injury to business arising from Landlord, Tenant or others making any repairs,
alterations, additions or improvements in or to any portion of the building or
demised premises, or in or to fixtures, appurtenances, or equipment thereof, and
no liability upon Landlord for failure of Landlord or others to make any
repairs, alterations, additions or improvements in or to any portion of the
building or of demised premises, or in or to the fixtures, appurtenances or
equipment thereof.
(b) Landlord reserves the right to stop service of the electric, water,
sprinkler, steam, air conditioning, elevator, heating and plumbing systems, when
necessary, by reason of accident, or emergency, or for repairs, alterations,
replacements or improvements, in the judgment of Landlord desirable or necessary
to be made, until such repairs, alterations, replacements or improvements shall
have been completed; provided that, Landlord shall give Tenant not less than
twenty-four (24) hours' notice (which notice need not be in writing), except in
an emergency, when no notice shall be required.
EMPLOYMENT OF UNION LABOR TO MAKE ALTERATIONS AND
REPAIRS
FOURTEENTH: Tenant agrees that whenever any alterations, additions,
improvements, changes or repairs to the said premises are consented to by
Landlord, or in the moving of merchandise, fixtures or equipment into the said
building, or moving the same therefrom, only such labor under agreement with the
Building Trades Employers' Association of New York City, or which shall not
cause strikes or concerted labor action by other employees of the building, and
which have the same or similar labor union affiliations as those employed by
Landlord or Landlord's contractors, shall be employed.
DISCHARGE OF LIENS, ETC.
FIFTEENTH: (a) Any mechanic's lien filed against the demised premises,
or the building of which the same form a part, for work claimed to have been
done for, or materials claimed to have been furnished to Tenant, shall be
discharged by Tenant within thirty (30) days thereafter, by payment in full or
at Tenant's expense by filing the bond required by law. If Tenant fails to so
pay or file any bond, Landlord may pay the amount of said lien or discharge the
same by deposit, or otherwise, billing Tenant for all expenses in connection
therewith as additional rent.
(b) Nothing in this lease contained shall be deemed or construed in any way
as constituting the consent or request of Landlord, express or implied by
inference or otherwise, to any contractor, sub-contractor, laborer or
materialmen for the performance of any labor or the furnishing of any materials
for any specific improvement, alteration to, or repair of the demised premises,
or any part thereof, or for the demolition or replacement of the demised
premises or any part thereof.
(c) Tenant agrees to obtain and deliver to Landlord, written and
unconditional waivers of liens (and agreement that its filed plans may be
replaced), for all plans, specifications and
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drawing for work or materials to be furnished to tenant at the premises, signed
by all architects, engineers and designers to become involved in such work for
Tenant; with respect to contractors, subcontractors, materialmen and laborers,
and all work or materials to be furnished to Tenant at the premises. Tenant
agrees to obtain and deliver to Landlord written and unconditional waiver of
mechanics liens upon the premises or the building after payments to the
contractors, and subject to any applicable provisions of the Lien Law.
SIGNS
SIXTEENTH: Tenant will not, without Landlord's written consent, place,
affix or paint any signs, awnings, projections or advertising material of any
kind upon the exterior of the premises or of the building, not upon the windows,
nor in any location that may be visible from any of the lobbies or passageways.
If Tenant shall cause or permit any sign or other object, similar or dissimilar,
to be placed on or affixed to any part of the building not inside the space
specifically demised hereunder, Landlord shall have the right, without notice or
liability to Tenant, to remove and dispose of the same and to make any repairs
necessitated by such removal, all at Tenant's sole expense and risk. Landlord's
expenses in so doing shall be deemed additional rent hereunder and collectible
as such.
MISCELLANEOUS PROHIBITED ACTIONS OF TENANT
SEVENTEENTH: (a) Tenant will not cause or permit any connection to be made
to the wiring on the electrical panel board of the building without the prior
written consent and supervision of the Landlord.
(b) Tenant shall not install any pressing equipment, whether connected to
Tenant's gas-fired boiler or to the building steam system, without first having
plans and specifications approved by Landlord.
The vacuum used by pressing machines for the drying of garments shall be
created by an electrically driven vacuum pump. Tenant shall not use any vacuum
created by the use of steam from a gas-fired boiler or from the building steam
system.
(c) Tenant shall not permit any connection to be made at the demised
premises with any high pressure steam lines, electric current lines or water
lines without Landlord's prior written consent.
(d) Tenant shall not make any electrical or plumbing installation without
Landlord's prior written consent. All water lines must be installed in red
brass.
(e) Window air-conditioning units shall in no event be installed without
Landlord's prior written approval or be mounted so as to extend outward beyond
the line of the window frame.
(f) Tenant shall install no linoleum, rubber, mastic or vinyl floor
covering, unless it is laid over a layer of felt, double cemented in the manner
approved by Landlord.
(g) Tenant shall not place a load upon any floor of the demised premises
exceeding the floor load per square foot area which such floor was designed to
carry and which is allowed by
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law. Landlord reserves the right to prescribe the weight and position of all
safes which must be placed so as to distribute the weight. Business machines and
mechanical equipment shall be placed and maintained by Tenant at Tenant's
expense in settings sufficient in Landlord's judgment to absorb and prevent
vibration, noise and annoyance. Tenant agrees that upon the written request of
Landlord, Tenant will, within fifteen (15) days of the mailing of such request,
provide rubber or other approved settings for absorbing, preventing and
decreasing noise and/or vibration from any or all machines or machinery, such
insulation or other devices for the prevention, decrease or elimination of noise
satisfactory to Landlord shall be made in such manner and of such material as
Landlord may direct. In the event that Tenant fails to comply with the aforesaid
request within the fifteen (15) days aforementioned, Landlord may, at its
option, by notice in writing to Tenant, cause the term of this lease to expire.
Landlord in such event shall have the right to re-enter the premises by summary
proceedings or otherwise without liability. Landlord shall not give less than
thirty (30) days' notice of its election to terminate the lease as above
provided. Landlord shall have the right to enter the demised premises with
workmen and materials and to insulate the machinery as above provided,
collecting from Tenant the cost of such work as additional rent in the event
that Tenant fails to comply with the written request aforementioned after the
expiration of fifteen (15) days from the receipt thereof.
(h) Tenant shall not move any safe, heavy machinery, heavy equipment,
freight, bulky matter, or fixtures into or out of the building without
Landlord's prior written consent and the filing with Landlord of a Rigger's
Liability Insurance Certificate satisfactory of Landlord. If such safe,
machinery, equipment, freight, bulky matter or fixtures require special
handling, Tenant agrees to employ only persons holding a Master Rigger's License
to do said work, and that all work in connection therewith shall comply with the
Administrative Code of the city of New York.
(i) If the demised premises be or become infested with vermin, Tenant
shall, at Tenant's expense, cause the same to be exterminated from time to time
to the satisfaction of the Landlord, and shall employ such exterminators and
such exterminating company or companies as shall be approved by Landlord.
(j) The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed or
constructed, and no sweepings, rubbish, rags, acids or other substances shall be
deposited therein.
(k) Tenant agrees to provide proper receptacles as called for by the Fire
Department, Board of Fire Underwriters, Fire Insurance Rating Organization or of
the authority having jurisdiction. Tenant hereby agrees to cause its rubbish or
waste to be disposed of at its own cost and expense, subject to all the
reasonable rules and regulations that from time to time may be made in
connection therewith by Landlord, including a regulation that Tenant shall use a
single rubbish or waste remover designated by Landlord for the removal of the
rubbish or waste of the tenants in the building. Tenant further agrees that it
shall not at any time store any of its rubbish or waste (which is to be taken by
the waste remover) in the said areas prior to 5:00 P.M.
(l) If Tenant is a lessee of any store in said building, the said Tenant
hereby agrees to keep the sidewalk, entrance and passage-ways unencumbered and
unobstructed, and agrees,
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further, to remove all ice and snow from the sidewalks immediately in front of
the demised premises.
(m) Tenant will not suffer, permit or allow unusual or objectionable odors
to be produced upon or permeate the demised premises.
WINDOW CLEANING
EIGHTEENTH: Tenant will not clean, nor require, permit, suffer or allow any
window in the demised premises to be cleaned, from the outside in violation of
Section 202 of the Labor Law or of the rules of the Board of Standards and
Appeals, or of any other board or body or asserting jurisdiction.
NOTICE OF DAMAGE TO PIPES, OR FIRE
NINETEENTH: Tenant shall give prompt notice to Landlord of any accidents to
or defects in the pipes and apparatus in the building or of any fire that may
occur.
LANDLORD'S ACCESS TO PREMISES
TWENTIETH: Tenant shall permit Landlord to erect, use and maintain, pipes
and conduits in and through the demised premises. Landlord or Landlord's agents
shall have the right to enter the demised premises at all times to examine the
same and to show them to prospective purchasers or lessees of the building, and
to make such decorations, repairs, alterations, improvements or additions as
Landlord may deem necessary or desirable, and Landlord and its representatives
shall be allowed to take and store all material into and upon said premises that
may be required therefor without the same constituting an eviction of Tenant in
whole or in part and the rent reserved shall in no wise abate while said
decorations, repairs, alterations, improvements, or additions are being made, by
reason of loss or interruption of business of Tenant, or otherwise. During the
six months prior to the expiration of the term of this lease, or any renewal
term, Landlord may exhibit the premises to prospective tenants or purchasers,
and place upon said premises, or the exterior thereof, the usual notice "To Let"
or "For Sale," which notices the Tenant shall permit to remain thereon without
molestation. If, during the last month of the term, Tenant shall have removed
all or substantially all of Tenant's property therefrom, Landlord may
immediately enter and alter, renovate and redecorate the demised premises,
without elimination or abatement of rent, or incurring liability to Tenant for
any compensation, and such acts shall have no effect upon this lease. If Tenant
shall not be personally present to open and permit an entry into said premises,
at any time, when for any reason an entry therein shall be necessary or
permissible, Landlord or Landlord's agents may enter the same by a master key,
or may forcibly enter the same, without rendering Landlord or such agents liable
therefor (if during such entry Landlord or Landlord's agent shall accord
reasonable care to Tenant's property), and without in any manner affecting the
obligations and covenants of this lease. Nothing herein contained, however,
shall be deemed or construed to impose upon Landlord any obligation,
responsibility or liability whatsoever, for the care, supervision or repair of
the building or any part thereof, other than as herein provided. Landlord shall
also have the right at any time, without the same constituting an actual or
constructive eviction and without incurring any liability to Tenant therefor, to
change the arrangement and/or location of entrances or passageways, doors and
doorways, and corridors, elevators, stairs,
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toilets, or other public parts of the building and to change the name, number or
designation by which the building is commonly known.
ELECTRICITY
TWENTY-FIRST: Landlord and Tenant understand and agree that Tenant will
obtain its electricity for the demised premises through presently existing
wiring and equipment servicing the demised premises, either on a "submetering"
basis or on a "rent inclusion" basis. Initially, the parties agree, electricity
distribution shall be on a "submetering" basis. If for any reason beyond
Landlord's control, including action by government or other authority asserting
jurisdiction over the matter, Tenant no longer can so obtain its electricity
supply on a "submetering" basis, then and in such event Landlord will
redistribute to Tenant the electricity for the demised premises, on a "rent
inclusion" basis, as hereinafter provided.
(A) Submetering: If and so long as Landlord provides electricity to the
demised premises on a submetering basis, Tenant covenants and agrees to purchase
the same from Landlord or Landlord's designated agent at Landlord's Cost (as
hereinafter defined), for Tenant's submetered electricity consumption plus 15%
thereof. Where more than one meter measures the service of Tenant in the
Building, the KWHR and the KW recorded by each meter shall be added, and billed
as if billed from a single meter. Bills therefor shall be rendered at such times
as Landlord may elect and the amount, as computed from a meter or meters and
determined by landlord's electrical consultant, in accordance with this Article,
shall be deemed to be, and be paid as, additional rent.
Landlord's Cost for such redistributed electricity shall be equal to
Landlord's Cost Rates (as hereinafter defined) for the relevant billing period
multiplied by Tenant's electricity consumption (i.e., energy and demand) based
on the aforementioned meter readings as herein provided.
(B) Landlord's Cost Rates shall be determined as follows:
"Landlord's Electricity Consumption cost" (Landlord's cost per KWHR) for
any given Utility Billing Period, shall mean the amount arrived at by dividing
(i) Landlord's KWHR cost, as indicated on the applicable utility bill (inclusive
of any taxes, including any taxes included in the computation of said utility
bill) for Landlord's Electricity Consumption for said Utility Billing Period,
inclusive of any fuel adjustments or rate adjustments contained in said utility
bill allocable to Landlord's Electricity Consumption (provided that same have
not been included in the computation of Landlord's Electricity Demand Cost), by
(ii) Landlord's Electricity Consumption as indicated on said bill.
"Landlord's Electricity Demand Cost" (Landlord's cost per KW) for any given
Utility Billing Period, shall mean the amount arrived at by dividing (i)
Landlord's KW cost, as indicated on the applicable utility bill (inclusive of
any taxes, including any taxes included in the computation of said utility bill)
for Landlord's Electricity Demand for said Utility Billing Period, inclusive of
any rate adjustments contained in said utility bill allocable to Landlord's
Electricity Demand (provided that same have not been included in the computation
of Landlord's Electricity Consumption Cost), by (ii) Landlord's Electricity
Demand as indicated on said bill.
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For purposes of determining Landlord's Electricity Consumption Cost and
Landlord's Electricity Demand Cost, (i) each amount appearing on any utility
bill for demand, fuel or rate adjustments shall be taken into account (where it
cannot be determined from the utility bill whether such amount relates to
consumption or demand, it shall be deemed to relate to demand) and (ii) there
shall be added to Landlord's Cost a sum equal to Landlord's fees paid to the
electrical consultant and Landlord's overhead, in connection with billing and
computing electricity charges for this Tenant.
For purposes of this Article, the following terms shall have the following
meanings:
"Utility Billing Period" shall mean the respective period of electricity
consumption and demand for which Landlord is charged on each successive bill
from the utility company furnishing electricity to the Building.
"Landlord's Electricity Consumption," for any given Utility Billing Period,
shall mean the number of kilowatt hours of electricity consumed in and for the
Building (including common areas, tenantable areas and mechanical areas) during
said Utility Billing Period, as indicated on the applicable utility bill.
"Landlord's Electricity Demand," for any given Utility Billing Period,
shall mean the number of kilowatts of electricity demanded in and for the
Building (including common areas, tenantable areas and mechanical areas) during
said Utility Billing Period, as indicated on the applicable utility bill.
(C) Rent Inclusion: If and so long as Landlord provides electricity to the
demised premises on a rent inclusion basis, Tenant agrees:
1. The fixed annual rent shall be increased by an amount of the Electricity
Rent Inclusion Factor ("ERIF"), as hereinafter defined. Tenant acknowledges and
agrees (i) that the fixed annual rent hereinabove set forth in this Lease does
not yet, but is to include an ERIF to compensate Landlord for electrical wiring
and other installations necessary for, and for its obtaining and making
available to Tenant, the redistribution of, electric current as an additional
service; and (ii) that such ERIF, which is a portion of the fixed annual rent,
shall be subject to periodic adjustments as herein provided.
2. The ERIF shall be based in part on a survey of Tenant's consumption of
redistributed electricity, made as hereinafter provided, and shall be equal to a
sum equal to Landlord's cost (Landlord's Cost) for such electricity as in (B)
hereof defined, plus 15% thereof. Landlord's Cost for such redistributed
electricity shall be equal to Landlord's Cost Rates (as hereinbefore defined)
for the relevant billing period multiplied by tenant's electricity consumption
(i.e. energy and demand) based on the most recent survey thereof, all as
hereinafter provided. If after the start of the relevant billing period, the
cost to Landlord shall be increased or decreased, by change in Landlord's
electric rates, charges, fuel adjustments or service classifications, or by
taxes or charges of any kind imposed thereon, or for any other such reasons,
then the ERIF,
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based on the most recent survey, shall be redetermined, effective as of the date
of such change in Landlord's costs, by Landlord's electrical consultant, in
accordance with the provisions hereof.
3. The parties agree that a reputable, independent electrical consultant,
selected by Landlord ("Landlord's electrical consultant"), shall by survey
determine as estimate of Tenant's demand and energy in order to calculate the
ERIF in accordance with this Article, and that Landlord's electrical consultant
may from time to time make surveys in the demised premises of the electrical
equipment and fixtures and the use of current in and for such space. The ERIF
portion of the fixed annual rent shall then be appropriately adjusted, effective
as of the date of each said survey, and in accordance with the provisions
hereof.
Pending the results of the initial survey and determination to be made by
Landlord's consultant, as herein provided, the ERIF portion of the fixed annual
rent shall be calculated using the following method:
For any portion of the initial twelve (12) months after the cessation of
submetering, when Landlord provides electricity to Tenant on a rent inclusion
basis prior to the date of the initial survey of Tenant, the Tenant's
electricity consumption (i.e., energy and demand) for each month during such
initial twelve (12)month period, instead of based on a survey, shall be deemed
to be the same as Tenant's submetering consumption figures for the corresponding
month of the twelve (12) month period immediately prior to such start of rent
inclusion.
Within four (4) months after Tenant's obtaining rent inclusion electricity
hereunder, Landlord will cause a survey and determination to be made of the
electricity consumption (energy and demand) in and for said space.
The parties understand and agree that in any survey of Tenant's electricity
consumption in and for the demised premise, the consultant's survey results
shall be calculated to reflect a proper demand (diversity) factor.
(D) General Conditions: If any tax is imposed upon landlord's receipts from
the sale or resale or redistribution of electrical energy or gas or telephone
service to Tenant by any Federal, State or Municipal Authority, Tenant covenants
and agrees that, where permitted by law, Tenant's pro-rata share of such taxes
shall be passed on to, and included in the ERIF or in the bill of, and paid by,
Tenant to Landlord (unless already included in Tenant's ERIF or additional rent,
as above provided).
If Tenant so disputes the determination, it shall, at its own expense,
obtain from a reputable, independent electrical consultant its own determination
in accordance with the provisions of this Article. Tenant's consultant and
Landlord's consultant then shall seek to agree. If they cannot agree within
thirty (30) days they shall choose a third reputable electrical consultant,
whose cost shall be shared equally by the parties, to make similar
determinations which shall be controlling. (If they cannot agree on such third
consultant within ten (10) days, then either party may apply to the Supreme
Court in the County of New York for such appointment.) However, pending such
controlling determinations, Tenant shall pay to Landlord the amount of
additional rent or ERIF in accordance with the determinations of Landlord's
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electrical consultant. If the controlling determinations differ from Landlord's
electrical consultant, then the parties shall promptly make adjustment for any
deficiency owed by Tenant or overage paid by Tenant.
At Landlord's option, Tenant agrees to purchase from Landlord all lamps and
bulbs used in the demised premises and to pay for the cost of the installation
thereof, at all competitive prices.
Landlord shall not be liable to Tenant, except for negligence or willful
misconduct, for any loss or damage or expense which Tenant may sustain or incur
if either the quantity or character of electric service is changed or is no
longer available or suitable for Tenant's requirements. Tenant covenants and
agrees that at all times its use of electric current shall never exceed the
capacity of existing feeders to the Building and the demised premises, or the
risers or wiring installation. Tenant agrees not to connect any additional
electrical equipment to the building electric distribution system, other than
lamps, typewriters and other small office machines (including fax machines and
p.c.'s) which consume comparable amounts of electricity, without Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed.
All necessary wiring, meters and related equipment for providing to the
demised premises submetered electricity will be provided by Landlord at
Landlord's sole cost and expense. Any additional riser or risers to supply
Tenant's electrical requirements, upon written request of Tenant, will be
installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord's
sole judgment, the same are necessary and will not cause permanent damage or
injury to the Building or the demised premises or cause or create a dangerous or
hazardous condition or entail excessive or unreasonable alterations, repairs or
expense or interfere with or disturb other tenants or occupants. In addition to
the installation of such riser or risers, Landlord will also at the sole cost
and expense of Tenant, install all other equipment proper and necessary in
connection therewith, subject to the aforesaid terms and conditions.
If all or part of the ERIF, or the submetering additional rent payable in
accordance with this Article becomes uncollectable or reduced or refunded by
virtue of any law, order or regulation, the parties agree that, at Landlord's
option, in lieu of ERIF, or submetering additional rent, and in consideration of
Tenant's use of the Building's electrical distribution system and receipt of
redistributed electricity and payment by Landlord of consultant's fees and other
redistribution costs, the fixed annual rental rate(s) to be paid under this
lease shall be increased by an "alternative charge" which shall be a sum equal
to Landlord's cost for electricity redistributed to Tenant, as hereinabove
defined, plus 15% thereof (or the maximum such percentage then permitted by
law).
The Landlord reserves the right, subject to the first paragraph of this
Article, at any time, upon thirty (30) days' written notice, to change its
furnishing of electricity to Tenant from a submetering basis to a rent inclusion
basis, or vice versa. The Landlord reserves the right to terminate the
furnishing of electricity on a rent inclusion, submetering, or any other basis
at any time, upon thirty (30) days' written notice to Tenant, in which event the
Tenant may make application directly to the public utility for the Tenant's
entire separate supply of electric current
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and Landlord shall permit its wires and conduits, to the extent available and
safely capable, to be used for such purpose, but only to the extent of Tenant's
then authorized connected load.
Any meters, risers, or other equipment or connections necessary to enable
Tenant to obtain electric current directly from such utility, shall be installed
at Landlord's sole cost and expense, unless Landlord's termination of
electricity redistribution was required by law, in which case such installation
shall be done at Tenant's sole cost and expense.
Only rigid conduit or electricity metal tubing (EMT) will be allowed. The
Landlord, upon the expiration of the aforesaid thirty (30) days' written notice
to Tenant, plus any additional time reasonably required for Tenant's receiving
such direct service (except to the extent, if any, that sooner termination may
be required by law), may discontinue furnishing the electric current, but this
Lease shall otherwise remain in full force and effect. If Tenant was provided
electricity on a rent inclusion basis when it was so discontinued, then
commencing when Tenant receives such direct service and as long as Tenant shall
continue to receive such service, the fixed annual rent payable under this lease
shall be reduced by the amount of the ERIF which was payable immediately prior
to such discontinuance of electricity on a rent inclusion basis.
(E) Anything hereinabove to the contrary notwithstanding, in no event is
the ERIF, or any submetering additional rent charge, to be less than an amount
equal to the total of Landlord's payment to the public utility for the
electricity consumed by Tenant (and any taxes thereon or on redistribution of
same).
TWENTY-SECOND: (a) If Landlord installs a water meter to measure Tenant's
water consumption for all purposes, and throughout the duration of Tenant's
occupancy Tenant shall keep said meter and installation equipment in good
working order and repair at Tenant's own cost and expense, in default of which
Landlord may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant; provided that Landlord shall not install a
water meter to measure Tenant's water consumption unless Landlord also begins to
measure the water consumption (and charge therefor) of not less than fifty
percent (50%) of he other office tenants in the building. Tenant agrees to pay
for water consumed, as shown on said meter as and when bills are rendered, and
on default in making such payment Landlord may pay such charges and collect the
same from Tenant. Landlord may inspect such water meter at any time and shall
have access thereto at all times for the purpose of such inspection.
(b) In addition to the foregoing, Tenant agrees to pay its proportionate
share of the water consumed in the toilets and other portions of the premises
over which Landlord may reserve control, irrespective of the fact that the same
shall be located outside of the demised premises.
(c) Tenant covenants and agrees to pay its pro-rata share of the sewer
rent, charge or any other tax, rent levy or charge which now or hereafter is
assessed, imposed or a lien upon the demised premises or the realty of which
they are part pursuant to law, order or regulation made or issued in connection
with the use, consumption, maintenance or supply of water, water system or
sewage or sewage connection or system.
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(d) The bill rendered by Landlord for metered water, sewer or any other
charges provided for in this paragraph "22," shall be based upon Tenant's
consumption and shall be payable by Tenant as additional rent. Any such costs or
expenses incurred or payments made by Landlord for any of the reasons or
purposes hereinabove stated, shall be deemed to be additional rent payable by
Tenant and collectable by Landlord as such. If the building or the demised
premises or any part thereof be supplied with water through a meter through
which water is also supplied to other premises, Tenant shall pay to Landlord as
additional rent, on the first day of each month, $140.00 as Tenant's portion.
Independently of and in addition to any of the remedies reserved to Landlord
hereinabove or elsewhere in this lease, Landlord may sue for and collect any
monies to be paid by Tenant or paid by Landlord for any of the reasons or
purposes hereinabove set forth.
TWENTY-THIRD: If the sprinkler system or any of its appliances shall be
damaged or injured or not in proper working order by reason of any act or
omission of Tenant, Tenant's agents, servants, employees, licensees or visitors,
Tenant shall forthwith restore the same in good working condition at its own
expense; and if the New York Board of Fire Underwriters or the New York Fire
Insurance Rating Organization or any bureau, department or official of the State
or City Government, require or recommend that any changes, modifications,
alterations or additional sprinkler heads or other equipment be made or supplied
by reason of Tenant's business, or the location of partitions, trade fixtures,
or other contents of the demised premises, or for any other reason, or if any
such changes, modifications, alterations, additional sprinkler heads or other
equipment, become necessary to prevent the imposition of a penalty or charge
against the full allowance for a sprinkler system in the fire insurance rate as
fixed by said Rating Organization, or by any Fire Insurance Company, Tenant
shall, at Tenant's expense, promptly make and supply such changes,
modifications, alterations, additional sprinkler heads or other equipment.
Tenant shall pay to Landlord as additional rent the sum of $140.00 on the first
day of each month during the term of this lease, as Tenant's portion of the
contract price for sprinkler supervisory service.
TWENTY-FOURTH: Tenant shall have the privilege of using the air
conditioning system which affects the whole or a portion of the demised
premises, and shall, at its own cost and expense, maintain and operate said
system in compliance with all present and future laws and governmental
requirements, and shall obtain all governmental licenses and permits now or
hereafter required. Tenant shall pay for all electric current, water and
refrigerants used in connection with said system. Tenant, at its own cost and
expense, shall make or cause to be made, all repairs, alterations, changes,
additions or improvements in and to said system which may be necessary or which
may be required or recommended by Landlord or by any governmental authority, and
shall furnish all parts and supplies necessary or desirable in connection
therewith, but no alterations, changes, additions or improvements shall be made
by Tenant without the advance written consent of Landlord. Landlord's charges
for electric current, water and refrigerants and for such parts, supplies,
repairs, alterations, changes, additions or improvements as are caused to be
furnished or made by landlord shall be payable by Tenant as additional rent upon
presentation of Landlord's bill for same. If Tenant shall default in paying such
bill for five (5) days, Landlord shall have the right, in addition to any other
rights under this lease to terminate the operation of said air conditioning
system without notice to Tenant, and if such default shall continue for sixty
(60) days, Landlord shall have the right to remove the whole or any part of said
system from the demised premises without notice to Tenant. The non-
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functioning or defective functioning of said air conditioning system, or
Tenant's inability to operate or maintain the same in compliance with lawful
requirements, or Landlord's removal thereof or termination of the operation
thereof as provided in this paragraphs, or any delay, discomfort or
inconvenience suffered by Tenant in connection therewith, or, without limitation
of or by the foregoing, any other matter or thing related to such system, shall
not give rise to any obligation or liability on the part of Landlord and shall
not affect this lease or be deemed to release or discharge Tenant of any of
Tenant's obligations or liabilities under this lease or otherwise. Title to said
system and all present and future parts thereof is and shall be vested in
Landlord.
TWENTY-FIFTH: (a) As long as Tenant is not in default under any of the
covenants of this lease, Landlord shall provide necessary elevator facilities on
business days from 8:00 a.m. to 6:00 p.m., and on Saturdays from 8:00 a.m. to
1:00 p.m. On Sundays, holidays and nights, Landlord will furnish at least one
(1) elevator.
(b) If the building of which the demised premises are a part supplies
manually operated elevator service, Landlord may proceed with alterations
necessary to substitute automatic control elevator service upon ten (10) days'
written notice to Tenant without in any way affecting the obligations of Tenant
hereunder, provided that the same shall be done with the minimum amount of
inconvenience to Tenant, and Landlord pursues with due diligence the completion
of the alterations. Where automatic control elevator service is now, or
hereafter furnished, and the demised premises contain an entire floor or floors,
Tenant will provide, at its own cost and expense, locks for all entrances to
such floor or floors from the elevators.
(c) Tenant agrees it will not permit its employees other than office help
to use the passenger elevator in said building, nor will it permit them to use
the stairs leading to and from the passenger entrance to said building. Landlord
may prescribe and regulate which elevator and entrance shall be used by Tenant's
employees and for Tenant's shipping.
HEAT, CLEANING, PUBLIC AREAS
TWENTY-SIXTH: Landlord will:
(a) Furnish heat to the demised premises, when and as required by law, on
business days during regular business hours.
(b) Cause to be kept clean the public halls and public portions of the
building which are used in common by all tenants.
FIXTURES & PARTITIONS INSTALLED BY LANDLORD
TWENTY-SEVENTH: Tenant shall have the use of the partitions existing in the
premises demised herein and of all other equipment, fixtures and appurtenances
installed by Landlord prior to or during the term hereof. The ownership of all
such property shall at all times be vested in Landlord and possession thereof
shall revert to Landlord upon the expiration of the lease.
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VAULTS
TWENTY-EIGHTH: If any vault space is adjacent to the demised premises, the
same shall not be or be deemed to be part of the demised premises or its
appurtenances. Landlord may permit Tenant to use such vault space gratuitously,
but such permission may be revoked by Landlord at any time on two (2) days'
notice. Landlord shall have the right at any time to cause a wall to be erected
for the purpose of sealing off such vault space from the demised premises. Said
wall may be erected wholly or partly on that portion of the demised premises
which abuts such vault space. Landlord and its designees shall have the right
from time to time to enter and remain upon the demised premises, with men and
materials, for the purpose of erecting such wall. Tenant shall not be entitled
to any compensation, abatement of rent, or other claim by reason of any action
taken under this paragraph by or on behalf of Landlord. Any fee or license
charge or tax of municipal authorities for such vault shall be paid by Tenant.
LIABILITY OF LANDLORD, PROPERTY LOSS, DAMAGE
TWENTY-NINTH: Landlord or its agents shall not be liable for any damage to
property of Tenant or of others entrusted to employees of the building, nor for
the loss of or damage to any property of Tenant by theft or otherwise. Landlord
or its agents shall not be liable for any injury or damage to persons or
property resulting from fire, explosion, falling ceilings, falling plaster,
steam, gas, electricity, water, rain or snow or leaks from any part of said
building or from the pipes, appliances or plumbing works or from the roof,
street or subsurface or from any other place or by dampness or by any other
cause of whatsoever nature, including but not limited to the making of repairs
and improvements, unless caused by or due to the negligence of Landlord, its
agents, servants or employees; nor shall Landlord or its agents be liable for
any such damage caused by other tenants or persons in said building or caused by
operations in construction of any private, public or quasi public work; nor
shall Landlord be liable for any latent defects in the demised premises or in
the building of which they form a part. Tenant shall give immediate notice to
Landlord in case of fire or accidents in the demised premises or in the building
or of defects therein or in any fixtures or equipment.
INDEMNITY
THIRTIETH: Tenant shall, throughout the term and thereafter, indemnify
Landlord and save it harmless and free from damages, liabilities, penalties,
losses, expenses, causes of action, claims, suits and judgments, as well as all
expenses and attorneys' fees, arising from injury during said term to person or
property of any nature, and also for any matter or thing growing out of the
occupation of the demised premises or the streets, sidewalks, or vaults adjacent
thereto occasioned in whole or part by any act or acts, omission or omissions of
Tenant, its employees, guests, agents, assigns or undertenants.
LIABILITY OF LANDLORD, SERVICE INTERRUPTION, ACTS BEYOND CONTROL
THIRTY-FIRST: Neither this lease nor any obligation hereunder on Tenant's
part to be performed (including, but not limited to, Tenant's obligation to pay
the rents provided for hereunder) shall in any wise be released, discharged,
impaired, excused or otherwise affected because of Landlord's inability to
supply, furnish or make such services, fixtures, equipment, repairs, additions,
improvements, alterations and/or decorations. If any, as landlord may be
required to supply, furnish or make hereunder or in connection herewith, or
because of any delay
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in supplying, furnishing or making any of the foregoing, if such inability or
delay directly or indirectly results from or is caused by or attributable to may
cause or thing whatsoever beyond Landlord's control, including, but not limited
to, any law or ordinance or any governmental order, rule, regulation or
requirement, or any shortages in supplies, material or labor, or any acts of
God, or any labor difficulties, disasters or acts of public enemies, and in any
such event Landlord shall be relieved of any liability to Tenant which it might
otherwise have had by reason of any such requirement. Lessee agrees to look
solely to Lessor's estate and interest in the land and building, or the lease of
the building or of the land and building, and the demised premises, for the
satisfaction of any right or remedy of Lessee for the collection of a judgment
(or other judicial process) requiring the payment of money by Lessor, in the
event of any liability by Lessor, and no other property or assets of Lessor
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Lessee's use and occupancy of the demised premises or any other
liability of Lessor to Lessee (except for negligence).
SUBORDINATION
THIRTY-SECOND: This lease is and shall be subject and subordinate at all
times to all present or future leases and subleases of the entire building or of
the land and entire building of which the demised premises form a part, and to
all mortgages which now affect or may hereafter affect or be made in respect of
such leases and subleases or the real property of which the demised premises
form a part (whether or not such leases or mortgages also affect any other or
additional real property), and to all renewals, modifications, consolidations,
replacements and extensions thereof, and to all advances made or hereafter to be
made upon the security thereof. This clause shall be self-operative and no
further instrument in writing to effectuate such subordination shall be
necessary. In confirmation of such subordination, however, Tenant shall, on
demand, promptly execute, acknowledge and deliver such further instruments or
certificates that Landlord may request. Tenant hereby irrevocably appoints
Landlord the attorney-in-fact of Tenant to execute, acknowledge and delivery any
such instrument or certificate for or on behalf of Tenant. In the event that any
Master Lease or any other ground or underlying lease is terminated, or any
mortgage foreclosed, this lease shall not terminate or be terminable by Lessee
unless Lessee was specifically named in any termination or foreclosure judgment
or final order. In the event that the Master Lease or any other ground or
underlying lease is terminated as aforesaid, Lessee agrees to enter into a new
lease covering the within premises, for the remaining term of this lease and
otherwise on the same terms, conditions and rentals as herein provided with and
at the election of the holder of any superior lease, or if there is no superior
lease in existence, then with and at the election of the holder of the fee title
to the premises. If the current term of the Master Lease shall expire prior to
the date set forth herein for the expiration of this lese, then, unless Lessor,
at its sole option, shall have elected to extend or renew the term of the Master
Lease, the term of this lease shall expire on the date of expiration of the
master Lease, notwithstanding the later expiration date hereinabove set forth.
If the Master Lease is renewed, then the term of this lease shall expire as
hereinabove set forth. From time to time, Lessee, on at least ten (10) days'
prior written request by Lessor, will deliver to Lessor a statement in writing
certifying that this lease is unmodified and in full force and effect (or if
there shall have been modifications, that the same is in full force and effect
as modified and stating the modifications) and the dates to which the rent and
other charges have been paid and stating whether or not the Lessor is in default
in performance of any covenant, agreement or condition contained in this lease
and, if so, specifying each such default of which Lessee may have knowledge.
This
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paragraph shall not be deemed modified in whole or in part by any provision
of this lease or any rider thereto during the term hereof, unless such
provisions or rider shall by its terms expressly so modify it.
FIRE
THIRTY-THIRD: Provided the damage be not caused by the fault or neglect of
Tenant or of its employees, agents, visitors or licensees, in the event of
damage by fire, or other action of the elements, to the demised premises not
rendering all of them unfit for occupancy, Landlord shall repair the same with
reasonable dispatch after notice of such damage, and the rent accrued or
accruing shall not cease; but if the damage be so extensive as to render all of
the demised premises untenantable, the rent shall cease until they be repaired,
provided the damage be not caused by the carelessness or negligence of Tenant or
of the agents or servants of Tenant. No penalty shall accrue for reasonable
delay which may arise by reason of adjustment of insurance on the part of
Landlord and/or Tenant, and for reasonable delay on account of "labor troubles"
or any other cause beyond Landlord's control. If the demised premises are
totally damaged or are rendered wholly untenantable by fire or other cause, and
if Landlord shall decide not to restore or not to rebuild the same, or if the
building shall be so damaged that Landlord shall decide to demolish it or to
rebuild it, or if the cost of restoration of the building of which the demised
premises are a part, resulting from the aforesaid fire or other casualty shall
exceed the sum of $3,000,000, then or in any of such events Landlord may, within
ninety (90) days after such fire or other cause, give Tenant a notice in writing
of termination, which notice shall be given as provided in this lease, and
thereupon the term of this lease shall expire by lapse of time upon the third
day after such notice is given, and Tenant shall vacate the demised premises and
surrender the same to landlord. If Tenant shall not be in default under this
lease then, upon the termination of this lease under the conditions provided for
in the sentence immediately preceding, Tenant's liability for rent shall cease
as of the day following the casualty. Tenant hereby expressly waives the
provisions of Section 227 of the Real Property Law and agrees that the foregoing
provisions of this paragraph shall govern and control in lieu thereof. If the
damage or destruction be due to the fault or neglect of Tenant, the debris shall
be removed by and at the expense of Tenant.
CONDEMNATION
THIRTY-FOURTH: If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding. If any part of the
land or the building of which the demised premises are a part shall be so
acquired or condemned, then and in that event the term of this lease, at the
option of Landlord, shall cease and terminate on ten (10) days' notice by
Landlord to Tenant. In neither event shall Tenant have any claim for the value
of any unexpired term of said lease.
BANKRUPTCY
THIRTY-FIFTH: If, when and to the extent permitted by law, the parties
agree that the following provisions shall apply to this lease and tenancy (and
that the provisions of 11 U.S.C.ss.365(b) shall be applied):
(a) If at any time prior to the date herein fixed as the commencement of
the term of this lease there shall be filed against Tenant thereof or if such
filing is made by Tenant in any court
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pursuant to any statute either of the United States or of any State a petition
in bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or a portion of Tenant's property, and within thirty
(30) days thereof Tenant fails to secure a discharge thereof, or if Tenant makes
an assignment for the benefit of creditors, or petition for or enter into an
arrangement, this lease shall ipso facto be cancelled and terminated, and in
which even neither Tenant nor any person claiming through or under Tenant or by
virtue of any statue or of an order of any court shall be entitled to possession
of the demised premises and Landlord, in addition to the other rights and
remedies given by (c) hereof and by virtue of any other provision herein or
elsewhere in this lease contained or by virtue of any statute or rule of law,
may retain as liquidated damages any rent, security, deposit or monies, received
by him from Tenant or others in behalf of Tenant upon the execution hereof.
(b) If at the date fixed as the commencement of the term of this lease or
if at any time during the term hereby demised, there shall be filed against
Tenant thereof or if such filing is made by Tenant in any court pursuant to any
statute of the United States or any State a petition of bankruptcy or insolvency
or for reorganization or for the appointment of a receiver or trustee of all or
a portion of Tenant's property, and within thirty (30) days thereof Tenant fails
to secure a discharge thereof, or if Tenant makes an assignment for the benefit
of creditors or petition for or enter into an arrangement, this lease, at the
option of Landlord, exercised within a reasonable time after notice of the
happening of any one or more of such events, may be cancelled and terminated,
and in which event neither Tenant nor any person claiming through or under
Tenant by virtue of any statute or of an order of any court shall be entitled to
possession or to remain in possession of the premises demised, but shall
forthwith quit and surrender the premises, and Landlord, in addition to the
other rights and remedies Landlord has by virtue of any other provision herein
or elsewhere in this lease contained or by virtue of any statue or rule of law,
may retain as liquidated damages any rent, security, deposit or monies received
by him from Tenant or others in behalf of Tenant.
(c) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) or (b) hereof, Landlord shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the then fair and reasonable rental value of the demised
premises for the same period. In the computation of such damages, the difference
between any installment of rent becoming due hereunder after the date of
termination and the fair and reasonable rental value of the demised premises for
the period for which such installment was payable shall be discounted to the
date of termination at the rate of four percent (4%) per annum. If such premises
or any part thereof be re-let by Landlord for the unexpired term of said lease,
or any part thereof, before presentation of proof of such liquidated damages to
any court, commission or tribunal, the amount of rent reserved upon such
re-letting shall be prima facie to be the fair and reasonable rental value for
the part or the whole of the premises so re-let during the term of the
re-letting. Nothing herein contained shall limit or prejudice the right of
Landlord to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above.
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SECURITY
THIRTY-SIXTH: Tenant has deposited with Landlord the sum of $22,010.00 as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this lease; it is agreed that in the event Tenant
defaults in respect of any of the terms, provisions and conditions of this
lease, including but not limited to, the payment of rent and additional rent,
Landlord may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Landlord
may expend or may be required to expend by reason of Tenant's default in respect
of any of the terms, covenants and conditions of this leases, including but not
limited to, any damages or deficiency in the re-letting of the premises, whether
such damage or deficiency accrued before or after summary proceedings or other
re-entry by Landlord. Tenant shall, upon demand, deposit with Landlord the full
amount so used, in order that Landlord shall have the full security deposit on
hand at all times. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
lease and after delivery of entire possession of the demised premises to
Landlord. In the event of any transfer or conveyance by Landlord of its lease to
the building of which the demised premises form a part, hereinafter referred to,
Landlord shall have the right to transfer the security of the transferee or
grantee, and Landlord shall thereupon be released by Tenant from all liability
for the return of such security; and Tenant agrees to look to the new Landlord
solely for the return of said security; and it is agreed that the provisions
hereof shall apply to every transfer or assignment made of the security to a new
Landlord. Tenant further covenants that it will not assign or encumber or
attempt to assign or encumber the monies deposited herein as security and that
neither Landlord nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance.
DEFAULT
THIRTY-SEVENTH: (a) If Tenant defaults in fulfilling any of the covenants
of this lease other than the covenants for the payment of rent or additional
rent, or of any ancillary agreement, or if the demised premises become vacant or
deserted, then, in any one or more of such events, upon Landlord serving a
written fifteen (15) days' notice upon Tenant specifying the nature of said
default and upon the expiration of said fifteen (15) days, if Tenant shall have
failed to comply with or remedy such default, or if the said default or omission
complained of shall be of such nature that the same cannot be completely cured
or remedied within said fifteen (15) day period, and if Tenant shall not have
diligently commenced curing such default within such fifteen (15) day period,
and shall not thereafter with reasonable diligence and in good faith proceed to
remedy or cure such default, then Landlord may serve a written three (3) days'
notice of cancellation of this lease upon Tenant, and upon the expiration of
said three (3) days, this lease and the term thereunder shall end and expire as
fully and completely as if the date of expiration of such three (3) day period
were the day herein definitely fixed for the end and expiration of this lease
and the term thereof, and Tenant shall then quit and surrender the demised
premises to Landlord, but Tenant shall remain liable as hereinafter provided.
(b) If the notice provided for in (a) hereof shall have been given, and the
term shall expire as aforesaid; or (1) if Tenant shall make default in the
payment of the rent served herein or any
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item of addition rent herein mentioned or any part of either or in making any
other payment herein provided; or (2) if any execution or attachment shall be
issued against Tenant or any of Tenant's property whereupon the demised premises
shall be taken or occupied or attempted to be taken or occupied by someone other
than Tenant; or (3) if Tenant shall make default with respect to any other lease
between Landlord and Tenant; then and in any of such events Landlord may without
notice, re-enter the demised premises either by force or otherwise, and
dispossess Tenant by summary proceedings or otherwise; and the legal
representative of Tenant or other occupant of demised premises and remove their
effects and hold the premises as if this lease had not been made, and Tenant
hereby waives the service of notice of intention to re-enter or to institute
legal proceedings to that end. If Tenant shall make default hereunder prior to
the date fixed as the commencement of any renewal or extension of this lease,
Landlord may cancel and terminate such renewal or extension agreement by written
notice.
(c) If Tenant is presently in possession of the demised premises pursuant
to a lease in writing heretofore made and if, before the commencement of the
term herein provided the aforesaid lease shall be terminated or Tenant shall be
dispossessed or shall voluntarily or involuntarily vacate, surrender or remove
from the _________ premises, then this lease shall, at the option of Landlord,
be terminated, but Tenant shall nevertheless ___________able as hereinbefore
provided.
REMEDIES OF LANDLORD
THIRTY-EIGHTH: In case of such default, re-entry, expiration and/or
dispossess by summary proceedings or otherwise, (a) the rent and additional rent
shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration, together with such expenses as Landlord may incur
for legal expenses, attorneys' fees, brokerage, and/or putting the demised
premises in good order, or for preparing the same for re-rental; (b) Landlord
may re-let the premises or any part or parts thereof, either in the name of
Landlord or otherwise, for a term or terms, which may at Landlord's option be
less than or exceed the period which would otherwise have constituted the
balance of the term of this lease and may grant concessions or free rent; and/or
(c) Tenant or the legal representatives of Tenant shall also pay Landlord as
liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and/or covenanted to be paid and the net amount, if any, of the rents
collected on account of the lease or leases of the demised premises for each
month of the period which would otherwise have constituted the balance of the
term of this lease. The rent received from any re-letting or re-lettings, but
only for the unexpired portion of this lease, shall be applied first to the
payment of Landlord's expenses in resuming possession and re-letting the
premises, which expenses shall include but not be limited to attorneys' fees,
brokerage commissions, cleaning, repairs, painting and decoration. The balance,
if any, shall be applied in payment of all unpaid rent, additional rent and
other charges due from Tenant hereunder, irrespective of whether the liability
therefor arose prior or subsequent to the date of the expiration of the term
hereof, Tenant hereby covenants and agrees to pay to Landlord, within a
reasonable time after demand therefor shall be made, the balance, if any,
remaining unpaid. In the event that any re-letting hereunder results in
Landlord's receiving from Tenant in any month an amount in excess of the amount
due for such month, then and in that event tenant shall not be obligated to make
any payment to Landlord for rent due in such month, nor shall Landlord at any
time be obligated to make any refund or apply any credit to Tenant with respect
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to such rent, and Tenant shall have no claim by way of defense to a suit or
otherwise that Landlord has received for any prior month or that any new tenant
has agreed to pay for any subsequent month a greater amount than that
hereinabove reserved to be paid as rent for that month. The failure or refusal
of Landlord to re-let the premises or any part or parts thereof shall not
release or affect Tenant's liability for damages; provided that, upon request of
Tenant, Landlord shall not unreasonably refuse to re-let the demised premises.
Any security in Landlord's possession not retained by it as liquidated damages
may be applied by it for any or all of the aforesaid purposes. Any such
liquidated damages shall be paid as additional rent hereunder in monthly
installments by Tenant on the rent day specified in this lease and any suit
brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Landlord to collect the deficiency for any
subsequent month by a similar proceeding. Landlord, at Landlord's option, may
make such alterations, repairs, replacements and/or decorations in the demised
premises as Landlord in Landlord's sole judgment considers advisable and
necessary for the purpose of re-letting the demised premises; and the making of
such alterations and/or decorations shall not operate or be construed to release
Tenant from liability hereunder as aforesaid. Landlord shall in no event be
liable in any way whatsoever for failure to re-let the demised premises, or in
the event that the demised premises are re-let, for failure to collect the rent
thereof under such re-letting. In the event of a breach or threatened breach by
Tenant of any of the covenants or provisions hereof, Landlord shall have the
right of injunction and the right to invoke any remedy allowed at law or
inequity as if re-entry, summary proceedings and other remedies were not herein
provided for. Mention in this lease of any particular remedy, shall not preclude
landlord from any other remedy, in law or in equity.
COURT ORDER RELATING TO RENT
THIRTY-NINTH: Notwithstanding anything elsewhere contained in this lease,
if by reason of any present or future cause or thing whatsoever (including,
without limitation, by reason of any statute, ordinance, judgment, decree, court
order or governmental rule or regulation), Tenant will not or shall not be
required to pay to Landlord the full amount of rent and additional rent reserved
hereunder, then Landlord, at its unrestricted option, may give Tenant not less
than five (5) days' notice of intention to end this lease and the term hereof,
and thereupon, on the date specified in said notice, this lease and the term
hereof shall expire as fully and completely as if that date were the date,
herein originally fixed for the expiration of this lease and the term hereof.
WAIVER OF TRIAL BY JURY
FORTIETH: It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this lease, the relationship of landlord and tenant, Tenant's use
or occupancy of said premises, except for personal injury or property damage, or
involving the right to any statutory relief or remedy, Tenant will not impose
any counterclaim of any nature in any summary proceeding, except for statutory
mandatory counterclaims. The provisions of this paragraph shall be binding upon
the respective heirs, distributees, executors, administrators, successors and
assigns of the parties hereto and all subtenants hereunder.
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WAIVER OF REDEMPTION
FORTY-FIRST: Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for any cause, or in the event of Landlord
obtaining possession of demised premises, by reason of the violation of Tenant
of any of the covenants and conditions of this lease, or otherwise.
NO WAIVER
FORTY-SECOND: (a) If there be any agreement between Landlord and Tenant
providing for the cancellation of this lease upon certain provisions or
contingencies, and/or an agreement for the renewal hereof at the expiration of
the term first above mentioned, the right to such renewal or the execution of a
renewal agreement between Landlord and Tenant prior to the expiration of such
first mentioned term shall not be considered an extension thereof or a vested
right in Tenant to such further term, so as to prevent Landlord from canceling
this lease and any such extension thereof during the remainder of the original
term hereby granted; such privilege, if and when so exercised by Landlord, shall
cancel and terminate this lease and any such renewal or extension previously
entered into between said Landlord and Tenant or the right of Tenant to any such
renewal or extension; any right herein contained on the part of Landlord to
cancel this lease shall continue during any extension or renewal hereof; any
option on the part of Tenant herein contained for an extension or renewal hereof
shall not be deemed to give Tenant any option for a further extension beyond the
first renewal or extended term.
(b) No act or thing done by Landlord or Landlord's agents during the term
hereby demised shall constitute an actual or constructive eviction by Landlord,
nor shall be deemed an acceptance of a surrender of said demised premises, and
no agreement to accept such surrender shall be valid unless in writing signed by
Landlord. In the event that any payment herein provided for by Tenant to
Landlord shall become overdue for a period in excess of ten (10) days, then at
Landlord's option a "late charge" for such period and for each additional period
of twenty (20) days or any part thereof shall become immediately due and owing
to Landlord, as additional rent by reason of the failure of Tenant to make
prompt payment, at the following rates: for individual and partnership tenants,
said late charge shall be computed at the maximum legal rate of interest; for
corporate or governmental entity tenants the late charge shall be computed at
two percent per month unless there is an applicable maximum legal rate of
interest which then shall be used. No employee of Landlord or of Landlord's
agents shall have any power to accept the keys of said premises prior to the
termination of the lease. The delivery of keys to any employee of Landlord or of
Landlord's agents shall not operate as a termination of the lease or a surrender
of the premises. In the event of Tenant at any time desiring to have Landlord
sublet the premises for Tenant's account. Landlord or Landlord's agents are
authorized to receive said keys for such purposes without releasing Tenant from
any of the obligations under this lease, and Tenant hereby relieves Landlord of
any liability for loss of or damage to any of Tenant's effects in connection
with such subletting.
(c) The failure of Landlord to seek redress for violation of, or to insist
upon the strict performance of, any covenant or condition of this lease, or any
of the Rules and Regulations set forth or hereafter adopted by Landlord, shall
not prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation.
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The receipt by Landlord of rent with knowledge of the breach of any covenant of
this lease shall not be deemed a waiver of such breach.
(d) The failure of Landlord to enforce any of the Rules and Regulations
set forth, or hereafter adopted, against Tenant and/or any other tenant in the
building shall not be deemed a waiver of any such Rules and Regulations. No
provision of this lease shall be deemed to have been waived by Landlord, unless
such waiver be in writing signed by landlord.
(e) No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of the earliest stipulated rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such rent or pursue any
other remedy in this lease provided.
LICENSE
FORTY-THIRD: Tenant covenants that Tenant will not, without the consent of
Landlord first obtained in each case, make or grant any license in respect of
the demised premises or any part thereof, or in respect of the use thereof, and
will not permit any such license to be made or granted.
GLASS AND GLASS INSURANCE
FORTY-FOURTH: Landlord Shall replace, at the expense of Tenant, any and all
plate and other glass damaged or broken from any cause whatsoever in and about
the demised premises.
ADJACENT EXCAVATION-SHORING
FORTY-FIFTH: If an excavation shall be made upon land adjacent to the
demised premises, or shall be authorized to be made, Tenant shall afford to the
person causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Landlord, or diminution or abatement
of rent.
BILLS AND NOTICES
FORTY-SIXTH: Except as otherwise in this lease provided, a bill, statement,
notice or communication which Landlord may desire or be required to give to
Tenant, shall be deemed sufficiently given or rendered if in writing delivered
to Tenant personally or sent by registered or certified mail addressed to Tenant
at the building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Landlord must be served by
registered or certified mail addressed to Landlord at the address first
hereinabove given or at such other address as Landlord shall designate by
written notice.
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QUIET ENJOYMENT
FORTY-SEVENTH: If and so long as Tenant pays the rent and additional rent
reserved hereby and performs and observes the covenants and provisions hereof,
Tenant shall quietly enjoy the demised premises, subject, however, to the terms,
conditions, exceptions and reservations of this lease, and to the ground,
underlying and overriding leases and mortgages hereinbefore mentioned.
QUIT AND SURRENDER
FORTY-EIGHTH: Upon the expiration or other termination of the term of this
lease, Tenant shall quit and surrender to Landlord the demised premises, broom
clean, in good order and condition, ordinary wear excepted. Lessee acknowledges
that possession of the demised premises must be surrendered to the Lessor at the
expiration or sooner termination of this lease. Lessee agrees it shall indemnify
and save Lessor harmless against costs, claims, lost or liability resulting from
delay by Lessee in so surrendering the demised premises, including, without
limitation, any claims made by a succeeding tenant, founded on such delay. The
parties recognize and agree that the damage to Lessor resulting from any failure
by Lessee timely to surrender possession of the demised premises as aforesaid
will be extremely substantial, will exceed the amount of monthly rent
theretofore payable hereunder, and will be impossible of accurate measurement.
Lessee therefore agrees that if possession of the demised premises is not
surrendered to Lessor within seven (7) days after the date of the expiration or
termination of the term of this lease, then Lessee agrees to pay Lessor as
liquidated damages for each month and for each portion of any month during which
Lessee holds over in the premises after expiration or termination of the term of
this lease, a sum equal to one and one-half the average rent and additional rent
which was payable per month under this lease during the last six months of the
term thereof. The aforesaid provisions of this article shall survive the
expiration or sooner termination of the term of this lease. If the last day of
the term of this lease or any renewal thereof falls on Sunday, this lease shall
expire on the business day immediately preceding.
REPRESENTATIONS
FORTY-NINTH: Landlord or Landlord's agents have made no representations or
promises with respect to the said building or demised premises except as herein
expressly set forth. The taking possession of the demised premises by Tenant
shall be conclusive evidence, as against Tenant, that Tenant accepts same "as
is" and that said premises and the building of which the same form a part were
in good and satisfactory condition at the time such possession was so taken.
RENT CONTROL
FIFTIETH: In the event the fixed annual rent or additional rent or any part
thereof provided to be paid by Lessee under the provisions of this lease during
the demised term shall become uncollectible or shall be reduced or required to
be reduced or refunded by virtue of any Federal, State, County or City law,
order or regulation, or by any direction of a public officer or body pursuant to
law, or the orders, rules, code, or regulations of any organization or entity
formed pursuant to law, whether such organization or entity be public or
private, then Lessor, at its option, may at any time thereafter terminate this
lease, by not less than thirty (30) days' written notice to Lessee, on a date
set forth in said notice, in which event this lease and the term
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hereof shall terminate and come to an end on the date fixed in said notice as if
the said date were the date originally fixed herein for the termination of the
demised term. Lessor shall not have the right so to terminate this lease if
Lessee within such period of thirty (30) days shall in writing lawfully agree
that the rentals herein reserved are reasonable rentals and agree to continue to
pay said rentals and if such agreement by Lessee shall be legally enforceable by
Lessor.
COVENANTS BINDING SUCCESSORS
FIFTY-FIRST: The covenants, conditions and agreements contained in this
lease shall bind and insure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors, and,
except as otherwise provided in this lease, their assigns.
LEASE EMBODIES UNDERSTANDING OF PARTIES
FIFTY-SECOND: Except as otherwise contained in a written instrument or
instruments duly executed and delivered by and between the parties hereto, this
lease contains the entire agreement and understanding of the parties with
respect to the demised premises and the respective rights and duties of the
parties in relation thereto and in relation to each other. There are no oral
understandings or agreements between the parties of any kind. Landlord has made
no representations or warranties to Tenant of any kind. All oral
representations, warranties and promises prior to or contemporaneous with this
written lease (if any be claimed) are and shall be deemed merged into this
lease. This lease cannot be changed or supplemented orally. All promises and
agreements made by or between the parties subsequent to the execution and
delivery of this lease shall be and be deemed to be null, void and unenforceable
unless contained in a writing duly executed and delivered by and between the
parties hereto, whether or not the same relate in any way to this lease or any
matter covered hereby.
DEFINITIONS
FIFTY-THIRD: (a) The term "Landlord" as used in this lease means only the
owner or the mortgagee in possession for the time being of the land and building
(or the owner of a lease of the entire building or of the land and entire
building) of which the demised premises form a part so that in the event of any
sale or sales of said land and entire building or of any transfer or conveyance
of said lease or in the event of a lease of said entire building or of the land
and entire building, the said Landlord shall be and hereby is entirely freed and
relieved of all liability for the performance of all covenants and obligations
on the part of Landlord to be performed hereunder, and it shall be deemed and
considered without further agreement between the parties or other successors in
interest or between the parties and the purchaser at any such sale or any
transferee or mortgagee or any lessee of the entire building or of the land and
entire building that the purchaser, lessee, transferee or grantee has assumed
and agreed to carry out any and all covenants and obligations of Landlord
hereunder, Tenant acknowledges that it has been informed and understands that
Landlord is a lessee of the land and entire building of which demised premises
form a part. The term "lease of the entire building or of the land and entire
building" shall be deemed to include a sublease thereof, and the term ":lessee
of the entire building or of the land and entire building" shall be deemed to
include a sublessee thereof.
(b) The words "re-entry" as used in this lease are not restricted to their
technical legal meaning.
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(c) The term "business days" as used in the lease shall exclude Saturdays
(except such portion thereof as is covered by the insertion of specific hours
herein), Sundays and all days observed by the State or Federal Government as
legal holidays.
(d) From time to time, Tenant, on at least ten (10) days' prior written
request by Landlord, will deliver to Landlord a statement in writing certifying
that this lease is unmodified and in full force and effect (or if there shall
have been modifications, that the same is in full force and effect as modified
and stating the modifications) and the dates to which the rent and other charges
have been paid and stating whether or not the Landlord is in default in
performance of any covenant, agreement or condition contained in this lease and
if so, specifying each such default of which Tenant may have knowledge.
COST OF LIVING ADJUSTMENTS
1998 5% CAP
SEE RIDER
FIFTY-FOURTH: The fixed annual rent reserved in this lease and payable
hereunder shall be adjusted, as of the times and in the manner set forth in this
Article:
(i) The term "Base Year" shall mean the full calendar year.
(ii) The term "Price Index" shall mean the "Consumer Price Index" published
by the Bureau of Labor Statistics of the U.S. Department of Labor, All Items.
New York, NY - Northeastern, NJ, all urban consumers (presently denominated
"CPI-U"), or a successor or substitute index appropriately adjusted.
(iii) The term "Price Index for the Base Year" shall mean the average of
the monthly All items Price Indexes for each of the 12 months of the Base Year.
(b) Effective as of each January and July subsequent to the Base Year,
there shall be made a cost of living adjustment of the fixed annual rental rate
payable hereunder. The July adjustment shall be based on the percentage
difference between the Price Index for the preceding month of June and the Price
Index for the Base Year. The January adjustment shall be based on such
percentage difference between the Price Index for the preceding month of
December and the Price Index for the Base Year.
(i) In the event the Price Index for June in any calendar year during the
term of this lease reflects an increase over the Price Index for the Base Year,
then the fixed annual rent herein provided to be paid as of the July 1st
following such month of June (unchanged by any adjustments under this Article)
shall be multiplied by the percentage difference between the Price Index for
June and the Price Index for the Base Year, and the resulting sum shall be added
to such fixed annual rent, effective as of July 1st. Said adjusted fixed annual
rent shall thereafter be payable hereunder, in equal monthly installments, until
it is readjusted pursuant to the terms of this lease.
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(ii) In the event the Price Index for December in any calendar year during
the term of this lease reflects an increase over the Price index for the Base
Year, then the fixed annual rent herein provided to be paid as of the January
1st following such month of December (unchanged by any adjustments under this
Article) shall be multiplied by the percentage difference between the Price
Index for December and the Price Index for the Base Year, and the resulting sum
shall be added to such fixed annual rent effective as of such January 1st. Said
adjusted fixed annual rent shall thereafter be payable hereunder, in equal
monthly installments, until it is readjusted pursuant to the terms of this
lease.
The following illustrates the intentions of the parties hereto as to the
computation of the aforementioned cost of living adjustment in the annual rent
payable hereunder:
Assuming that said fixed annual rent is $10,000, that the Price Index for
the Base Year was 102.0 and that the Price Index for the month of June in a
calendar year following the Base Year was 105.0, then the percentage increase
thus reflected, i.e. 2.941% (3.0/102.0) would be multiplied by $10,000, and said
fixed annual rent would be increased by $294.10 effective as of July 1st of said
calendar year.
In the event that the Price Index ceases to use 1982-84=100 as the basis of
calculation, or if a substantial change is made in the terms or number of items
contained in the Price Index, then the Price Index shall be adjusted to the
figure that would have been arrived at had the manner of computing the Price
Index in effect at the date of this lease not been altered. In the event such
Price Index (or a successor or substitute index) is not available, a reliable
governmental or other non-partisan publication evaluating the information
theretofore used in determining the Price Index shall be used.
(c) Landlord will cause statements of the cost of living adjustments
provided for in subdivision (b) to be prepared in reasonable detail and
delivered to Tenant.
(d) In no event shall the fixed annual rent originally provided to be paid
under this lease (exclusive of the adjustments under this article) be reduced by
virtue of this Article.
(e) Any delay or failure of Landlord, beyond July or January of any year,
computing or billing for the rent adjustments hereinabove provided, shall not
constitute a waiver of or in any impair the continuing obligation of Tenant to
pay such rent adjustments hereunder.
(f) Notwithstanding any expiration or termination of this lease prior to
the lease expiration date (except in the case of a cancellation by mutual
agreement) Tenant's obligations to pay rent as adjusted under this Article shall
continue and shall cover all periods up to the lease expiration date, and shall
survive any expiration or termination of this lease.
TAX ESCALATION
FIFTY-FIFTH: Tenant shall pay to Landlord, as additional rent, tax
escalation in accordance with this Article:
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(a) For purposes of this lease the rentable square foot area of the
presently demised premises shall be deemed to be 11,700 square feet.
(b) Definitions: For the purpose of this article, the following definitions
shall apply:
(i) The term "base tax year" as hereinafter set forth for the determination
of real estate tax escalation, shall mean the New York City real estate tax year
commencing July 1, 1997 and ending June 30, 1998.
(ii) The term "The Percentage," for purposes of computing tax escalation,
shall mean one and ninety-three hundredths percent (1.93%). The Percentage has
been computed on the basis of a fraction, the numerator of which is the rentable
square foot area of the demised premises and the denominator of which is the
total rentable square foot area of the office and commercial space in the
building project. The parties acknowledge and agree that the total rentable
square foot area of the office and commercial space in the building project
shall be deemed to be 605,574 square feet.
(iii) The term "the building project" shall mean the aggregate combined
parcel of land on a portion of which are the improvements of which the demised
premises form a part, with all the improvements thereon, said improvements being
a part of the block and lot for tax purposes which are applicable to the
aforesaid land.
(iv) The term "comparative year" shall mean the twelve (12) months
following the base tax year, and each subsequent Period of twelve (12) months
(or such other Period of twelve (12) months occurring during the term of this
lease as hereafter may be duly adopted as the tax year for real estate tax
purposes by the City of New York).
(v) The term "real estate taxes" shall mean the total of all taxes and
special or other assessments levied, assessed or imposed at any time by any
governmental authority upon or against the building project, and also any tax or
assessment levied, assessed or imposed at any time by any governmental authority
in connection with the receipt of income or rents from said building project to
the extent that same shall be in lieu of all or a portion of any of the
aforesaid taxes or assessments, or additions or increases thereof, upon or
against said building project. If, due to a future change in the method of
taxation or in the taxing authority, or for any other reason, a franchise,
income, transit, profit or other tax or governmental imposition, however
designated, shall be levied against Landlord in substitution in whole or in part
for the real estate tax, or in lieu of additions to or increases of said real
estate taxes, then such franchise, income, transit, profit or other tax or
governmental imposition shall be deemed to be included within the definition of
"real estate taxes" for the purposes hereof. As to special assessments which are
payable over a period of time extending beyond the term of this lease, only a
pro rata portion thereof covering the portion of the term of this lease
unexpired at the time of the imposition of such assessment, shall be included in
"real estate taxes." If by law, any assessment may be paid in installments,
then, for the purposes hereof (a) such assessment shall be deemed to have been
payable in the maximum number of installments permitted by law and (b) there
shall be included in real estate taxes, for each comparative year in which such
installments may be paid, the
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installments of such assessment so becoming payable during such comparative
year, together with interest payable during such comparative year.
(vi) The phrase "real estate taxes payable during the base tax year" shall
mean that amount obtained by multiplying the assessed value of the land and
buildings of the building project for the base tax year by the tax rate for the
base tax year for each $100 of such assessed value.
(c) 1. In the event that the real estate taxes payable for any comparative
year shall exceed the amount of the real estate taxes payable during the base
tax year, Tenant shall pay to Landlord, as additional rent for such comparative
year, an amount equal to The Percentage of the excess. Before or after the start
of each comparative year, Landlord shall furnish to Tenant a statement of the
real estate taxes payable for such comparative year, and a statement of the real
estate taxes payable during the base tax year. If the real estate taxes payable
for such comparative year exceed the real estate taxes payable during the base
tax year, additional rent for such comparative year, in an amount equal to The
Percentage of the excess, shall be due from Tenant to Landlord, and such
additional rent shall be payable by Tenant to Landlord with ten (10) days after
receipt of the aforesaid statement. The benefit of any discount for any earlier
payment or prepayment of real estate taxes shall accrue solely to the benefit of
Landlord, and such discount shall not be subtracted from the real estate taxes
payable for any comparative year.
Additionally, Tenant shall pay to Landlord, on demand, a sum equal to The
Percentage of any business improvement district assessment payable by the
building project.
2. Should the real estate taxes payable during the base tax year be reduced
by final determination of legal proceedings, settlement or otherwise, then the
real estate taxes payable during the base tax year shall be correspondingly
revised, the additional rent theretofore paid or payable hereunder for all
comparative years shall be recomputed on the basis of such reduction, and Tenant
shall pay to Landlord as additional rent, within ten (10) days after being
billed therefor, any deficiency between the amount of such additional rent as
theretofore computed and the amount thereof due as the result of such
recomputations. Should the real estate taxes payable during the base tax year be
increased by such final determination of legal proceedings, settlement or
otherwise, then appropriate recomputation and adjustment also shall be made.
3. If after Tenant shall have made a payment of additional rent under this
subdivision (c, Landlord shall receive a refund of any portion of the real
estate taxes payable for any comparative year after the base tax year on which
such payment of additional rent shall have been based, as a result of a
reduction of such real estate taxes by final determination of legal proceedings,
settlement or otherwise, Landlord shall within ten (10) days after receiving the
refund pay to Tenant The Percentage of the refund less the Percentage of
expenses (including attorneys' and appraisers' fees) incurred by Landlord in
connection with any such application or proceeding. If prior to the payment of
taxes for any comparative year, Landlord shall have obtained a reduction of that
comparative year's assessed valuation of the building project, and therefore of
said taxes, then the term "real estate taxes" for that comparative year shall be
deemed to include the amount of Landlord's expenses in obtaining such reduction
in assessed valuation, including attorneys' and appraisers' fees.
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4. The statements of the real estate taxes to be furnished by Landlord as
provided above shall be certified by Landlord and shall constitute a final
determination as between Landlord and Tenant of the real estate taxes for the
Periods represented thereby, unless Tenant within thirty (30) days after they
are furnished shall give a written notice to Landlord that it disputes their
accuracy or their appropriateness, which notice shall specify the particular
respects in which the statement is inaccurate or inappropriate. If Tenant shall
so dispute said statement then, pending the resolution of such dispute, Tenant
shall pay the additional rent to Landlord in accordance with the statement
furnished by Landlord.
5. In no event shall the fixed annual rent under this lease (exclusive of
the additional rents under this Article) be reduced by virtue of this Article.
6. If the commencement date of the term of this lease is not the first day
of the first comparative year, then the additional rent due hereunder for such
first comparative year shall be a proportionate share of said additional rent
for the entire comparative year, said proportionate share to be based upon the
length of time that the lease term will be in existence during such first
comparative year. Upon the date of any expiration or termination of this lease
except termination because of Tenant's default) whether the same be the date
hereinabove set forth for the expiration of the term or any prior or subsequent
date, a proportionate share of said additional rent for the comparative year
during which such expiration or termination occurs shall immediately become due
and payable by Tenant to Landlord, if it was not theretofore already billed and
paid. The said proportionate share shall be based upon the length of time that
this lease shall have been in existence during such comparative year. Landlord
shall promptly cause statements of said additional rent for that comparative
year to be prepared and furnished to Tenant. Landlord and Tenant shall thereupon
make appropriate adjustments of amounts then owing.
7. Landlord's and Tenant's obligations to make the adjustments referred to
in subdivision (6) above shall survive any expiration or termination of this
lease.
8. Any delay or failure of Landlord in billing any tax escalation
hereinabove provided shall not constitute a waiver of or in any way impair the
continuing obligation of Tenant to pay such tax escalation hereunder.
OCCUPANCY AND USE BY TENANT
FIFTY-SIXTH: Tenant acknowledges that its continued occupancy of the
demised premises and the regular conduct of its business therein, are of utmost
importance to the Landlord in the renewal of other leases in the building, in
the renting of vacant space in the building, in the providing of electricity,
air conditioning, steam and other services to the tenants in the building, and
in the maintenance of the character and quality of the tenants in the building.
Tenant therefore covenants and agrees that it will occupy the entire demised
premises and will conduct its business therein in the regular and usual manner,
throughout the term of this lease. Tenant acknowledges that Landlord is
executing this lease in reliance upon these covenants and that these covenants
are a material element of consideration inducing Landlord to execute this lease.
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FIFTY-SEVENTH: The Landlord shall be under no obligation to provide access
between the "A" Wing and the "B" Wing on the floor of the premises demised
herein, and any passageways which may now or hereafter exist between said wings
may be discontinued at any time at the discretion of the Landlord.
CAPTIONS
FIFTY-EIGHTH: The captions are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this lease
nor the intent of any provisions thereof.
RULES AND REGULATIONS
FIFTH-NINTH: Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as
Landlord or Landlord's agents may from time to time adopt. Notice of any
additional rules or regulations shall be given in such manner as Landlord may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Landlord or Landlord's agents, the
parties hereto agree to submit the question of the reasonableness of such Rule
or Regulation for decision to the Chairman of the Board of Directors of the
Management Division of The Real Estate Board of New York, Inc., or to such
impartial person or persons as he may designate, whose determination shall be
final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice in
writing upon Landlord within ten (10) days after the adoption of any such
additional Rule or Regulation. Nothing in this lease contained shall be
construed to impose upon Landlord any duty or obligation to enforce the Rules
and Regulations or terms, covenants or conditions in any other lease, as against
any other tenant and Landlord shall not be liable to Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
The use in the demised premises of auxiliary heating devices, such as
portable electric heaters, heat lamps or other devices whose principal function
at the time of operation is to produce space heating, is prohibited.
SIXTIETH: It is understood and agreed that this lease is submitted to
Tenant on the understanding that it shall not be considered an offer and shall
not bind Landlord in any way until (i) Tenant has duly executed and delivered
duplicate originals to Landlord and (ii) Landlord has executed and delivered one
of said originals to Tenant.
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IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
500/512 Seventh Avenue Associates
Helmsley-Spear, Inc., Agents
______________________________________ ______________________________________
Witness for Landlord
/s/ J. Schneider
BY:___________________________________
Executive Vice President
______________________________________ Tahiti Apparel, Inc.
Witness for Tenant Tenant
PLEASE PRINT NAME AND HOME
ADDRESS OF PRINCIPAL WHO WILL /s/ Jerry Harary
EXECUTE THIS LEASE BELOW: BY:___________________________________
______________________________________ TITLE: Executive Vice President
______________________________________
______________________________________
ACKNOWLEDGMENTS
LANDLORD
State of New York )
ss.:
County of New York)
On this day of ________, 19__, before me personally came _________________
to me known and known to me to be a partner of ______________________ A
co-partnership, mentioned and described in, and which executed the foregoing
instrument, and the said duly acknowledged to me that he executed the said
instrument for and on behalf of and with the authority of said
_________________________________ For the uses and purposes therein mentioned.
________________________________________________________________________________
PARTNERSHIP TENANT
State of New York )
ss.:
County of New York)
On this day of ________, 19__, before me personally came _________________
to me known and known to me to be a partner of ______________________ A
co-partnership, mentioned and described in, and which executed the foregoing
instrument, and the said duly acknowledged to me that he executed the said
instrument for and on behalf of and with the authority of said
_________________________________ For the uses and purposes therein mentioned.
________________________________________________________________________________
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INDIVIDUAL TENANT
State of New York )
ss.:
County of New York)
On this __day of _____, 19__, before me personally came
_____________________ to me known and known to me to be the individual described
in, and who executed, the foregoing instrument, and acknowledged to me that he
executed the same.
________________________________________________________________________________
CORPORATE TENANT
State of New York )
ss.:
County of New York)
On this day of _____, 19__, before me personally came _____________________
to me known, who being by me duly sworn, did depose and say that he resides at
_____________________ that he is the _____________________ of
_____________________ the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the Board
of Directors of said corporation.
________________________________________________________________________________
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RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
Tenant or used for any purpose other than ingress and egress to and from the
demised premises, and if said premises are situate on the ground floor of the
building the Tenant thereof shall further, at said Tenant's own expense, keep
the sidewalks and curb directly in front of said premises clean and free from
ice, snow, etc.
2. The freight and not the passenger elevators shall be used by the working
hands of Tenant and persons calling for and delivering goods to and from the
demised premises.
3. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Landlord. No curtains,
blinds, shades or screens shall be attached to or hung in , or used in
connection with, any window or door of the demised premises, without the prior
written consent of the Landlord. Such awnings, projections, curtains, blinds,
shades, screens or other fixtures must be of a quality, type, design and color,
and attached in the manner approved by Landlord.
4. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside or inside
of the demised premises or building without the prior written consent of
Landlord. Interior signs on doors shall be inscribed, painted or affixed for
each Tenant by Landlord at the expense of such Tenant, and shall be of a size,
color and style acceptable to Landlord.
5. The sashes, sash doors, skylights, window and doors that reflect or
admit light and air into the halls, passageways or other public places in the
building shall not be covered by any Tenant, nor shall any bottles, parcels, or
other articles be placed on the windowsills.
6. The water and wash closets and other plumbing fixtures shall not be used
for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by Tenant who,
or whose servants, employees, agents, visitors or licensees, shall have caused
the same.
7. No linoleum or other floor covering shall be laid in direct contact with
the floor of the demised premises, but if any such covering is required by
Tenant, an interlining of builder's deadening felt shall first be affixed to the
floor with paste or other water soluble material, the use of cement or other
adhesive non-soluble in water is expressly prohibited.
8. No Tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring buildings
or premises or those having business with them whether by the use of any
instrument, radio, talking machine, musical noise, whistling, singing or in any
other way.
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9. No Tenant, nor any of Tenant's servants, employees, agents, visitors, or
licensees, shall at any time bring or keep upon the demised premises any
inflammable, combustible or explosive fluid, chemical and substance, or cause or
permit any unusual or objectionable odors to be produced upon or permeate from
the demised premises. No animals or birds shall be kept by Tenant in or about
the building.
10. Landlord reserves the right to inspect all freight to be brought into
the building and to exclude from the building all freight which violates any of
these Rules and Regulations or the lease of which these Rules and Regulations
are a part.
11. Landlord shall have the right to prohibit any advertising by any Tenant
which, in its opinion, tends to impair the reputation of the building or its
desirability and, upon written notice from Landlord, Tenant shall refrain from
or discontinue such advertising.
12. Canvassing, soliciting and peddling in the building is prohibited and
each Tenant shall cooperate to prevent the same.
13. There shall not be used in any space, or in the public halls of any
building, either by any Tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
14. The use in the demised premises of auxiliary heating devices, such as
portable electric heaters, heat lamps or other devices whose principal function
at the time of operation is to produce space hating, is prohibited.
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Rider to Agreement of Lease Dated August __, 1997,
Between 500/512 Seventh Avenue Associates, Landlord,
and Tahiti Apparel, Inc., Tenant
SIXTY-FIRST: It is understood and agreed that Tenant shall be permitted to
list its firm name or divisions of its firm, but no more than four (4) listings,
in the lobby board of the building. The charge to Tenant shall be $75.00 per
listing plus tax or the charge then in effect.
SIXTY-SECOND: It is understood and agreed that Landlord at its own cost and
expense will do the following work for Tenant in the demised premises:
(1) Demolition of demised premises
(2) Removal of all asbestos in the demised premises (with delivery of
ACP-5 form)
SIXTY-THIRD: It is understood and agreed that it shall be Tenant's
obligation to install sufficient air conditioning equipment to air condition the
demised premises in accordance with the rules and regulations governing said
building. Any air conditioning units located in the demised premises on the date
hereof may be utilized by Tenant; provided the Landlord shall have no obligation
with respect thereto (including, without limitation, with respect to the
maintenance and repair thereof) and Tenant shall accept such units in their
"AS-IS" condition. It is further understood and agreed that if the demised
premises contain an air cooled unit at any time, Tenant shall be charged an
Electric Riser Charge of $5.00 per ton per month, and if Landlord services said
air conditioning unit, Tenant shall be charged an Air Conditioning Service
Charge of $5.00 per ton per month.
SIXTY-FOURTH: Anything in Article Fifty-Fourth to the contrary
notwithstanding, the cost of living adjustment in the fixed annual rental
provided in said Article Fifty-Fourth shall not in any single calendar year
exceed an amount equal to 5% of the fixed annual rent payable under this lease,
multiplied by the number of calendar years elapsed from the Base Year through
the calendar year for which the adjustment is made.
SIXTY-FIFTH: Landlord and Tenant hereby agree that if Tenant is not in
default under this lease on the date Tenant exercises its option under this
article or on the effective date of the cancellation (or, if Tenant is then in
default, such default is cured prior to the expiration of the applicable grace
period), Tenant has the option to cancel this lease effective on the sixth
anniversary of the commencement date by giving six (6) months' prior registered
written notice and immediately paying a termination fee of $100,000 to Landlord.
SIXTY-SIXTH: Notwithstanding anything to the contrary contained in this
lease:
(1) In the event Tenant is obligated (whether pursuant to this lease, by
law or otherwise) to pay or reimburse Landlord for counsel or attorneys' fees,
costs, disbursements, fees, expenditures, charges or expenses, it shall be
deemed that Tenant shall only be obligated to pay
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or reimburse Landlord for Landlord's reasonable counsel or attorneys' fees, and
reasonable costs, disbursements, fees, expenditures, charges or expenses.
(2) In each instance in this lease in which the words "Tenant's default,"
"default of Tenant," or words of similar import appear, it shall be deemed that
the words "beyond the expiration of any applicable grace and notice periods" be
added thereafter.
(3) In any instance in this lease in which any matter is subject to
Landlord's judgment, opinion, requirements, discretion, determination,
acceptability and/or satisfaction, the same shall be subject to the standard of
reasonableness; provided that the foregoing shall not apply with respect to
instances where Tenant has requested Landlord's consent, approval or permission,
so that, except as otherwise set forth in this lease or as required by
applicable law, there shall be no requirement that Landlord not unreasonably
withhold its consent, approval or permission to any matter requested by Tenant.
(4) Tenant shall be permitted to have access to the demised premises on a
twenty-four (24) hour, seven (7) day per week basis.
(5) Landlord agrees not to expend any money on Tenant's behalf or incur any
obligation on Tenant's behalf, unless Tenant shall have received written notice
from Landlord, specifying the nature and amount of the intended expenditure or
the nature of the intended obligation and within ten (10) days from the receipt
of such notice, Tenant shall not have obviated the necessity for such
expenditure or obligation by Landlord.
(6) Landlord agrees that if any Tenant default complained of is of such a
nature that same cannot be rectified or cured within the period requiring such
rectification and curing as specified in this lease, then such period shall be
extended for the period needed to rectify and cure such default if Tenant within
such original period shall have commenced the rectification and curing thereof
and shall continue thereafter with all due diligence to cause such rectification
and curing and does no complete the same with the use of such diligence within a
reasonable time thereafter.
SIXTY-SEVENTH: Landlord and Tenant represent and warrant to one another
that they have full power and authority to enter into this lease and the person
executing this lease on their behalf is authorized to do so.
SIXTY-EIGHTH: If Tenant is unable to obtain a permit for Tenant's work or a
certificate of occupancy due to any violation of law arising prior to delivery
of possession of the demised premises to Tenant, Landlord shall correct such
violation, and the time which expires until such violation is corrected shall be
added on to Tenant's "free rent" period as set forth in Article Seventy-Second,
so that the period set forth in such Article shall be extended by one day for
every day the Tenant is unable to obtain such permit or certificate of occupancy
because of the violation.
SIXTY-NINTH: Tenant may assign this Lease or sublet all (but not part) of
the demised premises, without the prior written consent of (but on prior notice
to) Landlord to:
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(1) any corporation or other entity controlling, controlled by or under
common control with, Tenant; or
(2) any entity resulting from a merger or consolidation with Tenant; or
(3) any entity succeeding to the business and assets and/or stock of
Tenant; or
(4) the transfer of stock between and among existing shareholders of Tenant
and their immediate families; or
(5) the transfer of stock in connection with a public offering of Tenant;
provided that, no such assignment, sublet or transfer shall release or relieve
Tenant (or any successor) from the further performance of the covenants set
forth in this lease.
SEVENTIETH: Tenant's obligations pursuant to Article Twenty-Fourth of this
lease shall apply only to the air conditioning system which serves the demised
premises occupied by Tenant pursuant to this lease.
SEVENTY-FIRST: Supplement Article Fifty-Third(d) of this lease, from time
to time, Landlord, on at least ten (10) days' prior written request by Tenant,
shall deliver to Tenant a written statement of the same type as Tenant is
required under said Article Fifty-Third(d) to deliver to Landlord, certifying
that the lease is unmodified and in full force and effect (or, if modified,
identifying such modifications), and stating the dates to which rent and other
charges have been paid and that, to Landlord's knowledge, there are no defaults
by Tenant under the lease (or, if there are defaults to which Landlord has
knowledge, specifying the nature of such defaults).
SEVENTY-SECOND: Notwithstanding anything contained in the lease to the
contrary, Tenant shall be entitled to an abatement of the fixed annual rent for
the first twelve (12) months of the term of the lease; provided that Tenant
shall be responsible to pay submetered electric and other miscellaneous charges
on the commencement of the term of the lease. The lease shall not be deemed to
have commenced until such time as Landlord substantially completes the word
delineated in Article Sixty-Second and delivers possession of the demised
premises to Tenant in vacant and broom clean condition; provided that the term
of this lease shall nonetheless expire on January 31, 2008.
SEVENTY-THIRD: Tenant agrees to refurbish the existing bathroom on the 7th
floor of the building as part of Tenant's initial work, and, upon the completion
of such refurbishing in compliance with all governmental and fire underwriters'
requirements, Landlord shall reimburse Tenant up to $40,000.00 of the documented
costs actually paid by Tenant for any leasehold improvements (which shall
exclude, without limitation, the cost of architects, designers, engineers,
attorneys, accountants, permits and other "soft costs). Tenant shall promptly
obtain all final governmental and fire underwriters' approvals or certificates
evidencing the completion of such work and shall furnish copies thereof to
Landlord.
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SEVENTY-FOURTH: Landlord and Tenant represent to one another that they had
no conversations or negotiations with any broker other than Newmark and Company
Real Estate, Inc. (the "Broker") concerning this Agreement. Landlord and Tenant
agree to indemnify, defend and hold harmless the other against and from all
costs, expenses, losses and liabilities, including, without limitation,
reasonable attorneys' fees and expenses, resulting from any breach of their
representations set forth in this Article. Landlord shall pay any commission due
the Broker pursuant to a separate agreement between Landlord and Broker.
SEVENTY-FIFTH: In the event of any conflict between any of the provisions
of this Rider and any of the provisions, printed or typewritten, of the printed
portion of this lease, the provisions of this Rider shall control.
42
SUBLEASE, dated as of the 8 day of May, 1998, between VANTAGE CUSTOM
CLASSICS, INC. (hereinafter "VCC") ("Landlord"), and WESTMORELAND INDUSTRIES,
LLC ("Tenant").
RECITALS
A. By Lease, fully executed as of November 14, 1997 between NGBW CO.,
L.L.C. (being referred to herein as "Overlandlord") as landlord and VCC as
tenant (said lease, as the same may be hereafter amended from time to time;
being referred to herein as the "Overlease"), Overlandlord has leased to
Landlord the entire approximately 274,380 square feet of space at a building
commonly known as 34 Englehard Avenue, Avenel, New Jersey (the "Building"),
which space, together with the right to use parking areas referenced in the
Overlease, driveways, and other common areas, shall be referred to as "the
Premises."
B. A true and correct copy of the Overlease is attached hereto as Exhibit
"A" and made a part hereof.
C. Landlord desires to sublease to Tenant, and Tenant desires to sublease
from Landlord, an approximately 98,000 square foot portion of the Premises as
identified on Exhibit "B" attached hereto and made a part hereof (hereinafter
referred to as the "Sublease Premises") on the terms, covenants and conditions
herein set forth. Tenant shall have exclusive use of four (4) loading docks as
set forth on Exhibit "B" and its own entrance into the Sublease Premises.
NOW, THEREFORE, Landlord and Tenant covenant. and agree as follows:
1. Term.
Landlord hereby leases the Sublease Premises to Tenant, and Tenant hereby
takes and leases the Sublease Premises from Landlord, upon and subject to the
terms, covenants and conditions herein set forth for a term (the "Term")
commencing on May 1, 1998 (the "Commencement Date"), and ending on the last day
of the month three (3) years thereafter. Tenant may extend the Term for an
additional one (1) year term. If Tenant chooses to extend the Term, it shall
provide Tenant with at least six (6) months' notice of its intention to do so.
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2. Base Rent.
(a) Tenant shall pay to Landlord Basic Rent (the "Basic Rent") at the
annual rate of $3.50 per square foot for the three (3) years of the Term, said
Basic Rent to be paid in equally monthly installments in advance on the first
day of each calendar month during the Term. Tenant may commence occupancy on May
1, 1998; however, payments of Basic Rent will commence on June 1, 1998. If the
Term is extended pursuant to the preceding paragraph, the Basic Rent shall
increase to $3.75 per square foot. Basic Rent for any period during the Term
which is for less than one (1) month shall be a pro-rata portion of the monthly
installment.
(b) Rent for the month of June 1998 shall be payable upon execution of this
Sublease. Thereafter, Basic Rent shall be paid to Landlord on the first day of
each month without notice, without demand, and except as may otherwise be
expressly provided in this Sublease, without abatement, deduction or set-off.
The Tenant shall not be held in default in the payment of any monies until the
expiration of a ten (10) day grace period which shall start on the day of
Tenant's receipt of written notice from Landlord specifying the default
including the amount of monies unpaid. In the event. that Tenant defaults on the
payment of any payment of from Basic Rent or other amount due hereunder,
Landlord shall be entitled to charge Tenant with a "late fee" equal to three
(3%) percent of the amount due and unpaid by Tenant.
(c) Except as otherwise expressly provided herein to the contrary, this
Sublease shall be deemed-and constructed to be a "Net Net Net Lease." It is the
purpose and intent of the Landlord and Tenant that, except as otherwise
expressly provided herein to the contrary, the net rent shall be absolutely net
to Landlord so that this Sublease shall yield to the Landlord the "Basic Rent"
specified herein in each year during the term of this Lease, and that, except as
otherwise provided, all costs, expenses and obligations of every kind and nature
whatsoever relating to the Sublease Premises, including the taxes, which may
arise or become due during or in respect of the term of this Sublease, shall be
paid by Tenant, provided, rather, that nothing herein shall be construed or
require Tenant to pay any sums due or to become due on account of any real
estate mortgage or real estate mortgages on the Premises; any franchise, estate,
inheritance, succession, capital levy, or any other tax assessments, charge or
levy based on or measured by the income or capital stock of the Lessor, if any.
If during the term of
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this Lease, the law of New Jersey is changed so that all
or any part of the tax attributable to real estate shall be changed from a tax
on land to another form of tax imposed upon the owner of land and building, then
Tenant shall nevertheless pay such tax to the proportionate extent that it is or
may be attributable to the demised premises.
3. Additional Rent.
(a) Except as expressly set forth herein to the contrary, Tenant agrees to
assume and be obligated to perform all obligations and to pay all charges,
costs, expenses and taxes which are the obligation of Landlord under the
Overlease, whether by way of direct payment by the Tenant or reimbursement to
the Landlord under the Overlease, which are attributable to the sublease
Premises. Except to the extent that any of such items are attributable solely to
the Sublease Premises (in which event they shall be solely Tenant's cost and
expense), Tenant shall be responsible for 35.72% of Landlord's total obligation
for such charges, costs, expenses and taxes under the Overlease ("Tenant's
Proportionate Share"). These charges costs, expenses and taxes shall include,
without limitation, the following: (i) Tenant's Proportionate Share of Utilities
and Taxes as set forth in Sections 6 and 39 of the Overlease; and (ii)
Compliance with Laws as set forth in Section 7 of the Overlease; and (iii)
Repairs and Maintenance as set forth in Sections 2 and 3 of the Overlease and
any Rider thereto (except that Tenant shall not be responsible for maintenance
or repair of the roof or structure at the premises, which shall be Landlord's
sole responsibility unless any such repairs are caused by the actions of
Tenant); (iv)Insurance as set forth in Section __; and (v) fire insurance,
whether paid by Landlord or Overlandlord under the Overlease. The foregoing
items (i) through (v) are not intended to limit Tenant's obligations, but are
merely intended to enumerate articles containing certain of Tenant's
obligations. In addition, Tenant shall be liable for any interest or penalties
charged to the Landlord by the Overlandlord under the Overlease plus the costs
and attorneys fees incurred by Landlord, as a result of the Tenant's failure to
pay any amounts or perform any obligations which are Tenant's obligation
hereunder.
(b) Tenant shall pay its Proportionate Share of all utility charges
servicing the Premises, as Additional Rent. Specifically, Tenant's
responsibility for its share of gas expenses shall be allocated by estimating
Tenant's gas service usage and not by. the square footage occupied by Tenant.
Tenant
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will be provided with copies of the gas bills for the Premises, and Tenant will
have an opportunity to independently verify said bills with the utility
provider. Electric service shall be separately sub-metered at Landlord's
expense.
(c) All of the foregoing obligations of Tenant described in (a) and (b)
above shall be payable and/or performed by Tenant as required under the
Overlease, and as to any obligations requiring notice or billing from the
Overlandlord under the Overlease, within fifteen (15) days after receipt of a
copy of the bill and written notice from Landlord to Tenant stating the amount
due and the purpose for such obligation.
(d) All taxes, charges, costs and expenses which Tenant assumes or agrees
to pay under any provision of this Sublease, together with any and all other
sums which may become due, by reason of any default of Tenant or failure on
Tenant's part to comply with the provisions, covenants and conditions of this
Sublease on Tenant's part to be performed, and each or any of them, shall be
collectible and recoverable as Additional Rent, and, in the event of nonpayment
thereof, Landlord shall have all the rights and remedies provided herein and in
the Overlease as in the case of nonpayment of Basic Rent or Additional Rent
beyond applicable notice and cure periods.
(e) The applicable provisions of this Section shall survive the expiration
or sooner termination of this Sublease.
4. Rental Payments.
The Basic Rent, Additional Rent and any other charges payable hereunder
shall be paid by Tenant to Landlord at Landlord's offices at 100 Vantage Drive,
Avenel, New Jersey, in lawful money of the United States of America, without any
deduction, set-off or abatement and, except as otherwise herein expressly
provided, without demand therefor.
5. Condition/Use of Sublease Premises.
(a) Except as set forth in 5(b) below, Tenant agrees to take the Sublease
Premises in its "as-is" condition and agrees that Landlord shall not be
obligated to make any repairs or alterations thereto in preparation for Tenant's
occupancy and possession. Landlord represents that, to the best of its
knowledge, the Sublease Premises is in full compliance with all
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federal, state and municipal environmental laws and that there is no hazardous
substance or waste at the premises. Landlord agrees to indemnify and hold
harmless the Tenant from any and all claims, damages or losses arising during
the term of this Sublease from or in connection with the presence of
environmental contamination at the Sublease Premises, unless the contamination
is present as a result of the negligence, misconduct or other acts of Tenant,
Tenant's agents, employees, contractors or invitees. In executing this Sublease,
Tenant has not relied upon or been induced by any statements or representations
of any person whatsoever, except as expressly set forth in this Sublease,
whether relating to the physical condition of the Sublease Premises or any other
matter. Tenant shall be responsible to obtain its own certificate of occupancy
and building permits for use of the Sublease Premises and for Tenant's
construction of additional doors at the Sublease Premises, if required.
(b) Landlord agrees to commence the following alterations prior to June 1,
1998: (i) removal of 25,000 square feet of existing racking; (ii) construction
of male and female bathrooms to accommodate one hundred (100) people; (iii) the
dismantling of the battery room; and (iv) the removal of the cinder block wall
contiguous to the loading dock separating the docks from the battery room.
(c) Tenant shall use the Sublease Premises solely for Standard Industrial
Classification Number 7389. Tenant agrees that the demised premises shall only
be used for warehousing for purposes and for office purposes in connection with
Tenant's warehousing activities. Any other use is prohibited without Landlord's
and Overlandlord's prior written consent. Tenant represents and warrants that
the business operations which it shall conduct at the demised premises do not
constitute the operation of an industrial establishment as defined in the
Industrial Site Recovery Act/Environmental Cleanup and Responsibility Act
("ISRA").
(d) With regard to use and occupancy of the demised premises by the Tenant,
Tenant will not (i) place or maintain any merchandise, trash, refuse or other
articles in any vestibule or entry of the premises, on the footwalks or
corridors adjacent thereto, or elsewhere on the exterior of the premises so as
to obstruct any driveway, footwalk, or parking area; or (ii) use or permit the
use of any portion of the premises for any unlawful purpose or in any manner
which will violate any present or future laws or regulations of any
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<PAGE>
governmental authority; or (iii) place a load upon any floor which exceeds the
floor load which the floor was designed to carry or allowed by law; or (iv)
stack merchandise or materials against the walls, so as to create a load or
weight factor upon the walls; or (v) permit the use or occupancy of the premises
in a manner which will in any way violate any Certificate of Occupancy affecting
the premises, or make void or voidable any insurance then in force with respect
thereto, or which will make it impossible to obtain fire or other insurance
required to be furnished hereunder.
(e) At the expiration of the Term, Tenant shall leave the Sublease Premises
in the same condition as exists on the Commencement Date, reasonable wear and
tear excepted.
(f) Landlord agrees to deliver all mechanical systems in good working order
and to deliver the building in "broom-clean" condition.
(g) Except for any construction or alterations performed by the Tenant,
Landlord shall be responsible to comply, at its sole cost and expense, with all
laws affecting the premises (including, without limitation, zoning,
environmental, fire and The Americans With Disabilities Act) and the Sublease
Premises which are not Tenant's obligation.
(h) If Tenant is unable to obtain a certificate of occupancy due to any act
or omission of Landlord's or due to a condition or violation arising prior to
delivery of possession of the demised premises to Tenant (hereinafter
collectively called "Pre-existing Conditions"), Landlord shall promptly correct
such condition at its own expense.
6. Overlease Terms.
(a) This Sublease is subject to and Tenant accepts this Sublease subject to
all of the terms, covenants, provisions, conditions and agreements contained in
the Overlease and the matters to which the Overlease is subject and subordinate.
This Sublease shall also be subject to and Tenant accepts this Sublease also
subject to any amendments and supplements to the Overlease hereafter made
between Overlandlord and Landlord provided said amendments or supplements do not
materially increase Tenant's obligations or liabilities hereunder. Tenant
covenants and agrees, (i) to perform and to observe all of the terms, covenants,
conditions and agreements of the Overlease on
6
<PAGE>
the part of the tenant thereunder to be performed and observed (other than those
requiring the payment of "Basic-Rent" which is to be paid hereunder) to the
extent that the same are not modified or amended by this Sublease, provided,
however. that this language shall not be applied retroactively to require Tenant
to remedy any act or omission which occurred prior to the Commencement Date,
(ii) that Tenant will not do or cause to be done or suffer or permit any act or
thing to be done which would or might cause the Overlease or the rights of
Landlord, as tenant thereunder, to be canceled, terminated or forfeited or which
would make Landlord liable for any damages, claim or penalty, and (iii) to
indemnify and hold harmless Landlord and Overlandlord, from and against airy and
all liability, loss, damage, suits, penalties claims and demands of every kind
or nature (including without limitation, reasonable attorneys' fees (and
disbursements and expenses of defense) by reason of Tenant's failure to comply
with the foregoing or arising from Tenant's use, occupancy or management of the
Sublease Premises or of any business conducted therein by, or form any work done
or any condition created by Tenant, its assignees or subtenants, or their
respective employees or agents in or about the Sublease Premises.
(b) This Sublease expressly incorporates by reference, as if set forth in
full in this Sublease, all of the terms, covenants and conditions of the
Overlease.
(c) In the event of and upon the termination or cancellation of the
Overlease by Landlord or Overlandlord pursuant to the terms and provisions
thereof, this Sublease shall automatically cease and terminate. In such event
Tenant shall have no claims whatsoever against Landlord.
(d) Tenant shall be entitled to the services, restorations, repairs,
equipment and access which the Overlandlord is and may be obligated to furnish
or make to or in the Sublease Premises pursuant to the terms of the Overlease.
If Overlandlord shall default in any of its obligations to Landlord with respect
to the Sublease Premises, Tenant shall be entitled to participate with Landlord
in the enforcement of Landlord's rights against Overlandlord.
(e) Landlord covenants and agrees that Landlord will not do or cause to be
done or suffer or permit any act or thing to be done which would or might cause
the Overlease to be canceled, terminated or forfeited or which would make Tenant
liable for any damages, claim or penalty under the terms of the Overlease.
7
<PAGE>
7. Alterations and Additions.
(a) Except as set forth in Paragraph 7(b) below, Tenant shall make no
alterations, additions or improvements in or about the Sublease Premises other
than trade fixtures, removable without injury to the Sublease Premises without
first obtaining the approval of Landlord and Overlandlord. In the event Tenant
shall make permanent improvements to the demised premises, said improvements
shall at the option of Landlord (i) become the property of Landlord or (ii) be
removed by the Tenant upon the expiration or earlier termination of this
Sublease.
(b) Space permitting, Tenant may construct four (4) shipping doors on the
side of the demised premises facing the enclosed security yard. Any and all
costs and expense associated with the construction of said doors, including, but
not limited to, professional, architectural, landscaping, paving, or masonry
costs, shall be paid by the Tenant. Prior to the commencement of any
construction, Tenant must submit to Landlord any and all plans, specifications,
drawings, and estimates associated with the construction of the doors. Landlord,
in its reasonable discretion, shall review and approve said plans,
specifications, drawings, and estimates. Landlord shall not unreasonably
withhold or delay its approval of any plans and specifications. All work shall
be performed in accordance with all local, state and federal building codes.
Upon receipt, review and approval of all documents evidencing the Tenant's
cost for the construction of these shipping doors, Landlord agrees to provide
Tenant a maximum credit towards the Basic Rent due hereunder in an amount equal
to the lesser of either a) $50,000; or b) $25,000 plus 330 of Tenant's total
cost of construction for the doors which exceeds $100,000. Said credit shall be
paid as follows: For the first $100,000.00 in costs which Tenant can verify and
present to Landlord, Landlord shall pay to Tenant, in cash, a sum equal to 25%
of said costs. For all costs incurred by Tenant above $100,000.00, Landlord
shall provide Tenant with a credit towards Tenant's monthly rental obligations
prorated over the three year period of this Sublease, subject to the maximum
noted in the preceding sentence.
8
<PAGE>
8. Assignment/Sublease.
Tenant shall not (i) assign or otherwise transfer this Sublease or the term
and estate hereby granted, (ii) sublet the Sublease Premises or any part thereof
of allow the same to be used or occupied by others or in violation of the
Overlease, or (iii) mortgage, pledge or encumber this Sublease or the Sublease
Premises or any part thereof in any manner, without the prior consent of the
Landlord and the Overlandlord. Landlord shall not unreasonably withhold its
consent. Any transfer of twenty-five (25%)percent or more of the outstanding
ownership interest or assets of Tenant shall be deemed an assignment hereunder.
If the Landlord and Overlandlord consent to any assignment or subletting, the
subtenant must conform to all the terms, covenants and conditions of this
sublease. Notwithstanding such subletting or assignment, the Tenant in this
Sublease shall remain directly and primarily liable for performance of the terms
and conditions of this Sublease, and the Landlord shall have the right to
require and demand that the Tenant pay and perform the terms of this Lease. Any
surplus monies made above the Sublease or a sublease or assignment basis shall
be paid to the Landlord. Tenant's share of said surplus above the Tenant's
current rent will be paid each and every month as Additional Rent if and when a
sublease or assignment occurs. Surplus shall be deemed to be the excess of the
rent received by the Tenant from its sublessees or assignees over the Basic Rent
paid by the Tenant. hereunder. In the event Tenant shall assign or sublet the
premises, upon receipt of Landlord's and Overlandlord's consent, the Tenant
shall pay all reasonable costs and expenses incurred by Landlord and
Overlandlord, including reasonable attorney's fees.
9. Insurance.
With respect to the Sublease Premises, Tenant shall pay its Proportionate
Share of Landlord's fire insurance. During the term hereof, Tenant shall also
maintain (and deliver to Landlord)a policy insuring all improvements,
alterations, additions, fixtures and contents installed or owned by Tenant in,
on or at the premises, against fire, vandalism, riot, malicious mischief,
sprinkler leakage, or other casualty with extended coverage, in amounts equal to
the full replacement value, without co-insurance, of such improvements,
alterations, additions, fixtures and contents. Specifically, Tenant shall
maintain a policy of comprehensive liability insurance, including public
liability and property damage, with a minimum combined single limit of liability
of three million dollars
9
<PAGE>
($3,000,000.00), worker's compensation insurance, renter's insurance and
business interruption insurance.
Tenant shall cause Landlord and Overlandlord and any mortgagee to be named
as an additional named insured on said insurance.
10. Broker.
Landlord agrees to pay to Grubb & Ellis a commission in connection with
this transaction pursuant to the commission agreement entered into between
Vantage Custom Classics, Inc. and Grubb & Ellis dated October 28, 1997. Grubb &
Ellis shall pay to Weichert Realtors all fees pursuant to the separate agreement
between Weichert Realtors and Grubb & Ellis. Each party agrees to indemnify and
hold the other party harmless from any and all costs and liabilities for
compensation, claims by any other broker or agent employed by it or claiming to
have been engaged by it in connection with this sublease (including, without
limitation, reasonable attorney's fees and disbursements).
11. Expenditures by Landlord.
Landlord agrees not to expend any money on Tenant's behalf or incur any
obligation on Tenant's behalf, unless Tenant shall have received written notice
from Landlord, specifying the nature and amount of the intended expenditure or
the nature of the intended obligation and within ten (10) days from the receipt
of such notice, Tenant shall not have obviated the necessity for such
expenditure or obligation by Landlord.
12. Interruption of Tenant's Use.
If Tenant's ability to make normal use of fifty (50%) percent of the
demised premises is interrupted for more than three (3) days due to any act or
omission of Landlord or any of its agents, servants, employees, contractors,
licensees or invitees, the next installment(s) of minimum rent and additional
rent due under this Lease shall be diminished on a per diem basis for each full
or partial day of such interruption and if such interruption shall continue for
more than thirty (30) days, Tenant may terminate this Lease upon fifteen(15)
days' written notice to Landlord.
10
<PAGE>
13. Tenant's Cure of Default.
Landlord agrees that if the default complained of is of such a nature that
same cannot be rectified or cured within the period requiring such rectification
and curing as specified in this Sublease, then such default shall be deemed to
be rectified or cured, if Tenant within such period shall have commenced the
rectification and curing thereof and shall continue thereafter with all due
diligence to cause such rectification and curing and does so complete the same
with the use of such diligence with a reasonable time thereafter.
14. Landlord's representations.
Landlord hereby warrants and represents to the Tenant that, to the best of
Landlord's knowledge: (i) Landlord has full power and authority to enter into
this Sublease and the person executing this Sublease on behalf of Landlord is
authorized to do so; (ii) The use of the Sublease Premises for the purposes
permitted under this Sublease shall not subject Tenant to any obligations
regarding Landlord's fire insurance policies (including, but not limited to, the
payment of increased premiums or otherwise); (iii) No other lessee or occupant
of the building has been granted a right or option which would prohibit, limit
or affect Tenant's permitted uses under this Sublease;(iv) the demised premises
contain no asbestos, urea formaldehyde, chlorofluorocarbons or other hazardous
substances; and (v) Landlord is not in default under any mortgages encumbering
the building or the Sublease Premises.
15. Notices.
Any notice, request, approval, consent or other communication (a "Notice")
required or permitted to be given under this Sublease must be in writing and
shall be deemed to be given by a party when hand-delivered or delivered by
registered or certified mail, return receipt requested, postage prepaid, or by
nationally recognized overnight courier, addressed to the other party as
follows:
If to Landlord: Vantage Custom Classics, Inc,
100 Vantage Drive
Avenel, New Jersey 07001
Attn: Ira Neaman
11
<PAGE>
with a copy to: Pearce & Massler
Court Plaza North
25 Main Street
Hackensack, NJ 07601
Attn: MaryAnn Virginia, Esq.
If to Tenant: Westmoreland Industries
30 Ethel Road
Edison, New Jersey
Attn:
with a copy to: Wachtel & Masyr, LLP
110 East 59th Street
New York, NY 10022
Attn: Morris Missry, Esq.
Following the Commencement Date, the address of the Sublease Premises shall be
the address for notices to Tenant.
16. No Recordation.
Tenant agrees not to record this, Sublease or a Memorandum thereof.
17. Reference to Overlease.
(a) The terms, conditions and obligations imposed upon Tenant hereunder
shall be deemed supplementary to all terms, conditions, and obligations of the
Overlease, which Tenant has assumed hereunder. In the event of any inconsistency
between this Sublease and the Overlease, this Sublease shall be construed so as
to impose on Tenant the obligations of Landlord under the Overlease, unless such
obligation has been expressly excluded by the provisions of this Sublease. Any
term not specifically defined hereunder shall have the same definition as in the
Overlease.
18. Binding Effect.
Subject to the provisions of Section 8 hereof, this Sublease shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. This Sublease may not be amended except by a
writing signed by both parties.
12
<PAGE>
19. Security Deposit.
(a) Tenant shall deposit with Landlord the sum of Fifty-seven thousand one
hundred sixty-six dollars and sixty-seven cents ($57,166.67), in the form of
cash, certified funds, or a Letter of Credit drawn on a financial institution
acceptable to Landlord, as security for the full and faithful performance by the
Tenant of all the terms, covenants and conditions of this Sublease upon the
Tenants part to be performed, which said sum shall be returned to the Tenant
without interest, after the expiration of the Term, provided that Tenant has
fully and faithfully carried out all of said terms, covenants and conditions on
Tenant's part to be performed. Landlord shall have the right to apply any part
of the security deposit, after Landlord has given Tenant notice of a default and
a reasonable opportunity to cure, to cure any default of Tenant, and if Landlord
does so, Tenant shall, within twenty (20) days after written demand, deposit
with Landlord the amount applied so that Landlord shall have the full deposit on
hand at all times during the term of this Sublease.
(b) In the event Tenant vacates the demised premises during the first year
of the term of this Sublease, Tenant hereby agrees to forfeit the security
deposit paid hereunder. In addition, Tenant agrees to pay the Landlord an
additional sum of $57,166.67 as damages for loss of bargain and not as a
penalty.
(c) In the event Tenant vacates the demised premises during the 13th
through the 30th months of the term of this Sublease, Tenant hereby agrees to
forfeit the security deposit paid hereunder.
(d) Nothing contained in paragraphs (b) and (c) above shall limit or
prejudice the right of Landlord to pursue any and all other legal and/or
equitable remedies available to Landlord in the event of a breach or a
threatened breach by Tenant of any of: the agreements, terms, covenants or
conditions herein, and Tenant shall be responsible for any and all attorneys
fees, costs and expenses incurred by Landlord as a result of Tenant's breach and
any action or proceeding brought thereon.
20. Guarantee.
The principals of Tenant, Westmoreland Industries, LLC,
_____________________ and ____________________, hereby agree to personally
guarantee the payment of Tenant's monthly rental obligations under this
Sublease, including, but not limited to,
13
<PAGE>
Tenant's obligations for the payment referenced in Paragraph 15 (b) above, for
so long as Tenant occupies the demised premises. Should the Tenant's principals
fail to comply with their obligations under this paragraph, Tenant and its
principals shall be liable for any and all costs, expenses, fees and attorneys'
fees incurred by Landlord as a result of their breach.
21. Choice of Law.
This Sublease shall be governed by the laws of the State of. New Jersey.
22. Conflicts.
In the event of any conflict between the terms of this Sublease and the
Overlease, the terms of this Sublease shall control.
IN WITNESS WHEREOF, Landlord, and Tenant have executed this Sublease as of
the day and year first above written.
WITNESS: VANTAGE CUSTOM CLASSICS, INC.
/s/ Sean Brecher /s/ Ira Neaman
_____________________________________ _____________________________________
Name: Ira Neaman
Title: President
WITNESS: WESTMORELAND INDUSTRIES
/s/ Max Anteby /s/ Zvi Ben-Haim
_____________________________________ _____________________________________
Name: Zvi Ben-Haim
Title: Member
/s/ Zvi Ben-Haim
_____________________________________
Guarantor
/s/ Jerry Harary
_____________________________________
Guarantor
14
<PAGE>
The undersigned Overlandlord hereby approves the foregoing Sublease.
NGBW CO., INC.
By:
/s/ Ira Neaman
By:__________________________
Name: IRA NEAMAN
Title: Managing Member
15
GMAC
COMMERCIAL CREDIT LLC
1290 AVENUE OF THE AMERICAS o NEW YORK, NY 10104
212-408-7000
March 17, 2000
SIGNAL APPAREL COMPANY, INC.
500 7th Avenue, 7th Floor
New York, New York 10018
Re: Waiver
Gentlemen:
Reference is made to the Revolving Credit, Term Loan and Security
Agreement, dated March 12, 1999 (as amended from time to time, the "Credit
Agreement") by and among SIGNAL APPAREL COMPANY, INC. ("Borrower") and GMAC
COMMERCIAL CREDIT LLC, as Agent (in such capacity, "Agent") for the lenders
(."Lenders") parties from time to time to the Credit Agreement. All
capitalization terms used and not otherwise defined herein shall have the
respective meanings ascribed to them in the Credit Agreement.
1. The Borrower has advised Lender that, for the year ending December 31,
1999, its Tangible Net Worth was less than ($74,000,000), the minimum Tangible
Net Worth permitted as of December 31, 1999 under Section 6.5 (Tangible Net
Worth) of the Credit Agreement; (ii) the Current Ratio was less than 0.60:1.00,
the minimum Current Ratio permitted as of December 31, 1999 under Section 6.6
(Current Ratio) of the Credit Agreement; (iii) Working Capital was less than
($10,500,000), the minimum Working Capital permitted as of December 31, 1999
under Section 6.7 (Working Capital) of the Credit Agreement; and (iv) net loss,
excluding any extraordinary or non-recurring items was greater than the
($5,000,000) permitted as of December 31, 1999 under Section 6.13(a) of the
Credit Agreement. As a result of such noncompliance, Events of Default have
occurred under Section 10.2 of Article X (Events of Default) of the Credit
Agreement ("Subject Events of Default"). Borrowers have requested Lender to
waive the Subject Events of Default, and Lender hereby waives the Subject Events
of Default.
2. Borrower hereby acknowledges, confirms and agrees that all amounts
charged or credited to the Borrower's account as of March 15, 2000 are correct
and binding upon the Borrower and that all amounts reflected to be due and owing
in the Borrower's account as of March 15, 2000 are due and owing without
defense, setoff, offset, recoupment, claim or counterclaim. Furthermore,
Borrower hereby also irrevocably releases and forever discharges Agent and
Lenders and each of Agent's and Lenders' respective affiliated concerns, as well
as all of Agent's Lenders' respective directors, officers, employees,
shareholders and agents from any an all liabilities, demands, obligations,
causes of action and other claims, of every kind, nature and description, known
and unknown, which Borrower now has or may hereafter have, by reason of any
matter, cause or thing occurred, done omitted or suffered to be done prior to
the date hereof.
<PAGE>
3. Except as specifically set forth herein, no other changes or
modification to the Credit Agreement are intended or implied, and, in all other
respects the Credit Agreement shall continue to remain in full force and effect
in accordance with its terms as of the date hereof. Except as specifically set
forth herein, nothing contained herein shall evidence a waiver or an amendment
by Agent of any other provisions of the Credit Agreement nor of the specific
provisions referred to above for any other time period.
4. In consideration of the waiver given by Agent and Lenders herein,
Borrower agrees to pay a non-refundable waiver fee to Agent, for the benefit of
Lenders in the amount of $40,000, which fee shall be in addition to any fees,
charges or interest otherwise payable by you under the Credit Agreement, and
which fee shall be fully earned as of the date hereof and payment of which may
be effectuated by charging Borrower's loan account.
5. The terms and provisions of this agreement shall be for the benefits of
the parties hereto and their respective successors and assigns; no other person,
entity or corporation shall have any right, benefit or interest under this
agreement.
6. This Agreement may be signed in counterparts, each of which shall be an
original and all of which taken together constitute one amendment. In making
proof of this agreement, it shall not be necessary to produce or account for
more than one counterpart signed by the party to be charged.
7. This Agreement sets forth the entire agreement and understanding of the
parties with respect to the matters set forth herein. This agreement cannot be
changed, modified, amended or terminated except in a writing executed by the
party to be changed.
Very truly yours,
GMAC COMMERCIAL CREDIT LLC,
as Agents
By: /s/ Wayne Miler VP
----------------------------
Acknowledge and Agreed:
Signal Apparel Company, Inc.
By: /s/ Kenneth Larsen
-------------------
Title: Controller
EXHIBIT 21
LIST OF SUBSIDIARIES
Name Jurisdiction
- ---- ------------
The Shirt Shed, Inc. Delaware
American Marketing Works, Inc. Delaware
Big Ball Sports, Inc. Texas
Soccer Holdings, Inc. New York
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
Signal Apparel Company, Inc.
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 No. 333-65851, the Registration Statement on Form S-3 No.
333-76671, and the Registration Statement on Form S-8 No. 333-83281 of Signal
Apparel Company, Inc., of our report dated March 22, 2000 with respect to the
consolidated financial statements and schedules of Signal Apparel Company, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ GOLDSTEIN GOLUB KESSLER LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 22, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into Signal Apparel Company, Inc.'s
previously filed Registration Statements on Form S-3 (File No. 333-76671 and
File No. 333-65851) and Form S-8 (File No. 333-83281).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SIGNAL APPAREL COMPANY, INC. FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 555
<ALLOWANCES> 251
<INVENTORY> 7,346
<CURRENT-ASSETS> 8,889
<PP&E> 3,555
<DEPRECIATION> 707
<TOTAL-ASSETS> 44,604
<CURRENT-LIABILITIES> 116,000
<BONDS> 22,475
0
51,296
<COMMON> 535
<OTHER-SE> (144,585)
<TOTAL-LIABILITY-AND-EQUITY> 44,604
<SALES> 98,725
<TOTAL-REVENUES> 98,725
<CGS> 89,268
<TOTAL-COSTS> 89,268
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,254
<INCOME-PRETAX> (47,926)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,917)
<EPS-BASIC> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
