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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-5256
GERBER CHILDRENSWEAR, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 62-1624764
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
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7005 PELHAM ROAD
GREENVILLE, SC 29615
(Address of principal executive offices)
(864) 987-5200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
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Common Stock, $0.01 par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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. [ ]
As of March 20, 2000, there were outstanding 8,291,075 shares of Common
Stock and 8,692,315 shares of Class B Common Stock. As of that date, the
aggregate market value of the shares of Common Stock held by nonaffiliates of
the registrant (based on the closing price for the Common Stock on the New York
Stock Exchange on March 20, 2000) was approximately $21,697,000.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Stockholders of the Company
to be held May 16, 2000, which will be filed with the Securities and Exchange
Commission not later than 120 days after December 31, 1999.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 4
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 18
Item 8. Financial Statements and Supplementary Data................. 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 19
Item 11. Executive Compensation...................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 19
Item 13. Certain Relationships and Related Transactions.............. 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 20
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SAFE-HARBOR STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This report includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's expectations or beliefs concerning future events that involve
known and unknown risks and uncertainties, including, without limitation, those
associated with the effect of national and regional economic conditions, the
overall level of consumer spending, the performance of the Company's products
within the prevailing retail environment, customer acceptance of both new
designs and newly-introduced product lines, competition and financial
difficulties encountered by customers. All statements other than statements of
historical facts included in this annual report, including, without limitation,
the statements under Management's Discussion and Analysis of Financial Condition
and Results of Operations, are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct and actual results, performance or events could differ materially
from those expressed in such statements.
References in this annual report on Form 10-K (the "Report") to the
"Company" shall, as the context requires, refer to Gerber Childrenswear, Inc.
(and its predecessor), together with its wholly-owned direct and indirect
subsidiaries. References in this Report to "Gerber" shall, as the context
requires, collectively refer to Gerber Childrenswear, Inc., Costura Dominicana,
Inc., Gerber Childrenswear Canada, Inc. (a Delaware corporation formed in 1998),
GCI IP Sub, Inc., Costura Matamoros S.A. de C.V. (a Mexican corporation formed
in 1998) and GCW Mexico S.A. de C.V. (a Mexican corporation formed in 1998).
References in this Report to "Auburn" shall, as the context requires,
collectively refer to Auburn Hosiery Mills, Inc., GCI Spainco, S.L. (a Spanish
corporation formed in 1998), Sports Socks Co. (Belgium) BVBA (a Belgian
corporation formed in 1999), Sport Socks Co. (UK) Limited and Sport Socks Co.
(Ireland) Limited, each a wholly-owned direct or indirect subsidiary of Gerber
Childrenswear, Inc.
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PART I
ITEM 1. BUSINESS
HISTORY
Gerber Childrenswear, Inc. was formed and became a single corporate entity
through the merger in April 1989 of four separate companies acquired by Gerber
Products Company ("GPC"). In January 1996, Gerber Childrenswear, Inc. was
acquired by GCIH, Inc. ("GCIH") from GPC for approximately $61.5 million in cash
(subject to purchase price adjustments) and a $12.5 million promissory note (the
"Original Acquisition"). Since the Original Acquisition, GPC has not owned any
capital stock of the Company, nor have GPC and the Company shared common
directors, officers or employees. In connection with such acquisition and
related financing, Citicorp Venture Capital, Ltd. ("CVC"), management, directors
and others purchased the equity of GCIH. Gerber conducts the apparel segment of
the Company's business which consists of the production and sale of infant and
toddler sleepwear, playwear, underwear, bedding, bath, cloth diapers and other
products under the Gerber, Baby Looney Tunes, Little Suzy's Zoo and Curity
licensed brand names, the Onesies trademark and private labels.
The Company acquired all of the capital stock of Auburn in December 1997
for approximately $40.0 million in cash (the "Auburn Acquisition"). Auburn
conducts the hosiery segment of the Company's business which consists of the
production and sale of branded sport socks under licensed brand names such as
Wilson, Coca-Cola, Converse and Dunlop to major retailers in the United States
and/or Europe.
In connection with the consummation of the Company's Initial Public
Offering ("Offering") in June 1998, GCIH and Gerber consummated a series of
transactions pursuant to which GCIH was recapitalized and reorganized and Gerber
was merged into GCIH (the "Reorganization"). The principal transactions that
comprised the Reorganization which occurred in connection with the consummation
of the Offering were: (i) the conversion of all of the outstanding shares of
preferred stock of GCIH into either common stock of GCIH or the right to receive
cash; (ii) the merger of Gerber into and with GCIH, with GCIH being the
surviving entity of such merger; and (iii) the amendment of the certificate of
incorporation of GCIH to provide for (a) the reclassification and exchange of
all of the outstanding shares of all classes of common stock and warrants to
purchase common stock of GCIH for shares of Common Stock, Class B Common Stock
or warrants to purchase Class B Common Stock of GCIH and (b) a change of the
corporate name from GCIH, Inc. to Gerber Childrenswear, Inc.
The Company is a Delaware corporation. The Company's principal offices are
located at 7005 Pelham Road, Greenville, SC 29615, and its telephone number is
(864) 987-5200.
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BUSINESS SEGMENTS
Apparel Segment
The apparel segment consists of the production and sale of infant and
toddler sleepwear, playwear, underwear, bedding, bath, cloth diapers and other
products under the Gerber, Baby Looney Tunes, Little Suzy's Zoo and Curity brand
names, the Onesies trademark and private labels. Gerber Childrenswear, Inc. is a
leading marketer of infant and toddler apparel and related products, offering
products under its flagship brand, Gerber, as well as the Baby Looney Tunes and
Curity brand names, the Onesies trademark and the Little Suzy's Zoo brand which
was recently introduced in the apparel market. The Gerber name and baby head
logo are among the best recognized in the infant and toddler industry. The
Company believes that Gerber is the leading provider of infant and toddler
apparel and related products, based on dollar volume and breadth of product
offering to volume retailers, which constitute the fastest growing segment of
the retail industry. The Company also distributes products to mid-tier
department stores and specialty retailers. Gerber holds a leading market share,
based on dollar volume, in its distribution channels in the underwear, blanket
sleeper and cloth diaper categories. The Company believes that these leading
positions, in addition to strong consumer recognition of its brands, provide
opportunities for Gerber to leverage its brands into other product categories
including sleep 'n play, bed & bath, playwear, bibs, hosiery and gift sets where
Gerber has an existing presence.
The Company believes the market offers continued growth prospects due to
demographic factors including: (i) more women having children at an older age
and returning to work thereafter, resulting in greater disposable income for
expenditures on children; and (ii) an increasing number of grandparents, who
represent a key consumer segment for infant and toddler products. Within the
infant and toddler industry, greater emphasis on value has shifted consumer
purchases away from traditional department stores and toward more
value-conscious retail channels, including volume retailers and mid-tier
department stores. Additionally, the industry is highly fragmented and supplies
volume retailers who are interested in limiting their purchases to a smaller
number of well-capitalized vendors with a broad base of branded products. The
Company believes that its strong brand names, leading market positions, broad
product offerings and strong customer relationships with volume retailers and
mid-tier department stores position it to benefit from industry trends.
Hosiery Segment
The hosiery segment consists of the production and sale of sport and casual
socks under the Wilson, Coca-Cola, Converse and Dunlop names to major retailers
in the United States and/or Europe. The hosiery segment conducted by Auburn
manufactures, markets and sells branded sport socks for men, women and children
under established brand names such as Wilson, Coca-Cola, Converse and Dunlop in
the United States ("U.S.") and/or Europe. Auburn has operations in the United
States and Ireland. Auburn markets to a diversified customer base in the U.S.
and Europe, including volume retailers, department stores, wholesale clubs and
major sporting good chains. These strong brand names and Auburn's long-term
reputation for quality facilitate a multi-channel distribution strategy. Auburn
competes effectively in these distribution channels by offering its branded
products at competitive prices, operating as a low-cost producer, servicing
customers with quick turnaround and maintaining strong customer relations.
Business Segment Data
For information regarding net sales, income (loss) before interest and
income taxes and assets by industry segment, reference is made to the
information presented in Note 18 "Business Segments and Geographic Areas" to the
consolidated financial statements.
GENERAL
Manufacturing and Sourcing
Through its own and third party manufacturing operations, Gerber is able to
control the knitting, cutting, sewing, embroidering and packaging of its
products. Over the last several years, Gerber has focused its operations on its
manufacturing strengths such as knitting, cutting and sewing and has
discontinued its inefficient manufacturing operations such as spinning yarn and
dyeing fabric. The Company believes that the combination of
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domestic and foreign production helps Gerber maintain competitive pricing by
keeping costs low while fulfilling customer demand for fast turnaround on
orders.
Gerber has seven manufacturing operations, including one in each of South
Carolina and Texas, two locations in North Carolina and two "9802" facilities in
the Dominican Republic and one location in Mexico. The facility in Mexico began
operations in the fourth quarter of 1998. By the end of 1999, the Mexican plant
was manufacturing 20,000 dozen garments per week, up from approximately 10,000
dozen per week in the first quarter of 1999. By the end of 2000, the facility is
expected to generate close to 30,000 dozen garments per week. The lower labor
costs in Mexico and proximity to new and existing markets ensures the Company's
cost competitiveness and "just in time" deliveries. In addition, the facility
can service the Canadian market under the NAFTA agreement, as well as parts of
South America without incurring duties. In "9802" facilities, U.S. components
are shipped abroad, assembled, packaged and re-imported with duty charges
assessed only on the value added abroad.
In addition, the Company utilizes third party manufacturers (both
domestically and offshore) and has entered into exclusive production agreements
with certain contractors in the U.S., Estonia, Guatemala and Mexico. These
agreements are generally for terms of one year, payment is due within 30 days,
the contractors must provide labor and conduct hiring practices consistent with
local laws and the Company's condition of employment standards, and pricing
terms are negotiated on an item by item basis.
Hosiery segment manufacturing requires a capital intensive process through
which the sock is knit in the greige, the toe is closed, the sock is bleached or
dyed and then packaged for distribution. In the U.S., Auburn conducts knitting
and toe closing operations at its manufacturing facility in Adairville,
Kentucky. The Adairville facility houses technologically advanced knitting and
sewing equipment with no significant equipment older than six years. Auburn has
implemented a computerized monitoring system of this machinery which increases
efficiency, usage rates and productivity. Auburn's bleaching, dyeing, finishing,
packaging and shipping operations are conducted at its facility in Auburn,
Kentucky. Technological advances and other control mechanisms at both the
Adairville and Auburn facilities allow Auburn to maximize productivity. The
Company intends to invest in further technological advances as they become
available.
Outside the U.S., Auburn operates a facility in Cahirciveen, County Kerry,
Ireland which conducts knitting, sewing, bleaching, packaging and shipping
functions using machinery, processes and technology virtually identical to those
of the U.S. facilities. The Ireland facility primarily supplies the European
market (including Western Europe and Eastern Europe west of Russia) with the
same branded American-style sports socks. In addition, the Company recently
installed in the Ireland facility a computerized monitoring system similar to
that which Auburn implemented in its Adairville facility. Now fully operational
in Ireland, the system has significantly increased efficiency and productivity
at that facility. The Company plans to spend approximately $8.0 million to
establish a second manufacturing facility in Tralee, Ireland. When the new plant
is completed in 2001, it will increase the potential capacity to service the
European market. The Company believes that Auburn's ability to offer high
quality, branded socks at competitive prices has been recognized by
value-conscious Europeans and which will enable Auburn to expand its branded
business in Europe.
Customers
Certain of the Company's volume retailer and mid-tier department store
customers account for significant portions of the Company's net sales. The
Apparel segment directly services approximately 1,100 retail accounts, with its
top 10 customers representing approximately 84%, 82% and 82% of total 1999, 1998
and 1997 sales, respectively. The Apparel segment had sales to Wal-Mart and two
other customers that accounted for 37%, 11%, and 11% of total Apparel sales in
1999, respectively; 40%, 11% and 10% of total Apparel sales in 1998,
respectively; 43%, 10%, and 11% of total Apparel sales in 1997. The Hosiery
segment had sales to Wal-Mart that accounted for 51% and 45% of 1999 and 1998
sales, respectively, and 49% of its 1997 sales on a pro forma basis.
The Company generally does not enter into long-term or other purchase
agreements with its customers. Customer orders are received by the Company
through one of two methods. With the exception of fashion-oriented and seasonal
products, most customer orders are tied to a planogram, which is established by
customers for setting up displays within their stores. Generally planograms are
revised annually in these merchandise categories. The Company's customers, based
on sales data captured at cash registers, generate orders for replenishment
goods
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which are transmitted to the Company through its electronic data interchange
("EDI") systems. Replenishment orders for planogram merchandise are generally
filled within three days. Under the second program, customer orders for
fashion-oriented and seasonal products (e.g., blanket sleepers) are received on
a purchase order basis, and such orders are filled without an in-season reorder
expectation.
Competition
The infant and toddler apparel market is highly competitive. Both branded
and private label manufacturers compete in the infant and toddler apparel
markets. Competition generally is based upon product quality, brand name
recognition, price, selection, service and convenience. Gerber's primary
competitors include the Hanes subsidiary of the Sara Lee Corporation ("Hanes"),
The William Carter Company ("Carter's"), licensed products and firms using
character licenses from Walt Disney Company, Inc. ("Disney") and others. Gerber
also competes with certain retailers, including several which are customers of
the Company, which have significant private label product offerings. Gerber's
ability to compete depends, in substantial part, on the continued high regard
for the Gerber brand name and the ability of Gerber to continue to offer
high-quality products at competitive prices.
The hosiery industry is highly fragmented and has significant branded and
private label components. Competition is generally in terms of price, quality,
service, brand recognition and style. Auburn's primary competitors include
Hanes, which has the largest share of the market, Renfro Corporation ("Renfro"),
Neuville Industries, Inc. ("Neuville") and the Russell Corporation ("Russell").
Auburn also competes with certain retailers, including several which are
customers of the Company, which have significant private label product
offerings. In addition, Auburn competes with private label manufacturers,
including small, local manufacturers and large, public companies.
Patents, Licenses and Trademarks
The Company is largely dependent on the use of the Gerber name. The Gerber
name and trademark are exclusively licensed to the Company from GPC for use on
certain clothing and textile products in the infant and toddler apparel market
sold in the U.S., Canada and the Caribbean. The product categories covered by
the Gerber license include infant and toddler shoes, underwear, sleepwear
(including blanket sleepers, pajamas and sleep 'n play), playwear, bed and bath
products, reusable cloth diapers and diaper liners, bibs, hosiery, swimwear and
gift sets and layette incorporating the above articles, in each case targeted to
infants and toddlers. The terms and conditions for use of the Gerber name for
other product categories and geographic areas must be negotiated by the Company
on an individual basis. The Gerber license extends through 2006, after which
there are two five-year renewal periods. GPC retains the rights under the
license to produce, distribute, advertise and sell, and to authorize others to
produce, distribute, advertise and sell, products under the Gerber name other
than clothing and textile products. The Company is not required to pay royalty
fees to GPC until 2002, although the Company is recording royalty expense to
reflect such fees over the initial license period.
The Company also licenses the Baby Looney Tunes brand name from the Warner
Brothers division of Time-Warner, Inc. ("Warner Brothers"), the Curity brand
name from The Kendall Company and the Little Suzy's Zoo brand name from Suzy's
Zoo. The Company is licensed to use the Baby Looney Tunes and Little Suzy's Zoo
brand names in the U.S. and Canada and the Curity brand name in the U.S. and
internationally. The Baby Looney Tunes, Curity and Little Suzy's Zoo licenses
are limited to certain product categories, including, in the case of Baby Looney
Tunes and Little Suzy's Zoo, bath products, bedding, sleepwear, underwear,
footwear, socks, layettes and infant and toddler playwear, and in the case of
Curity, cloth diapers and diaper liners, underwear, hosiery, sleepwear
(including blanket sleepers and sleep 'n play) and certain other products, in
each case for infants and toddlers. The Curity license automatically renews for
periods of ten years. The Baby Looney Tunes license extends through December 31,
2000. Any subsequent renewals will be the subject of good faith negotiations.
The Little Suzy's Zoo license expires on December 31, 2001 but can be
automatically renewed for one additional year if a certain minimum royalty is
earned in the final year of the agreement. Any subsequent renewals will be the
subject of good faith negotiations. The Company owns the Onesies trademark.
Auburn also licenses properties from different companies for its products.
The license from Wilson Sporting Goods Co. ("Wilson") expires in 2002 with a
five year renewal period if certain sales targets are exceeded. Auburn has held
this license since 1982. The license from Wilson can be terminated by Wilson if
the employment of either Kevin K. Angliss or Donald J. Murphy with Auburn
terminates. The license from Converse
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Inc. ("Converse") expires on December 31, 2004 with a two year renewal option if
certain sales targets are met. This license can be terminated by Converse if
Kevin K. Angliss and/or Timothy Graham are no longer the principal managers of
Auburn's Converse brand product line. Messrs. Angliss, Murphy and Graham have
not entered into employment agreements with Auburn. The Company decided not to
renew the Coca-Cola Company ("Coca-Cola") license in the U.S. as sales under
this license were not sufficient to warrant its renewal at December 31, 1999.
The license from Dunlop Slazenger International Ltd. ("Dunlop") expires in 2001
(with a five year renewal period if certain sales targets are exceeded). All of
these licenses have particular geographic and other limitations, and the Company
negotiates the terms and conditions for the use of such trademarks outside such
limitations on an individual basis. The products covered by the licenses
include: (i) sport socks in the case of Wilson; (ii) men's, women's and youth's
hosiery in all color combinations and styles in the case of Converse; (iii)
athletic and casual socks in the case of Coca-Cola; and (iv) sport and casual
socks in the case of Dunlop.
The Company has not experienced any proprietary license infringements or
legal actions that have had a material impact on its consolidated financial
condition or results of operations.
Raw Materials
The Company depends on certain raw materials such as yarn for the
manufacturing of its products. In order to hedge against price increases of
yarn, the Company actively manages its cost through contracts with its yarn
suppliers with terms of up to one year. With the exception of suppliers located
in Ireland, the United Kingdom, Spain, Italy and Germany which provide yarn to
the Company's Irish subsidiary, all of the Company's yarn suppliers are located
in the U.S. None of the foreign suppliers, either individually or in the
aggregate, provide material quantities of yarn to the Company. Management
believes that none of these suppliers are material and that there are many
alternate sources from which yarn may be readily obtained.
Cost of Environmental Compliance
The Company's manufacturing facilities and operations are subject to
certain federal, state, local and foreign laws and regulations relating to
environmental protection and occupational health and safety, including those
governing wastewater discharges, air emissions, the management and disposal of
solid and hazardous wastes, and the remediation of contamination associated with
the release of hazardous substances. Prior to its acquisition, Auburn was cited
for discharging contaminants into the sewer system from its facility in Auburn,
Kentucky in excess of the amounts allowed under its permits. The condition
underlying such violations were either fully remediated at an immaterial cost or
are expected to be remediated at an immaterial cost. Gerber and, other than the
above, Auburn have never been cited, fined or otherwise held liable for
violations of environmental statutes or regulations. In addition, the Company is
not aware of any noncompliance with such laws and regulations. The Company has
incurred, and will continue to incur, capital expenditures and operating
expenses to comply with such requirements. However, the Company does not
currently anticipate any material capital expenditures for environmental control
facilities for the current or succeeding year. Nonetheless, there can be no
assurance that such laws will not become more stringent or be interpreted and
applied more stringently. Such future changes or interpretations or the
identification of adverse environmental conditions previously unknown to the
Company could result in additional compliance costs or in remediation costs to
the Company.
The Company's older facilities contain asbestos materials and lead-based
paint in inactive areas utilized for the storage of records, machine parts and
obsolete supplies, where the potential for worker exposure to such materials is
minimal. If the Company were to elect to utilize such areas as active
manufacturing or distribution facilities such that the potential for worker
exposure would be increased, as a matter of policy the Company would undertake
to remediate or encapsulate such materials. The cost of removing or
encapsulating such materials from the Company's Pelzer, South Carolina
facilities would be a material expenditure.
Backlog of Orders
The Company delivers products throughout the year and generally experiences
buy cycles during the first and third quarters. The EDI system and Vendor
Managed Inventory ("VMI") programs have significantly reduced the average order
period, which effectively reduces backlog. At December 31, 1999, the Company's
backlog of orders for its products, all of which were expected to be shipped
during 2000, was approximately $19.5 million compared to approximately $21.9
million at December 31, 1998 and approximately $20.2 million at December 31,
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1997. Backlog as of any given date may not be indicative of backlog at a
subsequent date. Therefore, a comparison of backlog from period to period is not
necessarily an accurate indicator of eventual shipments.
Employees
As of December 31, 1999, the Company had approximately 3,100 employees
including approximately 1,500 in the U.S. and approximately 1,600 in foreign
countries. None of the Company's employees are members of unions or are
otherwise party to a collective bargaining agreement. Certain of the Company's
employees in Ireland are subject to the national wage agreement in Ireland. The
Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The following table sets forth the principal real property owned or leased
by the Company and used as production, distribution, warehouse, manufacturing or
other facilities as of December 31, 1999:
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LOCATION USE LEASED FLOOR SPACE (S.F.)
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APPAREL SEGMENT:
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Ballinger, TX........... Manufacturing Owned 85,000
Ballinger, TX........... Warehouse, Distribution Leased 70,000
Evergreen, AL........... Warehouse, Distribution Leased 255,000
Dominican Republic
(Two Facilities)..... Manufacturing Leased 53,000
Lumberton, NC
(Two Facilities)..... Manufacturing Owned 183,000
Pelzer, SC
(Two Facilities)..... Manufacturing, Distribution Owned 804,000
Matamoros, Mexico....... Manufacturing Leased 74,000
HOSIERY SEGMENT:
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Adairville, KY.......... Manufacturing Owned 72,000
Auburn, KY.............. Manufacturing, Distribution and
Administration Owned 160,000
Cahirciveen, Ireland
(Two Facilities)..... Manufacturing, Distribution and
Administration Leased 62,000
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In addition to the facilities described above, the Company leases 48,000
square feet for its headquarters in Greenville, South Carolina. The Company also
renewed in April 1999, its lease for approximately 21,000 square feet for its
executive offices and showroom in New York, New York. From time to time, the
Company also uses storage space in warehouses in Adairville, Kentucky for
Hosiery and Evergreen, Alabama and Brewton, Alabama for Apparel. The Company
holds a purchase option for the Evergreen, Alabama warehouse which is
exercisable at any time during the 15 year lease term at a price of two dollars.
The Company also holds a purchase option on the Matamoros, Mexico lease which is
exercisable during the life of the lease for a price of approximately $2.6
million. The Company plans to spend approximately $8.0 million to establish a
second manufacturing facility in Tralee, Ireland. When the new plant is
completed in 2001, it will increase the potential capacity to service the
European market.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
For a discussion of environmental and other regulatory matters see "Item 1.
Business -- General -- Cost of Environmental Compliance."
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in various routine legal and
administrative proceedings and threatened legal and administrative proceedings
incidental to the ordinary course of its business. The Company has been active
in pursuing actions against infringements on its trademarks. In the opinion of
the Company's management, the resolution of such matters will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
Gerber Childrenswear, Inc.'s Common Stock is traded on the New York Stock
Exchange. The following table reflects the range of high and low selling prices
of Gerber Childrenswear, Inc.'s Common Stock by quarter from the time of the
Company's initial public offering in June 1998.
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1999 1998
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HIGH LOW HIGH LOW
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First Quarter............................................... 8 12/16 5 14/16 N/A N/A
Second Quarter (for 1998 -- beginning June 11, 1998)........ 8 8/16 5 14/16 16 1/16 14 7/16
Third Quarter............................................... 7 12/16 4 4/16 16 10/16 7 6/16
Fourth Quarter.............................................. 5 14/16 3 12/16 10 6/16 5 4/16
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HOLDERS
At March 20, 2000, there were approximately 93 holders of record of Common
Stock and two holders of record of Class B Common Stock.
DIVIDENDS
The Company has not paid any dividends with respect to the Common Stock.
The Company presently intends to retain future earnings to finance its growth
and development and therefore does not expect to pay any cash dividends in the
foreseeable future. The Company's credit facility, which was entered into with
certain lenders in connection with the Auburn Acquisition ("Credit Agreement"),
restricts the payment of cash dividends by the Company (subject to certain
limited exceptions), and the Company may in the future enter into loan or other
agreements or issue debt securities or preferred stock that restrict the payment
of dividends. The declaration and payment of dividends by the Company are
subject to the discretion of the Board of Directors of the Company (the
"Board"). Any future determination to pay dividends will depend on the Company's
results of operations, financial condition, capital requirements, contractual
restrictions and other factors deemed appropriate by the Board.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
ANNUAL FINANCIAL DATA
The following table presents (i) selected historical consolidated financial
data of the Predecessor Company for the year ended December 31, 1995 and (ii)
selected historical consolidated financial information of the Company at
December 31, 1996 and for the period from January 22, 1996 to December 31, 1996
and as of and for the years ended December 31, 1997, 1998 and 1999. The selected
consolidated financial data of the Predecessor has been derived from the
financial statements of the Predecessor for the year ended December 31, 1995,
the selected financial data of the Company for the period from January 22, 1996
to December 31, 1996, as well as the year ended December 31, 1997, 1998 and 1999
has been derived from the financial statements of the Company. The selected
financial data should be read in conjunction with the Consolidated Financial
Statements and the related notes as indexed on page F-1 and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7.
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
---------------------------------------- -----------
PERIOD FROM
YEAR YEAR YEAR JANUARY 22, YEAR
ENDED ENDED ENDED 1996 TO ENDED
DECEMBER 31,
------------------------------------------------------
1999 1998 1997 (A) 1996 (B) 1995 (C)
------ ------ -------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................................... $277.7 $278.5 $202.0 $185.2 $197.4
Cost of sales................................... 210.7 209.5 146.3 138.6 156.4
------ ------ ------ ------ ------
Gross margin.................................... 67.0 69.0 55.7 46.6 41.0
Selling, general and administrative expenses.... 42.4 38.5 27.7 23.9 24.6
Stock compensation (d).......................... -- -- 9.5 -- --
Other (e)....................................... (1.8) -- .2 .7 --
------ ------ ------ ------ ------
Total operating expenses........................ 40.6 38.5 37.4 24.6 24.6
------ ------ ------ ------ ------
Income before interest and income taxes......... 26.4 30.5 18.3 22.0 16.4
Interest expense, net........................... 2.7 5.8 5.8 6.3 --
------ ------ ------ ------ ------
Income before income taxes and extraordinary
item, net..................................... 23.7 24.7 12.5 15.7 16.4
Provision for income taxes...................... 8.0 8.7 4.8 6.2 6.3
------ ------ ------ ------ ------
Income before extraordinary item, net........... 15.7 16.0 7.7 9.5 10.1
Extraordinary item, net (f)..................... -- (.2) (.7) -- --
------ ------ ------ ------ ------
Net income...................................... 15.7 15.8 7.0 9.5 10.1
Less preferred stock dividends.................. -- (.8) (1.6) (1.3) --
------ ------ ------ ------ ------
Net income available to common shareholders..... $ 15.7 $ 15.0 $ 5.4 $ 8.2 $ 10.1
====== ====== ====== ====== ======
Earnings per common share....................... $ .94 $ 1.06 $ .48 $ .72
Earnings per common share - assuming dilution... $ .79 $ .85 $ .37 $ .53
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
--------------------------------- -----------
DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 90.8 $ 82.7 $ 65.9 $ 56.2 $ 69.6
Total assets........................................ 178.4 185.7 163.9 106.1 103.2
Total debt.......................................... 19.5 39.7 77.0 43.4 --
Preferred stock including accrued dividends......... -- -- 14.6 13.1 --
Investment by GPC................................... -- -- -- -- 79.1
Shareholders' equity................................ $111.9 $ 98.9 $ 19.4 $ 9.1 --
</TABLE>
See following page for notes to the selected financial data.
11
<PAGE> 12
- ---------------
(a) Includes the following operating results for Auburn for the period December
17, 1997 through December 31, 1997 (in millions).
<TABLE>
<S> <C>
Net sales................................................... $1.5
Gross margin................................................ .2
SG&A expenses............................................... .2
Loss before interest and income taxes....................... *
Net loss.................................................... *
</TABLE>
* Less than $50,000.
(b) Excludes the Predecessor Company's unaudited operations for the period
January 1, 1996 through January 21, 1996 (in millions).
<TABLE>
<S> <C>
Net sales................................................... $6.7
Gross margin................................................ 1.1
SG&A expenses............................................... 1.4
Loss before interest and income taxes....................... (.3)
Net loss.................................................... (.2)
</TABLE>
(c) The Predecessor Company operated as a wholly-owned subsidiary of GPC until
being divested by GPC on January 22, 1996. The financial data for the
Predecessor Company is not entirely comparable to that of the Company due
to certain factors including the following:
(i) The Predecessor Company did not incur any royalty expense for the
use of the Gerber name and baby head logo. During the period from
January 22, 1996 to December 31, 1996 and for the years ended
December 31, 1997, 1998 and 1999, the royalty expense to GPC was
approximately $1.9 million, $3.5 million, $2.8 million and $1.4
million, respectively.
(ii) The Predecessor Company's net sales in 1995 included approximately
$8.3 million of net sales at cost to GPC that generated no gross
margin. Net sales to GPC in 1996, 1997 and 1998 of approximately
$6.2 million, $4.3 million and $1.1 million, respectively, generated
gross margins in 1996, 1997 and 1998 of approximately $1.0 million,
$.6 million and $.2 million, respectively. There were no sales to
GPC in 1999.
(iii) The Predecessor Company was included in various self-insurance
programs provided by GPC, including medical, dental, workers'
compensation, comprehensive general and excess liability and
property damage and business interruption. GPC also provided
management information services to the Predecessor Company and
allocated a portion of the expenses incurred to the Predecessor
Company. In addition, the Predecessor Company was allocated a
portion of legal and professional costs for services directly
attributable to the Predecessor Company. Certain services were
provided by GPC's corporate staff, for which no charge was made to
the Predecessor Company. Management believes the aggregate cost of
these unallocated services was insignificant. The Predecessor
Company was charged for all outside legal and professional expenses
directly attributable to it.
(iv) In 1995, the Predecessor Company had no long term debt and was not
charged any interest expense as a subsidiary of GPC.
(v) The provision for income taxes of the Predecessor Company results
from applying the Federal and state statutory rates to the
operations of a stand-alone company.
(d) Represents expense related to stock compensation incurred in connection
with the sale of capital stock below fair market value to executives and
management of the Company.
12
<PAGE> 13
(e) Represents the settlement with its insurance providers of the Company's
losses associated with Hurricane Georges for a net casualty gain of
approximately $1.3 million and a one-time curtailment of postretirement
benefits gain associated with the Company's decision to downsize its
domestic Apparel operations in 1999.
(f) In June 1998, the Company repaid senior and junior subordinated notes in
the principal amount of $22.5 million and $11.0 million, respectively. The
write-off of unamortized discount and loan costs totaled $.2 million (net
of an income tax benefit of $.2 million). In 1997, the Company expensed
unamortized loan costs and a prepayment penalty of $.7 million (net of an
income tax benefit of $.5 million) in connection with the replacement of
the Company's then existing credit facility with the current Credit
Agreement.
QUARTERLY FINANCIAL DATA
For information regarding quarterly financial data, reference is made to
Note 19 "Selected Quarterly Financial Data -- (Unaudited)" to the consolidated
financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
YEAR 2000 COMPLIANCE
During 1999, the Company discussed the nature and progress of its plans to
become Year 2000 ("Y2K") compliant. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Y2K date change. The
Company expensed approximately $50,000 and $300,000 during 1999 and 1998,
respectively, in connection with remediating its systems. The Company is not
aware of any material problems resulting from Y2K issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors to ensure that any latent Y2K matters
that may arise are addressed promptly.
CASUALTY EVENT -- HURRICANE GEORGES
For information regarding the Company's insured casualty loss, reference is
made to the information presented in Note 16 "Casualty Event" to the
consolidated financial statements.
SEASONALITY
In the Apparel segment, sales are typically higher in the third and fourth
quarters. The Company believes that there are three main reasons for this trend:
(i) sales of blanket sleepers and fleece products occur mostly during this
period; (ii) a portion of the Company's underwear business is seasonal in that a
product line for the fall season incorporates seasonal designs, prints, colors
and fabric weight; and (iii) sales in general rise as retailers prepare for
events such as back-to-school season (as consumers visit stores to buy clothing
for older children) and retailer initiated promotions of baby apparel. In the
fourth quarter, such trend is primarily due to greater sales of blanket sleepers
in the early fourth quarter and increased sales of playwear in the late fourth
quarter.
In the Hosiery segment, sales are generally non-seasonal, but Auburn does
experience somewhat higher sales in the second and third quarters as a result of
the seasonal use of the product and back to school sales. Auburn's business is
also influenced by promotions instituted by its customers.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, income statement
data expressed as a percentage of net sales. Any trends reflected by the
following table may not be indicative of future results.
13
<PAGE> 14
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------
YEAR ENDED DECEMBER 31,
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 75.9 75.2 72.4
----- ----- -----
Gross margin................................................ 24.1 24.8 27.6
Selling, general & administrative expenses.................. 15.3 13.8 13.7
Stock compensation.......................................... 0.0 0.0 4.7
Other....................................................... (0.7) 0.0 0.1
----- ----- -----
Income before interest and income taxes..................... 9.5 11.0 9.1
Interest expense, net....................................... 1.0 2.1 2.9
----- ----- -----
Income before income taxes and extraordinary item, net...... 8.5 8.9 6.2
Provision for income taxes.................................. 2.9 3.1 2.4
----- ----- -----
Income before extraordinary item, net....................... 5.6 5.8 3.8
Extraordinary item, net..................................... 0.0 (0.1) (0.3)
----- ----- -----
Net income.................................................. 5.6% 5.7% 3.5%
===== ===== =====
</TABLE>
BUSINESS SEGMENT DATA
For information regarding net sales, income (loss) before interest and
income taxes and assets by industry segment, reference is made to the
information presented in Note 18 "Business Segments and Geographic Areas" to the
consolidated financial statements.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net sales. Apparel net sales were $205.6 million for 1999, a decrease of
$6.8 million or 3.2% below net sales of $212.4 million for 1998 due to decreased
unit volume sales. Hosiery net sales were $72.1 million in 1999, an increase of
$6.0 million or 9.1% above net sales of $66.1 million in 1998 due to customer
pipe line stocking early in the year and strong retail sales, particularly for
multi packs.
Gross margin. Gross margin as a percentage of net sales declined from
24.8% in 1998 to 24.1% in 1999. The decrease in gross margin was due in part to
the higher percentage of Hosiery sales that typically have lower gross margins
than Apparel sales and in part to higher manufacturing costs for Apparel due to
both lower than planned overall production levels to reduce inventories and a
higher percentage of domestic production due to a slower than planned start up
of the new Mexican production facility.
Selling, general & administrative expenses. Selling, general and
administrative expenses ("SG&A") as a percentage of net sales increased to 15.3%
in 1999 from 13.8% in 1998. The percentage increase was due to lower sales and
higher costs for warehousing and startup of the new Mexican production facility.
Other. Represents the settlement with its insurance providers of the
Company's losses associated with Hurricane Georges for a net casualty gain of
approximately $1.3 million and a one-time curtailment of postretirement benefits
gain associated with the Company's decision to downsize its domestic Apparel
operations in 1999.
Income before interest and income taxes. Apparel income before interest
and income taxes ("EBIT") was 9.1% of Apparel sales in 1999 compared to 12.0% in
1998. The drop in Apparel EBIT was the result of the higher manufacturing costs
and SG&A expenses as discussed above. Hosiery EBIT was 10.6% of Hosiery sales in
1999 compared to 7.7% in 1998. The increase in Hosiery EBIT was the result of
improved margins due to lower material cost and an increase in unit sales.
Interest expense, net. Interest expense was approximately $2.7 million in
1999 and $5.8 million in 1998. The decrease in interest expense reflects the
lower debt levels resulting from the use of proceeds from the Company's initial
public offering on June 11, 1998, partially offset by higher Apparel inventories
during most of
14
<PAGE> 15
1999 and a $0.6 million provision in 1999 for possible interest charges in
connection with resolving differences between the Company and the Internal
Revenue Service ("IRS") on the amount of current income taxes due for 1996 and
1997. The tax differences arise from ongoing examinations by the IRS.
Provision for income taxes. Provision for income taxes was $8.1 million in
1999, compared to $8.6 million in 1998. The effective tax rate was 34.0% for
1999 compared to 35.0% for 1998. The Company's effective income tax rate
differed from the prior period effective rate due to greater impact of foreign
earnings, certain of which are taxed at lower rates than in the United States,
partially offset by goodwill amortization, most of which are not deductible for
federal and state income tax purposes.
Extraordinary item, net. The Company repaid senior and junior subordinated
notes in June 1998 with the proceeds from the Offering, resulting in the
write-off of unamortized discount and loan costs of approximately $.3 million
(net of an income tax benefit of $.2 million).
Net income. As a result of the above, net income was $15.7 million for
1999 and $15.8 million for 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales. Apparel net sales were $212.4 million for 1998, an increase of
$11.9 million or 5.9% over net sales of $200.5 million for 1997 due to increased
unit volume sales. Hosiery net sales were $66.1 million in 1998 compared to $1.5
million and $69.6 million for the two week period ended December 31, 1997 and
pro forma net sales for 1997, respectively.
Gross margin. Gross margin as a percentage of net sales declined from
27.6% in 1997 to 24.8% in 1998. The decrease in gross margin was due in part to
Hosiery sales, which typically have lower gross margins than Apparel sales, and
in part to underabsorbed overhead, sales allowances and inventory markdowns for
Apparel due to lost production associated with Hurricane Georges and inventory
reduction efforts in late 1998.
Selling, general & administrative expenses, excluding stock compensation.
Selling, general and administrative expenses (excluding stock compensation) as a
percentage of net sales increased to 13.8% in 1998, from 13.7% in 1997. The
increase is primarily due to higher than expected distribution costs at the
Apparel segment.
Stock compensation. In 1997, stock compensation of $9.5 million was
incurred in connection with the sale of stock below its fair market value to
certain executives and managers of the Company.
Income before interest and income taxes. Apparel income before interest
and income taxes as a percentage of Apparel sales was 12.0% in 1998 compared to
9.1% in 1997. Excluding stock compensation, Apparel income before interest and
income taxes as a percentage of Apparel sales was 13.9% in 1997 due to higher
gross margins. The Hosiery segment income before interest and taxes was 7.7% of
Hosiery sales in 1998 compared to 3.7% for pro forma 1997. The improvement
resulted from reduced SG&A expenses in 1998, including a $1.8 million year over
year reduction in expense from forward foreign currency exchange contracts.
Interest expense, net. Interest expense was approximately $5.8 million in
both 1998 and 1997. Interest expense reflects the higher debt levels maintained
most of the year associated with the acquisition of the Hosiery operations and
higher Apparel inventories, offset by the Offering proceeds used to repay debt
in June 1998.
Provision for income taxes. Provision for income taxes was $8.6 million in
1998, compared to $4.8 million in 1997. The effective tax rate was 35.0% for
1998 compared to 38.2% for 1997. The Company's effective income tax rate
differed from the prior period effective rate due to the impact of foreign
earnings, certain of which are taxed at lower rates than in the United States,
partially offset by goodwill amortization, most of which is not deductible for
federal and state income tax purposes.
Extraordinary item, net. The Company repaid senior and junior subordinated
notes in June 1998 with the proceeds from the Offering, resulting in the
write-off of unamortized discount and loan costs of approximately $0.3 million
(net of an income tax benefit of $0.2 million). In 1997, unamortized loan costs
and a prepayment penalty of
15
<PAGE> 16
$0.7 million (net of an income tax benefit of $0.5 million) were expensed in
connection with the replacement of the Company's then existing credit facility
with its current Credit Agreement.
Net income. As a result of the above, net income was $15.8 million for
1998, a 124.8% increase over the $7.0 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are working capital, capital expenditures,
and debt service. The Company has financed its working capital, capital
expenditures and debt service requirements primarily through internally
generated cash flow, in addition to funds borrowed under the Company's Credit
Agreement.
For the Apparel segment, working capital requirements vary throughout the
year. Working capital increases during the first half of the year as inventory,
primarily blanket sleepers, builds to support peak shipping periods. The Hosiery
segment is less seasonal and, while working capital tends to increase slightly
during the second half of the year, the variation is small.
Net cash provided by (used in) operating activities was $43.7 million,
$(3.9) million and $(5.0) million for 1999, 1998 and 1997, respectively. The
increase in cash provided by operating activities in 1999 was due to a decrease
in inventory of $21.4 million related to lower than planned overall production
levels in the fourth quarter of 1999. The decrease in net cash provided by
operating activities for 1998 and 1997 is primarily due to an increase in
inventory and accounts receivable. Inventory increased $15.9 million and $15.0
million in 1998 and 1997, respectively. The higher inventories in 1998 resulted
from inefficiencies in the Company's production planning system (which is
currently being upgraded) and inefficiencies still occurring at the Company's
new distribution center. The higher inventories in 1997 represented higher
levels of safety stocks maintained on hand to minimize delivery time and
properly service customers to limit disruptions to customers during the
transition to a new distribution warehouse in 1997 and as a result of the need
to keep more inventory on hand due to increased reliance on offshore sourcing.
The increase in accounts receivable of $1.1 million, $2.9 million and $8.1
million in 1999, 1998 and 1997, respectively, is primarily due to the timing of
sales and collections. The lower accrued expenses in 1998 compared to 1999 and
1997 were primarily related to: (i) the payment of the 1997 stock compensation
withholding taxes of approximately $4.6 million; (ii) $2.1 million reduction of
corporate incentives; and (iii) $2.8 million reduction in interest due to the
repayment of all or a portion of the senior subordinated note payable, junior
subordinated note payable and term loan in connection with the Company's
Offering. Income taxes payable (decreased) increased $(2.6) million, $10.3
million and $(10.2) million in 1999, 1998 and 1997, respectively. The change
year over year primarily relates to: (i) differences in the timing of payments;
(ii) changes in temporary differences in 1998; and (iii) the tax impact of stock
compensation late in 1997.
The Company invested $7.4 million, $5.0 million and $4.2 million in capital
expenditures during 1999, 1998 and 1997, respectively. These expenditures
consisted primarily of normal replacement of manufacturing equipment, purchases
of office equipment and upgrades to information systems. In addition, the
Company relocated its distribution center in 1997 resulting in a one-time
capital expenditure of $2.0 million. The Company is budgeting an aggregate of
$15.2 million for capital expenditures for 2000. Included in this amount is $6.4
million to begin construction/renovation of a second manufacturing facility in
Tralee, Ireland, $2.9 million to replace or upgrade manufacturing equipment and
$5.0 million to upgrade MIS systems. Gerber's portion of the overall capital
expenditures, $7.6 million, includes $5.0 million for MIS systems upgrades;
which the Company believes, when fully implemented, could provide efficiencies
in the areas of product development, forecasting and production planning.
Net cash (used in) provided by financing activities was $(20.3) million,
$10.0 million and $30.3 million for 1999, 1998 and 1997, respectively. The
decrease in cash provided by financing activities in 1999 was due to repayments
made under the Company's Credit Agreement. The increase in cash provided by
financing activities for 1998 and 1997 consisted of borrowings under the
Company's revolving credit agreement to fund the seasonally increased working
capital needs as well as higher inventory levels maintained. In addition, in
1998 the Company used the net proceeds of $48.7 million from its Offering and
the exercise of the over-allotment option to: (a) repay a senior subordinated
note in the aggregate principal amount of $22.5 million; (b) repay a junior
subordinated note in the aggregate principal amount of $11.0 million; (c) repay
certain other indebtedness of the Company in the
16
<PAGE> 17
aggregate principal amount of $14.8 million; and (d) redeem 2,828.4 shares of
the Company's redeemable preferred stock in the aggregate amount of
approximately $0.4 million held by certain of its officers.
Under the terms of a ten year license agreement between the Company and
GPC, the initial term of which expires in 2006, the Company is not required to
pay royalty fees to GPC until the year 2002. Commencing in 2002, the Company is
required to pay an escalating royalty fee as a percentage of net sales of Gerber
licensed products during the remaining term of the license agreement and in each
year of the two consecutive five-year renewal terms if such agreements are
renewed. The Company is recording charges against earnings in accordance with
generally accepted accounting principles in order to ensure a straight-line
effect of the total royalty expense expected to be incurred over the initial ten
year license term. The charges recorded prior to 2002 represent non-current
liabilities that will begin to be paid to GPC in 2002. The initiation of such
royalty payments in year 2002 may adversely affect the Company's cash flow.
In connection with the Auburn Acquisition, the Company's then-existing
senior credit facility was refinanced and replaced with the Credit Agreement
which consisted of a $40.0 million term loan to finance the acquisition and a
$60.0 million revolving facility to fund current working capital requirements.
The Company had no amounts outstanding under the revolving credit portion of the
Credit Agreement at December 31, 1999 and $15.3 million outstanding at December
31, 1998. The Credit Agreement subjects the Company to standard covenants and
events of default. As of December 31, 1999, the Company was in compliance with
all such covenants and was not in default.
Auburn's Irish operations maintains an IRL1.6 million loan facility (U.S.
$2.0 million as of December 31, 1999) with the National Irish Bank consisting of
a combined term loan, overdraft, guarantee and foreign exchange line. This
facility is subject to annual review. The overdraft facility and foreign
exchange line are available at the Company's discretion with each term loan draw
down subject to the National Irish Bank's approval. At present, the Irish entity
has no outstanding balances under any portion of the loan facility. In addition,
the Irish entity has received capital and employment grants from the Industrial
Development Authority (the "IDA") which could become repayable to the IDA (if
certain conditions are not met) in the aggregate amount of up to IRL1.8 million
(U.S. $2.3 million) as of December 31, 1999. Auburn is a party to two loan
agreements with the County of Logan, Kentucky related to the issuance in 1989 of
two series of industrial revenue bonds of which approximately $2.0 million
remained outstanding at December 31, 1999.
The Company believes that cash generated from operations, together with
amounts available under the Credit Agreement and the Irish entity's loan
facility with the National Irish Bank, will be adequate to meet its working
capital, capital expenditures, and debt service requirements for the next 12
months.
INFLATION
In general, costs are affected by inflation and the Company may experience
the effects of inflation in future periods. The Company does not currently
consider the impact of inflation to be significant in the businesses or
countries in which the Company operates.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Adoption of FAS 133 is not anticipated to have a material impact on the
Company's consolidated financial statements.
17
<PAGE> 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company considered the provisions of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." The Company
had no holdings of derivative financial or commodity-based instruments at
December 31, 1999. A review of the Company's other financial instruments and
risk exposures at that date revealed that the Company had exposure to interest
rate and foreign currency exchange rate risks.
Interest rates
The Company's balance sheet consists of a revolving credit facility and a
term loan that are subject to interest rate risk. Both loans are priced at
floating rates of interest, with a basis of LIBOR or prime rate at the Company's
option. As a result of these factors, at any given time, a change in interest
rates could result in either an increase or decrease in the Company's interest
expense. At December 31, 1999, the Company performed sensitivity analysis to
assess the potential effect of a 1% increase or decrease in interest rates and
concluded that near-term changes in interest rates should not materially affect
the Company's consolidated financial position, results of operations or cash
flows.
Foreign currency exchange rates
The Company's earnings are affected by fluctuations in the value of the
U.S. Dollar as compared to foreign currencies, predominately in European
countries, as a result of the sale of its products in foreign markets and
translation adjustments associated with the conversion of the Company's foreign
subsidiaries into the reporting currency (U.S. Dollar). As such, the Company's
exposure to changes in foreign currency exchange rates could impact the
Company's consolidated financial position, results of operations or cash flows.
At December 31, 1999, the Company performed sensitivity analysis to assess the
potential effect of a 10% increase or decrease in foreign exchange rates and
concluded that near-term changes in exchange rates should not materially affect
the Company's consolidated financial position, results of operations or cash
flows. This calculation assumes that each exchange rate would change in the same
direction relative to the U.S. Dollar. In addition to the direct effects of
changes in exchange rates, which are a changed dollar value of the resulting
sales, changes in exchange rates also affect the volume of sales or the foreign
currency sales price as competitors' products become more or less attractive.
The Company's sensitivity analysis of the effects of changes in foreign currency
exchange rates did not factor in a potential change in sales levels or local
currency prices.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements which appears on page F-1
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders, to be filed
on or before April 29, 2000, and such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders, to be filed
on or before April 29, 2000, and such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders, to be filed
on or before April 29, 2000, and such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its Annual Meeting of Stockholders, to be filed
on or before April 29, 2000, and such information is incorporated herein by
reference.
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(1) Listing of Documents.
(a) Financial Statements. The financial statements filed as part of this
report are listed on the Index to Consolidated Financial Statements on page F-1.
(b) Financial Statement Schedules.
(i) Schedule II -- Supplemental Schedule of Valuation and Qualifying
Accounts
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or not
material, or the information called for thereby is otherwise
included in the financial statements and therefore have been
omitted.
(2) Reports on Form 8-K.
None.
(3) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
3.1 (1) -- Form of Amended and Restated Certificate of Incorporation of
the registrant.
3.2 (1) -- Form of Amended and Restated Bylaws of the registrant.
4.1 (1) -- Form of Certificate representing shares of Common Stock,
$0.01 par value per share.
4.2 (1) -- Credit Agreement by and among GCIH, Auburn, GCI, the
domestic subsidiaries of the same and various lending
institutions dated as of April 3, 1998.
4.3 (1) -- First Amendment to Credit Agreement by and among GCIH,
Auburn, GCI, the domestic subsidiaries of the same and
various lending institutions dated as of April 3, 1998.
4.4 (1) -- Second Amendment to Credit Agreement by and among GCIH,
Auburn, GCI, the domestic subsidiaries of the same and
various lending institutions dated as of June 4, 1998.
4.5 (2) -- Gerber Childrenswear, Inc. 1998 Long-Term Performance
Incentive Plan, dated as of March 3, 1998.
4.6 (3) -- Third Amendment to Credit Agreement by and among GCIH,
Auburn, GCI, the domestic subsidiaries of the same and
various lending institutions dated as of August 24, 1999.
10.1 (1) -- Stock Purchase Agreement by and between GPC and GCIH dated
as of December 14, 1995.
10.2 (1) -- Form of Executive Stock Purchase Agreement between GCIH and
certain of its Executives, each dated January 22, 1996.
10.3 (1) -- Form of Manager Securities Purchase Agreement between GCIH
and certain of its Managers.
10.4 (1) -- Securities Purchase Agreement by and between GCIH and CVC,
dated as of January 22, 1996.
10.5 (1) -- Form of Director Stock Purchase Agreement between GCIH and
certain of its directors.
10.6 (1) -- Amended and Restated Registration Rights Agreement by and
between GCIH, Citicorp Venture Capital, Ltd., and other
stockholders of GCIH, dated as of June 5, 1998.
10.7 (1) -- Stock Purchase Agreement by and among GCIH, James P.
Manning, Eileen Manning and Certain Charitable Remainder
Trusts dated as of November 12, 1997.
10.8 (1) -- Share Purchase Agreement by and among GCIH, James P. Manning
and Eileen Manning dated as of December 16, 1997.
10.9 (1) -- Amended and Restated Senior Subordinated Credit Agreement
dated as of December 17, 1997 by and among GCIH, GCI, CMP
and others.
10.10(1) -- Subordination and Intercreditor Agreement by and among
Nationsbank, CMP, GCI and others dated as of December 17,
1997.
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.11(1) -- 12% Junior Subordinated Note in the face amount of
$11,000,000, issued by GCIH to GPC as of December 29, 1997.
10.12(3) -- License Agreement by and between Warner Bros. Division of
Time Warner Entertainment Company, L.P. and GCI dated as of
December 3, 1998.
10.13(1) -- License Agreement by and between GPC and GCI dated as of
January 22, 1996.
10.14(1) -- License Agreement among The Kendall Company, GPC, and Soft
Care Apparel, Inc. (n/k/a GCI), dated as of July 31, 1986,
as amended pursuant to that certain Letter Agreement dated
January 19, 1996 by and among The Kendall Company, GPC, GCI
and GCIH.
10.15(1) -- Trademark License Agreement between Auburn and Wilson
Sporting Goods Co. dated April 29, 1997; as sublicensed to
Sport Socks Ireland as of October 1, 1997, effective as of
January 1, 1998; as amended as of December 5, 1997.
10.16(1) -- Lease Agreement by and between GCI and Operadora Zona Franca
De la Romana, S.A. for property located at Zona Franca
Industrial La Romana (Sewing, Packaging).
10.17(1) -- Lease Agreement by and between GCI and Operadora Zona Franca
De la Romana, S.A. for property located at Altos
Buvillaverde.
10.18(1) -- Lease Agreement by and between GCI and Operadora Zona Franca
De la Romana, S.A. for property located at Altos
Buvillaverde.
10.19(1) -- Lease Amendment by and between GCI and the Industrial
Development Board of the City of Evergreen, Alabama, dated
as of August 28, 1997, and assignment and assumption
agreement and resolution of the Industrial Development Board
dated as of the same date.
10.20(1) -- Lease Agreement between GCI and Highland Properties, LLC
dated as of November 25, 1996, and amendments thereto, for
the lease of the Greenville facility.
10.21(1) -- Severance Agreement by and between GPC, GCI and David E.
Uren, dated as of March 18, 1995.
10.22(1) -- Form of Amendment No. 1 to the Executive Stock Purchase
Agreement.
10.23(2) -- Lease Agreement by and between GCW Mexico, S.A. de C.V. and
Parques Industriales Amistad Alaianzas, S.A. de C.V. for
property located in Matamoros, Mexico.
10.24(2) -- Waiver and termination agreement by and between Citicorp
Venture Capital, Ltd. and GCI related to Manager, Investor,
Director and Executive Stock Purchase Agreements.
10.25(3) -- Lease Agreement by and between GCI and 1333 Broadway
Associates, dated as of April 1, 1999, for the lease of the
New York Sales Office.
10.26(3) -- License Agreement by and between Suzy's Zoo and GCI
effective as of October 1, 1998.
21.1 (3) -- Subsidiaries of the registrant.
23 (3) -- Consent of Ernst & Young LLP, independent auditors.
27 (3) -- Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference from the Registrant's Registration Statement
#333-47327 on Form S-1 filed on June 10, 1998 with the Securities and
Exchange Commission, and herein incorporated by reference.
(2) Incorporated by reference from the Registrant's Form 10-K filed on March 31,
1999 with the Securities and Exchange Commission, and herein incorporated by
reference.
(3) Filed herewith.
The Company will furnish a copy of any of the above exhibits not included
herein upon the written request of such shareholder and the payment to the
Company of the reasonable expenses incurred by the Company in furnishing such
copy or copies.
21
<PAGE> 22
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.
Gerber Childrenswear, Inc.
(Registrant)
Date: March 24, 2000 By: /s/ RICHARD L. SOLAR
------------------------------------
Richard L. Solar
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EDWARD KITTREDGE Director, Chairman, Chief March 24, 2000
- ----------------------------------------------------- Executive Officer and
Edward Kittredge President (Principal
Executive Officer)
/s/ RICHARD L. SOLAR Director, Senior Vice President March 24, 2000
- ----------------------------------------------------- and Chief Financial Officer
Richard L. Solar (Chief Financial Officer)
/s/ DAVID E. UREN Vice President of Finance, March 24, 2000
- ----------------------------------------------------- Secretary and Treasurer
David E. Uren (Chief Accounting Officer)
/s/ RICHARD CASHIN Director March 24, 2000
- -----------------------------------------------------
Richard Cashin
/s/ LAWRENCE R. GLENN Director March 24, 2000
- -----------------------------------------------------
Lawrence R. Glenn
/s/ JAMES P. MANNING Director March 24, 2000
- -----------------------------------------------------
James P. Manning
/s/ JOSEPH MEDALIE Director March 24, 2000
- -----------------------------------------------------
Joseph Medalie
/s/ JOHN D. WEBER Director March 24, 2000
- -----------------------------------------------------
John D. Weber
</TABLE>
22
<PAGE> 23
GERBER CHILDRENSWEAR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at December 31, 1999 and 1998... F-3
Consolidated Statements of Income and Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997...... F-5
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997...... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-8
Notes to Consolidated Financial Statements.................. F-10
</TABLE>
F-1
<PAGE> 24
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Gerber Childrenswear, Inc.
We have audited the accompanying consolidated balance sheets of Gerber
Childrenswear, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of income and comprehensive income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedule listed in the Index at Item 14 (1)(b). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Gerber Childrenswear, Inc. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 29, 2000
F-2
<PAGE> 25
GERBER CHILDRENSWEAR, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 17,503 $ 1,780
Accounts receivable, net of allowances for doubtful
accounts of approximately $1,103,000 (1999) and
$1,487,000 (1998)...................................... 37,261 36,621
Inventories............................................... 65,286 87,020
Deferred income taxes..................................... 3,100 4,806
Other..................................................... 1,831 2,534
-------- --------
Total current assets.............................. 124,981 132,761
Property, plant and equipment, net.......................... 26,876 25,224
Deferred income taxes....................................... 6,043 4,678
Excess of cost over fair value of net assets acquired, net.. 18,395 20,607
Debt issuance costs, net.................................... 662 880
Other....................................................... 1,467 1,588
-------- --------
$178,424 $185,738
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 26
GERBER CHILDRENSWEAR, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 9,239 $ 11,815
Accrued expenses.......................................... 15,155 12,387
Income taxes payable...................................... 3,054 5,666
Current portion of obligations under capital leases....... 8 101
Revolving credit loan payable............................. - 15,300
Current portion of long-term debt......................... 6,678 4,746
-------- --------
Total current liabilities......................... 34,134 50,015
Accrued pension and post-retirement benefit cost............ 6,928 6,092
Other accrued liabilities................................... 12,593 11,074
Long-term debt, less current portion........................ 12,843 19,631
Shareholders' equity:
Common stock, par value $.01, 20,774,000 shares
authorized; 8,291,075 shares outstanding (1999),
8,352,949 shares outstanding (1998).................... 84 84
Common stock, Class B, par value $.01 per share,
11,842,000 shares authorized and 8,692,315 shares
outstanding............................................ 87 87
Treasury stock............................................ (150) (33)
Detachable stock warrants................................. 189 189
Additional paid-in capital................................ 69,676 69,776
Other comprehensive income................................ (1,923) 745
Retained earnings......................................... 44,177 28,511
-------- --------
112,140 99,359
Less unearned compensation under restricted stock plan.... 214 433
-------- --------
Total shareholders' equity........................ 111,926 98,926
-------- --------
$178,424 $185,738
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 27
GERBER CHILDRENSWEAR, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE
DATA)
<S> <C> <C> <C>
Net sales................................................... $277,702 $278,496 $202,037
Cost of sales............................................... 210,713 209,458 146,294
-------- -------- --------
Gross margin................................................ 66,989 69,038 55,743
Expenses:
Selling, general and administrative expenses.............. 42,416 38,559 37,231
Other, net................................................ (1,824) -- 231
-------- -------- --------
40,592 38,559 37,462
-------- -------- --------
Income before interest and income taxes..................... 26,397 30,479 18,281
Interest expense, net of interest income.................... 2,678 5,808 5,798
-------- -------- --------
Income before income taxes.................................. 23,719 24,671 12,483
Provision for income taxes.................................. 8,053 8,646 4,764
-------- -------- --------
Income before extraordinary item............................ 15,666 16,025 7,719
Extraordinary item, net of income tax benefit of
approximately $163,000 (1998) and $452,000 (1997)......... -- (266) (708)
-------- -------- --------
Net income.................................................. 15,666 15,759 7,011
Foreign currency translation................................ (2,668) 745 --
-------- -------- --------
Comprehensive income.............................. $ 12,998 $ 16,504 $ 7,011
======== ======== ========
Net income.................................................. $ 15,666 $ 15,759 $ 7,011
Less preferred stock dividends.............................. -- (774) (1,637)
-------- -------- --------
Net income available to common shareholders....... $ 15,666 $ 14,985 $ 5,374
======== ======== ========
Per share amounts:
Earnings per common share:
Income before extraordinary item....................... $ .94 $ 1.08 $ .55
Extraordinary item..................................... -- (.02) (.07)
-------- -------- --------
Net income................................................ $ .94 $ 1.06 $ .48
======== ======== ========
Earnings per common share -- assuming dilution:
Income before extraordinary item....................... $ .79 $ .87 $ .41
Extraordinary item..................................... -- (.02) (.04)
-------- -------- --------
Net income................................................ $ .79 $ .85 $ .37
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 28
GERBER CHILDRENSWEAR, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C CLASS D
COMMON COMMON COMMON COMMON COMMON COMMON COMMON COMMON COMMON
SHARES STOCK SHARES STOCK SHARES STOCK SHARES STOCK SHARES
--------- --------- ---------- ------- ------------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996..................... -- $ -- 661,655.1 $ 7 144,594.9 $ 1 2,500 $ -- --
Repurchase of shares for
treasury............... -- -- (74,326.8) -- (30,929.6) -- -- -- --
Pursuant to restricted
stock plan:
Shares issued.......... -- -- -- -- 53,250.0 1 -- -- --
Amortization........... -- -- -- -- -- -- -- -- --
Forfeitures............ -- -- -- -- -- -- -- -- --
Net income............... -- -- -- -- -- -- -- -- --
Dividend on redeemable
preferred stock........ -- -- -- -- -- -- -- -- --
--------- --------- ---------- ------- ------------ ------- ------- ------- --------
Balance at December 31,
1997..................... -- -- 587,328.3 7 166,915.3 2 2,500 -- --
Repurchase of shares for
treasury............... -- -- -- -- -- -- -- -- --
Recapitalization and
reorganization......... 4,177,220 42 (587,328.3) (7) 8,580,463.7 86 (2,500) -- --
Initial public
offering............... 4,140,000 41 -- -- -- -- -- -- --
Conversion of stock...... 55,064 1 -- -- (55,064.0) (1) -- -- --
Pursuant to restricted
stock plan:
Amortization........... -- -- -- -- -- -- -- -- --
Forfeitures............ -- -- -- -- -- -- -- -- --
Foreign currency
translation
adjustment............. -- -- -- -- -- -- -- -- --
Net income............... -- -- -- -- -- -- -- -- --
Dividend on redeemable
preferred stock........ -- -- -- -- -- -- -- -- --
--------- --------- ---------- ------- ------------ ------- ------- ------- --------
Balance at December 31,
1998..................... 8,372,284 84 -- -- 8,692,315 87 -- -- --
Repurchase of shares for
treasury............... -- -- -- -- -- -- -- -- --
Pursuant to restricted
stock plan:
Amortization........... -- -- -- -- -- -- -- -- --
Forfeitures............ -- -- -- -- -- -- -- -- --
Foreign currency
translation
adjustment............. -- -- -- -- -- -- -- -- --
Net income............... -- -- -- -- -- -- -- -- --
--------- --------- ---------- ------- ------------ ------- ------- ------- --------
Balance at December 31,
1999..................... 8,372,284 $ 84 -- $ -- 8,692,315 $ 87 -- $ -- --
========= ========= ========== ======= ============ ======= ======= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 29
GERBER CHILDRENSWEAR, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS D DETACHABLE ADDITIONAL OTHER
COMMON TREASURY TREASURY STOCK PAID-IN COMPREHENSIVE RETAINED
STOCK SHARES STOCK WARRANTS CAPITAL INCOME EARNINGS
------- --------- -------- ---------- ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.... $ -- -- $ -- $189 $ 752 $ -- $ 8,152
Repurchase of shares for
treasury.................... -- 105,256.4 (128) -- -- -- --
Pursuant to restricted stock
plan:
Shares issued............... -- (53,250.0) 53 -- 5,857 -- --
Amortization................ -- -- -- -- -- -- --
Forfeitures................. -- -- -- -- (72) -- --
Net income.................... -- -- -- -- -- -- 7,011
Dividend on redeemable
preferred stock............. -- -- -- -- -- -- (1,637)
---- --------- ----- ---- ------- ------- -------
Balance at December 31, 1997.... -- 52,006.4 (75) 189 6,537 -- 13,526
Repurchase of shares for
treasury.................... -- 20,835.0 (42) -- -- -- --
Recapitalization and
reorganization.............. -- (53,506.4) 84 -- 14,805 -- --
Initial public offering....... -- -- -- -- 48,617 -- --
Conversion of stock........... -- -- -- -- -- -- --
Pursuant to restricted stock
plan:
Amortization................ -- -- -- -- -- -- --
Forfeitures................. -- -- -- -- (183) -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- 745 --
Net income.................... -- -- -- -- -- -- 15,759
Dividend on redeemable
preferred stock............. -- -- -- -- -- -- (774)
---- --------- ----- ---- ------- ------- -------
Balance at December 31, 1998.... -- 19,335 (33) 189 69,776 745 28,511
Repurchase of shares for
treasury.................... -- 61,874 (117) -- -- -- --
Pursuant to restricted stock
plan:
Amortization................ -- -- -- -- -- -- --
Forfeitures................. -- -- -- -- (100) -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- (2,668) --
Net income.................... -- -- -- -- -- -- 15,666
---- --------- ----- ---- ------- ------- -------
Balance at December 31, 1999.... $ -- 81,209 $(150) $189 $69,676 $(1,923) $44,177
==== ========= ===== ==== ======= ======= =======
<CAPTION>
UNEARNED
COMPENSATION TOTAL
------------ --------
<S> <C> <C>
Balance at December 31, 1996.... $ -- $ 9,101
Repurchase of shares for
treasury.................... -- (128)
Pursuant to restricted stock
plan:
Shares issued............... (1,000) 4,911
Amortization................ 161 161
Forfeitures................. 72 --
Net income.................... -- 7,011
Dividend on redeemable
preferred stock............. -- (1,637)
------- --------
Balance at December 31, 1997.... (767) 19,419
Repurchase of shares for
treasury.................... -- (42)
Recapitalization and
reorganization.............. -- 15,010
Initial public offering....... -- 48,658
Conversion of stock........... -- --
Pursuant to restricted stock
plan:
Amortization................ 151 151
Forfeitures................. 183 --
Foreign currency translation
adjustment.................. -- 745
Net income.................... -- 15,759
Dividend on redeemable
preferred stock............. -- (774)
------- --------
Balance at December 31, 1998.... (433) 98,926
Repurchase of shares for
treasury.................... -- (117)
Pursuant to restricted stock
plan:
Amortization................ 119 119
Forfeitures................. 100 --
Foreign currency translation
adjustment.................. -- (2,668)
Net income.................... -- 15,666
------- --------
Balance at December 31, 1999.... $ (214) $111,926
======= ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 30
GERBER CHILDRENSWEAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $15,666 $15,759 $ 7,011
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation.............................................. 4,900 4,527 1,976
Amortization of excess of cost over fair value of net
assets acquired and acquisition costs................... 1,103 1,130 84
Amortization of debt issuance costs and discount.......... 218 283 478
Amortization of deferred income........................... (313) (340) --
Provision for allowance for doubtful accounts............. (13) 700 252
Provision for deferred income taxes....................... 341 (6,798) 3,461
Compensation expense pursuant to restricted stock plan
(noncash)............................................... -- -- 4,858
Amortization pursuant to restricted stock plan............ 119 151 161
Gain on disposal of property, plant and equipment......... (105) (28) (2)
Extraordinary item........................................ -- 266 708
Other..................................................... 2 2 --
Changes in operating assets and liabilities:
Accounts receivable..................................... (1,129) (2,908) (8,051)
Inventories............................................. 21,438 (15,876) (15,048)
Other assets............................................ 771 (776) 538
Accounts payable........................................ (2,498) (1,813) 253
Accrued expenses........................................ 2,990 (12,542) 3,824
Income taxes payable.................................... (2,555) 10,344 (10,204)
Accrued pension and post-retirement benefit cost........ 836 1,034 1,037
Other accrued liabilities............................... 1,938 2,980 3,628
------- ------- --------
Net cash provided by (used in) operating
activities.......................................... 43,709 (3,905) (5,036)
------- ------- --------
INVESTING ACTIVITIES
Collections on notes receivable............................. -- -- 207
Purchases of property, plant and equipment.................. (7,364) (5,029) (4,180)
Proceeds from sale of property, plant and equipment......... 216 84 445
Purchase of Auburn Hosiery Mills, Inc. and Sport Socks
Company (Ireland) Limited, net............................ -- -- (38,840)
------- ------- --------
Net cash used in investing activities............... $(7,148) $(4,945) $(42,368)
------- ------- --------
</TABLE>
F-8
<PAGE> 31
GERBER CHILDRENSWEAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Borrowings under revolving credit agreement................. $60,800 $88,240 $ 88,824
Repayments under revolving credit agreement................. (76,100) (73,190) (88,574)
Proceeds from long-term borrowings.......................... - - 41,600
Principal payments on long-term borrowings.................. (4,821) (53,156) (10,205)
Principal payments on capital leases........................ (92) (132) (88)
Proceeds from initial public offering, net of expenses...... - 48,658 -
Repurchase of common stock.................................. (117) (42) (128)
Repurchase of preferred stock............................... - (374) (95)
Proceeds from sale of restricted stock...................... - - 53
Debt issuance costs......................................... - - (1,039)
------- ------- --------
Net cash (used in) provided by financing activities......... (20,330) 10,004 30,348
------- ------- --------
Effect of foreign exchange rate changes on cash............. (508) 90 -
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 15,723 1,244 (17,056)
Cash and cash equivalents at beginning of period............ 1,780 536 17,592
------- ------- --------
Cash and cash equivalents at end of period.................. $17,503 $ 1,780 $ 536
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash items:
Conversion of redeemable preferred stock into capital
stock In capital stock.................................. - $15,010 -
Reduction of notes payable, offset by reduction of notes
receivable.............................................. - - $ 1,500
</TABLE>
See accompanying notes.
F-9
<PAGE> 32
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Gerber Childrenswear, Inc. (formerly known as GCIH, Inc., and referred to herein
as, the "Company") acquired 100% of the outstanding stock of certain apparel
operations from Gerber Products Company. The acquisition was effective as of the
start of business on January 22, 1996 and was accounted for as a purchase. The
purchase price was allocated to the net assets acquired based on their
respective fair values and the balance was treated as excess of cost over fair
value of net assets acquired. The total cost of the acquisition was
approximately $74 million. The excess of cost over fair value of net assets
acquired is being amortized over twenty years on a straight-line basis.
On December 17, 1997, the Company acquired Auburn Hosiery Mills, Inc. ("Auburn")
and Sport Socks Company (Ireland) Limited ("Sport Socks") for $28 million and
$12 million in cash, respectively. Both companies are engaged in the production
and sale of various styles of socks to retail chain stores. The acquisitions
were financed through a term loan of $40 million. The acquisitions have been
recorded using the purchase method of accounting. Accordingly, the purchase
price has been allocated to assets and liabilities of the acquired companies
based on their estimated fair values as of the effective date of acquisition.
The purchase price exceeded the fair value of net assets acquired by
approximately $20 million, which is being amortized on a straight-line basis
over twenty years. The results of operations of Auburn and Sport Socks are
included in the accompanying consolidated financial statements from the date of
acquisition.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries GCI IP Sub. Inc., Gerber Childrenswear Canada,
Inc., Costura Dominicana, Inc., Costura Matamoros S.A. de C.V., GCW Mexico S.A.
de C.V. and GCW Holdings, Inc. All material intercompany balances and
transactions have been eliminated in consolidation.
EARNINGS PER COMMON SHARE
Earnings per common share are calculated by dividing net income by the weighted
average shares outstanding in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Immediately prior to and in connection
with the consummation of the Company's initial public offering in June 1998, the
Company declared a 15.4693 to 1 stock split. All references to the weighted
average shares and per share amounts elsewhere in the consolidated financial
statements and the related footnotes have been restated as appropriate to
reflect the effect of the split for all periods presented.
F-10
<PAGE> 33
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Substantially all revenue is recognized when products are shipped to customers.
ROYALTY EXPENSE RECOGNITION
The Company has certain royalty agreements and recognizes royalty expenses for
products sold under such agreements over the life and terms of the specific
royalty agreements on an accrual basis.
One such ten-year royalty agreement with Gerber Products Company contains a
"royalty-free" period for the first six years and escalating royalty rates for
the last four years of the agreement. The Company has estimated the total
royalties to be paid over the life of the agreement based on estimated sales
during the last four years and is recording current charges to operations for
these royalties on a straight-line basis over the ten-year term of the
agreement. The Company lowered the estimate of its future liability to be paid
related to this royalty contract in 1999. This change in estimate is not
material to the twelve months ended December 31, 1999.
CONCENTRATION OF CREDIT RISK
The Company manufactures infant apparel and products that are primarily sold to
retail entities throughout the United States. The Company's primary customers
are mass merchants and discount stores. Sales to three customers represented
approximately 58%, 57% and 65% for 1999, 1998 and 1997, respectively. Sales to
one customer were 41%, 42% and 44% for 1999, 1998 and 1997, respectively. The
Company performs periodic credit evaluations of their customers and does not
require collateral for credit sales.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Undesignated cash is invested each night through participation in a bank
investment plan and bears interest at a variable rate. Under this agreement, the
bank sells securities that are direct obligations of or are fully guaranteed by
the United States government to the Company each night and repurchases the
investments the next business day.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
F-11
<PAGE> 34
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEBT ISSUANCE COSTS
Debt issuance costs are being amortized over the lives of the related debt.
Accumulated amortization amounted to approximately $444,000 and $226,000 at
December 31, 1999 and 1998, respectively. Amortization expense is included in
interest expense in the accompanying consolidated statements of income and
comprehensive income.
ADVERTISING
Advertising costs of approximately $5,042,000, $5,241,000 and $5,071,000 for
1999, 1998 and 1997, respectively, were expensed as incurred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is computed by the straight-line method over the estimated
useful lives of the assets for financial reporting purposes which generally
range from 10 to 30 years for buildings and leasehold improvements and 3 to 10
years for machinery, furniture, vehicles and equipment. Depreciation is computed
based upon "Modified Accelerated Cost Recovery System" guidelines for income tax
reporting purposes.
INCOME TAXES
The Company accounts for its income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF BUSINESSES ACQUIRED
The excess of investments in consolidated subsidiaries over the net asset value
at acquisition ("goodwill") is being amortized on a straight-line basis over
periods not exceeding twenty years. On an annual basis the Company reviews the
recoverability of goodwill based primarily upon an analysis of undiscounted cash
flows from the acquired businesses. Accumulated amortization amounted to
approximately $2,268,000 and $1,286,000 at December 31, 1999 and 1998,
respectively.
F-12
<PAGE> 35
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The financial statements of the European subsidiaries were prepared in their
respective local currencies and translated into United States ("U.S.") dollars
based on the current exchange rate at the end of the period for the consolidated
balance sheet and a weighted average rate for the period on the consolidated
statements of income and comprehensive income.
FORWARD EXCHANGE CONTRACTS
The Company enters into forward foreign currency exchange contracts in the
regular course of business to manage its exposure against foreign currency
fluctuations on sales, raw materials and fixed asset purchase transactions
denominated in foreign currencies. The Company does not utilize financial
instruments for trading or other speculative purposes. The terms of these
contracts are generally less than one year. Unrealized gains or losses resulting
from changes in currency exchange rates on uncommitted contracts are recognized
currently.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price of
underlying stock on the date of grant, no compensation expense is recorded. The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS
123").
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). This statement established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Adoption of FAS 133 is not anticipated to have a material impact on the
Company's consolidated financial statements.
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 amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
F-13
<PAGE> 36
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in 1998 and 1997 have been reclassified to conform to current
presentations.
2. RECAPITALIZATION, MERGER AND INITIAL PUBLIC OFFERING
Immediately prior to and in connection with the consummation of the Company's
Initial Public Offering ("Offering"), GCIH, Inc. (former parent of Gerber
Childrenswear, Inc.) and Gerber Childrenswear, Inc. consummated a series of
transactions pursuant to which the certificate of incorporation of GCIH, Inc.
was amended and restated ("Recapitalization") to provide for the
reclassification of its authorized common stock into two classes of capital
stock (Common Stock and Class B Common Stock). Each share of the Common Stock
has one vote per share and the Class B Common Stock has no voting rights. The
amended and restated certificate also provides that each share of Class B Common
Stock will be convertible at the option of the holder at any time into one share
of Common Stock and each share of Common Stock held by a holder of Class B
Common Stock will be convertible at the option of the holder at any time into
one share of Class B Common Stock.
Prior to the consummation of the Offering and immediately after giving effect to
the Recapitalization, Gerber Childrenswear, Inc. was merged into GCIH, Inc. with
GCIH, Inc. being the surviving entity (the "Merger"). The amended and restated
certificate provided for the change of the corporate name from GCIH, Inc. to
Gerber Childrenswear, Inc. The Merger resulted in a tax-free liquidation of the
non-surviving entity. The following capital stock transactions occurred in
connection with the Merger. All of the Company's Class A and Class C Common
Stock outstanding as of the Merger were exchanged for either shares of Class B
Common Stock (new Class B) or Common Stock pursuant to a stock split of 15.4693
to 1. All of the outstanding shares of the Company's Class B Common Stock (old
Class B) of the Company were exchanged for shares of the Company's Common Stock
at a specified ratio of 15.4693 to 1. All of the outstanding warrants to
purchase shares of Class D Common Stock of the Company were exchanged into
warrants to purchase shares of the Class B Common Stock (new Class B) of the
Company at a specified ratio of 15.4693 to 1. Upon consummation of the Merger,
113,623.6 shares of the Company's Redeemable Preferred stock were converted into
1,241,537 shares of Common Stock of the Company and 2,828.4 shares of Preferred
stock were redeemed for cash equal to the liquidation value per share at the
time of the Merger. The Company retired all shares held in the treasury prior to
the Offering.
During June 1998, the Company consummated its Offering of 4,140,000 shares
(including the exercise of the underwriters' over-allotment option) of its
Common Stock at a price of $13.00 per share. The net proceeds from the Offering
were $48.7 million and were used to: (a) repay a senior subordinated note in the
aggregate principal amount of $22.5 million; (b) repay a junior subordinated
note in the aggregate principal amount of $11.0 million; (c) repay certain other
indebtedness of the company in the aggregate principal amount of $14.8 million;
and (d) redeem 2,828.4 shares of the Company's redeemable preferred stock in the
aggregate amount of approximately $0.4 million held by certain of its officers.
F-14
<PAGE> 37
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Raw materials............................................... $10,058 $11,863
Work in process............................................. 12,583 13,515
Finished goods.............................................. 42,645 61,642
------- -------
$65,286 $87,020
======= =======
</TABLE>
Inventory mark-downs are periodically recorded based on analysis by the Company
in order to reflect inventories at the lower of cost or market. If the cost of
the inventories exceeds their market value, provisions are made currently for
the difference between the cost and the market value. Provision for potentially
obsolete, irregular or slow moving inventory is made based on management's
analysis of inventory levels, future sales forecasts and expected sales prices.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Land........................................................ $ 819 $ 805
Buildings and leasehold improvements........................ 11,982 11,690
Machinery and equipment..................................... 18,285 15,953
Furniture and other equipment............................... 3,854 2,887
Vehicles.................................................... 338 360
Construction in progress.................................... 3,871 1,240
------- -------
39,149 32,935
Less accumulated depreciation............................... 12,273 7,711
------- -------
$26,876 $25,224
======= =======
</TABLE>
Interest was capitalized in connection with the design and implementation of the
Company's new enterprise resource system. The capitalized interest is recorded
as part of the asset to which it relates and is amortized over the asset's
estimated useful life. In 1999, approximately $114,000 of interest was
capitalized. No interest was capitalized in 1998 or 1997.
F-15
<PAGE> 38
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Income before provision for income taxes consisted of (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
United States............................................. $20,213 $21,281 $12,483
International............................................. 3,506 3,390 --
------- ------- -------
$23,719 $24,671 $12,483
======= ======= =======
</TABLE>
Current and deferred income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................. $ 7,232 $13,847 $ 1,168
State................................................... 95 1,259 135
International........................................... 385 344 --
------- ------- -------
Total current............................................. 7,712 15,450 1,303
Deferred:
Inventory mark-downs.................................... (1,267) (3,932) 372
Postretirement benefits................................. (100) (228) (220)
Accrued royalty......................................... (515) (1,059) (1,309)
Inventory methods....................................... 2,599 11 2,676
Other................................................... (376) (1,596) 1,942
------- ------- -------
Total deferred............................................ 341 (6,804) 3,461
------- ------- -------
Income tax expense........................................ $ 8,053 $ 8,646 $ 4,764
======= ======= =======
</TABLE>
Income tax expense is different from the amount that would result from applying
the U.S. Federal statutory tax rate to income before income taxes as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate.......................... $8,302 $8,635 $4,244
State income tax, net of U.S. Federal tax benefit........... 617 641 412
International rate difference............................... (956) (947) --
Other....................................................... 90 317 108
------ ------ ------
Income tax expense.......................................... $8,053 $8,646 $4,764
====== ====== ======
</TABLE>
F-16
<PAGE> 39
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES (CONTINUED)
The components of the Company's net deferred tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Inventory mark-downs...................................... $5,845 $4,579
Postretirement benefits................................... 2,056 1,957
Accrued royalty........................................... 3,599 3,084
Other..................................................... 4,080 4,236
------ ------
Total deferred tax assets................................... 15,580 13,856
Deferred tax liabilities:
Depreciation.............................................. 1,325 1,715
Inventory methods......................................... 4,537 1,937
Other..................................................... 575 720
------ ------
Total deferred tax liabilities.............................. 6,437 4,372
------ ------
Net deferred tax assets..................................... $9,143 $9,484
====== ======
</TABLE>
Income taxes paid were approximately $10,511,000, $7,481,000 and $11,734,000 in
1999, 1998 and 1997, respectively.
6. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Interest.................................................... $ 618 $ 66
Salaries, wages and payroll taxes........................... 2,805 3,039
Incentives.................................................. 834 1,541
Advertising................................................. 4,283 912
Self-insurance reserves..................................... 598 409
Royalties................................................... 1,399 1,399
Other....................................................... 4,618 5,021
------- -------
$15,155 $12,387
======= =======
</TABLE>
F-17
<PAGE> 40
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Royalties................................................... $ 9,596 $ 8,224
Other....................................................... 2,997 2,850
------- -------
$12,593 $11,074
======= =======
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
Term loan with a bank, principal due on a quarterly payment
schedule through September 30, 2002....................... $17,366 $21,821
Industrial Revenue Bond, payable in annual principal
installments of $200,000 through March 1, 2004, plus
interest at a floating rate not to exceed 14% (2.55%-4.35%
in 1999 and 3.20%-4.45% in 1998).......................... 1,000 1,100
Industrial Revenue Bond, payable in annual principal
installments of $200,000 through October 1, 2004, plus
interest at a floating interest rate not to exceed 14%
(2.55%-4.35% in 1999 and 3.20%-4.45% in 1998)............. 1,000 1,100
Other....................................................... 155 356
------- -------
19,521 24,377
Less current portion........................................ 6,678 4,746
------- -------
$12,843 $19,631
======= =======
</TABLE>
Substantially all of the Company's property, plant and equipment, accounts
receivable, and inventory have been pledged as collateral for the above
long-term debt. The loan agreements require the Company to maintain certain
financial ratios and restricts the payment of dividends.
F-18
<PAGE> 41
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
Interest rates on borrowings under the term loan and related revolving credit
facility are set from time to time, at the Company's option, as (a) Base rate
loans which bear interest at a rate equal to the greater of 1) the Federal Funds
Rate plus 1/2 of 1%, or 2) the prime rate; plus an applicable percentage based
on the current Leverage Ratio, or a (b) Eurodollar loan which accrues interest
at the LIBOR rate plus an applicable percentage based on the current Leverage
Ratio. The term loan interest rate at December 31, 1999 and 1998 was 6.69% and
6.30%, respectively. The Company had no outstanding borrowings under its
revolving credit facility at December 31, 1999 and $15,300,000 outstanding at
December 31, 1998. The revolving credit facility's interest rate at December 31,
1998 was 6.9%. The revolving credit agreement permits the Company to borrow up
to a maximum of $60,000,000 subject to specified levels of eligible inventory,
eligible inventory on order under letters of credit, and accounts receivable
with the total amount reduced by outstanding letters of credit. At December 31,
1999 and 1998, the Company had available borrowings up to approximately
$51,300,000 and $37,600,000, respectively. The Company had outstanding letters
of credit for purchases from foreign vendors, to guarantee certain casualty
insurance activities and as guarantees for payment of the Company's industrial
revenue bonds of approximately $4,196,000 and $6,351,000 at December 31, 1999
and 1998, respectively.
The revolving credit facility and term loan agreement requires mandatory
principal prepayments based on excess annual cash flow as defined, commencing
with calendar year 2000.
The Company has available a foreign credit facility which had no outstanding
balance at December 31, 1999 and 1998. This credit facility permits the Company
to borrow up to a maximum of approximately $1,650,000 on a long-term basis and
approximately $380,000 as a bank overdraft.
Total interest paid was approximately $2,034,000, $8,449,000 and $6,000,000 in
1999, 1998 and 1997, respectively.
The aggregate annual maturities of long-term debt at December 31, 1999 are as
follows (in thousands):
<TABLE>
<S> <C>
2000................................................... $ 6,678
2001................................................... 6,733
2002................................................... 5,310
2003................................................... 400
2004................................................... 400
Thereafter.................................................. --
-------
$19,521
=======
</TABLE>
F-19
<PAGE> 42
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LEASES
The Company leases buildings, machinery and equipment under operating leases
with various renewal terms and expiring in various years through 2012. Three of
these leases contain renewal options totaling 20 years.
Future minimum lease payments as of December 31, 1999 under leases classified as
capital leases and operating leases, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING IN CAPITAL LEASES OPERATING LEASES
-------------- -------------- ----------------
<S> <C> <C>
2000...................................................... $8 $1,547
2001...................................................... -- 1,493
2002...................................................... -- 1,452
2003...................................................... -- 1,427
2004...................................................... -- 985
Thereafter................................................ -- 1,787
-- ------
Total minimum lease payments.............................. 8 $8,691
======
Less amounts representing interest........................ --
--
Present value of net minimum lease payments............... 8
Less current portion...................................... 8
--
$--
==
</TABLE>
Rent expense totaled approximately $2,888,000, $2,220,000 and $2,292,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Assets recorded under capital leases, net of accumulated amortization, were
approximately $1,160,000 and $1,400,000 at December 31, 1999 and 1998,
respectively. The assets recorded under capital leases are pledged as collateral
for the capital lease obligations. Amortization of assets recorded under capital
lease obligations is included with depreciation expense.
F-20
<PAGE> 43
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE BENEFIT PLANS
The Apparel segment of the Company has a non-contributory defined benefit
pension plan ("Pension Plan") that covers substantially all full-time domestic
employees. Benefits are based on the employee's years of service and, for
salaried employees, each employee's compensation during the last five years of
employment. The Company's funding policy is to make the minimum annual
contributions required by applicable regulations. The plan assets are invested
primarily in mutual funds via the Gerber Childrenswear, Inc. Retirement Plans
Master Trust and in a group annuity contract with an insurance company.
The Apparel segment also sponsors a defined benefit postretirement health care
plan ("Postretirement Plan") covering all full-time domestic employees. The plan
is contributory, with retiree contributions adjusted annually, and contains
other cost sharing features such as deductibles and coinsurance. The accounting
for the plan anticipates future cost-sharing changes to the written plan that
are consistent with the Company's expressed intent to increase the retiree
contribution rate annually for the expected general inflation rate for that
year. The Company's policy is to fund the cost of medical benefits in amounts
determined at the discretion of management.
During 1999, the Company downsized its domestic Apparel operations resulting in
a significant reduction in the number of employees covered under the Company's
Pension and Postretirement Plans. This reduction of employees resulted in a
one-time curtailment of benefits gain in the Postretirement Plan of $487,000
that is included in "Other, net" in the Company's 1999 consolidated statement of
income and comprehensive income.
Change in benefit obligations and change in plan net assets, as estimated by
consulting actuaries, as of December 31, 1999 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year........... $26,793 $25,418 $ 3,808 $ 3,690
Service cost.................................... 1,066 883 474 483
Interest cost................................... 1,804 1,746 320 215
Actuarial (gains) losses........................ (1,567) 403 (433) (526)
Curtailments.................................... 123 -- (487) --
Benefits paid................................... (1,892) (1,657) (32) (54)
------- ------- ------- -------
Benefit obligation at end of year................. 26,327 26,793 3,650 3,808
------- ------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.... 28,380 26,514 -- --
Actual return on plan assets.................... 2,299 3,523 -- --
Company contributions........................... -- -- 32 54
Benefits paid................................... (1,892) (1,657) (32) (54)
------- ------- ------- -------
Fair value of plan assets at end of year.......... $28,787 $28,380 $ -- $ --
------- ------- ------- -------
</TABLE>
F-21
<PAGE> 44
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
RECONCILIATION OF PREPAID/(ACCRUED)
Funded status of plan (underfunded)............... $ 2,460 $ 1,587 $(3,650) $(3,808)
Unrecognized net actuarial gain................... (3,905) (2,461) (1,833) (1,410)
------- ------- ------- -------
Accrued benefit cost.............................. $(1,445) $ (874) $(5,483) $(5,218)
======= ======= ======= =======
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate obligations......................... 7.50% 7.00% 7.50% 7.00%
Discount rate for expense......................... 7.00% 7.25% 7.00% 7.25%
Expected return on plan assets.................... 9.00% 9.00% -- --
Rate of compensation increase..................... 4.00% 4.00% -- --
</TABLE>
Net pension and postretirement cost included the following components at
December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
PENSION BENEFITS
Service cost -- benefits earned during the period......... $ 1,066 $ 883 $ 851
Interest cost on projected benefit obligation............. 1,804 1,746 1,709
Actual return on plan assets.............................. (2,299) (2,196) (2,116)
------- ------- -------
Net periodic pension cost................................. $ 571 $ 433 $ 444
======= ======= =======
POSTRETIREMENT BENEFITS
Service cost -- benefits earned during the period......... $ 474 $ 483 $ 423
Interest cost on projected benefit obligation............. 320 215 222
Amortization of unrecognized net gain..................... (9) (62) (29)
------- ------- -------
Net periodic postretirement cost.......................... 785 636 616
One-time curtailment (gain)............................... (487) -- --
------- ------- -------
Total expense............................................. $ 298 $ 636 $ 616
======= ======= =======
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost of
covered medical benefits for 1999 is 7.5 percent to 9.0 percent and is assumed
to decrease gradually to 5.5 percent by 2003 and remain at that level
thereafter.
F-22
<PAGE> 45
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1999 by approximately
$663,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1999 by approximately $155,000.
Decreasing the assumed health care cost trend rate by one percentage point in
each year would decrease the accumulated postretirement benefit obligation as of
December 31, 1999 by approximately $562,000 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for 1999 by
approximately $129,000.
Gerber Childrenswear, Inc. also has a 401(k) plan for its employees whereby the
Company will match 50% of the employee's contributions up to a maximum company
match of 3% of the employee's compensation. Total expense under the plan was
approximately $480,000, $489,000 and $439,000 for 1999, 1998 and 1997,
respectively.
Sport Socks has a defined contribution pension plan. The assets of the plan are
held in an independently administered fund. Total expense under the plan was
approximately $156,000 and $140,000 in 1999 and 1998, respectively. There was no
plan expense recognized between December 17, 1997 and December 31, 1997.
Auburn has a defined contribution plan covering all employees who have two years
of service with at least 1,000 hours each year. The contribution was determined
by its Board of Directors annually. Effective June 1, 1998, the plan was amended
and restated whereby the Company will match 50% of the employee's contributions
up to a maximum company match of 3% of the employee's compensation. Total
expense under the plan was $111,000 and $129,000 in 1999 and 1998, respectively.
There was no plan expense recognized between December 17, 1997 and December 31,
1997.
11. REDEEMABLE PREFERRED STOCK
The outstanding redeemable preferred stock had a scheduled redemption date of
January 31, 2007 at $100 per share plus all accrued and unpaid dividends
thereon. In connection with the Company's Offering in June 1998, 113,623.6
shares of the redeemable preferred stock were converted into 1,241,537 shares of
Common Stock of the Company and 2,828.4 shares were redeemed for cash equal to
the liquidation value per share at that time.
F-23
<PAGE> 46
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SHAREHOLDERS' EQUITY
During 1997, the Company sold shares of its Class B common stock to certain
employees for $1 per share. The total proceeds for the shares were $50,750 and
the total fair value for the shares was approximately $5,836,000. Some of these
shares were immediately vested while others vest over a five-year period. At the
time of issuance of the unvested shares, the difference between the amount paid
by the employees and the fair market value was credited to additional paid-in
capital with a corresponding charge to unearned compensation. The unearned
compensation is amortized to earnings over five years on a straight-line basis.
Amortization expense for 1999, 1998 and 1997 was $119,000, $151,000 and
$161,000, respectively. Previously amortized amounts for shares forfeited are
credited to compensation expense in the year of forfeiture. At the time of
issuance of the shares which were vested, the difference between the amount paid
by the employees and the fair market value was credited to additional paid-in
capital with a corresponding charge to expense for $4,858,000.
Certain shareholders have demand registration rights with respect to shares of
common stock owned by them.
In connection with obtaining the $22,500,000 note payable for the acquisition of
Gerber Childrenswear, Inc., the Company issued a warrant to the lender to
purchase 2,958,503 shares (191,250 shares prior to Merger) of Class B Common
Stock (non-voting Class D common stock prior to Merger) at a nominal price. The
warrant, in whole or in part, may be exercised at anytime through January 22,
2006. The recorded value of the warrant at the date of issuance was
approximately $189,000 (based on the relative fair values of the warrant and the
note) and reduced the face amount of the note payable.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments for which it is practicable to estimate that value.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the consolidated
balance sheets for cash and cash equivalents approximate fair value due to the
short-maturity of these instruments.
Receivables: The carrying amounts reported in the consolidated balance sheets
for receivables approximate their fair value.
Long and short-term liabilities: The carrying amounts of the Company's long and
short-term borrowings approximate their fair value based on the Company's
analysis of long and short term rates available for similar financing.
F-24
<PAGE> 47
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Forward exchange contracts: The fair value of the Company's forward foreign
currency exchange contracts is estimated by reference to quoted prices. The
contract value and estimated fair value of uncommitted contracts at December 31,
1999 was approximately $857,000 and $920,000, respectively. The contract value
and estimated fair value of uncommitted contracts at December 31, 1998 was
approximately $3,982,000 and $4,235,000, respectively.
14. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Income before extraordinary item.............. $15,666,000 $16,025,000 $ 7,719,000
Preferred stock dividends..................... -- (774,000) (1,637,000)
----------- ----------- -----------
Income available to common shareholders....... 15,666,000 15,251,000 6,082,000
Extraordinary item, net....................... -- (266,000) (708,000)
----------- ----------- -----------
Numerator for basic and diluted earnings per
share -- net income available to common
shareholders.................................. $15,666,000 $14,985,000 $ 5,374,000
=========== =========== ===========
Denominator:
Denominator for basic earnings per share --
weighted-average shares.................... 16,642,000 14,121,000 11,106,000
Effect of dilutive securities:
Warrants................................... 2,958,000 2,958,000 2,958,000
Nonvested stock and options................ 317,000 546,000 655,000
----------- ----------- -----------
Denominator for diluted earnings per share --
adjusted weighted-average shares.............. 19,917,000 17,625,000 14,719,000
=========== =========== ===========
Basic earnings per share........................ $ .94 $ 1.06 $ .48
=========== =========== ===========
Diluted earnings per share...................... $ .79 $ .85 $ .37
=========== =========== ===========
</TABLE>
F-25
<PAGE> 48
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. EXTRAORDINARY ITEM
In June 1998, the Company repaid senior and junior subordinated notes in the
principal amount of $22.5 million and $11.0 million, respectively. The write-off
of unamortized discount and loan costs totaling $266,000 (net of an income tax
benefit of $163,000) is included as an extraordinary item in the accompanying
consolidated statements of income and comprehensive income for the year ended
December 31, 1998.
In December 1997, the Company repaid its term note payable in the principal
amount of $6,500,000. The Company was required to pay a prepayment penalty of
$160,000 in connection with this transaction. The write-off of unamortized loan
costs and prepayment penalty totaling $708,000 (net of the income tax benefit of
$452,000) is included as an extraordinary item in the accompanying consolidated
statement of income and comprehensive income for the year ended December 31,
1997.
16. CASUALTY EVENT
In September 1998, the Company's three plants in the Dominican Republic
sustained property damage and began to experience business interruption losses
associated with Hurricane Georges. The Company maintained property damage and
business interruption insurance and has settled a majority of the claim with its
insurance providers in November 1999 resulting in a net casualty gain of
approximately $1,337,000. This gain has been reflected in "Other, net" in the
Company's consolidated statement of income and comprehensive income for 1999.
17. LONG-TERM PERFORMANCE INCENTIVE PLAN AND EXECUTIVE DEFERRAL PLAN
In June 1998, the Company adopted a Long-Term Performance Incentive Plan (the
"Incentive Plan") designed to provide incentives to present and future key
employees of the Company and its subsidiaries as may be selected by the
Compensation Committee of the Board of Directors (the "Committee"). The
Incentive Plan provides for the granting to Participants the following types of
incentive awards: stock options, stock appreciation rights, restricted stock,
performance units, performance grants and other awards deemed appropriate by the
Committee. An aggregate of 750,000 shares of Common Stock will be reserved for
issuance under the Incentive Plan. The Incentive Plan affords the Company
latitude in tailoring incentive compensation for the retention of key employees.
This plan also limits the number of shares each participant in the plan shall be
entitled to receive to no more than 25,000 shares of Common Stock in any
calendar year and is scheduled to terminate ten years from the inception date of
the Plan.
F-26
<PAGE> 49
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. LONG-TERM PERFORMANCE INCENTIVE PLAN AND EXECUTIVE DEFERRAL PLAN (CONTINUED)
During 1999 and 1998, stock options were granted to certain employees of the
Company at prices equal to the market value of the common shares at the date of
grant and generally vest and become exercisable ratably over a five year period,
commencing one year after the grant date and expire ten years after the date of
grant. The weighted average remaining contractual life of outstanding stock
options at December 31, 1999 was approximately 9 years. The following table
summarizes the transactions of the Incentive Plan during 1999 and 1998:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE EXERCISE PRICE
SHARES EXERCISE PRICE RANGE
------ ---------------- --------------
<S> <C> <C> <C>
1999
Outstanding at beginning of year................ 34,000 $10.98 $8.38 - $13.00
Granted....................................... 48,600 5.13 4.00 - 6.00
Exercised..................................... -- -- --
Forfeited..................................... -- -- --
Expired....................................... -- -- --
------ ------ --------------
Outstanding at end of year...................... 82,600 $ 7.53 $4.00 - $13.00
====== ====== ==============
Options exercisable at year-end................. 6,800 $10.98 $8.38 - $13.00
====== ====== ==============
1998
Outstanding at beginning of year................ -- $ -- $ --
Granted....................................... 34,000 10.98 8.38 - 13.00
Exercised..................................... -- -- --
Forfeited..................................... -- -- --
Expired....................................... -- -- --
------ ------ --------------
Outstanding at end of year...................... 34,000 $10.98 $8.38 - $13.00
====== ====== ==============
Options exercisable at year-end................. -- $ -- $ --
====== ====== ==============
</TABLE>
As permitted by FAS 123, the Company applies APB 25 and related interpretations
in accounting for stock options; accordingly, no compensation expense has been
recognized by the Company for its Incentive Plan in 1999 or 1998. Had
compensation expense been determined based upon the fair value of the stock
options at grant date consistent with the method of FAS 123, the Company's
consolidated net income and earnings per share for 1999 and 1998 would have not
been materially different from amounts reported.
The fair value of each stock option was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumption for 1999 and
1998, respectively; risk-free interest rates of approximately 6.5% and 4.5%; no
expected dividend yield for both years; expected lives of 10 years for both
years and volatility of approximately 60.0% and 80.0%. Changes in these
assumptions can materially affect the fair value estimate. In management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of its stock options.
F-27
<PAGE> 50
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. LONG-TERM PERFORMANCE INCENTIVE PLAN AND EXECUTIVE DEFERRAL PLAN (CONTINUED)
Effective January 1, 1998, the Company established an Executive Deferral Plan
for certain officers of the Company. The Plan enables participants to defer
compensation on a pre-tax basis and is not funded. Participants are credited
interest at current market rates. The charge to interest expense was
approximately $48,000 and $24,000 in 1999 and 1998.
18. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company operates in two business segments: apparel and hosiery. The apparel
segment consists of the production and sale of infant and toddler's sleepwear,
playwear, underwear, bedding, bath, cloth diapers and other products to mass
merchandise outlets in the U.S. under the Gerber trademark and private labels.
The hosiery segment, which was acquired on December 17, 1997, consists of the
production and sale of sport socks under the Wilson, Coca-Cola, Converse and
Dunlop names to major retailers in the United States and/or Europe.
Net sales, income (loss) before interest and income taxes, depreciation and
amortization, and capital additions are reported based on the operations of each
business segment or geographic region. Assets are those used exclusively in the
operations of each business segment or geographic region, or which are allocated
when used jointly.
The following tables present sales and other financial information by business
segment and geographic region for the years 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
BUSINESS SEGMENTS
Net sales:
Apparel.............................................. $205,564 $212,403 $200,526
Hosiery.............................................. 72,138 66,093 1,511
-------- -------- --------
Total net sales........................................ 277,702 $278,496 $202,037
======== ======== ========
Income (loss) before interest and income taxes:
Apparel.............................................. $ 18,724 $ 25,414 $ 18,322
Hosiery.............................................. 7,673 5,065 (41)
-------- -------- --------
Total income (loss) before interest and income taxes:.. $ 26,397 $ 30,479 $ 18,281
======== ======== ========
Depreciation and amortization:
Apparel.............................................. $ 3,039 $ 2,853 $ 2,472
Hosiery.............................................. 3,182 3,087 66
-------- -------- --------
Total depreciation and amortization.................... $ 6,221 $ 5,940 $ 2,538
======== ======== ========
</TABLE>
F-28
<PAGE> 51
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Capital additions:
Apparel.............................................. $ 4,741 $ 3,657 $ 4,180
Hosiery.............................................. 2,623 1,372 --
-------- -------- --------
Total capital additions................................ $ 7,364 $ 5,029 $ 4,180
======== ======== ========
Assets:
Apparel.............................................. $129,897 $136,246
Hosiery.............................................. 48,527 49,492
-------- --------
Total assets........................................... $178,424 $185,738
======== ========
Inventories (included in assets):
Apparel.............................................. $ 57,538 $ 79,748
Hosiery.............................................. 7,748 7,272
-------- --------
Total inventories (included in assets)................. $ 65,286 $ 87,020
======== ========
GEOGRAPHIC AREAS
Net sales:
United States........................................ $255,491 $256,253 $202,037
All other............................................ 22,211 22,243 --
-------- -------- --------
Total net sales........................................ $277,702 $278,496 $202,037
======== ======== ========
Income before interest and income taxes:
United States........................................ $ 21,608 $ 26,789 $ 18,281
All other............................................ 4,789 3,690 --
-------- -------- --------
Total income before interest and income taxes.......... $ 26,397 $ 30,479 $ 18,281
======== ======== ========
Assets:
United States........................................ $153,820 $161,175
All other............................................ 24,604 24,563
-------- --------
Total assets........................................... $178,424 $185,738
======== ========
</TABLE>
The Apparel segment had sales to Wal-Mart and two other customers that accounted
for 37%, 11%, and 11% of total Apparel sales in 1999, respectively; 40%, 11% and
10% of total Apparel sales in 1998, respectively; and 43%, 10%, and 11% of total
Apparel sales in 1997, respectively. The Hosiery segment had sales to Wal-Mart
that accounted for 51%, 45% and 80% of that segment's sales for 1999, 1998 and
1997 (two week period), respectively.
F-29
<PAGE> 52
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited financial data regarding the Company's
consolidated quarterly results of operations.
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1999
Net sales....................................... $66,285 $58,768 $80,159 $72,490 $277,702
Gross margin.................................... 18,444 14,194 19,259 15,092 66,989
Net income...................................... 4,769 2,215 4,355 4,327 15,666
Basic earnings per share........................ $ .29 $ .13 $ .26 $ .26 $ .94
Diluted earnings per share...................... $ .24 $ .11 $ .22 $ .22 $ .79
1998
Net sales....................................... $64,647 $63,879 $73,879 $76,091 $278,496
Gross margin.................................... 17,435 17,371 17,811 16,421 69,038
Income before extraordinary item................ 3,420 3,883 4,262 4,460 16,025
Extraordinary item, net -- loss on early
extinguishment of debt........................ -- (266) -- -- (266)
Net income...................................... 3,420 3,617 4,262 4,460 15,759
Basic earnings per share:
Income before extraordinary item.............. $ .27 $ .28 $ .26 $ .27 $ 1.08
Extraordinary item, net....................... -- (.02) -- -- (.02)
Net income...................................... $ .27 $ .26 $ .26 $ .27 $ 1.06
Diluted earnings per share:
Income before extraordinary item.............. $ .20 $ .23 $ .21 $ .22 $ .87*
Extraordinary item, net....................... -- (.02) -- -- (.02)
Net income...................................... $ .20 $ .21 $ .21 $ .22 $ .85*
</TABLE>
* Amounts do not foot across due to rounding.
F-30
<PAGE> 53
GERBER CHILDRENSWEAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. COMMITMENTS AND CONTINGENT LIABILITIES
Employment Contracts
The Company has employment contracts in the normal course of business with three
of its officers with remaining terms of approximately one year.
Yarn Contracts
The Company depends on certain raw materials such as yarn for the manufacturing
of its products. In order to hedge against price increases of yarn, the Company
actively manages its cost through contracts with its yarn suppliers with terms
of up to one year. The Company has contracts to purchase up to approximately
15,200,000 pounds of yarn in 2000.
F-31
<PAGE> 54
SCHEDULE II
GERBER CHILDRENSWEAR, INC.
SUPPLEMENTAL SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE AT
BEGINNING TO COST AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts.............. $1,487 (13) 371(1) $1,103
Year ended December 31, 1998:
Allowance for doubtful accounts.............. 876 700 89(1) 1,487
Year ended December 31, 1997:
Allowance for doubtful accounts.............. 791 252 167(1) 876
</TABLE>
(1) Allowances, uncollected amounts and credit balances written off against
reserve, net of recoveries.
F-32
<PAGE> 1
EXHIBIT 4.6
THIRD AMENDMENT TO CREDIT AGREEMENT,
WAIVER AND CONSENT
This THIRD AMENDMENT TO CREDIT AGREEMENT, WAIVER AND CONSENT (this
"Amendment") is entered into as of August 24, 1999 among GERBER CHILDRENSWEAR,
INC., a Delaware corporation ("Gerber") and AUBURN HOSIERY MILLS, INC., a
Kentucky corporation ("Auburn", collectively with Gerber, the "Borrowers"); the
Subsidiaries of Gerber (other than Auburn) as Guarantors, the Lenders party
hereto and BANK OF AMERICA, N.A., formerly NationsBank, N.A., as Administrative
Agent for the Lenders (the "Administrative Agent"). Capitalized terms used
herein and not otherwise defined shall have the meanings set forth in the Credit
Agreement (as defined below).
RECITALS
WHEREAS, the Borrowers, the Guarantors, the Lenders and the
Administrative Agent entered into that certain Credit Agreement, dated as of
December 17, 1997 (as amended by that certain First Amendment to Credit
Agreement and Consent, Release and Waiver, dated as of April 3, 1998 and as
amended by that certain Second Amendment to Credit Agreement and Consent,
Release and Waiver, dated as of June 2, 1998, the "Credit Agreement").
WHEREAS, Gerber intends to acquire through one or more wholly-owned
Canadian Subsidiaries (the "Canadian Subsidiaries") all of the assets of St.
Lawrence Textiles, Inc. and Lian Textiles, Inc., each corporations formed under
the laws of Canada, (the "St. Lawrence Acquisition") pursuant to the terms of an
asset purchase agreement (the "Acquisition Agreement").
WHEREAS, the Credit Parties are requesting that the Lenders consent to
the St. Lawrence Acquisition and otherwise amend and modify certain terms of the
Credit Agreement as more fully set forth below.
WHEREAS, the Administrative Agent and the Lenders have agreed to (a)
consent to the St. Lawrence Acquisition and (b) amend and waive certain terms of
the Credit Agreement, in each case, on the terms, and subject to the conditions,
set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Amendments to Credit Agreement.
(a) Existing Definitions. The following definitions set forth in
Section 1.1 of the Credit Agreement are amended and restated in their entireties
to read as follows:
<PAGE> 2
"Fixed Charge Coverage Ratio" means the ratio of (a)
EBITDAR less Capital Expenditures made in cash to (b) cash
Interest Expense plus Current Maturities of Long Term Debt
plus Cash Income Taxes plus cash Rent Expense.
"Permitted Acquisitions" means an acquisition of all
or substantially all of the assets or stock of another Person
by a Credit Party or its Subsidiaries; provided that (a) such
acquisition does not cause or would not be reasonably expected
to cause a Default or Event of Default, (b) after giving
effect to such acquisition, the Credit Parties would be in
compliance on a pro forma basis (as such pro forma compliance
is computed in accordance with Regulation S-X of the
Securities Act) with all of the financial covenants set forth
in Section 7.2, (c) such Person must in all material respects
engage in a business similar to or a logical extension of the
business of the Credit Parties and their Subsidiaries and (d)
the aggregate amount of all such acquisitions (other than the
acquisition of St. Lawrence Textiles) shall not exceed $10
million during the term of this Credit Agreement.
(b) New Definitions. The following new definition is added to Section
1.1 of the Credit Agreement in the appropriate alphabetical order:
"Cash Income Taxes" means, for any period, with
respect to the Credit Parties and their Subsidiaries, on a
consolidated basis, income taxes actually paid in cash during
such period.
(c) Section 8.1(f). Section 8.1(f) of the Credit Agreement is amended
and restated in its entirety to read as follows:
(f) Indebtedness of Foreign Subsidiaries up to
$15,000,000, in the aggregate, at any one time;
(d) Section 8.14. Section 8.14 of the Credit Agreement is amended and
restated in its entirety to read as follows:
The Credit Parties will not, nor will they permit any of their
Subsidiaries to, allow the Foreign Subsidiaries to have assets which in
the aggregate constitute more than 30% of Total Assets at any time.
2. Consent. Notwithstanding anything in the Credit Documents to the contrary,
subject to the conditions set forth below, the Lenders hereby consent to the St.
Lawrence Acquisition:
(a) the St. Lawrence Acquisition shall occur prior to
September 30, 1999.
(b) the St. Lawrence Acquisition occurs on terms identical to
those described in Acquisition Agreement;
2
<PAGE> 3
(c) the St. Lawrence Acquisition complies with the definition
of "Permitted Acquisition" in Section 1.1 of the Credit Agreement (as
amended by this Amendment);
(d) the aggregate consideration (including, without
limitation, cash and assumption of Indebtedness) paid in connection
with the St. Lawrence Acquisition does not exceed $22,000,000.
(e) Simultaneously with the consummation of the St. Lawrence
Acquisition, Gerber provides to the Administrative Agent:
(i) a certified copy of the Acquisition Agreement,
together with all amendments or modifications thereto;
(ii) an updated Schedule 6.15 to the Credit
Agreement;
(iii) such Uniform Commercial Code filings that the
Administrative Agent may reasonably request in order to
provide for its continued first-priority perfected security
interest in any Collateral, together with opinions with
respect thereto; and
(iv) such other information, documents, filings or
opinions as the Administration Agent may reasonably request in
connection with the St. Lawrence Acquisition.
(f) Within 30 days following the formation of the Canadian
Subsidiaries, the Credit Parties shall deliver to the Administrative
Agent all documentation required to be delivered by Section 7.13 of the
Credit Agreement, including, without limitation, an executed pledge
agreement which pledges 65% of the capital stock of each Canadian
Subsidiary to the Collateral Agent for the benefit of the Lenders,
together with favorable opinions of counsel.
3. Waiver. The Required Lenders hereby agree to waive compliance with Section
3.3(b)(ii) of the Credit Agreement for the fiscal year ending December 31, 1999.
This is a one time waiver and shall not be construed to be a waiver of any other
mandatory prepayment which may be required by Section 3.3(b)(ii) in the future.
4. Conditions Precedent. The effectiveness of this Amendment is subject to
receipt by the Administrative Agent of the following:
(a) copies of this Amendment duly executed by the Credit
Parties and the Lenders;
3
<PAGE> 4
(b) an opinion or opinions from counsel to the Credit Parties,
in form and substance satisfactory to the Administrative Agent,
addressed to the Administrative Agent on behalf of the Lenders and
dated as of the date hereof;
(c) the payment to the Administrative Agent, for the account
of each Lender approving this Amendment on or prior to August 24, 1999,
an amendment fee equal to $3,500 per Lender; and
(d) the payment of expenses, including without limitation
reasonable attorneys fees, incurred in connection with the preparation
of this Amendment.
5. Ratification of Credit Agreement. The term "Credit Agreement" as used in each
of the Credit Documents shall hereafter mean the Credit Agreement as amended and
modified by this Amendment. Except as herein specifically agreed, the Credit
Agreement, as amended by this Amendment, is hereby ratified and confirmed and
shall remain in full force and effect according to its terms. The Credit Parties
acknowledge and consent to the modifications set forth herein and agree that
this Amendment does not impair, reduce or limit any of their obligations under
the Credit Documents and that, after the date hereof, this Amendment shall
constitute a Credit Document. Notwithstanding anything herein to the contrary
and without limiting the foregoing, (a) each of the Credit Parties reaffirms the
liens and security interests granted under the terms of the Credit Documents and
(b) each of the Guarantors reaffirm their guaranty obligations set forth in the
Credit Agreement.
6. Authority/Enforceability. Each of the Credit Parties represents and warrants
as follows:
(a) It has taken all necessary action to authorize the
execution, delivery and performance of this Amendment.
(b) This Amendment has been duly executed and delivered by
such Person and constitutes such Person's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(c) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by such Person of this Amendment.
(d) The execution and delivery of this Amendment does not (i)
violate, contravene or conflict with any provision of its, or its
Subsidiaries' organizational documents or (ii) materially violate,
contravene or conflict with any Requirement of Law or any other law,
regulation (including, without limitation, Regulation U or Regulation
X),
4
<PAGE> 5
order, writ, judgment, injunction, decree or permit applicable to it or
any of its Subsidiaries.
7. No Default. The Credit Parties represent and warrant to the Lenders that (a)
the representations and warranties of the Credit Parties set forth in Section 6
of the Credit Agreement (as amended by this Amendment) are true and correct as
of the date hereof and (b) no event has occurred and is continuing which
constitutes a Default or an Event of Default.
8. Release. In consideration of entering into this Amendment, each of the Credit
Parties releases the Agents, the Lenders, and each Agent's and each of the
Lender's respective Affiliates, Subsidiaries, officers, employees,
representatives, agents, counsel and directors from any and all actions, causes
of action, claims, demands, damages and liabilities of whatever kind or nature,
in law or in equity, now known or unknown, suspected or unsuspected to the
extent that any of the foregoing arises from any action or failure to act on or
prior to the date hereof.
9. Counterparts/Telecopy. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. Delivery of
executed counterparts of this Amendment by telecopy shall be effective as an
original and shall constitute a representation that an original shall be
delivered.
10. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NORTH CAROLINA.
[remainder of page intentionally left blank]
5
<PAGE> 6
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered and this Amendment shall be
effective as of the date first above written.
BORROWERS:
GERBER CHILDRENSWEAR, INC., a Delaware
corporation
By: /s/ Richard Solar
--------------------------------------
Name: Richard Solar
Title: Senior Vice President
AUBURN HOSIERY MILLS, INC.,
a Kentucky corporation
By: /s/ Richard Solar
--------------------------------------
Name: Richard Solar
Title: Senior Vice President
[Signatures continue]
6
<PAGE> 7
GUARANTORS:
COSTURA DOMINICANA, INC.,
a Delaware corporation
By: /s/ Richard Solar
---------------------------------
Name: Richard Solar
Title: Senior Vice President
GCW HOLDINGS, INC.
(formerly Auburn Holdings, Inc.),
a Delaware corporation
By: /s/ Richard Solar
---------------------------------
Name: Richard Solar
Title: Senior Vice President
GCI IP SUB, INC.,
a Delaware corporation
By: /s/ Richard Solar
---------------------------------
Name: Richard Solar
Title: Senior Vice President
GERBER CHILDRENSWEAR CANADA, INC.,
a Delaware corporation
By: /s/ Richard Solar
---------------------------------
Name: Richard Solar
Title: Senior Vice President
<PAGE> 8
Signature Page to Third Amendment to Credit Agreement, Waiver and Consent
LENDERS:
BANK OF AMERICA, N.A., formerly
NationsBank, N.A., acting in its
capacity as Administrative Agent and
Collateral Agent and individually
as a Lender
By: /s/ David H. Dinkins
---------------------------------
Name: David H. Dinkins
Title: Vice President
BANK OF AMERICA, N.A., formerly
NationsBank of Tennessee, N.A.,
solely in its capacity as an Issuing
Lender in connection with certain
Existing Letters of Credit
By: /s/ David H. Dinkins
---------------------------------
Name: David H. Dinkins
Title: Vice President
<PAGE> 9
Signature Page to Third Amendment to Credit Agreement, Waiver and Consent
THE CHASE MANHATTAN BANK
By: /s/ Maureen Morgan
---------------------------------
Name: Maureen Morgan
Title: Vice President
<PAGE> 10
Signature Page to Third Amendment to Credit Agreement, Waiver and Consent
FLEET BANK, N.A.
By: /s/ Alfred Bonfantini
---------------------------------
Name: Alfred Bonfantini
Title: Senior Vice President
<PAGE> 11
Signature Page to Third Amendment to Credit Agreement, Waiver and Consent
SUNTRUST BANK, ATLANTA
By: /s/ Laura Kahn
---------------------------------
Name: Laura Kahn
Title: Director, Senior Relationship
Manager
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 12
Signature Page to Third Amendment to Credit Agreement, Waiver and Consent
WACHOVIA BANK, N.A.
By: /s/ Richard E.S. Bowen
---------------------------------
Name: Richard E.S. Bowen
Title: Assistant Vice President
<PAGE> 13
Signature Page to Third Amendment to Credit Agreement, Waiver and Consent
BANK BOSTON, N.A.
By: /s/ Nancy E. Fuller
---------------------------------
Name: Nancy E. Fuller
Title: Director
<PAGE> 1
LICENSE AGREEMENT #96394-BLT/WBLT
LICENSE AGREEMENT made December 3, 1998, by and between Warner Bros., a Division
of Time Warner Entertainment Company L.P., c/o Warner Bros. Consumer Products, a
Division of Time Warner Entertainment Company L.P., whose address is 4000 Warner
Blvd., Burbank, CA 91522 (hereinafter referred to as "LICENSOR") and Gerber
Childrenswear, Inc., whose address is 7005 Pelham Road, Suite D, Greenville,
South Carolina 29615, Attention: Chris Lanigan (hereinafter referred to as
"LICENSEE").
WITNESSETH:
The parties hereto mutually agree as follows:
1. DEFINITIONS: As used in this Agreement, the following terms shall have the
following respective meanings:
(a) "CHANNELS OF DISTRIBUTION": Licensee may sell the Licensed
Products through the following channels of distribution only (as
such channels are defined in Exhibit 1 attached hereto and
incorporated herein by reference): CANEX, Baby specialty Stores,
Chain Drug Stores, Chain Toy Stores, Direct Nail Catalogs on a
case by case basis only, Home Specialty Stores (Licensed
Products (4) through (16) only), Mid-Tier Department Stores
specifically Sears Canada (excluding Licensed Products (34),
(35), (36), (38), (39) and (41)), National Discount/Mass
Retailers, Non-Chain Drug Stores, Non-Chain Toy Stores, Non-Mall
Clothing Specialty Stores, OffPrice/Closeout Stores, Outlet
Stores, Supermarket/Grocery Stores, Regional Discount/Mass
Retailers, Warehouse Clubs (Licensed Products (26), (31), (32),
and (37) only).
All other channels of distribution defined in Exhibit 1, which
are not specified above in this Paragraph 1(a), are specifically
excluded from this Agreement.
(b) "GUARANTEED CONSIDERATION": In full consideration for the
rights, licenses and privileges granted to Licensee, Licensee
shall pay to Licensor the following sums, ninety-eight Percent
(98%) of which shall be deemed consideration in respect of the
copyrights licensed hereunder, and Two Percent (2%) of which
shall be deemed consideration in respect of the Trademarks
licensed hereunder. For the rights herein granted to Licensee
during the Term referred to in Paragraph 1(h) hereof, the sum of
$80,000 U.S., payable as follows:
$30,000 U.S. payable simultaneously with the execution of
this Agreement;
$25,000 U.S. payable on or before December 1, 1998; and
$25,000 U.S. payable on or before December 1, 1999.
ALL PAYMENTS AND ROYALTY REPORTING WITH RESPECT TO THIS
AGREEMENT SHALL BE MADE PAYABLE IN U. S. FUNDS TO THE
CANADIAN OFFICE OF WARNER BROS. CONSUMER PRODUCTS.
12/14/97
<PAGE> 2
(c) "LICENSED PRODUCT(S)":
In respect of the Licensed Property set forth in CATEGORY I of paragraph
1(d) below, the Licensed Products shall be as follows:
Bath Products
-------------
(1) Hooded Towels *
(2) Washcloths *
(3) Washmitts
Infant Coordinated Bedding
--------------------------
(4) Sheets *
(5) Comforters *
(6) Dust Ruffles *
(7) Receiving Blankets *
(8) Crib Blankets *
(9) Diaper Stackers *
(10) Birth Certificate Pillows *
(11) Bumper Pads *
(12) Bassinet Sheets *
(13) Lap Pads
(14) Wallpaper Room Borders and Window Treatments
to be supplied by Licenser's current wallpaper
licensee on a case by case basis only
(15) Mat and Pillow Combinations
(16) Changing Table Padcovers
Sleepwear
---------
(17) Sleep `n' Play *
(18) Blanket Sleepers, Sizes 0-24 months and 2-5T *
(19) Pajamas (Footed and Non-Footed), Sizes 0-24
months and 2-5T *
(20) Gowns/Dorm Shirts, Sizes
0-24 months *
(21) Prams, Sizes 0-24 months
(22) One Piece for Infants, Sizes NB, S, M, L and XL
*
(23) Two piece for Infants and Toddlers, Sizes NB, S,
M, L, XL and 2-5T *
(24) Longmates for Infants, Sizes NB, S, M1 L and XL
*
(25) Undershirts for Infants, Sizes NB, S, M, L and
XL *
(26) Training Pants, Sizes 2-5T *
Footwear/Socks
--------------
(27) Booties
(28) Infant Socks
Layettes (Disposable Diapers and Vinyl Diaper Covers are
--------
specifically excluded)
(29) Gowns *
(30) Caps *
(31) Gift Sets, to include Infant Gown, Shirt, Bib,
Washcloth, Booties, Towels, Comb (to be supplied
by Gerber Products), Teethers (to be supplied by
Gerber Products) and/or on a case by case basis
with Licensor's prior written
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<PAGE> 3
approval, any Licensed Products licensed
hereunder and any products purchased by Licensee
from other authorized licensees of Licensor
(32) Cloth Diapers/Burp Cloths *
(33) Diaper Covers *
Infant and Toddler Playwear (Windwear, Outerwear,
---------------------------
Sweaters, Leggings when sold as a set with Sweaters, and
T-Shirts when sold as coordinates with Swimwear are
specifically excluded)
(34) Two Piece Set
(35) Creepers
(36) Overalls, Shortalls, Coveralls
(37) Bibs sold individually *
(38) Shirts
(39) Coordinated Playwear Separates
(40) Swim Diapers
(41) Terry Rompers
In respect of the Licensed Property set forth in Category II of
Paragraph 1(d) below the Products shall be as follows:
(42) Toddler Bedding
Licensed Products denoted with "*" shall be sold on an exclusive basis.
All other Licensed Products shall be sold on a non-exclusive basis.
The use of direct embroidery is approved for Category I character only.
(d) "LICENSED PROPERTY":
(i) CATEGORY I: The fictional cartoon characters BABY BUGS BUNNY, BABY
LOLA BUNNY, BABY DAFFY DUCK, BABY SYLVESTER, BABY TWEETY, BABY TASMANIAN
DEVIL, BABY WILE E. COYOTE, BABY ROAD RUNNER AND BABY MARVIN THE MARTIAN
which constitute "BABY LOONEY TUNES", including the names of said
characters and all trademarks, copyrights, environmental settings and
artwork associated therewith. The Licensed Property licensed hereunder
shall be identified with Licensor's BABY LOONEY TUNES mass market logo
only. Licensee is obtaining no rights hereunder in or to Licensor's
upstairs market logo referred to as "BABY LOONEY TUNES CLASSIC
COLLECTION". Furthermore, unless otherwise set forth below, specifically
excluded herefrom are any other properties, trademarks or copyrights of
Licensor, including but not limited, to the cartoon characters referred
to collectively as the "LOONEY TUNES" characters, and Licensee
acknowledges and agrees that it shall enjoy no rights whatsoever
hereunder with respect to such properties, trademarks, and copyrights,
it being understood that such properties, trademarks, and copyrights are
and will continue to be the subject of separate licensing agreements
with licensees of Licensor's choice. Without limiting the generality of,
the foregoing, Licensee is obtaining no rights hereunder, unless
otherwise specifically set forth below, in or to the adult versions of
BUGS BUNNY, LOLA BUNNY, DAFFY DUCK, SYLVESTER, TWEETY, TASMANIAN DEVIL,
WILE E. COYOTE, ROAD RUNEER, and MARVIN THE MARTIAN.
TRADEMARKS: All registered and unregistered trademark rights of Licensor
relating to the above copyrights.
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<PAGE> 4
Together the Copyrights and Trademarks: as set forth herein shall be
known as "Category I Licensed Property".
(ii) CATEGORY II: Notwithstanding the foregoing, the fictional cartoon
characters BUGS BUNNY, LOLA BUNNY, DAFFY DUCK, SYLVESTER, TWEETY,
TASMANIAN DEVIL, WILE B.COYOTE, ROAD RUNNER, and MARVIN THE MARTIAN
only.
TRADEMARKS: All registered and unregistered trademark rights of Licensor
relating to the above copyrights.
Together the Copyrights and Trademarks as set forth herein shall be
known as "Category II Licensed property.
(e) "MARKETING DATE": July 1, 1998.
(f) "ROYALTY RATE":
(i) Eight Percent (8%) for the calendar year 1998;
(ii) Ten Percent (10%) for the calendar year 1999;
(iii) Twelve Percent (12%) for the calendar year 2000;
(iv) Four Percent (4%) on Closeouts (defined below) and on
Irregulars (defined below).
(g) "TERM": July 1, 1998 through December 31, 2000.
(H) "TERRITORY": CANADA.
(i) "CLOSEOUTS": shall mean first quality Licensed Products
discounted by twenty percent (20%) or more of f the list price for
such Licensed Products for purpose of discontinuing sales of the
Licensed Product. Sales of Closeouts shall not exceed ten percent
(10%) of all sales of Licensed Products in any calendar quarter.
(j) "IRREGULARS": shall mean Licensed Products which contain approved
images and complete legal notices, but which contain slight defects
in the manufacture or printing of the product. Irregulars shall not
include any product which is dangerous or hazardous, contains
unapproved images or lacks a complete legal notice. Sales of
Irregulars shall not exceed five percent (5%) of all sales Licensed
Products in any calendar quarter.
(k) "APPROVED CLOSEOUTS AND IRREGULARS OUTLETS": Licensee may submit to
Licensor a listing of proposed closeout and irregular outlets which
Licensor will review and, if approved in writing, will be considered
approved outlets for any future sale of Closeouts and/or Irregulars.
Licensee will use its best efforts to prohibit the advertising of
Closeouts and/or Irregulars by the retailer or outlet purchasing
such products.
2. GRANT OF LICENSE:
(a) Subject to the restrictions, limitations, reservations and
conditions and Licensor's approval rights set forth in this
Agreement, Licensor hereby grants to Licensee and Licensee hereby
accepts for the Term of this Agreement1 a license to utilize the
Category I and II Licensed Property and to create Artwork, subject
to Licensor's approval, solely on or in connection with the
manufacture, distribution and sale of the Licensed Products as
specified above for the ultimate retail sale
4
<PAGE> 5
to the public throughout the Territory on an exclusive basis for
Licensed Products denoted with "*" and on a non-exclusive basis for
Licensed Products (3), (13), (14), (15), (16), (21), (27), (28),
(31), (34), (35), (36), (38), (39), (40), (41) and (42).
(b) Without limiting any other approval rights of Licensor as
contained herein, no television commercials may be utilized under
this Agreement without the specific prior written approval of
Licensor.
(c) Subject to the Grant of License set forth in Paragraph 2(a), it
is specifically agreed and understood between the parties hereto
that those characters set forth in Paragraph 1(d) (i) Category I and
1(d) (ii) Category II above shall only be utilized in connection
with the respectively designated Licensed Products set forth above
in Paragraph 1(c).
3. RESERVATION OF RIGHTS; PREMIUMS:
(a) Licensor reserves all rights not expressly conveyed to Licensee
hereunder, and Licensor may grant licenses to others to use the
Licensed Property, artwork and textual matter in connection with
other uses, services and products without limitation.
(b) Notwithstanding anything to the contrary stated herein, Licensor
specifically reserves the right, without limitation throughout the
world, to itself use, or license any third party(s) of its choice to
use the Licensed Property for the manufacture, distribution and sale
of products similar or identical to those licensed herein in
Paragraph 1(c) above for sale through any catalogue(s) produced or
distributed by or on behalf of Licensor or Licenser's affiliated
companies (Licensor's affiliated companies herein shall mean any
company owned either directly or indirectly by Time Warner, Inc.),
or for sale or distribution in any theaters or arenas, or for sale
or distribution in any retail stores operated by or on behalf of
Licensor, Licensor's affiliated companies or franchisees, or for
sale or distribution in any theme/amusement parks operated by or on
behalf of Licenser or its licensees, Six Flags, Premier Parks, Movie
World, or their affiliated companies (affiliated companies of Six
Flags, Premier Parks and Movie World herein shall mean any company
owned either directly or indirectly by them, or by a company which
owns them). In addition, Licensor reserves the right to a11ow Six
Flags, Premier Parks and Movie World to manufacture (or have
manufactured by a third party) products similar or identical to
those licensed herein for distribution or sale in theme and/or
amusement parks owned or operated by Six Flags, Premier Parks and/or
Movie World. Further, Licensor reserves the right to use, or license
others to use, and/or manufacture products similar or identical to
those licensed herein for use as premiums, excluding premiums which
would be distributed through Licensee's Channels of Distribution.
(c) Licensee specifically understands and agrees that no rights are
granted herein with respect to the Warner Bros. "shield" logo or
trademark, or any other trademark(s), logo(s) or copyrights owned by
Licensor other than these specifically set forth above in the
Licensed Property, it being understood that all rights in and to
said properties are reserved exclusively to Licensor for use and/or
licensing as it deems appropriate to third party(s) of its choice.
5
<PAGE> 6
(d) Licensee understands and agrees that the rights granted herein
are limited only to the cartoon characters set forth above and that
any and all rights in, to or associated with the theatrical motion
picture entitled "SPACE JAM", as well as with any sequels thereto,
are specifically excluded herefrom, it being understood that all
rights in and to said property are reserved exclusively to Licensor
for use and/or licensing as it deems appropriate to third parties of
its choice.
(e) Licensee agrees that it will not use, or knowingly permit the use
of, and will exercise due care that its customers likewise will
refrain from the use of, the Licensed Products as a premium, except
with the prior written consent of Licensor. Subject to Licensor's
prior written approval as aforesaid, Licensee shall pay to Licensor
a sum equal to TWELVE PERCENT (12%) of all premium sales. For
purposes of this paragraph, the term "premium" shall be defined as
products offered to the public in conjunction with the sale or
promotion of a product or service, including but not necessarily
limited to, combination sales, free or self-liquidating items
offered to the public in conjunction with the sale or promotion of a
product or service, programs designed to build traffic or continuity
visits by the consumer/customer, or any similar scheme or device,
the prime intent of which is to use the Licensed products in such a
way as to promote, publicize and or sell the products, services or
business image of the user of such item. Premium shall not include
placement of discount coupons or similar types of rebate or discount
offers on other Licensee products ("cross-couponing"). All instances
of Cross-couponing and all artwork in relation thereto shall be
subject to Licensor's prior written approval.
4. CONSIDERATION:
(a) The Guaranteed Consideration paid by Licensee as set forth above
shall be applied against such royalties as are, or have become,
due to Licensor. No part of such Guaranteed Consideration shall
be repayable to Licensee. Royalties earned in excess of the
Guaranteed Consideration applicable to the Term hereof shall not
offset any Guaranteed Consideration required in respect of the
succeeding renewal term (if any); likewise, royalties earned in
excess of the Guaranteed Consideration applicable to the renewal
term (if any) shall not offset any Guaranteed Consideration
applicable to any prior term.
(b) Royalty Payments: Licensee shall pay to Licensor a sum equal to
the Royalty Rate as set forth above of all Net Sales by Licensee
of the Licensed Product(s) covered by this Agreement. The term
"Net Sales" herein shall mean the wholesale list price of the
Licensed Product(s) billed customers, less the following:
(i) actual quantity discounts and placement
discounts and actual returns, but no deductions
shall be made for uncollectible accounts and
deductions for actual returns may not exceed
five percent (5%) of total sales; and
(ii) any sales, excise or value added taxes which are
separately stated and which are required to be
collected from customers and which are payable
to tax authorities. No deduction shall be taken
in computing Net Sales for
6
<PAGE> 7
taxes not described immediately above, including
but not limited to income withholding taxes or
remittance taxes.
No costs incurred in the manufacture, sale, distribution,
advertisement, or exploitation of the Licensed Products shall be
deducted from any royalties payable by Licensee.
(c) Licensee will pay all taxes, customs, duties, assessments,
excise except as provided in Subparagraph 4(b)(ii), and other
charges levied upon the importation of or assessed against the
Licensed Product under this Agreement, as well as all Licensee's
costs of doing business and Licensor shall have no liability
therefor.
(d) For sales of Closeouts and Irregulars at or below 2,500 units,
Licensee may directly sell such Closeouts and/or Irregulars to
Approved Closeouts and Irregulars Outlets. For sales of
Closeouts and/or Irregulars in excess of 2,500 units, prior to
offering such Closeouts and/or Irregulars, Licensee shall give
notice to Licensor of its intent to offer Closeouts and/or
Irregulars, the Licensed Products to be sold as Closeouts or
Irregulars, the quantity available, the nature of the
irregularity, a representative sample of the Cl6seouts and/or
Irregulars and the price they are to be offered at. Licensor
shall have ten (10) business days to give Licensee notice of its
election to purchase some or all of the Closeouts and/or
Irregulars. If Licensor does not purchase all of the Closeouts
and/or Irregulars specified in the notice, Licensee shall
further notify Licensor of the retailer or other outlets which
will be offered the Closeouts and/or Irregulars. If, within five
(5) business days of such further notice, Licensor objects to
any particular retailer or outlet and provides a good faith
basis for such objection, Licensee shall not offer such
Closeouts and/or Irregulars to such retailer or outlet.
(e) Royalties shall be payable monthly with the periodic statements
required in Paragraph 5 hereof, except to the extent offset by
Guaranteed Consideration theretofore remitted.
5. PERIODIC STATEMENTS:
(a) Within thirty days after the initial shipment of the Licensed
Products and promptly on the 15th day of every month thereafter
commencing, Licensee shall furnish to Licensor complete and
accurate statements certified to be accurate by Licensee showing
with respect to all Licensed Product(s) distributed and sold by
Licensee during the preceding calendar month the: (i) number by
SKU number; (ii) wholesale list price; (iii) quantity and
placement discounts and (iv) net sales price, together with any
returns made during the preceding calendar month. Such
statements shall be furnished to Licensor whether or not any of
the Licensed Product(s) have been sold during calendar months to
which such statements refer. Receipt or acceptance by Licensor
of any of the statements furnished pursuant to this Agreement or
of any sums paid hereunder shall not preclude Licensor from
questioning the correctness thereof at any time, and in the
event that any inconsistencies or mistakes are discovered in
such statements or payments, they shall immediately be rectified
and the appropriate payments made by Licensee. On a monthly
basis, concurrent with the furnishing of the statements
described above, Licensee shall make payment of royalties and
provide such information on Licensed Product sales on a
character by character basis as is
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<PAGE> 8
then readily available to Licensee in such form as Licensee
compiles for its own use. Upon demand of Licensor, Licensee
shall, but not more than once in any TWELVE (12) month period,
furnish to Licensor a detailed statement by an officer of
Licensee showing: (i) by SKU number; (ii) wholesale list price;
(iii) quantity and placement discounts; and (iv) net sales price
of the Licensed Product(s) covered by this Agreement distributed
and/or sold by Licensee up to and including the date upon which
Licensor has made such demand.
(b) The statements and payments required hereunder shall be
delivered to:
WARNER BROS. CONSUMER PRODUCTS (CANADA)
4576 Yonge Street - 2nd Floor
North York, Ontario
CANADA M2N 6P1
Attn: Jeanne K. Danielson
(c) Any payments which are made to Licensor hereunder after the due
date required therefore, shall bear interest at the then current
prime rate plus four (4) percent (or the maximum rate
permissible by law1 if less than the current prime rate) from
the date such payments are due to the date of payment.
Licensor's right hereunder to interest on late payments shall
not preclude Licensor from exercising any of its other rights or
remedies pursuant to this Agreement or otherwise with regard to
Licensee's failure to make timely remittances.
(d) Licensee agrees to provide, at Licensor's request: (i) a letter
of credit issued in favor of Licensor from a financial
institution as approved by Licensor in an amount up to the
Guaranteed Consideration; and/or (ii) such other form of
security acceptable to Licensor. Licensee agrees to execute all
documentation as Licensor may require in connection with
perfecting such security interests.
(e) Any income taxes, withholding taxes, other taxes and/or fees
which local law requires to be levied against Licensor's royalty
and withheld by Licensee, shall be paid out of such royalties by
Licensee on behalf of Licensor within the period of time
required by local law, provided that Licensee shall not make
such payment if Licensor has advised Licensee in writing not to
do so, and has taken appropriate legal action to contest the
propriety of such taxes and/or fees. In such event, Licensor
shall indemnify Licensee against any principle, interest charges
or penalties with respect to such taxes. Any such taxes or fees
which Licensee pays on behalf of Licensor shall be deducted from
the royalty otherwise payable to Licensor. The original receipt
(or a bonafide copy thereof) for such taxes as may be deducted
from royalties shall accompany the statements described in
Paragraph 5(a) above for the accounting period in which such
deduction is made. Licensee shall timely file all necessary tax
returns or other government documents on Licensor's behalf, as
required by local law, at Licensee's cost.
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<PAGE> 9
6. BOOKS AND RECORDS:
(a) Licensee shall keep, maintain and preserve (in Licensee's
principal place of business) for at least two (2) years
following termination or expiration of the Term of this
Agreement or any renewal(s) hereof (if applicable), complete and
accurate records of accounts including, without limitation,
purchase orders, inventory records, invoices, correspondence,
banking and financial and other records pertaining to the
various items required to be submitted by Licensee as well as to
ensure Licensee's compliance with local laws as required
pursuant to Paragraph 13(k) hereof. However in no event will the
foregoing be interpreted to require Licensee to keep any records
for longer than its normal retention period, which is four years
from the end of the calendar year to which such records pertain.
Such records and accounts shall be available for inspection and
audit at any time or times during or after the Term of this
Agreement or any renewal(s) hereof (if applicable) during
reasonable business hours and upon reasonable notice by Licensor
or its nominees and at Licensor's expense, subject to Paragraph
6(c) hereof. Licensee agrees not to cause or permit any
interference with Licensor or nominees of Licensor in the
performance of their duties. During such inspections and audits,
Licensor shall have the right to take extracts and/or make
copies of Licensee's records which are related to the statements
and/or Licensed Products, as it deems necessary.
(b) The exercise by Licensor in whole or in part, at any time of the
right to audit records and accounts or of any other right herein
granted, or the acceptance by Licensor of any statement or
statements or the receipt and/or deposit by Licensor, of any
payment tendered by or on behalf of Licensee shall be without
prejudice to any rights or remedies of Licensor and such
acceptance, receipt and/or deposit shall not preclude or prevent
Licensor from thereafter disputing the accuracy of any such
statement or payment, except that any objection to the accuracy
of any statement or payment shall be made within two (2) years
following termination or expiration of the Term of this
Agreement or any renewal(s) hereof (if applicable).
(c) If pursuant to its right hereunder Licensor causes an audit and
inspection to be instituted which, thereafter discl6s'es ~
deficiency between the amount found to be due to Licensor and
the amount actually received or credited to Licensor, then
Licensee shall, upon Licensor's demand, promptly pay the
deficiency, together with interest thereon at the then current
prime rate from the date such amount became due until the date
of payment, and, if the deficiency is more than 3% of all
royalties paid by Licensee during the period covered by the
audit, then Licensee shall pay the reasonable costs and expenses
of such audit and inspection. If an audit discloses an
overpayment to Licensor by Licensee, then Licensor shall remit
the amount of such overpayment' to Licensee within sixty (60)
days of conclusive agreement that such overpayment occurred.
(d) Licensee understands and agrees that Licensor shall have access
to Licensee's sell-through information, with respect to the
Licensed Products, pertaining to various retail customers (e.g.
Wal-Mart, JC Penney) (the "Sell Through System"). Licensor
agrees to keep confidential all information obtained by Licensor
through the Sell Through Systems except: (i) to the extent
necessary to
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<PAGE> 10
comply with a law or the valid order of a court of competent
jurisdiction, in which event the party making such disclosure
shall so notify the other and shall seek confidential treatment
of such information; (ii) as part of normal reporting or review
procedure to the respective parties' boards of directors, parent
company, auditors and attorneys who agree to be bound by the
provisions of this subparagraph; (iii) in order to enforce its
rights or perform its obligations under this Agreement; or (iv)
when discussing the sale of Licensed Products with the
applicable retail customer in an effort to improve business
results.
7. INDEMNIFICATIONS:
(a) During the Term, and continuing after the expiration or
termination of this Agreement, Licensor shall indemnify Licensee
and shall hold it harmless from any loss, liability, damage,
cost or expense, arising out of any claims or suits which may be
brought or made against Licensee by reason of the breach by
Licensor of the warranties or representations as set forth in
Paragraph 12 hereof, provided that Licensee shall give prompt
written notice, and full cooperation and assistance to Licensor
relative to any such claim or suit and provided, further, that
Licensor shall have the option to undertake and conduct the
defense of any suit so brought. Licensee shall not, however, be
entitled to recover for lost profits. Licensee shall cooperate
fully in all respects with Licensor in the conduct and defense
of said suit and/or proceedings related thereto.
(b) During the Term, and continuing after the expiration or
termination of this Agreement, Licensee shall indemnify Licensor
and shall h6ld it harmless from any loss, liability, damage,
cost or expense arising out of any claims or suits which may be
brought or made against Licensor by reason of: (i) any breach of
Licensee's covenants and undertakings hereunder; (ii) any
unauthorized use by Licensee of the Licensed Property; (iii) any
use of any trademark, copyright, design, patent, process, method
or device, except for those uses of the Licensed Property that
are specifically approved by Licensor pursuant to the terms of
this Agreement; (iv) Licensee's non-compliance with any
applicable federal, state or local laws or with any other
applicable regulations; and (v) any alleged defects and/or
inherent dangers (whether obvious or hidden) in the Licensed
Products or the use thereof.
(c) With regard to 7(b) (v) above, Licensee agrees to obtain, at its
own expense, product liability insurance providing adequate
protection for Licensor and Licensee against any such claims or
suits in amounts no less than three million dollars ($3,000,000)
per occurrence, combined single limits. Simultaneously with the
execution of this Agreement, Licensee undertakes to submit to
Licensor a fully paid policy or certificate of insurance naming
Licensor as an additional insured party and, requiring that the
insurer shall not terminate or materially modify such policy or
certificate of insurance without written notice to Licensor at
least twenty (20) days in advance thereof. Such insurance and
the delivery of the policy or certificate are material
obligations of Licensee.
8. ARTWORK; COPYRIGHT AND TRADEMARK NOTICES:
(a) The Licensed Property shall be displayed or used only in such
form and in such manner as has been specifically
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approved in writing by Licensor in advance and Licensee
undertakes to assure usage of the trademark(s) and character(s)
solely as approved hereunder. Licensee further agrees and
acknowledges that any and all Artwork (defined below) created,
utilized, approved and/or authorized for use hereunder by
Licensor in connection with the Licensed Products or which
otherwise features or includes the Licensed Property shall be
owned in its entirety exclusively by Licensor. "Artwork" refers
to incorporating Category I and Category II Licensed Property
and shall include, without limitation, all pictorial, graphic,
visual, audio, audio-visual, digital, literary, animated,
artistic, dramatic, sculptural, musical or any other type of
creations and applications, whether finished or not, including,
but not limited to, animation, drawings, designs, sketches,
images, illustrations, film, video, electronic, digitized or
computerized information, software, object code, source code,
on-line elements, music, text, dialogue, stories, visuals,
effects, scripts, voiceovers, logos, one-sheets, promotional
pieces, packaging, display materials, printed materials,
photographs, interstitials, notes, shot logs, character profiles
and translations, produced by Licensee or for Licensee, pursuant
to this Agreement. Licensor reserves for itself or its designees
all rights to use any and all Artwork created, utilized and/or
approved hereunder without limitation.
(b) Licensee acknowledges that, as between Licensor and Licensee,
the Licensed Property and Artwork and all other depictions
expressions and derivations thereof, and all copyrights,
trademarks and other proprietary rights therein are owned
exclusively by Licensor and Licensee shall have no interest in
or claim thereto, except for the limited right to use the same
pursuant to this Agreement and subject to its terms and
conditions.
Licensee agrees and acknowledges that any Artwork created by
Licensee or for Licensee hereunder is a "work made for hire" for
Licensor under the U.S. copyright Act, and any and all similar
provisions of law under other jurisdictions, and that Licensor
is the author of such works for all purposes, and that Licensor
is the exclusive owner of all the rights comprised in the
undivided copyright and all renewals, extensions and reversions
therein, in and to such works in perpetuity and throughout the
universe. Licensee hereby waives and releases in favor of
Licensor all rights (if any) of "droit moral," rental rights and
similar rights in and to the Artwork (the "Intangible Rights")
and agrees that Licensor shall have the right to revise,
condense, abridge, expand, adapt, change, modify, add to,
subtract from, re-title, re-draw, re-color, or otherwise modify
the Artwork, without the consent of Licensee. Licensee hereby
irrevocably grants, transfers and, assigns to Licensor all
right, title and interest, including copyrights, trademark
rights, patent right's and other proprietary rights, it may have
in and to the Artwork, in perpetuity and throughout the
universe, and to all proprietary depictions, expressions or
derivations of the Licensed Property created by or for Licensee.
Licensee acknowledges that Licensor shall have the right to
terminate this Agreement in the event Licensee asserts any
rights (other than those specifically granted pursuant to this
Agreement) in or to the Licensed Property or Artwork.
Licensee hereby warrants that any and all work created by
Licensee under this Agreement apart from the materials
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<PAGE> 12
provided to Licensee by Licensor is and shall be wholly original
with or fully cleared by Licensee and shall not copy or
otherwise infringe the rights of any third parties, and Licensee
hereby indemnifies Licensor and will hold Licensor harmless from
any such claim of infringement or otherwise involving Licensee's
performance hereunder. At the request of Licensor, Licensee
shall execute such form(s) of assignment of copyright or other
papers as Licensor may reasonably request in order to confirm:
and vest in Licensor the rights in the properties as provided
for herein. In addition, Licensee hereby appoints Licensor as
Licensee's Attorney-in-Fact to take such actions and to make,
sign, execute, acknowledge and deliver all such documents as may
from time to time be necessary to confirm in Licensor, its
successors and assigns, all rights granted herein. If any third
party makes or has made any contribution to the creation of
Artwork authorized for use hereunder, Licensee agrees to obtain
from such party a full confirmation and assignment of rights so
that the foregoing rights shall vest fully in Licensor, in the
form of the Contributor's Agreement attached hereto as Exhibit 2
and by this reference made a part hereof, prior to commencing
work, ensuring that all rights in the Artwork and Licensed
Property arise in and are assigned to Licensor. Promptly upon
entering into each such Contributor's Agreement, Licensee shall
give Licensor a copy of such Contributor's Agreement. Licensee
assumes all responsibility for such parties and agrees that
Licensee shall bear any and all risks arising out of or relating
to the performance of services by them and to the fulfillment of
their obligations under the Contributor's Agreement.
Upon expiration or termination of this Agreement for any reason,
or upon demand by Licensor at any time, Licensee shall promptly
deliver to Licensor all Artwork or Licensed Property, whether
finished or not, including drawings, drafts, sketches,
illustrations, screens, data, digital files and information,
copies or other items, information or things created in the
course of preparing the Licensed Property and all materials
provided to Licensee by Licensor hereunder, or, at Licensor's
option and instruction, shall destroy some or all of the
foregoing and shall confirm to Licensor in writing that Licensee
has done so. Licensee shall not use such Artwork or Licensed
Property, items, information or things, material, for any
purpose other than is permitted under this Agreement.
(c) Licensee shall, within thirty (30) days of receiving an invoice
for a charge that Licensee has previously approved in writing,
pay Licensor for artwork executed for Licensee by Licensor (or
by third parties under contract to Licensor) for use in the
development of the Licensed Products and any related packaging,
display and promotional materials at Licensor's prevailing
commercial art rates. The foregoing shall include any artwork
that, in Licensor's opinion and subject to Licensee's written
approval, is, necessary to modify artwork initially prepared by
Licensee and submitted for approval. Estimates of artwork
charges are available upon request.
(d) Licensee shall cause to be imprinted, irremovably and legibly on
each Licensed Products manufactured, distributed or sold under
this Agreement, and all
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advertising, promotional, packaging and wrapping material
wherein the Licensed Property appears, the following copyright
and/or trademark notice(s):
CATEGORY I:
BABY LOONEY TUNES, CHARACTERS, NAMES, AND ALL RELATED
INDICIA ARE TRADEMARKS OF WARNER BROS. (C) 19___.
CATEGORY II:
LOONEY TUNES, CHARACTERS, NAMES, AND ALL RELATED INDICIA
ARE TRADEMARKS OF WARNER BROS.(C) 19___.
The year date shall be as instructed by Licensor.
(e) In no event shall Licensee use, in respect to the Licensed
Products and/or in relation to any advertising, promotional,
packaging or wrapping material, any copyright or trademark
notices which shall conflict with, be confusing with, or negate,
any notices required hereunder by Licensor in respect to the
Licensed Property.
(f) Licensee agrees to deliver to Licensor free of cost six (6) of
each of the Licensed Products together with their packaging and
wrapping material for trademark registration purposes in
compliance with applicable laws, simultaneously upon
distribution to the public. Any copyrights or trademarks with
respect to the Licensed Products shall be procured by and for
the benefit of Licensor and at Licensor's expense. Licensee
further agrees to provide Licensor with the date of the first
use of the Licensed Products in interstate and intrastate
commerce.
(g) Licensee shall assist Licensor, at Licensor's expense, in the
procurement, protection, and maintenance of Licensor's rights to
the Licensed Property. Licensor may, in its sole discretion,
commence or prosecute and effect the disposition of any claims
or suits relative to the imitation, infringement and/or
unauthorized use of the Licensed Property either in its own
name, or in the name of Licensee, or join Licensee as a party in
the prosecution of such claims or suits. Licensee agrees to
cooperate fully with Licensor in connection with any such claims
or suits and undertakes to furnish full assistance to Licensor
in the conduct of all proceedings in regard thereto. Licensee
shall promptly notify Licensor in writing of any infringements
or imitations or unauthorized uses by others of the Licensed
Property, on or in relation to products identical to similar to
or related to the Licensed Products. Licensor shall in its sole
discretion have the right to settle or effect compromises in
respect thereof. Licensee shall not institute any suit or take
any action on account of such infringements, imitations or
unauthorized uses.
9. APPROVALS AND QUALITY CONTROLS:
(a) Licensee agrees to comply and maintain compliance with the
reasonable quality standards and specifications of Licensor as
they are required of other licensees in respect to all usage of
the Licensed Property on or in relation to the Licensed
Product(s) throughout the Term of this Agreement and any
renewals or extensions thereof. Licensee agrees to furnish to
Licensor free of cost for its written approval as to aesthetic
quality and style,
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<PAGE> 14
samples of each of the Licensed Product(s), together with their
packaging, hangtags, and wrapping material, as follows in the
successive stages indicated (a) rough sketches/layout concepts;
(b) finished artwork or final proofs; (c) pre-production samples
or strike-offs; (d) finished products, including packaged
samples. Finished Products will be deemed approved if they
conform in all material respects to the approved pre-production
sample or strike-off. Licensor will not withhold approval of a
product ba5ed on its construction or materials unless the
construction or materials impairs the aesthetic appearance of
the product or is otherwise not in conformity with the general
quality of Licensee's products.
(b) No Licensed Products and no material utilizing the Licensed
Property shall be manufactured, sold, distributed or promoted by
Licensee without prior written approval. Licensee may, subject
to Licensor's prior written approval, use textual and/or
pictorial matter pertaining to the Licensed Property on such
promotional, display and advertising material as may, in its
reasonable judgment, promote the sale of the Licensed Products.
All advertising and promotional material relating to the
Licensed Products must be submitted to the Licensor for its
written approval at the following stages appropriate to the
medium used: (i) rough concepts; (ii) layout, storyboard,
script; and (iii) finished materials.
(c) Approval or disapproval shall lie in Licensor's sole discretion.
If Licensee has not received a response on any submission within
ten (10) business days, Licensee may notify Licensor by
facsimile, receipt of which must be confirmed in writing, and
Licensor will then have three (3) business days to approve,
disapprove or otherwise comment upon the submission. Failure to
respond within three (3) business days after acknowledging
receipt of the facsimile notice shall deem the submission
approved. Any Licensed Products not so approved shall be deemed
unlicensed and shall not be manufactured or sold. If any
unapproved Licensed Products are being sold, Licensor may,
together with other remedies available to it including, but not
limited to, immediate termination of this Agreement, require
such Licensed Products to be immediately withdrawn from the
market and to be destroyed, such destruction to be attested to
in a certificate signed by an officer of Licensee.
(d) Any modification of a Licensed Product which relates to the
Artwork applied to the Licensed Product or results in a material
deviation in the standards or quality of a Licensed Product must
be submitted in advance for Licensor's written approval as if it
were a new Licensed Product. Approval of a Licensed Product
which uses particular artwork does not imply approval of such
artwork for use with a different Licensed Product.
(e) Licensed Products must conform in all material respects to the
final production samples approved by Licensor. If in Licensor's
reasonable judgement, the quality of a Licensed Product
originally approved has deteriorated in later production runs,
or if a Licensed Product has otherwise been altered, Licensor
and Licensee agree to negotiate in good faith regarding the
disposition of such Licensed Products, which disposition may, in
addition to other remedies, require that such Licensed Product
be immediately withdrawn from the market.
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<PAGE> 15
(f) Licensee shall permit Licensor to inspect Licensee's
manufacturing operations, testing and payroll records (including
those operations and records of any supplier or manufacturer
approved pursuant to Paragraph 10(b) below) with respect to the
Licensed Products.
(g) If any changes or modifications are required to be made to any
material submitted to Licensor for its written approval in order
to ensure compliance with Licensor's specifications or standards
of quality, Licensee agrees promptly to make such changes or
modifications.
(h) Subsequent to final approval, no fewer than twelve (12)
production samples of Licensed Products will be sent to Licensor
to ensure quality control simultaneously upon distribution to
the public. In addition, Licensee shall provide Licensor with
six (6) catalogs which display all of Licensee's products, not
just the Licensed Products. Further, Licensor shall have the
right to; purchase any and all Licensed Products in any quantity
the maximum discount price Licensee charges its best customer in
a similar circumstance.
(i) To avoid confusion of the public, Licensee agrees not to
associate other characters or properties with the Licensed
Property on the Licensed Products or in any packaging,
promotional or display materials unless Licensee receives
Licensor's prior written approval. Furthermore, Licensee agrees
not to use the Licensed Property (or any component thereof) on
any business sign, business cards, stationery or forms, nor as
part of the name of Licensee's business or any division thereof.
The following licensed properties are hereby deemed approved for
use of Licensed Products for purposes of this paragraph: the
Cotton seal; 3M - Scotchguard; Curity; Gerber.
(j) Licensee shall use its best efforts to notify its customers of
the requirement that Licensor has the right to approve all
promotional, display and advertising material pursuant to this
Agreement. Notwithstanding the foregoing, Licensee shall not be
responsible for any customer's failure to obtain any required
approval.
(k) It is understood and agreed that any animation used in
electronic media, including but not limited to animation for
television commercials and character voices for radio
commercials, shall be produced by Warner Bros. Animation
pursuant to a separate agreement between Licensee and Warner
Bros. Animation, subject to Warner Bros. Animation customary
rates. It is understood and agreed that, in the event Licensee
utilizes the services of WB Bros, Licensee shall reimburse WB
Toys for all costs and expenses at WB Toys customary rates. Any
payment made to Warner Bros. Animation and/or WB Toys for such
animation and/or services shall be in addition to and shall not
offset the Guaranteed Consideration set forth in Paragraph 1(b).
(l) Licensor's approval of Licensed Products (including without
limitation, the Licensed Products themselves as well as
promotional, display, and advertising materials) shall in no way
constitute or be construed as an approval by Licensor of
Licensee's use of any trademark, copyright and/or other
proprietary materials, not owned by Licensor.
(m) Notwithstanding the foregoing, if any of the Licensed Product(s)
have already received Licensor's written approval under separate
license agreement #8824-BLT/WBLT
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between Licensor and Licensee, then Licensee shall not be
required to resubmit such Licensed Product(s) for approval under
this Agreement, except with respect to any modifications made to
such Licensed Product, or to its packaging, hangtags and/or
advertising materials, expressly for the Territory as defined
under this Agreement.
10. DISTRIBUTION; SUB-LICENSE MANUFACTURE:
(a) Within the Channels of Distribution set forth in Paragraph 1(a)
hereof, Licensee shall sell the Licensed Products either to
jobbers, wholesalers, distributors or retailers for sale or
resale and distribution directly to the public. Unless
explicitly set forth in Paragraph 1(a) hereof, Licensee shall
not sell the Licensed Products through any cable home shopping
service or through electronic media, including on any on-line
network or service. If Licensee sells or distributes the
Licensed Products at a special price, directly or indirectly, to
itself, including without limitation, any subsidiary of Licensee
or to any other person, firm, or corporation affiliated with
Licensee or its officers, directors or major stockholders, for
ultimate, sale to unrelated third parties, Licensee shall pay
royalties upon the actual sale of the Licensed Product to an
unrelated third party.
(b) Licensee shall not be entitled to sub-license any of its rights
under this Agreement. In the event Licensee is not the
manufacturer of the Licensed Products, Licensee shall, subject
to the prior written approval of Licensor, which approval shall
not be unreasonably withheld, be entitled to utilize a third
party manufacturer in connection with the manufacture and
production of the Licensed Products, provided that such
manufacturer shall execute a letter in the form of Exhibit 3
attached hereto and by this reference made a part hereof. In
such event, Licensee shall remain primarily obligated under all
of the provisions of this Agreement and any default of this
Agreement by such manufacturer shall be deemed a default by
Licensee hereunder. In no event shall any such third party
manufacturer agreement include the right to grant any rights to
subcontractors.
11. GOOD WILL: Licensee recognizes the great value of the publicity and good
will associated with the Licensed Property and acknowledges: (i) such
good will is exclusively that of Licensor; and (ii) that the Licensed
Property has acquired a secondary meaning as Licensor's trademarks
and/or identifications in the mind of the purchasing public. Licensee
further recognizes and acknowledges that a breach by Licensee of any of
its covenants, agreements or undertakings hereunder will cause Licensor
irreparable damage, which cannot be readily remedied in damages in an
action at law, and may, in addition thereto, constitute an infringement
of Licensor's copyrights, trademarks and/other proprietary rights in,
and to the Licensed Property, thereby entitling Licensor to equitable
remedies, and costs.
12. LICENSOR'S WARRANTIES AND REPRESENTATIONS: Licensor represents and
warrants to Licensee that:
(a) It has, and will have throughout the Term of this Agreement, the
right to license the Licensed Property to Licensee in accordance
with the terms and provisions of this Agreement; and
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(b) The making of this Agreement by Licensor does not violate any
agreements, rights or obligations of any person, firm or
corporation.
13. LICENSEE'S WARRANTIES AND REPRESENTATIONS: Licensee represents and
warrants to Licensor that, during the Term and thereafter:
(a) It will not attack the title of Licensor (or third parties that
have granted rights to Licensor) in and to the Licensed Property
or any copyright or trademarks pertaining thereto nor will it
attack the validity of the license granted hereunder;
(b) It will not harm, misuse or bring into disrepute the Licensed
Property, but on the contrary, will maintain the value and
reputation thereof to the best of its ability;
(a) It will manufacture, sell, promote and distribute the Licensed
Products in an ethical manner and in accordance with the terms
and intent of this Agreement, and in compliance with all
applicable government regulations and industry standards;
(4) It will not create any expenses chargeable to Licensor without
the prior written approval of Licensor in each and every
instance. It will not cause or allow any liens or encumbrances
to be placed against the Licensed Property;
(C) It will protect to the best of its ability its right to
manufacture, sell, promote, and distribute the Licensed Products
hereunder;
(f) It will at all times comply with all government laws and
regulations, including but not limited to product safety, food,
health, drug, cosmetic, sanitary or other similar laws, and all
voluntary industry standards relating or pertaining to the
manufacture, sale, advertising or use of the Licensed Products,
and shall maintain its appropriate customary high quality
standards during the Term hereof. It shall comply with any laws
or regulations of regulatory agencies which shall have
jurisdiction over the Licensed Products and shall procure and
maintain in force any and all permissions, certifications and/or
other authorizations from governmental and/or other official
authorities that may be required in response thereto. Each
Licensed Product and component thereof distributed hereunder
shall comply with all applicable laws, regulations and voluntary
industry standards. Licensee shall follow reasonable and proper
procedures for testing that all Licensed Products comply with
such laws, regulations and standards. Licensee shall permit
Licensor or its designees to inspect testing records and
procedures with respect to the Licensed Products for compliance.
Licensed Products that do not comply with all applicable laws,
regulations and standards shall automatically be deemed
unapproved and immediately taken off the market;
(g) It shall, upon Licensor's request, provide credit information to
Licensor including, but not limited to, fiscal year-end
financial statements (profit-and-loss statement and balance
sheet) and operating statements, all of which will be satisfied
by submission to Licensor of Licensee's annual report;
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<PAGE> 18
(h) It will provide Licensor with the date(s) of first use of the
Licensed Products in interstate and intrastate commerce, where
appropriate;
(i) It will, pursuant to Licensor's instructions and at Licensor's
expense, duly take any and all necessary steps to secure
execution of all necessary documentation for the recordation of
itself as user of the Licensed Property in any jurisdiction
where this is required or where Licensor reasonably requests
that such recordation shall be effected. Licensee further agrees
that it will at its own expense cooperate with Licensor in
cancellation of any such recordation at the expiration of this
Agreement or upon termination of Licensee's right to use the
Licensed Property. Licensee hereby appoints Licensor its
Attorney-in-Fact for such purpose;
(j) It will not deliver or sell Licensed Products outside the
Territory or knowingly sell Licensed Products to a third party
for delivery outside the Territory;
(k) It will not use any labor that violates any local labor laws,
including all wage and hour laws, laws against discrimination
and that it will not use prison, slave or child labor in
connection with the manufacture of the Licensed Products;
(1) It shall at all times comply with all manufacturing, sales,
distribution, retail and marketing policies and strategies
promulgated by Licensor from time-to-time; and
(m) It will utilize specific design elements of the Licensed
Property provided to Licensee by Licensor on hangtags, labels,
and other materials.
14. TERMINATION:
(a) By Licensor: Licensor shall have the right to terminate this
Agreement without prejudice to any rights which it may have,
whether pursuant to the provisions of this Agreement, or
otherwise in law, or in equity, or otherwise, upon the
occurrence of any one or more of the following events (herein
called "defaults"):
(i) Licensee materially defaults in the performance of any
of its obligations provided for in this Agreement; or
(ii) Licensee shall have failed to deliver to Licensor or to
maintain in full force and effect the insurance referred
to in Paragraph 7(c) hereof; or
(iii) Licensee shall fail to make any payments due hereunder
on the date due; or
(iv) Licensee shall fail to deliver any of the statements
required herein or to give access to the premises and/or
license records pursuant to the provisions hereof to
Licensor's authorized representatives for the purposes
permitted hereunder; or
(v) Licensee shall fail to comply with any laws, regulations
or voluntary industry standards as provided in Paragraph
13(f) or if any governmental agency or other body,
office or official vested with appropriate authority
finds that the Licensed Products are harmful or
defective in any way, manner or form, or are being
manufactured, sold or
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distributed in contravention of applicable laws,
regulations or standards, or in a manner likely to cause
harm; or
(vi) Licensee shall be unable to pay its debts when due, or
shall make any assignment for the benefit of creditors,
or shall file any petition under the bankruptcy or
county or place, or shall have or suffer a receiver or
trustee to be appointed for its business or property, or
be adjudicated a bankrupt or an insolvent; or
(vii) Licensee does not commence in good faith to manufacture,
distribute and sell each of the Licensed Products and
utilize each character set forth in the Licensed
Property ("Character") throughout the Territory on or
before the Marketing Date and thereafter fails to
diligently and continuously manufacture, distribute and
sell each of the Licensed Products and utilize each
Character throughout the Territory. Such default and
Licensor's resultant right of termination (or recapture)
shall only apply to the specific Character(s) and/or the
specific Licensed Products, which or wherein Licensee
fails to meet said Marketing Date requirement. However,
License may cure such default as follows: upon receipt
of notice from Licensor that Licensee has failed to
manufacture, distribute and sell any Licensed Product,
within thirty days, Licensee shall submit to Licensor a
marketing plan for the manufacture, distribution and
sale of such product which shall provide for the product
to be manufactured, distributed and sold in a timely
fashion in accord with industry norms. If Licensee fails
to provide such marketing plan or thereafter fails to
materially meet the provisions of such plan, Licensor
shall recapture all rights to the specific Licensed
Product(s), which or wherein Licensee failed to meet the
requirements of this paragraph; or
(viii) Licensee shall manufacture, sell or distribute,
whichever first occurs, any of the Licensed Products
without the prior written approval of Licensor as
provided in Paragraph 9 hereof; or
(ix) Licensee undergoes a substantial change of management or
control. A substantial change of control is a nonpublic
offering sale of over 50% of the stock or assets of
Licensee to a person(s) not a member of the current
senior management or an entity(s) not controlled by
either Citicorp Venture Capital or its affiliates or by
one or more members of the current senior management of
Gerber Childrenswear, Inc. The sale of stock through a
public offering will not be considered a "substantial
change of control"; or
(x) A manufacturer approved pursuant to Paragraph 10(b)
hereof shall sell Licensed Products to parties other
than Licensee or engage in conduct, which conduct if
engaged in by Licensee would entitle Licensor to
terminate this Agreement; or
(xi) Licensee delivers or sells Licensed Products outside the
Territory or knowingly sells Licensed Products to a
third party who Licensee knows
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intends to, or who Licensee reasonably should suspect
intends to, sell or deliver such Licensed Products
outside the Territory; or
(xii) Licensee uses any labor that violates any local labor
laws and/or it uses prison, slave or child labor in
connection with the manufacture of the Licensed
Products; or
(xiii) Licensee has made a material misrepresentation or has
omitted to state a material fact necessary to make the
statements not misleading; or
(xiv) Licensee shall breach any other agreement in effect
between Licensee on the one hand and Licensor on the
other.
(b) In the event any of these defaults occur, Licensor shall give
notice of termination in writing to Licensee by facsimile and
certified mail. Licensee shall have twenty (20) days from the
date of giving notice, in which to correct any of these defaults
(except any defaults based on non-payment of monies to Licensor,
which must be cured within ten (10) days and defaults base on
subdivisions (vii), (viii), (xi) and (xiii) above which are not
curable), and failing such, this Agreement shall thereupon
immediately terminate, and any and all payments then or later
due from Licensee hereunder (including Guaranteed Consideration)
shall then be promptly due and payable in full and no portion of
those prior payments shall be repayable to Licensee.
(c) By Licensee: Licensee shall have the same right(s) to
termination of this Agreement as provided to Licensor under
this paragraph 14, upon the occurrence of any one or more of
the following events (herein called "defaults"):
i) If Licensor materially defaults in the performance
of any of its obligations provided for in this
Agreement; or
ii) If Licensor shall be unable to pay its debts when
due, or shall make any assignment for the benefit
of creditors, or shall file any petition under the
bankruptcy or insolvency laws of any jurisdiction,
county or place, or shall have or suffer a receiver
or trustee to be appointed for its business or
property, or be adjudicated a bankrupt or an
insolvent; or
iii) If WBCP shall breach any other agreement in effect
between it and Licensee.
(d) In the event any of these defaults occur, Licensee shall give
notice of termination in writing to Licensor by certified mail.
The Licensor shall have twenty (20) days from the date of
giving notice in which to correct any of these defaults, and
failing such, Licensee shall have the option to immediately
terminate this Agreement, in which event, Licensee's obligation
to make any further payments of Guaranteed Consideration
provided for in this Agreement shall also terminate and,
Licensee's rights shall thereafter be as set forth in Paragraph
15 hereof.
15. FINAL STATEMENT UPON TERMINATION OR EXPIRATION: Licensee shall deliver,
as soon as practicable, but not later than thirty (30) days following
expiration or termination of this Agreement, a statement indicating the
number and description
20
<PAGE> 21
of Licensed Products on hand together with a description of all
advertising and promotional materials relating thereto. Following
expiration or termination of this Agreement, Licensee shall immediately
cease any and all manufacturing of the Licensed Product. However, if
Licensee has complied with all the terms of this Agreement, including,
but not limited to, complete and timely payment of the Guaranteed
Consideration and Royalty Payments, then Licensee may continue to
distribute and sell its remaining inventory on anon-exclusive basis for
a period not to exceed one hundred eighty (180) days following such
termination or expiration (the "Sell-Off Period"), subject to payment of
applicable royalties thereto. In no event, however, may Licensee
distribute and sell during the Sell-Off Period an amount of Licensed
Products that exceeds the average amount of Licensed Products sold
during any consecutive one hundred eighty (180) day period during the
Term. In the event this Agreement is terminated by Licensor for any
reason under this Agreement, Licensee shall be deemed to have forfeited
its Sell-Off Period. If Licensee has any remaining inventory of the
Licensed Products following the Sell-Off Period, Licensee shall, at
Licensor's option, make available such inventory to Licensor for
purchase at or below cost, deliver up to Licensor for destruction said
remaining inventory or furnish to Licensor an affidavit attesting to the
destruction of said remaining inventory. Licensee shall, at Licensor's
option, deliver to Licensor at no charge all tooling, tooling aids and
other Artwork related to the Licensed Products, deliver up to Licensor
for destruction said tooling, tooling aids and other Artwork or furnish
to Licensor an affidavit attesting to the destruction of said tooling,
tooling aids and other Artwork. Licensor shall have the right to conduct
a physical inventory in order to ascertain or verify such inventory
and/or statement. In the event that Licensee refuses to permit Licensor
to conduct such physical inventory, Licensee shall forfeit its right to
the Sell-Off Period hereunder or any other rights to dispose of such
inventory. In addition to the forfeiture, Licensor shall have recourse
to all other legal remedies available to it.
16. NOTICES: Except as otherwise specifically provided herein, all notices
which either party hereto is required or may desire to give to the other
shall be given by addressing the same to the other at the address set
forth above, or at such other address as may be designated in writing by
any such party in a notice to the other given in the manner prescribed
in this paragraph. All such notices shall be sufficiently given when the
same shall be deposited so addressed, postage prepaid, in the United
States mail and/or transmitted via facsimile with receipt of a
confirming copy and/or when the same shall have been delivered, so
addressed, to, a. telegraph or cable company toll prepaid and the date
of said mailing or telegraphing shall be the date of the giving of such
notice.
17. NO PARTNERSHIP, ETC.: This Agreement does not constitute and shall not
be construed as constitution of a partnership or joint venture between
Licensor and Licensee. Neither party shall have any right to obligate or
bind the other party in any manner whatsoever, and nothing herein
contained shall give, or is intended to give, any rights of any kind to
any third persons.
18. NO SUBLICENSING/NON-ASSIGNABILITY: This Agreement shall bind and inure
to the benefit of Licensor, its successors and assigns. This Agreement
is personal to Licensee. Licensee shall not sublicense, franchise or
delegate to third parties its rights hereunder (except as set forth in
Paragraph 10(b) hereof). Neither this Agreement nor any of the rights of
Licensee hereunder shall be sold, transferred or assigned by
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<PAGE> 22
Licensee and no rights hereunder shall devolve by operation of law or
otherwise upon any receiver, liquidator, trustee or other party.
Notwithstanding the foregoing, Licensee shall be permitted to assign its
rights and obligations under this Agreement for collateral security
purposes to any lender providing financing to Licensee that is secured
by Licensee's inventory solely for purposes of permitting such lender to
dispose of such inventory in accordance with the terms hereof upon a
default by Licensee under any such financing.
19. CONSTRUCTION: This Agreement shall be construed in accordance with the
laws of the State of California of the united States of America without
regard to its conflicts of laws provisions.
20. WAIVER, MODIFICATION, ETC.: No waiver, modification or cancellation of
any term or condition of this Agreement shall be effective unless
executed in writing by the party charged therewith. No written waiver
shall excuse the performance of any acts other than those specifically
referred to therein. The fact that one party has not previously insisted
upon the other party expressly complying with any provision of this
Agreement shall not be deemed to be a waiver of the party's future right
to require compliance in respect thereof and each party specifically
acknowledges and agrees that the prior forbearance in respect of any
act, term or condition shall not prevent the other party from
subsequently requiring full and complete compliance thereafter. If any
term or provision of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction or any other
authority vested with jurisdiction, such holding shall not affect the
validity or enforceability of any other term or provision hereto and
this Agreement shall be interpreted and construed as if such term or
provision, to the extent the same shall have been held to be invalid,
illegal or unenforceable, had never been contained herein. Headings of
paragraphs herein are for convenience only and are without substantive
significance.
21. ACCEPTANCE BY LICENSOR: This instrument, when signed by Licensee, shall
be deemed an application for license and not a binding agreement unless
and until accepted by Warner Bros. Consumer Products by signature of a
duly authorized officer and the delivery of such a signed copy to
Licensee. The receipt and/or deposit by Warner. Bros. Consumer Products
of any check or other consideration given by Licensee and/or delivery of
any material by Warner Bros. Consumer Products to Licensee shall not be
deemed an acceptance by Warner Bros. Consumer Products of this
application. The foregoing shall apply to any documents relating to
renewals or modifications hereof.
This Agreement shall be of no force or effect unless and until it is
signed by all of the parties listed below:
AGREED AND ACCEPTED: AGREED AND ACCEPTED
LICENSOR: LICENSEE:
WARNER BROS. CONSUMER PRODUCTS, GERBER CHILDRENSWEAR, INC.
a Division of Time Warner
Entertainment Company L.P. on
behalf of itself and as Agent for
Warner Bros., a Division of Time
Warner Entertainment Company L.P.
By:/S/ Gary R. Simon By:/S/ Edward Kittredge
----------------------- ---------------------
Gary R. Simon Edward Kittredge
Vice President, Legal Affairs
Date: 12/3/98 Date: 11/18/98
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<PAGE> 23
EXHIBIT 1 #96394-BLT/WBLT
CHANNELS OF DISTRIBUTION
DEFINITIONS
LICENSEE MAY SELL THE LICENSED PRODUCTS ONLY THROUGH THE CHANNELS OF
DISTRIBUTION AS SPECIFIED ABOVE IN PARAGRAPH 1(a) OF THIS LICENSE AGREEMENT AND
AS SUCH CHANNELS ARE DEFINED IN THIS EXHIBIT 1. ALL OTHER CHANNELS OF
DISTRIBUTION DEFINED IN THIS EXHIBIT 1, WHICH ARE NOT SPECIFIED IN PARAGRAPH
1(A) ABOVE, ARE SPECIFICALLY EXCLUDED FROM THIS LICENSE AGREEMENT.
1. "AAFES" shall mean the U.S. Army and Airforce Exchange Service
headquarters as well as individual bases.
2. "Airport Gift Stores" shall mean gift stores located within airports,
excluding Duty-Free Stores. Examples of Airport Gift Stores include,
without limitation, Paradies and W.H. Smith.
3. "Amusement Game Redemption" shall mean distribution of products as
prizes awarded in amusement games.
4. "Amusement Park Gift Stores" shall mean gift stores located within
amusement parks, such as Six Flags, Paramount Parks, Universal Theme
Parks, Dollywood, Walt Disney World and Walt Disney Land.
5. "Art & Craft Stores" shall mean stores that offer for sale primarily art
and craft supplies. Examples of Art & Craft St6res include, without
limitation, AARON BROTHERS, LAST FRAME, MICHAELS and MICHAELS MJ
DESIGNS.
6. "Athletic Apparel & Footwear Stores" shall means stores that offer for
sale primarily athletic apparel and footwear. Examples of Athletic
Apparel & Footwear Stores include, without limitation, FOOTLOCKER,
ATHLETE'S FOOT and CHAMPS.
7. "Automotive/Carwash Stores" shall mean (a) stores that offer for sale
primarily automotive supplies, or (b) stores located at carwash or
gasoline station premises.
8. "Baby Specialty Stores" shall mean stores that offer for sale primarily
infant apparel, furniture, accessories and other products designed
specifically for babies. Examples of Baby Specialty Stores include,
without limitation, BABIES R US.
9. "Candy/Confectionery Specialty Stores" shall mean stores that offer for
sale primarily candy and confectionery products. Examples of
Candy/Confectionery specialty Stores include, without limitation, FAO
SCHWEETS, and THE SWEET FACTORY.
10. "CANEX" shall mean the Canadian Forces Exchange Service headquarters as
well as individual bases.
11. "Catalog Showrooms" shall mean stores that offer a broad assortment of
products for sale primarily through a catalog along with display of
samples of products in a showroom. Examples of Catalog Showrooms
include, without limitation, SERVICE MERCHANDISE.
12. "Chain Book Stores" shall mean chain stores (containing twenty (20)or
more individual stores) that offer for sale primarily books. Examples of
Chain Book Stores include, without limitation, B. DALTON, SUPERCROWN,
WALDEN BOOKS, AND BRENTANO'S.
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13. "Chain Comic Book Stores" shall mean chain stores (containing twenty
(20) or more individual stores) that offer for sale primarily comic
books.
14. "Chain Drug Stores" shall mean chain stores (containing twenty
(20) or more individual stores) that offer for sale primarily
prescription and over-the-counter drugs, personal care products and
household products. Examples of Chain Drug Stores include, without
limitation, WALGREENS, RITE-AIDE, THRIFTY/PAYLESS, C.V.S./REVCO, THRIFT
DRUG, PHAR MOR, and LONGS DRUGS.
15. "Chain Jewelry Stores" shall mean chain stores (containing twenty (20)
or more individual stores) that offer for sale primarily jewelry. Chain
Jewelry Stores shall specifically exclude Guild Jewelers (as defined
below). Examples of Chain Jewelry Stores include, without limitation,
STERLING, BARRY'S, LIPMAN'S and HELLSBURG.
16. "Chain Toy Stores" shall mean chain stores (containing twenty (20) or
more individual stores) that offer for sale primarily toys. In order to
be considered a "Toy Store" hereunder, the total number of toy-type
SKU's (stock-keeping units) must represent eighty percent (80%) or more
of such store's total SKU's.
Examples of Chain Toy Stores include, without limitation, TOYS R US.
17. "Coffee Specialty Stores" shall mean stores that offer for sale
primarily specialty coffee and related products, such as coffee mugs.
Examples of Coffee Specialty Stores include, without limitation,
STARBUCKS, BUZZ COFFEE, GLORIA JEANS and THE COFFEE BEANERY.
18. "College/University Stores" shall mean stores located on the campuses of
colleges or universities.
19. "Computer Specialty Stores" shall mean stores that offer for sale
primarily computer equipment and supplies. Examples of Computer
Specialty Stores include, without limitation, COUP USA.
20. "Convenience Stores" shall mean stores that offer for sale primarily
packaged and "quick service" food products, are generally open 24 hours
a day, and are designed to offer greater convenience than larger
Supermarket/Grocery Stores. Examples of Convenience Stores include,
without limitation, 7-11, AM/PM, DAIRY MART and CIRCLE K.
21. "Dental/Medical Profession" shall mean institutions or offices that
provide dental or medical services, such as hospitals or doctors
offices.
22. "Direct Mail Catalogs" shall mean catalogs that offer. products for sale
and are mailed directly to consumers homes. The "Direct Mail Catalogs"
channel shall specifically exclude catalogs for fundraising purposes
which shall be included in the "Fundraising" channel defined below.
Examples of Direct Mail Catalogs include, without limitation, SPEIGEL,
HEARTH & HOME, DOMESTICATIONS, TAPESTRY, COMPANY STORE, HAMMACHER
SCHLEMMER, FINGERHUT, AMWAY, AND LILLIAN VERNON.
If Licensor grants to Licensee the right to distribute Licensed Products
through any Direct Mail Catalogs: (a) each such catalog shall be
specified in the Channels of Distribution set forth in the License
Agreement or otherwise expressly approved in writing by Licensor, and
(b) each such catalog depicting or referring to the Licensed Products or
the Licensed Property must be submitted to Licensor for prior written
approval in accordance with Licensor's Brand Assurance
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policies and procedures.
23. "Door-to-Door Solicitation" shall mean offering products for sale
through personal visits by salespersons to consumers' homes.
24. "Duty-Free Stores" shall mean stores usually located in airports, which
offer products for sale to international travelers free of taxes and
duties. If Licensor grants to Licensee the right to distribute products
through Duty-Free Stores, such channels of distribution (like all other
channels of distribution granted) shall be limited to those stores
located within the Territory.
25. "Educational Institutions" shall mean offering products (generally
books) for sale to public or private schools or other educational
institutions. Examples of Educational Institutions include, without
limitation, the Los Angeles County School District.
26. "Educational Specialty Stores" shall mean stores that offer for sale
primarily educational products. Examples of Educational Specialty Stores
include, without limitation, IMAGINARIUM and NATURE COMPANY.
27. "Electronics Stores" shall mean stores that offer for sale primarily
electronic products. Examples of Electronics Stores include, without
limitation, CIRCUIT CITY, FRY'S, and BEST BUY.
28. "Fashion Accessory Stores" shall mean stores that offer for sale
primarily costume jewelry, hair accessories and other fashion
accessories. Examples of Fashion Accessory Stores include, without
limitation, CLAIRE'S BOUTIQUE, AFTERTHOUGHTS, IT'S ABOUT TIME AND
PIERCING PAGODA.
29. "Florists" shall mean stores or companies that offer for sale primarily
flowers. Examples of Florists include, without limitation, CONROY'S,
FTD, AND 1-8OO-FLOWERS.
30. "Fundraising" shall mean offering products for sale through
catalogs, direct mail brochures, prize programs and in-school sales,
which are used by schools and charitable, religious or other
organizations to raise funds. Examples of Fundraising companies include,
without limitation, GIFTCO, SPRINGWATER, and DARLINGTON FARMS.
31. "Garden Specialty Stores" shall mean stores that offer for sale
primarily garden supplies and plants. Examples of Garden Specialty
Stores include, without limitation, ARMSTRONG'S, CALLAWAY'S, AND WOLF
NURSERIES.
32. "Gift Retailers" shall mean stores that (a) offer products for sale that
are in somewhat related product categories and are known as "gifts" in
the trade, which products generally are classified in the trade as
"better" quality and are higher priced (as compared to National and
Regional Discount/Mass Retailers' products), (b) do not usually discount
merchandise or sell it at greatly reduced prices, (c) usually focus more
on aesthetics in merchandise displays than on price, and (d) generally
require individual store servicing by suppliers in merchandise set-up,
display, SKU maintenance and reordering. Suppliers to Gift Retailers
typically advertise in trade publications, such as "Gift & Stationery
Business", "Giftware News" and "Gifts & Decorative Accessories".
Suppliers to Gift Retailers usually include companies such as Enesco,
Midwest of Cannon Falls, New Creative Enterprises, Dale Tiffany, Pacific
Rim, Ande Rooney, Waterford, GiftCraft, Carson Industries, Possible
Dreams, Lenox, Department 56, Lefton, Swarovski and Flambro.
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<PAGE> 26
Gift Retailers shall specifically exclude Novelty Gift Stores (as
defined below).
33. "Gourmet Food Specialtv Stores" shall mean stores that offer for sale
primarily gourmet and specialty food products. Examples of Gourmet Food
Specialty Stores include, without limitation, BRISTOL FARMS, WHOLE Foods
and GELSONS.
34. "Greeting Card Stores" shall mean stores that offer for sale primarily
greeting cards. Examples of Greeting Card Stores include, without
limitation, HALLMARK.
35. "Guild Jewelers" shall mean stores that offer for sale primarily fine
jewelry which is generally classified in the trade as "best" or
"highest" quality. Examples of Guild Jewelers include, without
limitation, MAYERS, ROGERS, and BIALY BANKS & BIDE.
36. "Hobby & Model Stores" shall mean stores that offer for sale primarily
hobby and model supplies.
37. "Home Improvement Stores" shall mean stores that offer for sale
primarily hardware and home improvement supplies. Examples of Home
Improvement Stores include, without limitation, HOME DEPOT, OSH, HOME
BASE, and LOVES.
38. "Home Specialty Stores" shall mean stores that offer for sale primarily
bedding, towels and other bathroom products, kitchen merchandise and
housewares. Examples of Home Specialty Stores include, without
limitation, STROUDS, LINENS 'N' THINGS, 3D BED & BATH, BED/BATH/BEYOND,
AND LUXURY LINENS.
39. "Internet" shall mean offering products for sale through the electronic
network known as the Internet.
40. "Mall Clothing Specialty Stores" shall mean stores that offer for sale
primarily clothing and are located within a mall. Examples of Mall
Clothing Specialty Stores include, without limitation, MILLERS OUTPOST
and WET SEAL.
41 "Mid-Tier Department Stores" shall mean stores that offer products for
sale in a broad assortment of unrelated product categories, which
products are generally classified in the trade as "better" (but not
"best") quality products. Examples of Mid-Tier Department Stores
include, without limitation, J.C. PENNEY, SEARS, MERVYN'S, STEINMART,
KOHLS, FRED MEYER AND MONTGOMERY WARDS.
42. "Music/Video Stores" shall mean stores that offer for sale primarily
musical recordings, on compact discs, cassettes or other media, and/or
movie recordings on videos, laser disks or other media for home use by
consumers. Examples of Music/Video Stores include, without limitation,
BLOCKBUSTER, MUSICLAND, TOWER RECORDS, VIRGIN RECORDS, WAREHOUSE
RECORDS, SAM GOODY'S, AND SUNCOAST.
43. "National Discount/Mass Retailers" shall mean stores that (a) have
nation-wide distribution, (b) offer products for sale in a broad
assortment of unrelated product categories, which products generally are
not classified in the trade as "better/best" quality products, (c) are
usually "self-service" with more of an emphasis on price than
aesthetics, and (d) generally do not require individual store servicing
by suppliers. Suppliers to National Discount/Mass Retailers typically
advertise in trade publications, such as "Discount Store News" and
"Discount Merchandiser", and usually attend the IMRA (International Mass
Retailer Association) trade show. Examples of National Discount/Mass
Retailers include, without limitation, WAL-MART, K-MART, TARGET, AND
ZELLERS.
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44. "Non-Chain Book Stores" shall mean stores or groups of stores
(containing fewer than twenty (20) individual stores) that offer for
sale primarily books.
45. "Non-Chain Comic Book Stores" shall mean stores or groups of stores
(containing fewer than twenty (20) individual stores) that offer for
sale primarily comic books.
46. "Non-Chain Drug Stores" shall mean stores or groups of stores
(containing fewer than twenty (20) individual stores) that offer for
sale primarily prescription and over-the-counter drugs, personal care
products and household products.
47. "Non-Chain Jewelry Stores" shall mean stores or groups of stores
(containing fewer than twenty (20) individual stores) that offer for
sale primarily jewelry. Non-Chain Jewelry Stores shall specifically
exclude Guild Jewelers (as defined above).
48. "Non-Chain Toy Stores" shall mean stores or groups of stores (containing
fewer than twenty ~20) individual stores) that offer for sale primarily
toys. In order to be considered a "Toy Store" hereunder, the total
number of toy-type SKU's must represent eighty percent (80%) or more of
such store's total SKU's. Examples of Non-Chain Toy Stores include,
without limitation, Talbot's Toyland and Tons of Toys, Inc.
49. "Non-Mall Clothing Specialty Stores" shall mean stores that offer for
sale primarily clothing and are not located within a mall. Examples of
Non-Mall Clothing Specialty Stores include, without limitation, KIDS
MART, KID. R US, CLOTHESTIME AND FASHION BUG.
50. "Novelty Gift Stores" shall mean stores that offer for sale primarily
novelty gift items. Examples of Novelty Gift Stores include, without
limitation, SPENCER'S.
51. "Off-Price/Closeout Stores" shall mean stores that offer for sale
primarily discounted apparel and other merchandise. Examples of
Off-Price/Closeout Stores include, without limitation, MARSHALL'S, T.J.
MAXX, ROSS FOR LESS, HIT OR MISS and TUESDAY MORNING.
52. "Office Specialty Stores" shall mean stores that offer for sale
primarily office supplies. Examples of Office Specialty Stores include,
without limitation, OFFICE DEPOT, STAPLES, and OFFICE MAX.
53 "Outlet Stores" shall mean stores that offer for sale primarily
discounted merchandise of a particular manufacturer or retailer.
54. "Party Stores" shall mean stores that offer for sale primarily party
supplies. Examples of Party Stores include, without limitation, PARTY
CITY and PARTY WORLD.
55. "Pet Stores" shall mean stores that offer for sale primarily pet
supplies. Examples of Pet Stores include, without limitation, PETCO and
PetSmart.
56. "Regional Discount/Mass Retailers" shall mean stores that (a) have
regional distribution, (b) generally offer products for sale in a broad
assortment of unrelated product categories, which products generally are
not classified in the trade as "better/best" quality products, (c) are
usually "self-service" with more of an emphasis on price than
aesthetics1 and (d) generally do not require individual store servicing
by suppliers. Suppliers to Regional Discount/Mass Retailers typically
advertise in trade publications, such as "Discount
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<PAGE> 28
Store News" and "Discount Merchandiser", and usually attend the IMRA
(International Mass Retailer Association) trade show. Examples of
Regional Discount/Mass Retailers include, without limitation, MEIJERS,
CALDOR, AMES, BRADLEES, HILL'S, ROSE'S, VENTURE, AND SHOPKO.
57. School Book Clubs/Fairs" shall mean offering products for sale through
book catalogs distributed to teachers and students at public or private
schools (usually elementary or high school) or through book fairs
conducted on the premises of such schools. Examples of School Book
Clubs/Fairs include, without limitation, TROLL BOOK CLUB and SCHOLASTIC
BOOK FAIR.
58. "Souvenir Stores" shall mean stores that offer for sale primarily
souvenirs.
59. "Sporting Good Stores" shall mean stores that offer for sale primarily
sporting goods, equipment, athletic apparel, and other merchandise that
reflects a sports theme. Examples of sporting Good Stores include,
without limitation, BIG 5 and SPORTS CHALET.
60. "Sports Stadium Shops" shall mean concessionaire shops located within
stadiums or arenas where sporting events are held.
61. "Stationery Stores" shall mean stores that offer for sale primarily
stationery. Examples of Stationery Stores include, without limitation,
Farr's Stationaires.
62. "Street Peddlers" shall mean individual merchants who offer products for
sale in stands, booths or other non-permanent structures usually located
on the sidewalk and designed to attract passing pedestrians.
63. "Supermarket/Grocery Stores" shall mean stores that offer for sale
primarily packaged food products. Supermarket/Grocery Stores shall
specifically exclude Gourmet Food specialty Stores (as defined above)
and Convenience Stores (as defined above). Examples of
Supermarket/Grocery Stores include, without limitation, KROGER, SAFEWAY,
AMERICAN STORES, ALBERTSON'S, WINN DIXIE, FOOD LION, VON'S, FINAST,
RALPHS and MARSH.
64. "Swap Meets/Flea Markets" shall mean offering products for sale through
organized events known as swap meets or flea markets, which involve a
group of vendors offering for sale a variety of products, often
collectibles or antiques.
65. "Television Home Shopping" shall mean offering products for sale through
cable and broadcast television, including infomercials, QVC and Home
Shopping Network. Television Home Shopping shall specifically exclude
sales through the Internet, CD-Interactive and other electronic media.
66. "Toy Wholesalers" shall mean companies that offer for sale primarily
toys to retail stores. In order to be considered a "Toy Wholesaler"
hereunder, the total number of toy-type SKU's must represent eighty
percent (80%) or more of such wholesaler's total SKU's.
67. "Trackside - CART" shall mean offering products for sale at races
organized and sponsored by Championship Auto Racing Teams.
68. "Trackside - NASCAR" shall mean offering products for sale at races
organized and sponsored by the National Association for Stock Car
Racing.
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69. "Trackside - NHRA" shall mean offering products for sale at races
organized and sponsored by the National Hot Rod Association.
70. "Upstairs Department Stores" shall mean stores that (a) offer products
for sale in a broad assortment of unrelated product categories, which
products are generally classified in the trade as "best" quality
products, and (b) offer a high level of customer service with a strong
emphasis on store aesthetics. Examples of Upstairs Department Stores
include, without limitation, BLOOMINGDALE'S, MACY'S, NORDSTROM'S, MAY
DEPARTMENT STORES, SAKS FIFTH AVENUE, NEIMAN MARCUS, and DILLARDS
71. "Warehouse Clubs" shall mean stores that offer for sale products in
large sizes and quantities with more of an emphasis on price than
service or store aesthetics. Examples of Warehouse Clubs include,
without limitation, Sam's Club and Price Costco.
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EXHIBIT 2 #96394-BLT/WBLT
CONTRIBUTOR'S AGREEMENT
I, _________________________the undersigned ("Contributor"), have been engaged
by Gerber Childrenswear, Inc. ("Licensee") to work on or contribute to the
creation of Licensed Products, described as ____________________by Licensee
under an agreement between Licensee and Warner Bros., a division of Time Warner
Entertainment Company L.P., c/o Warner Bros. Consumer Products, a division of
Time Warner Entertainment Company L.P. ("Warner") dated ________________.
I understand and agree that all artwork which includes any Licensed Property of
Warner Bros. ("Work") and which results from my services for Licensee in
connection with such Licensed Products is a "work made for hire" for Licensor
and that all right, title and interest in and to the Work shall vest and remain
with Licensor. I reserve no rights therein. Without limiting the foregoing, I
hereby assign and transfer to Licensor all other rights whatsoever, in
perpetuity throughout the universe which I may have or which may arise in me or
in connection with the Work. I hereby waive all moral rights in connection with
such Work together with any other rights which are not capable of assignment. I
further agree to execute any further documentation relating to such transfer or
waiver or relating to such Work at the request of Licensor or Licensee, failing
which Licensor is authorized to execute same as my Attorney-in-Fact.
Contributor:
By:_____________________________
Date:___________________________
Warner Bros. Consumer Products:
By:_____________________________
Date:___________________________
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EXHIBIT 3 #96394-BLT/WBLT
Warner Bros. Consumer Products
4000 Warner Boulevard
Burbank, CA 91522
Re: Approval of Third Party Manufacturer
Gentlemen:
This letter will serve as notice to you that pursuant to Paragraph 10(b)
of the License Agreement dated ________ 199_ between WARNER BROS., A DIVISION OF
TIME WARNER ENTERTAINMENT COMPANY L.P. and GERBER CHILDRENSWEAR, INC.
("Licensee), we have been engaged as the manufacturer for Licensee in connection
with the manufacture of the Licensed Products as defined in the aforesaid
License Agreement. We hereby acknowledge that we may not manufacture Licensed
Products for, or sell or distribute Licensed Products to, anyone other than
Licensee. We hereby further acknowledge that we have received a copy and are
cognizant of the terms and conditions set forth in said License Agreement and
hereby agree to observe those provisions of said License Agreement which are
applicable to our function as manufacturer of the Licensed Products. It is
expressly understood that we are obligated to comply with all local laws,
including without limitation, labor laws, wage and hour laws and
anti-discrimination laws and that you or your representatives shall, at anytime,
have the right to inspect our facilities and review our records to ensure
compliance therewith. It is understood that this engagement is on a royalty free
basis and that we may not subcontract any of our work without your prior written
approval.
We understand that our engagement as the manufacturer for Licensee is
subject to your written approval. We request, therefore, that you sign in the
space below, thereby showing your acceptance of our engagement as aforesaid.
Very truly yours,
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manufacturer/company name
By: /s/Edward Kittredge
----------------------------
signature
Edward Kittredge
----------------------------
print name
----------------------------
address
----------------------------
----------------------------
country
----------------------------
date
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product(s) manufacturing
AGREED TO AND ACCEPTED:
WARNER BROS. CONSUMER PRODUCTS,
A Division of Time Warner
Entertainment Company L.P.
By: _____________________________
Gary R. Simon
Vice President, Legal Affairs
Date:_____________________________
31
<PAGE> 1
AGREEMENT OF LEASE, made as of this day of , 1999 between
1333 Broadway Associates, a partnership having offices in care of Helmsly-Spear,
Inc. party of the first part, hereinafter referred to as "Landlord" or "Lessor",
and
GERBER CHILDRENSWEAR, 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 seventh floor, as more particularly shown on the plan
annexed hereto and made a apart hereof. In the building known as 1333 Broadway
in the Borough of Manhattan, City of New York, for the term of 7 years 1 month
(or until such term shall sooner cease and expire as hereinafter provided) to
commence on the 1st day of April, 1999 and to end on the 30th day of April,
2006, both dates inclusive, at an annual rent of $472,905.00 for the period
April 1, 1999 - April 30, 2001, $514,941.00 for the period May 1, 2001 - April
30, 2003 and $556,977.00 for the period May 1, 2003 - April 30, 2006, 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 $ * 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 to the premises [See Insert (1)].
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 [See Insert (2)] 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, [See Insert (3)] 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 rent then due. For the non-
<PAGE> 2
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 a showroom
and office for the sale, at wholesale only, and display of children's wear1ng
apparel and also for preteens, junior, young Then, young women and other wearing
apparel and related merchandise and/or as an office 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.
* $39,408.75 for the period April 1, 1999 - April 30, 2001,
$42,911.75 for the period May 1, 2001 - April 30, 2003, and
$46,414.74 for the period May 1, 2003 - April 30, 2006
REQUIREMENTS OF LAW
FIFTH:- [See Insert (3a)]
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.
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
alterations 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 condition or which may,
in law, constitute a nuisance, public or private, and as not to make void or
voidable any insurance applicable to the
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building, under penalty of damages and forfeiture.
SAFETY PRECAUTIONS
EIGHTH:-Tenant shall not at any time allow smoking on any part of the
premises where stock is stored. Tenant shall store all silk and other textiles
in steel bins or shelving, the bottoms of which shall be at least six inches
above the floor, and the tops of which shall extend at least three inches and
shall have drip points so as to shed water from the goods. No shelving bins
shall be installed without Landlord's prior written consent. Tenant shall make
all floors water-tight by painting or covering them with linoleum or other
water-tight floor covering, Where cleaning fluid is used, it shall be
non-inflammable. Tenant shall use no cleaning fluid not approved in writing by
Landlord. Tenant will not permit the accumulation of waste or refuse matter on
the premises.
TENANT TO KEEP INSURANCE RATE LOW
NINTH:-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, 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 including, but not limited to, the mere use to which Tenant
puts the premises, 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 such
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. That the premises are being used for the
purpose set forth herein shall not relieve Tenant from the foregoing duties,
obligation and expenses.
TENTH:-(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 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
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<PAGE> 4
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 three (3) days of such underletting, furnish
Landlord with a duplicate original of such underlease and shall, on demand of
Landlord, supply Landlord within three (3) days of such demand, a written list
of all such undertenants, the terms, including expiration dates of their
under-tenants 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
ELEVENTH:-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
TWELFTH:-(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 [See Insert (4)] approved by Landlord, and subject
to plans and specifications approved by Landlord. [See Insert (4a)] work
alterations, decorations, installations, additions or improvements shall be done
at Tenant's sole expense and at such times and in such manner as Landlord may
from lime to time [See Insert (5)] 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, unless Landlord elects
otherwise [See Insert (6)] 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. In the event Landlord shall elect
otherwise, then such alterations, installations, additions or improvements made
by Tenant upon
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<PAGE> 5
the demised premises as the Landlord shall select, shall be removed by Tenant at
Tenant's sole cost and expense. 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
[See Insert (7)]
REPAIRS
THIRTEENTH:- Tenant shall take good care of the demised premises and the
fixtures and appurtenances therein, and at its sole cost and expense make all
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 pan or
to its fixtures, appurtenances and equipment [See Insert (8)] 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 [ See Insert (9) ] 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.
LANDLORD'S LIABILITY, ALTERATIONS OR REPAIRS
FOURTEENTH:-(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
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 system when
necessary, by reason of accident, or emergency, or for repairs, alterations,
replacements or improvements, in the [ See Insert (10)] judgment of Landlord
desirable or necessary to be made, until said repairs, alterations, replacements
or improvements shall have been completed.
EMPLOYMENT OF UNION LABOR TO MAKE ALTERATIONS AND REPAIRS
FIFTEENTH:-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 therefore, only such labor under agreement with the
Building Trades Employers' Association of New York
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<PAGE> 6
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
SIXTEENTH:-(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 [See Insert (11)], 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 materialman 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 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
SEVENTEENTH:-Tenant will not, without Landlord-s written consent,[See Inset
(11a)] 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. [See Insert (11b)]
MISCELLANEOUS PROHIBITED ACTIONS OF TENANT
EIGHTEENTH:-(a) Tenant will not cause or permit any connection to be made
to the wiring on the electrical panel boards of the building without the prior
written consent and supervision of Landlord.
(b) Tenant agrees that it will not drive nails in, drill in, disfigure or
deface any part of the building nor suffer the same to be done, nor cause or
permit the floors, walls, doors or ceilings of the demised premises to be
drilled, hammered, pounded or otherwise dealt with in a noisy or disturbing
manner at any time during customary business hours (i.e. between 9:00 A.M. and
5:00 P.M.) whether or not such activities are incidental to or part of work to
which Landlord has consented. [See Insert (11c)]
(c) Tenant shall not install any pressing equipment, whether connected to
Tenant's gas-flied boiler or to the building steam system, without first having
plans and specifications approved by Landlord.
The vacuum used by pressing machines for the dying of garments shall be
created by an electrically driven vacuum pump. Tenant shall not use any
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<PAGE> 7
vacuum created by the use of steam from a gas-fired boiler or from the building
steam system.
(d)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.
(e) Tenant shall not make any electrical or plumbing installation without
Landlord's prior written consent. All water lines must be installed in red
brass.
(f) Window air-conditioning units shall in no event be installed without
Landlords' prior written approval or be mounted so as to extend outward beyond
the line of the window frame.
(g)Tenant shall install no linoleum, rubber, mastic or vinyl tile floor
covering, unless it is laid over a layer of felt, double cemented in the manner
approved by Landlord.
(h) 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 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.
(i)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.
(j)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 Landlord, and shall employ such exterminators and such
exterminating company or companies as shall be [See Insert (12)]
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approved by Landlord.
(k) 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.
(l) 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 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 in the lobbies, foyers, passage-ways or other
spaces adjacent to the premises herein demised, nor shall Tenant place the
rubbish (which is to be taken by the waste remover) in the said areas prior to
5:00 P.M.
(m) 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, further, to remove all ice and snow from the sidewalks
immediately in front of the demised premises.
(n) Tenant will not suffer, permit or allow unusual or objectionable odors
to be produced upon or permeate from the demised premises.
WINDOW CLEANING
NINETEENTH:-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 or the Board of Standards and
Appeals, or of any other board or body having or asserting jurisdiction.
NOTICE OF DAMAGE TO PIPES, OF FIRE
TWENTIETH:-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
TWENTY-FIRST:-Tenant shall permit Landlord to erect, use and maintain,
pipes and conduits in and through the demised premises[See Insert (13)].
Landlord or Landlord's agents shall have the right to enter the demised premises
at all [See Insert (14)] 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 toss 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 [See
Insert (15)] exhibit the premises to prospective tenants or purchasers. 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
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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 agents 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 therefore,
to change the arrangement and/or location of entrances or passageways, doors and
doorways, and corridors, elevators, stairs, 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-SECOND:-See Rider
WATER SEWER RENTS
TWENTY-THIRD:- (a) [See Insert (16)] installs a water meter to measure
Tenant's water consumption for all purposes, Tenant shall pay Landlord for the
cost of the meter and the cost of the installation thereof and throughout the
duration of Tenant's occupancy Tenant shall keep said meter and installation
equipment in good working order and repair at Tenant's own cost and expense, in
default of which Landlord may cause such meter and equipment to be replaced or
repaired and collect the cost thereof from Tenant. 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 [See Insert (17)] 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.
(d) The bill rendered by Landlord for metered water, sewer or any other
charges provided for in this paragraph "23," shall be based upon Tenant's
consumption and shall be payable by Tenant as additional rent. Any such [See
Insert (18)] 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 collectible 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, $250.00 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
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paid by Tenant or paid by Landlord for any of the reasons or purposes
hereinabove set forth.
SPRINKLER
TWENTY-FOURTH:- If the sprinkler system or any of its appliances shall be
damaged or injured or not in proper working order by reason of any [See Insert
(19)] 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 $250.00 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. [See Insert (20)]
AIR CONDITIONING
TWENTY-FIFTH:-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 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. The
non-functioning or defective functioning of said air conditioning system, or
Tenant's inability to operate or maintain the same incompliance with lawful
requirements, 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.
ELEVATOR
TWENTY-SIXTH:- (a) As long as Tenant is not in default under any of the
covenants of this lease, Landlord shall provide at least one (1) passenger
elevator 24 hours per day, 7 days per week.
(b) If the building of which the demised premises are a part supplies
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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-SEVENTH:-Landlord will: (a) Furnish heat to the demised premise 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.
REQUIRED ALTERATIONS MACHINERY
TWENTY-EIGHTH:-It is expressly agreed that if in consequence of the use of
the demised premises for manufacturing purposes any Municipal or State Authority
requires alterations and additions to such premises or the building of which
they are a part, Landlord, in addition to other remedies provided for in this
lease, shall have the option of terminating this lease on sixty (60) days
written notice to Tenant. Upon expiration of said sixty (60) days, the term of
this lease shall terminate, and Tenant shall immediately vacate the premises. In
such event, Landlord shall refund to Tenant the unearned pro rata portion of any
rent paid in advance. Landlord reserves the privilege of complying with any
order, rule or regulation as aforementioned in order to remove such violation,
if any. In such event, Tenant waives any and all claims for damages growing out
of the work in the building or on the premises in connection therewith. In the
event that the violation can be removed by Tenant's limiting the number of
employees in the demised premises, Tenant shall so limit the number of employees
immediately and no claim for damages or any loss may be made against Landlord
therefor.
FIXTURES & PARTITIONS INSTALLED BY LANDLORD
TWENTY-NINTH:-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.
VAULTS
THIRTIETH:-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
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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
THIRTY-FIRST:-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 [See Insert (20a)]
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 defect 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
THIRTY-SECOND:-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 [See Insert (21)] 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 occasioned in whole or
part by [See Insert (21a)] acts, omission or omissions of Tenant, its employees,
guests, agents, assigns or undertenants [See Insert (22)].
LIABILITY OF LANDLORD, SERVICE INTERRUPTION, ACTS BEYOND CONTROL
THIRTY-THIRD:-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 Landlords 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 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 any 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, materials 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 remedies under or with
respect to this lease, the
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relationship of Landlord and Tenant hereunder, or Lessee's use and occupancy of
the demised premises or any other liability of Lessor to Lessee (except for
negligence).
SUBORDINATION
THIRTY-FOURTH:-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 [See
Insert (23)] promptly execute, acknowledge and deliver such further instruments
or certificates that Landlord may request. 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 lease, 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
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-FIFTH:-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 cease [See Insert (24)]: but if
the damage be so extensive as to render all of the demised premises
untenantable, the rent shall [See Insert (25)] cease until they be repaired,
provided the damage be not caused by the [See Insert (26)] 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
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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 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 [See Insert (27)].
CONDEMNATION
THIRTY-SIXTH:-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 [See Insert (28)].
BANKRUPTCY
THIRTY-SEVENTH:-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 II 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 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 [See Insert (29)] 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 event, neither Tenant
nor any person claiming through or under Tenant or by virtue of any statute 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 [See Insert (30)] days thereof Tenant
fails to secure a discharge thereof, or if Tenant makes an assignment for the
benefit of creditors or petition
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for or enter into an arrangement, this lease, at the option of Landlord,
exercised within a reasonable time after notice or 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 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.
(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.
SECURITY
THIRTY-EIGHTH:-Deleted
DEFAULT
THIRTY-NINTH:-(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 [See Insert (31)] days' notice upon Tenant specifying the nature of said
default and upon the expiration of said [See Insert (31)] 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 a nature that the same cannot be
completely cured or remedied within said [See Insert (31)] days period, and if
Tenant shall not have diligently commenced curing such default within such [See
Insert (31)] 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 [See Insert (32)] days' notice of cancellation of this lease upon
Tenant, and upon the expiration of said [See Insert (32)] days, this lease and
the term thereunder shall end and expire as fully and completely as if the date
of expiration of such [See Insert (32)] 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
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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 reserved herein or any item of additional 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;
or (4) if Tenant shall fail to move into or take possession of the premises
within [See Insert (34)] of which fact Landlord shall be the sole judge; then
and in any or such events Landlord may without notice, reenter 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 [See Insert (35)] 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 demised premises, then this lease shall, at the option of Landlord, be
terminated, but Tenant shall nevertheless remain liable as hereinbefore
provided.
REMEDIES OF LANDLORD
FORTIETH:-In case of any such default, re-entry, expiration and/or
dispossess by summary proceedings or otherwise, (a) the rent and additional rent
shall become due thereupon and be paid up to the time of such reentry,
dispossess and/or expiration, 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 relettings, 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
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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 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. 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
FORTY-FIRST:-DELETED
WAIVER OF TRIAL BY JURY
FORTY-SECOND:-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 interpose
any counterclaim of any nature in any summary proceeding [See Insert (35a)]. 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.
WAIVER OF REDEMPTION
FORTY-THIRD:-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 by Tenant
of any of the covenants and conditions of this lease, or otherwise.
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NO WAIVER
FORTY-FOURTH:-(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 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, 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 or 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. 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
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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-FIFTH:-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-SIXTH-Landlord shall replace, at the expense of Tenant, [See Insert
(35b)] any and all plate and other glass damaged or broken from any cause
whatsoever in and about the demised premises. Landlord may insure, and keep
insured, at Tenant's expense, all plate and other glass in the demised premises
for and in the name of Landlord. Bills for the premiums therefor shall be
rendered by Landlord to Tenant at such times as Landlord may elect, and shall be
due from, and payable by, Tenant when rendered, and the amount thereof shall be
deemed to be, and be paid as, additional rent.
ADJACENT EXCAVATION-SHORING
FORTY-SEVENTH:-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 [See Insert (36)] 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-EIGHTH:-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, [See Insert (37)].
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 [See Insert (38)].
QUIET ENJOYMENT
FORTY-NINTH:-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
FIFTIETH:-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 the term of this Lease. Lessee agrees it
shall indemnify and save Lessor harmless against costs, claims, loss or
liability resulting from delay by Lessee in so
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surrendering the demised premises, including, without limitation, any claims
made by any 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 [See Insert (40)] times 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.
FAILURE TO GIVE POSSESSION
FIFTY-FIRST:-If Landlord shall be unable to give possession of the demised
premises on the date of the commencement of the term hereof for any reason.
Landlord shall not be subject to any liability. Under such circumstances, the
rent reserved and covenanted to be paid herein shall not commence until the
possession of demised premises is given or the premises are available for
occupancy by Tenant, and no such failure to give possession on the date of
commencement of the term shall in any wise affect the validity of this lease or
the obligations of Tenant hereunder, nor shall same be construed in any wise to
extend the term of this lease. If Landlord is unable to give possession of the
demised premises on the date of the commencement of the term hereof by reason of
the holding over or retention of possession of any tenant, tenants or occupants
or for any other reason, or if repairs, improvements or decorations of the
demised premises or of the building of which said premises form a part, are not
completed, no abatement or diminution of the rent to be paid hereunder shall be
allowed to Tenant nor shall the validity of the lease be impaired under such
circumstances. If permission is given to Tenant to enter into the possession of
the demised premises or to occupy premises other than the demised premises prior
to the date specified as the commencement of the term of this lease. Tenant
covenants and agrees that such occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this lease, except as to the
covenant to pay rent. In either case rent shall commence on the date specified
in this lease.
REPRESENTATIONS
FIFTY-SECOND:-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 pan were in
good and satisfactory condition at the time such possession was so taken.
RENT CONTROL
FIFTY-THIRD:-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
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option, may at any time thereafter terminate this lease, by not less than [See
Insert (41)] days written notice to Lessee, on a date set forth in said notice,
in which event this lease and the term 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 [See Insert
(41)] 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-FOURTH:-The covenants, conditions and agreements contained in this
lease shall bind and inure 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-FIFTH:-Except as may be 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 [See Insert (41a)].
DEFINITIONS
FIFTY-SIXTH:-(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 the 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 he 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 this 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 as modified and
stating the modifications) and the dates to which the rent and other charges
have been paid and stating whether or not 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
FIFTY-SEVENTH:-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:
(a) Definition: For the purposes of this Article, the following definitions
shall apply:
(i) The term "Base Year" shall mean the full calendar year during which the
term of this lease commences.
(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, N.Y.-Northeastern, N.J., 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 An 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 such 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.
(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
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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 patties 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 lO5.0, then the percentage increase
thus reflected, i.e. 2.94l%(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 1967=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.
No adjustments or recomputations, retroactive or otherwise, shall be made
due to any revision which may later be made in the first published figure of the
Price Index for any month.
(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,
in computing or billing for the rent adjustments hereinabove provided shall not
constitute a waiver of or in any way impair the continuing obligation of Tenant
to pay such rent adjustments hereunder.
(f) Notwithstanding any execution or termination of this lease prior to the
lease expiration date (except in the case of a cancellation by mutual agreement)
Tenant's obligation 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 [See Insert 41(b)].
TAX ESCALATION
FIFTY-EIGHTH-Tenant shall pay to Landlord, as additional rent, tax
escalation in accordance with this Article:
(a) 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
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real estate tax year commencing July 1, 1999 and ending June 30, 2000.
(ii) The term "The Percentage", for purposes of computing tax escalation,
shall mean 6.25 percent. The percentage has been computed on the basis of a
fraction, the numerator of which is the rentable square foot area of the
presently 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 rentable square foot area of the
presently demised premises shall be deemed to be 21,018 sq. ft. and that the
total rentable square foot area 336,449 sq. ft.
(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 fiscal 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 again 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 rent 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 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
installments of such assessment so becoming payable during such comparative
year, together with interest payable during such comparative year [See Insert
(42)].
(vi)Where a "transition assessment" is imposed by the City of New York for
any tax (fiscal) year, then the phrases "assessed value" and "assessments" shall
mean the transition assessment for that tax fiscal) year.
(vii)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.
(b) 1. In the event that the real estate taxes payable for any
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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 from Tenant to
Landlord, and such additional rent shall be payable by Tenant to landlord within
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 he subtracted
from the real estate taxes payable for any comparative year.
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 he, correspondingly
revised, the additional rent theretofore paid or payable for hereunder for all
comparative years shall he recomputed on the basis of such reduction, and Tenant
shall pay to Landlord as additional rent, within ten (10) days after being
billed therefore, 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 [See Insert (43)] 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 [See Insert (44)]
attorneys' and appraisers' fees.
4. The statements of the real estate taxes to he furnished by Landlord as
provided above shall he 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 [See Insert (45)].
5. In no event shall the fixed annual rent under this lease (exclusive
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of the additional rents under this Article) he 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 occurred 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-NINTH-(A). 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 the Landlord to execute this
lease.
(B). The parties recognize and agree that the damage to Landlord resulting
from any breach of the covenants in subdivision (A) hereof will be extremely
substantial, will be far greater than the rent payable, for the balance of the
term of this lease, and will be impossible of accurate measurement. The parties
therefore agree that in the event of a breach or threatened breach of the said
covenants, in addition to all of Landlord's other rights and remedies, at law or
in equity or otherwise, Landlord shall have the right of injunction to preserve
Tenant's occupancy and use. The words "become vacant or deserted" as used
elsewhere in this lease shall include Tenant's failure to occupy or use as by
this Article required.
(C). Deleted
(D). If any provision of this Article of this lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
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unenforceable, the remainder of this Article, or the application of such
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each provision of
this Article and of this lease shall be valid and be enforced to the fullest
extent permitted by law.
SIXTIETH:-DELETED
CAPTIONS
SIXTY-FIRST:-The captions are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this lease
nor the intent of any provision hereof.
RULES AND REGULATIONS
SIXTY-SECOND:-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.
SIXTY-THIRD:-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.
See Riders attached hereto and made a part hereof.
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<PAGE> 28
In Witness Whereof, Landlord and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
1333 Broadway Associates
By: Helmsley-Spear, Inc.
- ------------------------------- -----------------------------------
Witness for Landlord:
By: /s/ Irving Schneider
-----------------------------------
Irving Schneider, COO
Gerber Childrenswear, Inc.
- ------------------------------- -----------------------------------
Witness for Tenant:
By: /s/ Richard L. Solar
-----------------------------------
Richard L. Solar, SVP
ACKNOWLEDGEMENTS SECTION - NOT USED
GUARANTY SECTION - NOT USED
28
<PAGE> 29
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 [See Insert (46)]. Such awnings, projections curtains,
blinds, shades, screens or other fixtures must be of a quality type, design and
color, and attached in the manner [See Insert (47)] 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 he inscribed, painted or affixed for
each Tenant by Landlord at the expense of such Tenant, and shall be of a size,
color and style [See Insert (48)] acceptable to Landlord. Only the Tenant named
in the lease shall be entitled to appear on the Directory Board or Tablet.
Additional names may be added in Landlord's sole discretion under such terms and
conditions as he may approve.
5. The sashes, sash doors, skylights, windows and doors that reflect or
admit light and air into the halls, passageways or other public places in the
building shall not he 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 Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall he permitted, except with the prior written
consent of Landlord, and as Landlord may direct. No linoleum or other floor
covering shall he 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 [See Insert (49)] disturb or interfere with occupants of this or
neighboring buildings or premises or those having business with them whether
29
<PAGE> 30
by the use of any instrument, radio, talking machine, musical noise, whistling,
singing or in any other way.
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 he 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 he 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. No Tenant shall purchase spring water, ice, towels, or other like
service, from any company or persons not approved by Landlord.
15. 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.
30
<PAGE> 31
INSERTS ATTACHED TO AND MADE A PART OF THE LEASE BETWEEN
1333 BROADWAY ASSOCIATES AND GERBER CHILDRENSWEAR, INC. FOR THE
SEVENTH FLOOR AT 1333 BROADWAY, NEW YORK, NEW YORK
1. , to the extent required to fulfill any obligation of Tenant hereunder or
arising from the acts or omissions of Tenant hereunder.
2. beyond the expiration of any applicable notice and cure period
3. reasonable
3(a). (i) Tenant shall, at Tenant's expense, comply with all laws now or
hereafter existing, whether or not such compliance requires work which is
structural or non-structural, ordinary or extraordinary, foreseen or
unforeseen, that impose any obligation, order or duty on Landlord or
Tenant: (i) with respect to the demised premises; or (ii) with respect to
the Building or any part thereof (including the demised premises) only if
such obligation, order or duty arises from: (A) the manner of conduct of
Tenant's business or operation of its equipment therein; (B) any cause or
condition created by or at the instigation of Tenant, including, without
limitation, any improvement or alteration; (C) the default in any of
Tenant's obligations hereunder beyond notice and the expiration of any
applicable grace or cure period; or (D) any Hazardous Material (defined
below) brought into the Building by Tenant, any assignee or subtenant of
Tenant or any of their agents, contractors or invitees. Tenant shall
promptly forward to Landlord any notice it receives of the violation of any
law involving the demised premises. Tenant shall pay, within twenty (20)
days after demand therefor, all actual, out of pocket costs and expenses,
and all fines, penalties and damages that may be imposed upon Landlord by
reason of or arising out of Tenant's failure to comply with the provisions
of this Article. Except as otherwise expressly provided in this Lease or to
the extent same is otherwise the obligation of Tenant hereunder, Landlord
shall comply with all laws now or hereafter existing with respect to the
demised premises and/or the Building to the extent any non-compliance
thereof affects Tenant's use and enjoyment of the demised premises.
Landlord further agrees to deliver to Tenant that portion of the demised
premises not currently occupied by Tenant in compliance with all applicable
laws.
(ii) Tenant shall promptly comply with all requirements relating to the
Americans with Disabilities Act, 42 U.S.C. ss.12,101 et seq. and the
regulations promulgated thereunder as in effect from time to time ("ADA
Requirements") to the extent same applies to the demised premises only.
Tenant shall have exclusive responsibility for compliance with ADA
Requirements pertaining to the interior of the demised premises. Landlord
shall have responsibility for compliance with ADA Requirements which affect
the common areas of the Building to the extent same is not necessitated by
the acts or omissions of Tenant, its employees or agents or is otherwise
the obligation of another tenant.
(iii) Notwithstanding anything to the contrary contained herein, if
Landlord performs the Initial Alterations, the demised premises, including
the Initial Alterations, will be delivered to Tenant in compliance with all
applicable laws, including the ADA.
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<PAGE> 32
4. reasonably
4(a). Except with respect to the payment of the Initial Alterations, all
5. reasonably
6. (which election shall be made by notice given by Landlord to Tenant upon
Landlord's review of Tenant's plans)
7. (c) Notwithstanding anything to the contrary contained herein, Landlord's
consent shall not be required for (i) alterations consisting only of
painting, installing or removing wall covering or carpeting and which are
solely of a cosmetic or decorative nature ("Decorative Alterations") or
(ii) Non-Structural Alterations (defined below) which cost less than twenty
thousand ($20,000) dollars per occurrence (for purposes hereof, the term
"per occurrence" shall mean the total of all work which is part of any
given job or project) (hereinafter, "Minor Non-Structural Alterations"), so
long as such Decorative Alterations or Minor Non-Structural Alterations are
not visible from the exterior of the Building and provided Tenant shall
notify Landlord of the nature of such Decorative Alteration or Minor
Non-Structural Alterations and the contractors to be performing the same at
least fifteen (15) days prior to commencement and perform such Decorative
Alteration or Minor Non-Structural Alteration (as the case may be) in
accordance with all other provisions of this Lease. Landlord's consent to
alterations (other than Decorative Alterations or Minor Non-Structural
Alterations, for which no consent is required) shall not be unreasonably
withheld, conditioned or delayed. For purposes of this Article,
Non-Structural Alterations shall mean any alterations performed by Tenant
which do not require electrical or plumbing work or necessitate a building
permit or which do not affect any other Building systems or space outside
of the demised premises.
8. by Tenant
9. the negligence or willful misconduct
10. reasonable
11. thirty (30) days after (a) Tenant learns thereof or (b) notice from
Landlord,
11(a). which consent shall not be unreasonably withheld or delayed,
11(b). Notwithstanding the foregoing, Tenant shall be permitted to place on the
glass door at the front entrance to the demised premises and on the column
at the front entrance to the demised premises a sign for Tenant's business.
11(c). Notwithstanding the foregoing, Tenant may perform its Initial Alterations
(excluding, however, demolition work and core drilling) during normal
business hours.
12. reasonably
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<PAGE> 33
13. provided, however, Landlord shall use its reasonable efforts to conceal
such pipes and conduits above hung ceilings or inside walls within the
demised premises.
14. reasonable times and upon reasonable prior notice (except in the event of
an emergency)
15. , at reasonable times and upon reasonable prior notice,
16. If Landlord reasonably believes Tenant is consuming water in excess of that
consumed in connection with the use permitted under Article FOURTH of this
Lease, then Landlord may
17. reasonable
18. reasonabl
19. negligence or willful misconduct
20. Landlord represents that the sprinklers serving the demised premises will
be in working order and in compliance with applicable law, code, rule and
regulation on the commencement date hereof.
20(a). or willful misconduct
21. reasonable
21(a). the negligence or willful
22. Similarly, Landlord shall, throughout the term hereof, indemnify Tenant 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 reasonable attorneys' fees, arising from injury during said
term to person or property of any nature, to the extent occasioned in whole
or part by any negligent or willful acts or omissions of Landlord, its
employees or agents.
23. on ten (10) days' notice,
24. in proportion to that portion of the demised premises rendered untenantable
25. wholly
26. gross negligence or willful misconduct
27. Upon the termination of this Lease under the conditions provided for
herein, the fixed annual rent and additional rent shall be apportioned and
any prepaid portion of fixed annual rent and additional rent for any period
after such date of termination shall be promptly refunded by Landlord to
Tenant.
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<PAGE> 34
28. Notwithstanding the foregoing, in the event that any part of the demised
premises shall be so condemned or taken, the fixed annual rent and
additional rent allocable to the portion of the demised premises so taken
shall be apportioned as of the date of taking. In addition to the
foregoing, Tenant shall be permitted to make a claim for the unamortized
value of any leasehold improvements paid for by Tenant provided, however,
Landlord's award is not reduced or otherwise adversely affected as a result
thereof.
29. sixty (60)
30. sixty (60)
31. fifteen (15)
32. five (5)
33. within five (5) days of receipt of notice from Landlord;
34. thirty (30) days following substantial completion of the Initial
Alterations (as defined below) (for purposes hereof, the Initial
Alterations shall be deemed substantially completed even though there shall
not then have been completed minor details or adjustments the
non-completion of which shall not materially interfere with Tenant's
ability to conduct its business in the demised premises)
35. , beyond notice and the expiration of any applicable grace or cure period,
35(a). other than compulsory counterclaims.
35(b). (but at the expense of Landlord if caused by the negligence or willful
misconduct of Landlord, its employees or agents),
36. upon reasonable notice and at reasonable times (except in the event of an
emergency)
37. , if personally delivered, or two (2) business days after mailing, if
mailed.
38. and the time of the rendition of such notice shall be deemed to be the time
when the same is delivered to Landlord, if personally delivered, or two (2)
business days after mailing, if mailed.
39. and casualty
40. two (2)
41. sixty (60)
41(a). Notwithstanding the foregoing, the parties acknowledge that Tenant is
currently occupying a portion of the demised premises which was the subject
of a lease (the "Other Lease") which has since expired. Accordingly,
Landlord and Tenant each acknowledge
4
<PAGE> 35
that upon the mutual execution and delivery of this Lease, Tenant's tenancy
of the portion of the demised premises which is the subject of the Other
Lease shall terminate and Tenant's occupancy of the demised premises (as
defined herein) shall, from and after such time, be governed by the terms
of this Lease.
41(b). Notwithstanding anything to the contrary contained in this Article, the
cost of living adjustment in the fixed annual rent shall not in any single
calendar year exceed an amount equal to four (4%) percent of the fixed
annual rent payable under the Lease as of December 1 of the immediately
preceding calendar year multiplied by the number of calendar years elapsed
from the base year through the calendar year for which the adjustment is
made. Notwithstanding the foregoing, the percentage increase in the cost of
living adjustment in any single calendar year will not exceed ten (10)
percentage points more than the cumulative percentage increases payable by
Tenant in all prior years. For example, if in years 1-6 the cost of living
increases payable by Tenant were 1%, 2%, 2%, 3%, 1% and 4%, the maximum
percentage increase in year 7, based upon the first sentence of this
insert, would be 15%, which is equal to 4% per year x 7 years (=28%) less
the previous cumulative 13% adjustment in the previous 6 years. The
Landlord agrees that it will instead cap such adjustment in year 7 at 10%
(and not at 15%).
42. For purposes of the foregoing, the term "real estate taxes" shall not
include increases in the Building's assessed valuation to the extent same
arises from the sale of the Building.
43. reasonable
44. reasonable
45. without prejudice to Tenant's right to a refund of any overpayment
46. , which consent shall not be unreasonably withheld or delayed.
47. reasonably
48. reasonably
49. unreasonably
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<PAGE> 36
ADDITIONAL RIDER ANNEXED TO AND FORMING A PART OF THE LEASE BETWEEN
1333 BROADWAY ASSOCIATES, AS LANDLORD, AND GERBER CHILDRENSWEAR, INC.,
AS TENANT, FOR A PORTION OF THE SEVENTH FLOOR AT 1333 BROADWAY, NEW
YORK, NEW YORK
SIXTY-FOURTH: In the event of any inconsistency between the provisions
of this Rider and the provisions of the Lease to which this Rider is
attached, the provisions of this Rider shall govern and be binding.
SIXTY-FIFTH: Tenant expressly acknowledges that it has inspected the
demised premises and is fully familiar with the physical condition
thereof. Tenant acknowledges that Landlord shall have no obligation to
do any work in and to the demised premises in order to make them
suitable and ready for occupancy and use by Tenant except to the extent
set forth herein. Notwithstanding the foregoing, Landlord agrees that
it will, at its sole cost and expense (and not as part of the Tenant
Fund (as defined below)), demolish the portion of the demised premises
not currently occupied by Tenant. In addition, if Tenant is itself
performing the Initial Alterations, that portion of the demised
premises not currently occupied by Tenant will be delivered to Tenant
by Landlord at its sole expense, broom clean with the demising wall
(the "York Hunter wall") between that portion of the demised premises
currently occupied by Tenant and the premises formerly occupied by York
Hunter removed. If Landlord performs the Initial Alterations, the cost
of removing the York Hunter wall will be borne solely by Landlord and
will not be paid for out of the Tenant Fund (as defined below).
SIXTY-SIXTH: Anything contained herein to the contrary notwithstanding,
all deliveries to Tenant and shipments by Tenant must be made directly
to and from the demised premises utilizing the freight elevators via
the freight elevator lobby. Under no circumstances may deliveries
and/or shipments be made through the public corridors. The interior of
the demised premises shall be so designed and maintained by Tenant that
said demised premises, when viewed from the public corridors, present
an appearance consistent with the use of said premises as offices and
showroom and not otherwise.
SIXTY-SEVENTH: The following requirements (collectively, the "INSURANCE
REQUIREMENTS") shall be complied with by Tenant at all times during the
term of this Lease:
(a) At all times during the term, Tenant shall maintain, at Tenant's
expense, the following insurance coverage:
(i) all risk property insurance with a limit of not less than
$1,000,000 covering physical loss to the improvements,
alterations and Tenant's property in the demised premises;
(ii) broad form commercial general liability insurance written on
a per occurrence basis with a per occurrence limit of not
less than $3,000,000;
<PAGE> 37
(iii) worker's compensation insurance and employer's liability
coverage in statutory limits, and New York State disability
insurance as required by law, covering all employees; and
(iv) such other coverage as Landlord may reasonably require with
respect to the demised premises, Tenant's use and occupancy
thereof and Tenant's conduct or operation of business
therein.
(b) All insurance policies to be maintained as set forth above (i) shall
be issued by companies of recognized responsibility, licensed and
admitted to do business in the State of New York, reasonably
acceptable to Landlord, and maintaining a rating of A-/XII or better
in Best's Insurance Reports-Property-Casualty (or an equivalent rating
in any successor index adopted by Best's or its successor), (ii) shall
provide that they may not be canceled or modified unless Landlord and
all additional insureds and loss payees thereunder are given at least
thirty (30) days prior written notice of such cancellation or
modification, (iii) shall name, as additional insureds, Landlord, the
managing agent of the Building and any other person or entity whose
name and address shall have been furnished to Tenant and (iv) shall be
primary and non-contributory in all respects. All policies providing
fire and extended coverage property insurance coverage pursuant to
subparagraph (a)(i) shall name Landlord as loss payee with respect to
improvements and alterations, and shall name Tenant as loss payee with
respect to Tenant's property.
(c) Prior to the Commencement Date (defined below), Tenant shall deliver
to Landlord certificates of insurance for the insurance coverage
required by subparagraph (a) and, if required by Landlord, copies of
the policies therefor, in each case in form and providing for
deductibles reasonably satisfactory to Landlord. Tenant shall procure
and pay for renewals of such insurance from time to time before the
expiration thereof, and Tenant shall deliver to Landlord certificates
of renewal at least thirty (30) days before the expiration of any
existing policy. If Tenant fails to procure or maintain any insurance
required by this Lease and to pay all premiums and charges therefor,
Landlord may (but shall not be obligated to) pay the same, and Tenant
shall reimburse Landlord, within twenty (20) days after demand, for
all such sums paid by Landlord. Any such payment shall not cure or
waive any default by Tenant in the performance of its obligations
hereunder, nor shall the foregoing right of Landlord to make such
payment in any way limit, reduce, diminish or impair the rights of
Landlord under the terms of this Lease or at law or in equity arising
as a result of any such default.
(d) Tenant shall not carry separate or additional insurance, concurrent in
form or contributing in the event of any loss or damage with any
insurance required to be obtained by Tenant under this Lease unless
the parties
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<PAGE> 38
required by subparagraph (b) to be named as additional insureds or
loss payees thereunder are so named. Tenant may carry any insurance
coverage required of it hereunder pursuant to blanket policies of
insurance so long as the coverage afforded Landlord and the other
additional insureds or loss payees thereunder, as the case may be,
shall not be less than the coverage that would be provided by direct
policies.
(e) Neither Landlord nor Tenant shall be liable to the other or to any
insurance company (by way of subrogation or otherwise) insuring any of
the other parties, and each hereby waive their entire right of
recovery against the other, for any loss or damage arising out of or
incident to the perils insured, or required pursuant to this Lease to
be insured even though such loss or damage might have been occasioned
by the negligence of Landlord, Tenant, or their respective agents,
employees, contractors, invitees and/or permitted subtenants. The
foregoing waiver is subject, however, to the amount of insurance
obtained or required by this Lease to be obtained (whichever is
greater) by the other party. Each of Landlord and Tenant (i) shall
give notice to their respective insurers that the foregoing mutual
waiver of recovery is contained in this Lease and, if required by any
such insurer, shall obtain such insurer's prior consent to the
foregoing waiver of its and its insured's right of recovery, and (ii)
shall endeavor to obtain from their respective insurers an appropriate
clause in, or an endorsement upon, each such insurance policy pursuant
to which each such insurer shall agree that the foregoing waiver shall
not affect the validity or enforceability of its insured's coverage.
If such a clause or endorsement is obtainable only upon payment of an
additional premium, the party obtaining such insurance party shall pay
such additional premium. If Tenant's insurer shall refuse to issue
such clause or endorsement even with an additional premium, then
Landlord shall have the right to designate another insurer with a
Best's Insurance Guide rating of A-/XII or better who would be
prepared to permit such clause or endorsement and Tenant shall use
such other insurer. If it is not possible to obtain a clause or
endorsement of the type described in clause (ii) above, then the party
unable to obtain such clause or endorsement shall notify the other
party of this fact and such party shall no longer be obligated
hereunder to endeavor to obtain such a clause or endorsement in its
insurance policies. The provisions of this subparagraph shall be
applicable to any new or renewal insurance policies which Tenant may
obtain during the term.
(f) Landlord shall keep in full force and effect, during the term hereof,
insurance against loss or damage by fire and other casualty to the
Building as may be insurable under then available forms of "all-risk"
insurance policies, in an amount equal to one hundred (100%) percent
of the replacement value thereof or in an amount as will avoid
co-insurance (including an "agreed amount" endorsement).
3
<PAGE> 39
SIXTY-EIGHTH: Landlord and Tenant each warrant and represent to the
other that it has dealt with no broker in connection with this Lease
other than Colliers ABR and Helmsley-Spear, Inc. (collectively, the
"BROKERS"). Commission due to Colliers ABR shall be paid by Tenant
pursuant to a separate agreement between them and Tenant indemnifies
and holds harmless Landlord from any loss, liability, cost or expense
incurred by Landlord if Tenant fails to do so, such indemnity to
survive the expiration or sooner termination of this Lease. The
commission due to Helmsley-Spear shall be paid by Landlord pursuant to
a separate agreement between them and Landlord holds harmless Tenant
from any loss, liability, cost or expense if Landlord fails to do so,
such indemnity to survive the expiration or sooner termination of this
Lease. Both Landlord and Tenant agree to indemnify, defend and hold
harmless the other from and against any claims, based or alleged to be
based upon the acts or omissions of the indemnifying party, for any
brokerage commission or finder's fee with respect to this Lease by
persons other than the Brokers and for all costs, expenses and
liabilities incurred in connection with such claims, including
attorneys' fees and disbursements arising out of a breach of the
foregoing representation. The provisions of this Article shall survive
the expiration or sooner termination of this Lease.
SIXTY-NINTH: Notwithstanding anything contained in this Lease to the
contrary, it is specifically understood and agreed by Tenant that
Tenant shall not be entitled to and hereby waives any claim to or for
(i) an abatement of any rent due and payable hereunder, (ii)
constructive eviction and (iii) damages (whether actual, special,
consequential or punitive) by reason of the demised premises or any
portion thereof being rendered inaccessible or unusable or unsuitable
for the conduct of Tenant's business as a result of the failure of any
building systems (including, but not limited to, air conditioning,
heating, ventilation, plumbing or electrical systems, elevator
equipment, alarm and security devices) or any computers or processing
units or chips which may control or operate any such systems to read or
process (or process accurately) any data (including dates or times)
relating to the year 2000.
SEVENTIETH: Supplementing Article FIFTY-SEVENTH, Tenant shall not be
required to make any payments under such Article until July, 2000.
SEVENTY-FIRST:
(a) Landlord shall be required to perform only such work in the
demised premises (the "INITIAL ALTERATIONS") as is described in
the plans (the "PLANS") submitted to the Landlord by Tenant
provided, however, that Landlord shall have the right to make any
changes thereto (upon notice to Tenant) which are required by any
governmental department or bureau having jurisdiction over the
demised premises. The Initial Alterations shall be deemed to have
been substantially completed even though there shall not then
have been completed minor details or adjustments the
non-completion of which shall not materially interfere with
Tenant's ability to perform any of Tenant's work or conduct its
business in the demised premises ("PUNCHLIST ITEMS").
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<PAGE> 40
(b) Landlord's performance of the Initial Alterations in conformity
with the Plans shall not make Landlord liable for any expense or
claim which may arise from or relate to the failure of such work
to meet applicable laws, rules, ordinances, requirements and/or
regulations of any governmental or quasi-governmental authority
having jurisdiction thereover, nor shall Landlord's performance
of the Initial Alterations in conformity with such Plans
constitute an express or implied representation of Landlord that
all or any part of the work performed pursuant to the Plans is
suitable for the particular requirements of Tenant or any
specific or general use or purpose of Tenant.
(c) Landlord shall cause the Plans and any notices or forms relating
thereto to be filed with and approved by any governmental and
quasi-governmental authorities having jurisdiction over the
Initial Alterations to be performed pursuant thereto. All costs,
fees and expenses incurred in connection with obtaining the
approvals of and filings with such governmental and
quasi-governmental authorities shall be paid by Landlord out of
the Tenant Fund (defined below). Any additional approvals or
filings necessitated by changes made by Tenant to the Plans shall
similarly be paid out of monies available under the Tenant Fund.
Within a reasonable time following Tenant's request, Landlord
will deliver to Tenant copies of invoices (receipted, where
possible) and/or other evidence of the cost of the performance of
the Initial Alterations.
(d) The Initial Alterations performed pursuant to the Plans shall be
performed (i) by the contractors and subcontractors retained for
that purpose by Landlord or its agents and (ii) in a good and
workmanlike manner. Landlord agrees that it or its agents will
confer with Tenant or Tenant's architect or engineer in
connection with such Initial Alterations.
(e) Subject to the provisions of this Article, Landlord shall
contribute a maximum of $525,000 (the "TENANT FUND") toward the
cost of (i) the Initial Alterations and (ii) any expenses
incurred by Landlord pursuant to subparagraph (c) above. However,
Landlord and Tenant agree that Tenant will be solely responsible
for the cost of the Initial Alterations to the extent the Initial
Alterations exceed $525,000. Landlord shall provide Tenant with a
statement showing how the amount required to be paid by Tenant
was determined. To the extent the cost of performing the Initial
Alterations shall exceed the Tenant Fund, Tenant shall be solely
responsible therefor.
(f) Provided no event of default under this Lease by Tenant shall
have occurred and be continuing, Landlord shall disburse portions
of the Tenant Fund to the contractors, subcontractors and
materialmen which are being used in connection with the Initial
Alterations. Copies of all invoices (receipted, where available)
reflecting the work performed and the
5
<PAGE> 41
amounts paid in connection therewith shall be made available to
Tenant upon its request.
(g) Notwithstanding anything to the contrary contained in this
Article, Tenant shall have the option of electing to itself
perform the Initial Alterations. If Tenant so elects,
subparagraphs (a)-(f) shall be rendered null and void and the
following provisions shall instead be applicable:
(1) Landlord shall contribute an amount not to exceed $525,000
("Landlord's Contribution Fund") toward the cost of the
Initial Alterations.
(2) Landlord shall disburse a portion of Landlord's Contribution
Fund to Tenant from time to time within thirty (30) days
after receipt of the items set forth in subparagraph (3)
hereof, provided that on the date of a request and on the
date of disbursement from Landlord's Contribution Fund no
event of default hereunder shall have occurred beyond notice
and be continuing beyond the expiration of any applicable
grace or cure period. Disbursements from Landlord's
Contribution Fund shall not be made more frequently than
monthly, and shall be in an amount equal to the aggregate
amounts theretofore paid or payable (as certified by a
financial officer of Tenant and Tenant's independent,
licensed architect) to Tenant's contractors, subcontractors
and materialmen for work which has not been the subject of a
previous disbursement from the Tenant Fund multiplied by a
fraction, the numerator of which is $525,000 and the
denominator of which is the total cost of the Initial
Alterations as estimated by Tenant's independent architect
and as approved by Landlord (which approval shall not be
unreasonably withheld), which fraction shall be subject to
readjustment as provided by subparagraph (3) hereof (but in
no event shall such fraction be greater than one (1)).
(3) Landlord's obligation to make disbursements from Landlord's
Contribution Fund shall be subject to Landlord's
verification of the total cost of the Initial Alterations as
estimated by Tenant's independent architect and receipt of:
(A) a request for such disbursement from Tenant signed by a
financial officer of Tenant, together with the certification
required by subparagraph (2) hereof, (B) copies of all
receipts, invoices and bills for the work completed and
materials furnished in connection with the Initial
Alterations and incorporated in the demised premises which
are to be paid from the required disbursement or
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which have been paid by Tenant and for which Tenant is
seeking reimbursement, (C) copies of all contracts, work
orders, change orders and other materials relating to the
work or materials which are the subject of the requested
disbursement or reimbursement, (D) if requested by Landlord,
waivers of lien from all contractors, subcontractors and
materialmen involved in the performance of the Initial
Alterations relating to the portion of the Initial
Alterations theretofore performed and materials theretofore
provided and for which previous disbursements and/or the
requested disbursement has been or is to be made (except to
the extent such waivers of lien were previously furnished to
Landlord upon a prior request), and (E) a certificate of
Tenant's independent architect stating (i) that, in his
opinion, the portion of the Initial Alterations theretofore
completed and for which the disbursement is requested was
performed in a good and workerlike manner and substantially
in accordance with the final detailed plans and
specifications for such Initial Alterations, as approved by
Landlord, (ii) the percentage of completion of the Initial
Alterations as of the date of such certificate, and (iii)
the revised estimated total cost to complete the Initial
Alterations. If the revised estimated total cost of the
Initial Alterations increases above the original estimated
total cost of the Initial Alterations by more than five
percent (5%), then the denominator of the fraction referred
to in subparagraph (2) hereof shall be adjusted
appropriately.
(4) In no event shall the aggregate amount paid by Landlord to
Tenant under this Article exceed the amount of Landlord's
Contribution Fund. Upon the completion of the Initial
Alterations and satisfaction of the conditions set forth in
subparagraph (5) hereof, any amount of Landlord's
Contribution Fund which has not been previously disbursed
shall be retained by Landlord. Upon the disbursement of the
entire Landlord's Contribution Fund (or the portion thereof
if upon completion of the Initial Alterations of Landlord's
Contribution Fund is not exhausted), Landlord shall have no
further obligation or liability whatsoever to Tenant for
further disbursement of any portion of Landlord's
Contribution Fund to Tenant. It is expressly understood and
agreed that Tenant shall complete, at its sole cost and
expense, the Initial Alterations, whether or not Landlord's
Contribution Fund is sufficient to fund such completion. Any
costs to complete the Initial Alterations in
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excess of Landlord's Contribution Fund shall be the sole
responsibility and obligation of Tenant.
(5) Within thirty (30) days after completion of the Initial
Alterations, Tenant shall deliver to Landlord general
releases and waivers of lien from all contractors,
subcontractors and materialmen involved in the performance
of the Initial Alterations and the materials furnished in
connection therewith (unless same previously were furnished
pursuant to subparagraph (3) above), and a certificate from
Tenant's independent architect certifying that (i) in his
opinion the Initial Alterations have been performed in a
good and workerlike manner and completed in accordance with
the final detailed plans and specifications for such Initial
Alterations as approved by Landlord and (ii) all
contractors, subcontractors and materialmen have been paid
for the Initial Alterations and materials furnished through
such date. Notwithstanding the foregoing, Tenant shall not
be required to deliver to Landlord any general release or
waiver of lien if Tenant shall be disputing in good faith
the payment which would otherwise entitle Tenant to such
release or waiver, provided that Tenant shall keep Landlord
advised in a timely fashion of the status of such dispute
and the basis therefor and Tenant shall deliver to Landlord
the general release or waiver of lien when the dispute is
settled. Nothing contained in this Section, however, shall
relieve Tenant from complying with the provisions of Article
SIXTEENTH hereof.
SEVENTY-SECOND:
(a) Subject to and in accordance with the provisions of this
Article, Tenant shall have an option (the "Expansion Option") to
lease the Expansion Space (as defined below) for a term to
commence as provided in paragraph (c) below.
(b) The "Expansion Space" shall mean all or any portion of the
portion of the seventh (7th) floor in the Building which is
currently occupied by Robins & Associates LLP pursuant to a lease
which expires on April 30, 2003.
The day following the expiration date of the lease with Robins &
Associates LLP is hereinafter called the "Expansion Space
Scheduled Commencement Date".
(c) Not later than the earlier of (i) six (6) months prior to the
Expansion Space Scheduled Commencement Date, or (ii) (if the
Expansion Space is expected to become available prior to the
stated expiration date of the lease for such Expansion Space),
thirty (30) days after Landlord shall notify Tenant in writing
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that the Expansion Space is expected to become available for
Tenant's occupancy and setting forth a revised Expansion Space
Scheduled Commencement Date, Tenant shall, if it so elects, give
Landlord a written notice (the "Expansion Notice") exercising the
Expansion Option with regard to the Expansion Space. Subject to
the provisions of subparagraph (m) below, if Tenant timely
commits to exercise the Expansion Option, then the parties hereto
shall be immediately bound thereby and shall promptly execute and
deliver a written amendment to this Lease, so that the Expansion
Space shall be added to and included in the demised premises for
the period (the "Expansion Space Term") (i) commencing on the
date (the "Expansion Space Inclusion Date") which is the earlier
to occur of (Y) the date on which Tenant shall take exclusive
possession of the Expansion Space for purposes of construction or
the conduct of business, and (Z) the later to occur of (a) the
date on which Landlord shall have delivered exclusive possession
of the Expansion Space to Tenant with any work to be performed by
Landlord therein substantially complete and broom clean and free
of all tenancies, and (b) the Expansion Space Scheduled
Commencement Date, and (ii) ending on the Expiration Date of this
Lease (as same may have been extended pursuant to the terms of
this Lease).
The inclusion of the Expansion Space shall be upon all the terms
and conditions of this Lease, except as otherwise stated in this
Article, and upon such additional terms and conditions as are set
forth in this Article
(d) As of the Expansion Space Inclusion Date, the term "The
Percentage", as defined in Article FIFTY-EIGHTH (a)(ii), shall be
increased by a percentage equal to the quotient obtained by
dividing (i) the rentable square footage of the applicable
Expansion Space (the "Expansion Space Rentable Area") by (ii)
336,449, which is the rentable square footage of the Building.
The monthly water and sprinkler charge for the demised premises
shall be increased proportionately for the Expansion Space to
reflect the inclusion of the Expansion Space upon the Expansion
Space Inclusion Date.
(e) In the event Tenant shall elect to exercise its Expansion
Option as provided herein, Landlord's sole obligation with
respect thereto shall be to (i) make a contribution (the
"CONTRIBUTION") toward the cost of Tenant's work undertaken in
connection with Tenant's initial occupancy of the Expansion
Space. The Contribution shall be equal to the product of $25 per
rentable square foot of the Expansion Space times a fraction, the
numerator of which is the number of months remaining in this
Lease (excluding the Extension Term) and the denominator of which
is 85 (which is the total number of months in this Lease
(excluding the Extension Term)) and (ii) perform the work
required with respect thereto if Tenant so elects and otherwise
in accordance with the provisions of Article SEVENTY-FIRST hereof
(the sole difference being the amount of the Contribution, which
shall be determined as set forth in Subparagraph (i) of this
subparagraph (e). To the extent the cost of such work shall
exceed the Contribution, Tenant shall be solely responsible
therefor.
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(f) The fixed annual rent for the Expansion Space during the
Expansion Space Term shall be equal to the product of (i) the
Expansion Space Rentable Area, multiplied by (ii) the per square
foot fixed annual rent then in effect for the then existing
demised premises, including without limitation all escalations
and additional rent which is then payable by Tenant as provided
in this Lease.
(g) Tenant shall pay to Landlord additional rent with respect to
the Expansion Space from and after the Expansion Space Inclusion
Date in accordance with all of the terms and conditions of
Articles FIFTY-SEVENTH and FIFTY-EIGHTH and the other provisions
of this Lease, except that:
(i) The Percentage, with respect to such Expansion Space
shall be increased as set forth in subparagraph (d) above;
(ii) the base tax year with respect to such Expansion Space
shall be the fiscal tax year in which the Expansion Space
Inclusion Date occurs; and
(iii) the Base Year with respect to cost of living
adjustments shall be the full calendar year in which the
Expansion Space Inclusion Date occurs.
(h) Any work performed by Tenant in any Expansion Space shall be
subject to the terms, conditions and provisions of this Lease.
(i) (i) Once Tenant has delivered the Expansion Notice, Landlord
shall use reasonable efforts to deliver possession of the
Expansion Space to Tenant on or prior to the Expansion Space
Scheduled Commencement Date. If Landlord fails to cause the
Expansion Space Inclusion Date to occur on or prior to such
Expansion Space Scheduled Commencement Date and such failure
is due to (A) the holding over or retention of possession by
the tenant of the Expansion Space, and/or (B) any other
reason outside of Landlord's control, then (X) provided
Landlord complies with the provisions set forth in clause
(Z) below, Landlord shall not be subject to any liability
for failure to give possession on such date, (Y) Tenant
waives the right to rescind its Lease of the then existing
demised premises leased hereunder or to recover any damages
that may result from the failure of Landlord to deliver
possession of the Expansion Space and agrees that the
provisions of this subparagraph shall constitute an "express
provision to the contrary" within the meaning of Section
223-a of the New York Real Property Law and (Z) Landlord
shall promptly institute and thereafter diligently prosecute
holdover or other appropriate proceedings (or settle the
same under a settlement stipulation providing for the
occupant to vacate the Expansion Space on a date which
Landlord reasonably believes is a date earlier than the date
on which Landlord would obtain possession of the Expansion
Space if Landlord were to continue to diligently prosecute
such holdover or other appropriate proceeding) against any
occupant of the Expansion Space.
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(ii) Notwithstanding Tenant's waiver pursuant to
subparagraph (i) above, if Landlord shall be unable to cause
the Expansion Space Inclusion Date to occur on or prior to
the date which is 180 days after the Expansion Space
Scheduled Commencement Date, then Tenant shall, at Tenant's
option, have the right to rescind its election to lease the
applicable Expansion Space by giving notice (an "Option
Cancellation Notice") to Landlord within thirty (30) days
after the expiration of such 180 day period, which
cancellation shall be effective as of the date on which
Landlord receives the Option Cancellation Notice; provided,
however, that if Landlord causes the Expansion Space
Inclusion Date to occur on or prior to the date on which
Landlord receives Tenant's Option Cancellation Notice, such
notice shall be null and void, and Tenant's lease of the
Expansion Space shall continue in full force and effect in
accordance with the provisions hereof, as if such Option
Cancellation Notice was never delivered.
(j) The Expansion Option available to Tenant hereunder is subject
to the conditions that on the date Tenant delivers to Landlord
the Expansion Notice, and on the Expansion Space Inclusion Date,
(i) Tenant shall not be in default under this Lease beyond notice
and the expiration of any applicable grace or cure period, (ii)
Tenant shall be in actual physical occupancy of the then existing
demised premises and there shall not then be in effect one or
more subleases pursuant to which Tenant has subleased in the
aggregate more than 25% of the then existing demised premises,
and (iii) there shall not then be in effect an assignment of this
Lease, except an assignment which does not require Landlord's
consent. Any attempt to exercise the Expansion Option under any
one or more of such circumstances shall be null and void.
(k) Tenant shall be given the first opportunity to Lease the
Expansion Space in accordance with the terms of this Article,
provided, however, that if Tenant does not elect to exercise the
Expansion Option with respect to the Expansion Space in
accordance with this Article and within the applicable time
period, time being of the essence, then (i) Tenant shall have
forever waived and relinquished its right to exercise the
Expansion Option with respect to the Expansion Space, (ii)
Landlord shall at any time thereafter be entitled to lease the
Expansion Space to others at such rental and upon such terms and
conditions as Landlord in its sole discretion may desire, and
(iii) Tenant, upon Landlord's request, shall promptly deliver to
Landlord (and any other person or entity designated by Landlord)
a notice acknowledging that Tenant has forever waived and
relinquished its right to exercise the Expansion Option.
Notwithstanding the foregoing, if Landlord shall not have entered
into a lease for the Expansion Space on or before the nine (9)
month anniversary of the Expansion Space Scheduled Commencement
Date, Tenant shall thereafter have a right of first refusal with
respect to such Expansion Space pursuant to the provisions of
Article SEVENTY-NINTH hereof.
SEVENTY-THIRD: (a) Provided this Lease shall then be in full force and
effect and Tenant shall not be in default hereunder beyond any applicable
notice or grace period
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either as of the date of Tenant's exercise of the extension option
described herein or as of the day which would otherwise be the first day of
the Extension Term, as defined herein (which conditions regarding default
may be waived by Landlord in its sole discretion), Tenant shall have the
right, at its option, to extend the term of this Lease for a single five
(5) year period (the "Extension Term"). The Extension Term shall commence
on the day immediately following the original expiration date of this Lease
and shall expire on the day prior to the fifth (5th) anniversary of such
date unless the Extension Term shall sooner end pursuant to any of the
terms, covenants or conditions of this Lease or pursuant to law. Tenant
shall give Landlord written notice of Tenant's intention to exercise such
option on or before the date which is nine (9) months prior to the original
Expiration Date, the time of exercise being of the essence, and upon the
giving of such notice, this Lease and the term hereof shall be extended
without execution or delivery of any other or further documents, with the
same force and effect as if the Extension Term had originally been included
in the term of this Lease, and the Expiration Date of this Lease shall
thereupon be deemed to be the last day of the Extension Term. All of the
terms, covenants and conditions of this Lease shall continue in full force
and effect during the Extension Term, including items of additional rent
and escalation rent which shall remain payable on the terms herein set
forth, except that (i) the fixed annual rent shall be calculated at the
rate of $27.50 per rentable square foot per annum, and (ii) Tenant shall
have no further right to extend the term of this Lease pursuant to this
Article.
(b) Promptly after the fixed annual rent for the Extension Term has been
determined, Landlord and Tenant shall execute and deliver an agreement
setting forth the annual rent for the demised premises (including the
Expansion Space if same is then being leased by Tenant) for the Extension
Term, provided the failure of the parties to do so shall not affect their
respective rights and obligations hereunder.
SEVENTY-FOURTH: Landlord and Tenant understand and agree that Tenant will
obtain its electricity for the demised premises through the 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), plus 15% thereof. Where more than
one meter measures the service of Tenant in the Building, the KWHR and KW
recorded by each meter shall be added, and the aggregate 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.
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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 aforedescribed meter readings as herein provided.
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, 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.
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, energy, 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 to 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 reasonable fees paid to the electrical consultant and
Landlord's overhead, in connection with billing and computing electricity
charges for this Tenant.
It is anticipated that electric rates, charges, etc. may be changed by
virtue of changes in methods of billing, and/or electricity purchases and
the redistribution thereof, fluctuations in the market price of
electricity, changes in electricity and electric service (as defined
below), and by the obtaining of electricity from public utilities and/or
other providers in addition to, or instead of, Consolidated Edison Co. of
New York. Accordingly, Landlord's Cost Rates shall also include Landlord's
payments for electricity or electric service, for the applicable monthly or
other period, to utilities and/or other providers, including Landlord's
cost for any element affecting the generation, transmission, and/or
distribution or redistribution of electricity. Any such portions of
Landlord's Cost Rates for the Utility Billing Period, or other billing
period, shall be equitably allocated to, and included in, Tenant's share of
Landlord's Cost for electricity redistributed to Tenant.
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For purposes of this Article, the following terms shall have the
following meanings:
"Utility Billing Period" shall mean the respective periods of
electricity consumption and demand for which Landlord is charged on each
successive bill from the utility company or companies 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(s).
"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(s).
Electricity and electric service, as used herein, shall mean any
element affecting the generation, transmission, and/or distribution or
redistribution of electricity, including but not limited to services which
facilitate the distribution of service.
(B) 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 the amount of the
Electricity Rent Inclusion Factor ("ERIF"), as hereinafter defined. Tenant
acknowledges and agrees (i) that the fixed annual rents hereinabove set
forth in this Lease do not yet, but are 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, 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(s) 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 of electricity shall be
increased or decreased, by change in Landlord's electric rates or service
classifications, or electricity charges including changes in market prices,
or by changes in fuel adjustments, or by taxes or charges of any kind
imposed on Landlord's electricity purchases, or on Landlord's electricity
redistribution, or for any other such reason, then the ERIF, based on the
most recent survey, shall be redetermined, effective as of the date of such
change in Landlord's rates, etc., by Landlord's electrical consultant, in
accordance with the provisions hereof.
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3. The parties agree that a reputable, independent electrical
consultant, selected by Landlord ("Landlord's electrical consultant") and
paid for by Landlord, shall by survey determine an 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 first survey and determination to be made
by Landlord's consultant, as herein provided, Tenant shall pay to Landlord
a temporary ERIF at the rate of $3.00 per rentable square foot per year
(which temporary charge shall thereafter be adjusted by survey and
computations as hereinafter provided), for any portion of the demised
premises receiving electricity on a rent inclusion basis. Said temporary
payments shall be adjusted between Landlord and Tenant, by appropriate
payments thereafter or by rent credits, retroactive to Tenant's
commencement of electricity charges payable by Tenant hereunder under rent
inclusion. Within three (3) months after Tenant's commencement of being
provided electricity on a rent inclusion basis, Landlord will cause such a
survey and determination to be made of the electricity consumption in and
for said space; the initial survey's ERIF shall be payable from the date of
the start of rent inclusion hereunder. Thereafter, the ERIF shall be
adjusted in accordance with surveys and determinations by Landlord's
electrical consultant, retroactive to the date of such survey subsequent to
the initial survey of the demised premises.
The parties understand and agree that in any survey of Tenant's
electricity consumption in and for the demised premises, the consultant's
survey results shall be calculated to reflect a proper demand (diversity)
factor.
(C) GENERAL CONDITIONS: If any tax is imposed upon Landlord's receipt
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). The determinations by
Landlord's electrical consultant shall be binding and conclusive on
Landlord and on Tenant from and after the delivery of copies of such
determinations to Landlord and Tenant, unless, within thirty (30) days
after delivery thereof, Tenant disputes such determination. If Tenant so
disputes the determination, it shall, at its own expense, obtain from a
reputable, independent electrical consultant its own determinations 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 electrical consultant. If the controlling
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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
installation thereof, all at competitive prices. Landlord shall not be
liable to Tenant, except for negligence or willful misconduct of Landlord,
its employees or agents, 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.
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 uncollectible 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 electric 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).
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 or to change to the distribution of less
than all the components of the existing service to Tenant. 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 the Tenant, in which event the Tenant may make
application directly to the public utility for the Tenant's entire separate
supply of electric current 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.
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<PAGE> 52
Any meters, risers, or other equipment or connections necessary to
enable Tenant to obtain electric current directly from such utility and/or
other providers, shall be installed 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 the 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.
(d) Anything hereinabove to the contrary notwithstanding, (i) 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) and (ii) if Landlord should change from submetering
to rent inclusion, Tenant's cost of using electricity within the demised
premises will not increase solely as a result of such change.
SEVENTY-FIFTH: Tenant may have twenty-five (25) listings on the Building's
lobby directory at no cost or expense to Tenant and, if Tenant shall take
additional space in the Building as provided herein, the number of listings
shall be increased proportionately, also at no cost or expense to Tenant.
Notwithstanding the foregoing, if after the date hereof Landlord shall
operate a computerized directory wherein the Building's tenants shall be
listed, Tenant shall be permitted a like number of computerized directory
listings. The initial listings and the initial computer programming shall
be without charge to Tenant. From time to time, but not more frequently
than once every three (3) months, Landlord shall change the directory
listings or reprogram the computerized directory to reflect such changes in
the listings therein as Tenant shall request, and Tenant, promptly after
such request, shall pay to Landlord its then customary new listing or
reprogramming charge for each new listing or change that Tenant requests.
SEVENTY-SIXTH: In connection with Tenant's use of the Building's freight
elevators during the period of its Initial Alterations only, (i) during
normal business hours, there will be no cost to Tenant to the extent it
uses such freight elevators; and (ii) during hours other than normal
business hours, Tenant's sole cost will be reimbursement of Landlord's
actual out-of-pocket costs for overtime payments made to the Building's
elevator operators in connection therewith. Such costs shall be deemed
additional rent hereunder and shall be payable within twenty (20) days
after request therefor.
SEVENTY-SEVENTH: (a) Except as otherwise provided herein, Tenant, for
itself, its heirs, distributees, executors, administrators, legal
representatives, successors and assigns, expressly covenants that it shall
not assign, mortgage or encumber this Lease, nor underlet, or suffer, or
permit the demised premises or any part thereof to be used or occupied by
others, without the prior written consent of Landlord in each instance. If
this
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<PAGE> 53
Lease be assigned, or if the demised premises or any part thereof be
underlet or occupied by anybody other than Tenant, Landlord may, after
default by Tenant, collect rent from the assignee, undertenant, or
occupant, and apply the net amount collected to the rent herein reserved,
but no assignment, underletting, occupancy or collection shall be deemed a
waiver of the provisions hereof, the acceptance of the assignee,
undertenant or occupant as tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained.
The consent by Landlord to an assignment or underletting shall not in any
way be construed to relieve Tenant from obtaining the express consent in
writing of Landlord to any further assignment or underletting. In no event
shall any permitted sublessee assign or encumber its sublease or further
sublet all or any portion of its sublet space, or otherwise suffer or
permit the sublet space or any part thereof to be used or occupied by
others, without Landlord's prior written consent in each instance. A
modification, amendment or extension of a sublease shall be deemed a
sublease, thereby requiring Landlord's consent (but only if Landlord's
consent was required in the first instance). If any lien is filed against
the demised premises or the Building for brokerage services claimed to have
been performed for Tenant, whether or not actually performed, the same
shall be discharged by Tenant within thirty (30) days after Tenant learns
of such filing, at Tenant's expense, by filing a bond required by law, or
otherwise, and paying any other necessary sums, and Tenant agrees to
indemnify Landlord and its agents and hold them harmless from and against
any and all claims, losses or liability resulting from such lien for
brokerage services rendered.
(b) If Tenant desires to assign this Lease or to sublet all or any
portion of the demised premises, it shall first submit in writing to
Landlord the documents described in Paragraph (c) hereof and shall offer in
writing, (i) with respect to a prospective assignment, to assign this Lease
to Landlord without any payment of moneys or other consideration therefor,
or, (ii) with respect to a prospective subletting, to sublet to Landlord
the portion of the demised premises involved ("Leaseback Area") for the
term specified by Tenant in its proposed sublease and at the lower of (A)
Tenant's proposed subrental or (B) at the same rate of fixed rent and
additional rent, and otherwise on the same terms, covenants and conditions
(including provisions relating to escalation rents), as are contained
herein and as are allocable and applicable to the portion of the demised
premises to be covered by such subletting. The offer shall specify the date
when the Leaseback Area will be made available to Landlord, which date
shall be in no event earlier than sixty (60) days nor later than one
hundred eighty (180) days following the acceptance of the offer. If an
offer of sublease is made, and if the proposed sublease will result in all
or substantially all of the demised premises being sublet, then Landlord
shall have the option to extend the term of its proposed sublease for the
balance of the term of this Lease less one (1) day.
Landlord shall have a period of thirty (30) days from the receipt of
such offer to either accept or reject the same. If Landlord shall accept
such offer Tenant shall then execute and deliver to Landlord, or to anyone
designated or named by Landlord, an assignment or sublease, as the case may
be, in either case in a form reasonably satisfactory to Landlord's and
Tenant's counsel.
If a sublease is so made, it shall expressly:
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<PAGE> 54
(i) permit Landlord to make further subleases of all or any part
of the Leaseback Area and (at no cost or expense to Tenant)
to make and authorize any and all changes, alterations,
installations and improvements in such space as necessary;
(ii) provide that Tenant will, at all times, permit reasonably
appropriate means of ingress to and egress from the
Leaseback Area;
(iii) negate any intention that the estate created under such
sublease be merged with any other estate held by either of
the parties;
(iv) provide that Landlord shall accept the Leaseback Area "as
is" except that Landlord, at Tenant's expense, shall perform
all such work and make all such alterations as may be
required physically to separate the Leaseback Area from the
remainder of the demised premises (if applicable) and to
permit lawful occupancy, it being intended that Tenant shall
have no other cost or expense in connection with the
subletting of the Leaseback Area; and
(v) provide that at the expiration of the term of such sublease,
Tenant will accept the Leaseback Area in its then existing
condition, subject to the obligations of Landlord to make
such repairs thereto as may be necessary to preserve the
Leaseback Area in good order and condition, ordinary wear
and tear excepted.
Landlord shall indemnify and save Tenant harmless from all obligations
under this Lease as to the Leaseback Area during the period of time it is
so sublet, except for fixed annual rent and additional rent, if any, due
under the within Lease, which are in excess of the rents and additional
sums due under such sublease.
Subject to the foregoing, performance by Landlord, or its designee,
under a sublease of the Leaseback Area shall be deemed performance by
Tenant of any similar obligation under this Lease and any default under any
such sublease shall not give rise to a default under a similar obligation
contained in this Lease, nor shall Tenant be liable for any default under
this Lease or deemed to be in default hereunder if such default is
occasioned by or arises from any act or omission of the tenant under such
sublease or is occasioned by or arises from any act or omission of any
occupant holding under or pursuant to any such sublease.
(c) If Tenant requests Landlord's consent to a specific assignment or
subletting, it shall submit in writing to Landlord (i) the name and address
of the proposed assignee or sublessee, (ii) a duly executed counterpart of
the proposed agreement of assignment or sublease, (iii) reasonably
satisfactory information as to the nature and character of the business of
the proposed assignee or sublessee, and as to the nature of its proposed
use of the space, and (iv) banking, financial or other credit information
relating
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<PAGE> 55
to the proposed assignee or sublessee reasonably sufficient to enable
Landlord to determine the financial responsibility and character of the
proposed assignee or sublessee.
(d) If Landlord shall not have accepted Tenant's offer as provided in
Paragraph (b), then Landlord will not unreasonably withhold or delay its
consent to Tenant's request for consent to such specific assignment or
subletting. Any such consent of Landlord shall be subject to the terms of
this Article and conditioned upon there being no default by Tenant, beyond
notice and any grace period, under any of the terms, covenants and
conditions of this Lease at the time that Landlord's consent to any such
subletting or assignment is requested and on the date of the commencement
of the term of any such proposed sublease or the effective date of any such
proposed assignment.
(e) Upon receiving Landlord's written consent (and unless theretofore
delivered to Landlord), a duly executed copy of the sublease or assignment
shall be delivered to Landlord within ten (10) days after execution
thereof. Any such sublease shall provide that the sublease shall comply
with all applicable terms and conditions of `this Lease to be performed by
Tenant hereunder. Any such assignment of Lease shall contain an assumption
by the assignee of all of the terms, covenants and conditions of this Lease
to be performed by Tenant.
(f) Anything herein contained to the contrary notwithstanding:
(i) Tenant shall not advertise (but may list with brokers) its
space for assignment or subletting at a rental rate lower than the
greater of the then Building rental rate for such space or the rental
rate then being paid by Tenant to Landlord.
(ii) The transfer of a majority of the issued and outstanding
capital stock of any corporate tenant or subtenant of this Lease or a
majority of the total interest in any partnership tenant or subtenant,
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 or of such sublease. The transfer of
outstanding capital stock of any corporate tenant, for purposes of
this Article, shall not include sale of such stock by persons other
than those deemed "insiders" within the meaning of the Securities
Exchange Act of 1934 as amended, and which sale is effected through
the "over-the-counter market" or through any recognized stock
exchange.
(iii) No assignment or subletting shall be made:
(A) To any person or entity which shall at that time be a
tenant, subtenant or other occupant of any part of the Building
of which the demised premises form a part, or who dealt with
Landlord or Landlord's agent (directly or through a broker) with
respect to space in the Building during the six (6) months
immediately preceding Tenant's request for Landlord's consent
unless such tenant, subtenant or occupant is expanding its space
and Landlord has no other suitable space available in the
Building or unless the provisions of paragraph (g) below are
applicable to the transaction;
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<PAGE> 56
(B) By the legal representatives of Tenant or by any person
to whom Tenant's interest under this Lease passes by operation of
law, except in compliance with the provisions of this Article;
(C) To any person or entity for the conduct of a business
which is not in keeping with the standards and the general
character of the Building of which the demised premises form a
part.
(g) Anything hereinabove contained to the contrary notwithstanding,
the offer back to Landlord pursuant to the provisions of Paragraph (b)
hereof and the provisions of Paragraph (h) below shall not apply to, and
Landlord's consent shall not be required with respect to, an assignment of
this Lease, or sublease of all or part of the demised premises, to the
parent of Tenant or to a wholly-owned subsidiary of Tenant or of said
parent, or to any corporation into or with which Tenant may be merged or
consolidated, provided that the net worth of the resulting corporation is
at least equal to $50,000,000 at the time of the assignment or commencement
of the sublease provided, further, that any such assignment of Lease shall
contain an assumption by the assignee of all of the terms, covenants and
conditions of this Lease to be performed by Tenant. Tenant agrees that no
such assignment or subletting shall be effective unless and until Tenant
gives Landlord written notice thereof, together with a true copy of the
assignment or of the sublease.
(h) If Landlord shall not have accepted Tenant's offer to lease back
the demised premises and Tenant effects such assignment or subletting,
then, except as otherwise provided in subparagraph (g) above, Tenant
thereafter shall pay to Landlord a sum equal to fifty (50%) percent of (i)
any rent or other consideration paid to Tenant by any subtenant which
(after deducting the costs of Tenant, if any, in effecting the subletting,
including reasonable alteration costs, commissions and legal fees) is in
excess of the rent allocable to the subleased space which is then being
paid by Tenant to Landlord pursuant to the terms hereof, and (ii) any other
profit or gain (after deducting any necessary expenses incurred) realized
by Tenant from any such subletting or assignment. All sums payable
hereunder by Tenant shall be payable to Landlord as additional rent upon
receipt thereof by Tenant.
(i) In no event shall Tenant be entitled to make, nor shall
Tenant make, any claim and Tenant hereby waives any claim for money
damages (nor shall Tenant claim any money damages by way of set-off,
counterclaim, or defense) based upon any claim or assertion by Tenant
that Landlord has unreasonably withheld or unreasonably delayed its
consent or approval to a proposed assignment or subletting as provided
for in this Article. Tenant's sole remedy shall be an action or
proceeding to enforce any such provision, or for specific performance,
injunction or declaratory judgment.
SEVENTY-EIGHTH: Intentionally omitted.
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SEVENTY-NINTH:
(i) Provided Tenant shall not then be in default of its material
obligations hereunder beyond the expiration of any applicable grace or cure
period, in the event Landlord shall receive a bona fide offer during the
term hereof to lease any portion of the seventh floor of the Building which
is not then being leased by Tenant (subject, however, in the case of the
portion of the seventh floor which is currently being leased by Robins &
Associates LLP, to the provisions of Article SEVENTY-SECOND of this Lease),
Landlord shall send written notice thereof (the "First Refusal Notice") to
Tenant by hand or by certified mail, return receipt requested, which notice
shall be accompanied by a brief description of the material terms offered
by the prospective tenant. Such description shall include the name of the
prospective tenant, the space proposed to be leased by the prospective
tenant, the square footage of the space, the term of the proposed Lease,
the proposed rent, rent escalation terms, free rent, if any, work to be
performed by Landlord, if any, the security deposit and the amount to be
paid for electricity.
(ii) Within ten (10) business days after Tenant receives the First
Refusal Notice, time being of the essence, Tenant shall have the right to
elect to lease the space which is the subject of such Notice on the same
terms and conditions as are outlined in such Notice (provided, however,
that notwithstanding the term of the proposed lease as specified in the
First Refusal Notice, if Tenant elects to exercise its option, the term of
Tenant's lease for the space covered by the First Refusal Notice will run
through and including the Expiration Date of this Lease), and, if Tenant
elects to lease such space on such terms and conditions, Landlord and
Tenant shall promptly proceed to enter into a lease (or modification of
this Lease) on such terms and conditions provided, however, that (i)
notwithstanding the terms provided for in the Notice, the base rent to be
payable by Tenant with respect to such space shall be the then fixed annual
rent then being paid by Tenant with respect to the demised premises, as
same may have been adjusted and/or escalated in accordance with the
provisions of this Lease and (ii) Tenant shall receive a work allowance
equal to the product of (1) the number of rentable square feet for such
space multiplied by (2) $25.00 times a fraction, the numerator of which is
the number of months remaining in the term of this Lease (excluding the
Extension Term) as of the commencement date of the term for such space, and
the denominator of which is 85.
(iii) In the event Tenant shall fail or elect not to exercise its
option to lease such space within the time provided in Paragraph B above,
Landlord shall be free to consummate the transaction summarized in the
Notice with the prospective tenant, it being agreed that the terms of the
lease entered into between Landlord and the prospective tenant identified
in such offer only must be substantially similar to, but not identical to,
the summary of the transaction as provided in the Notice.
(iv) In the event Tenant shall elect not to lease such space and
Landlord shall not have consummated the transaction which gave rise to the
First Refusal Notice within ninety (90) days following delivery of such
First Refusal Notice, then Landlord shall be obligated to again comply with
the terms of this Article if it receives a bona fide offer to lease all or
any portion of the balance of the seventh floor of the Building (subject,
again, to the provisions of Article SEVENTY-SECOND hereof).
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<PAGE> 58
EIGHTIETH:
A. (i) Tenant shall comply with all federal, state and local
environmental protection and regulatory laws applicable to the demised
premises but only to the extent such compliance is not otherwise the
obligation of Landlord under this Lease.
(ii) Tenant shall not use, generate, manufacture, store or dispose of
any Hazardous Substance on, under or about the demised premises or the
Building nor transport any Hazardous Substance thereto, except chemicals
customarily used in ordinary cleaning activities. Tenant shall promptly
advise Landlord, in writing, of any and all (a) enforcement, clean-up,
remediation, removal or other governmental or regulatory actions
instituted, completed or threatened pursuant to any applicable laws
relating to any Hazardous Substances in the demised premises and (b)
claims, made or threatened by any person (including a governmental
authority) against the demised premises, Tenant or Landlord relating to any
damage, injury, costs, remedial action or cost recovery compensation
arising out of or due to the existence of any Hazardous Substance in or
about the demised premises or the Building.
B. Tenant shall, if required by applicable law, remove all Hazardous
Substances from the demised premises upon the expiration or earlier
termination of the term of this Lease to the extent such Hazardous
Substances are not existing in the demised premises on the Commencement
Date. Similarly, to the extent any Hazardous Substances existing in the
portion of the demised premises which is not currently occupied by Tenant
are required by law to be removed or encapsulated, Landlord, at its sole
cost and expense will, at Landlord's option, either remove or encapsulate
such Hazardous Substances within 30 days of the date of this Lease.
C. Tenant shall defend, indemnify and hold Landlord harmless from and
against all actions, causes of action, claims, lawsuits, administrative
proceedings, hearings, judgments, awards, fines, penalties, costs
(including legal, engineers', experts', investigatory and consulting fees),
damages, remediation activities and clean-up costs, liens, and all other
liabilities incurred by Landlord whenever incurred, arising out of Tenant's
act or failure to act resulting in (1) the existence or presence (or
alleged existence or presence) in or about the Building (including the
demised premises) of any Hazardous Substance or the release of any
Hazardous Substance into the environment, to the extent caused by Tenant,
its employees, guests, contractors or agents ; (2) any personal injury or
property damage resulting from any Hazardous Substance in or about the
Building (including the demised premises), to the extent caused by Tenant,
its employees, guests, contractors or agents; (3) the violation of any
federal, state or municipal environmental protection or regulatory law
caused by Tenant, its employees, guests, contractors or agents; or (4) the
commencement or prosecution of any judicial or administrative procedure
arising out of any claims under any federal, state or municipal
environmental protection or regulatory law or common law cause of action in
which Landlord is named a party or in which it may intervene. The
obligations of Tenant under this paragraph C shall survive the expiration
or earlier termination of the term hereof.
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<PAGE> 59
D. Landlord shall defend, indemnify and hold Tenant harmless from and
against all actions, causes of action, claims, lawsuits, administrative
proceedings, hearings, judgments, awards, fines, penalties, costs
(including legal, engineers', experts', investigatory and consulting fees),
damages, remediation activities and clean-up costs, liens, and all other
liabilities incurred by Tenant whenever incurred, arising out of Landlord's
act or failure (alleged or actual) to act resulting in (1) the existence or
presence (or alleged existence or presence) in or about the Building or the
demised premises of any Hazardous Substance or the release of any Hazardous
Substance into the environment; (2) any personal injury or property damage
resulting from any Hazardous Substance in or about the Building or the
demised premises; (3) the violation of any federal, state or municipal
environmental protection or regulatory law by Landlord, its employees,
agents, contractors, licensees, visitors or guests; or (4) the commencement
or prosecution of any judicial or administrative procedure arising out of
any claims under any federal, state or municipal environmental protection
or regulatory law or common law cause of action in which the Building is
involved and in which Tenant is named a party. The obligations of Landlord
under this paragraph D shall survive the expiration or earlier termination
of the term hereof.
E. "Hazardous Substance" means any hazardous substance as defined in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C.ss. 9601 et seq., as amended by the Superfund Amendments and
Reauthorization Act of 1986; hazardous waste as defined in the Resource
Conservation and Recovery Act of 1976, 42 U.S.C.ss. 6901 et seq., as any of
the foregoing may be amended or superseded; oil; petroleum product,
derivative, compound or mixture; mineral, including asbestos; chemical;
gas; medical waste; polychlorinated biphenyls (pcb's); methane; radon;
radioactive material; volatile hydrocarbons; or other material, whether
naturally occurring, man-made or the by-product of any process, which is
toxic, harmful or hazardous or acutely hazardous to the environment or
public health or safety; or any other substance the existence of which on
or at any property would be the basis for a claim for damages, clean-up
costs or remediation costs, fine, penalty or lien under any federal, state
or municipal environmental protection or regulatory law or applicable
common law.
EIGHTY-FIRST: Landlord represents that (a) it is the fee owner of the
Building and the land upon which the Building is located and (b) there is
presently no mortgage encumbering the Building.
24
<PAGE> 60
7TH FLOOR
1333 BROADWAY
"FLOOR PLAN"
25
<PAGE> 1
EXHIBIT 10.26
SUZY'S ZOO
LICENSE AGREEMENT
with
GERBER CHILDRENSWEAR, INC.
<PAGE> 2
LICENSE AGREEMENT
This License Agreement is made and entered into by and between, SUZY'S ZOO a
corporation organized under the laws of the State of California, having its
principal office and place of business at 9401 Waples Street, Suite 150, San
Diego, California 92121-3909, USA (hereinafter "LICENSOR"); duly represented by
MOON MESA MEDIA, LLC, a limited liability company organized under the laws of
the State of California, having its address at 14945 Ventura Boulevard, Suite
300, Sherman Oaks, California 91403, joining in as the exclusive representative
of the LICENSOR (hereinafter "REPRESENTATIVE"); and GERBER CHILDRENSWEAR, INC.,
a corporation organized under the laws of the State of Delaware, having its
principal address at 7005 Pelham Road, Greenville, SC 29615 (hereinafter
"LICENSEE").
RECITALS:
A. LICENSOR is the proprietor of copyrights and all rights therein
throughout the world in certain works, and by grant from SUZANNE
SPAFFORD ROBIE has acquired the right to license certain other works
throughout the world, such works including the particular works
identified on Schedule A attached hereto, or added by future Addendum
thereto, and incorporated herein by reference (the identified works
hereinafter referred to as "Licensed Works").
B. LICENSOR has adopted, used, and is the proprietor of the trademark
SUZY'S ZOO(R) and numerous trademark registration and applications
therefor throughout the world, including registrations in the United
States and Canada (hereinafter "Licensed SUZY'S ZOO Trademark").
C. REPRESENTATIVE is the sole and exclusive licensing and merchandising
representative of the Licensed Works and the Licensed SUZY'S ZOO
Trademark throughout the world.
D. The parties contemplate that LICENSEE may be involved in a number of
projects in which it desires to use the Licensed Works and Licensed
SUZY'S ZOO Trademark.
E. The parties contemplate that the individual projects shall be
separately addressed in separate Schedules, with each such Schedule
setting forth the specific license terms applicable to that project
(herein "Schedules").
F. The specific terms and conditions relating to the first such project
are entered on Schedule A hereto which is incorporated herein by
reference.
G. LICENSEE is desirous of obtaining license rights from LICENSOR
regarding certain products listed on Schedule A, incorporating or
displaying the Licensed Works (hereinafter "Licensed Products"), and to
use the Licensed SUZY'S ZOO Trademark on, and in connection with such
Licensed Products.
H. LICENSOR is willing to grant such a license upon and subject to certain
terms, conditions, limitations and restrictions as set forth below.
1
<PAGE> 3
TERMS AND CONDITIONS:
NOW, THEREFORE, in consideration of the foregoing recitals and
of the mutual covenants and conditions set forth below, the parties hereby agree
as follows:
1. GRANT AND ACCEPTANCE OF LICENSE
a. LICENSOR hereby grants to LICENSEE, for the term of this
Agreement, subject to the terms and conditions herein set
forth, the right, privilege and license to make, have made,
sell and distribute in the Territory the Licensed Products and
to use the Licensed SUZY'S ZOO Trademark only on and in
connection with such Licensed Products, as further specified
on Schedule A. The parties contemplate that additional license
rights may be granted in the future, and that such rights will
be defined by additional schedules denominated consecutively
B, C, D, E... Z, AA, BB, CC as required, taken in connection
with this Agreement.
b. "Territory," as used herein shall initially mean the
geographic areas identified on Schedule A attached hereto and
incorporated herein by reference. It is contemplated that the
Territory may be different for each project, and in this sense
may be modified during the term of this Agreement by addition
of further Schedules, as well as modification of Schedule A
hereto.
c. The rights granted hereunder shall pertain only to the
specifically identified Licensed Works. The Works included in
the Licensed Works may be added or deleted to the extent that
new scheduled projects define a different group of works or
Schedule A or any subsequent Schedule is modified.
d. The rights granted hereunder are further limited and defined
as to specific categories of products, Territories, markets
and exclusivity for areas of endeavor by LICENSEE or its
agents or distributors as set forth on Schedule A or
subsequent Schedules.
e. New projects, and any changes in the scope of rights granted
hereunder, as well as the particulars of the nature and scope
of rights granted in relation to any particular project, shall
be addressed through addendum to this Agreement, adding or
deleting or modifying Schedules hereto.
f. LICENSEE hereby accepts the foregoing license from LICENSOR,
and shall exercise its reasonable best efforts to establish
and maintain reasonable and customary industry standards of
quality, style and appearance, not inferior to the quality,
style and appearance of the products made and sold by LICENSOR
under the Licensed SUZY' S ZOO Trademark, for the Licensed
Products which LICENSEE endeavors to make, have made, use, and
sell under this Agreement. LICENSEE shall implement adequate
quality control procedures to satisfy any applicable
governmental regulatory or legal requirement applicable
thereto and to
2
<PAGE> 4
protect the reputation for high quality which LICENSOR has
achieved for its own products. Distribution of the Licensed
Products under this Agreement shall be under LICENSEE's own
brand name, "Gerber Childrenswear,"or under such other brand
names as LICENSOR may in advance and in writing approve, and
LICENSEE shall not include the Licensed SUZY'S ZOO Trademark,
or any portions thereof, in its corporate or business name.
g. LICENSEE shall use due diligence and exercise its reasonable
best efforts in accordance with good business practice, during
the term of this Agreement, to promote, manufacture and sell
each Licensed Product.
h. In order to effect the use of the Licensed Works, LICENSOR
shall supply LICENSEE with artwork for each of the Licensed
Works. Artwork shall consist of character designs presently
contained in LICENSOR'S character design library or
adaptations thereof, or new designs created at LICENSEE'S
request. All artwork used in connection with Licensed Works
shall be produced by LICENSOR. Such artwork supplied to
LICENSEE shall be used only in connection with the performance
of this Agreement and shall remain the property of LICENSOR.
There will be no additional charge (other than incidental
shipping charges and the like) for supply of art which can be
used directly from the existing library of designs maintained
by LICENSOR. The art fee on a piece-by-piece basis for
creation of new designs or adaptations of existing designs to
other media and/or reproduction processes shall be as
specified in the applicable Schedule. The negotiated art fee
is payable on delivery of artwork to LICENSEE. Such artwork
comprising new designs and adaptations shall be licensed
hereunder to LICENSEE in the same manner as other Licensed
Works, as specified on the applicable Schedule or Schedules.
2. LICENSE TERM
a. The term of this Agreement shall commence as of the date this
Agreement is executed on behalf of LICENSOR or REPRESENTATIVE,
or on the effective date set forth in the applicable Schedule,
whichever shall first occur, and shall continue as provided in
Schedule A hereto, unless earlier terminated in accordance
with other provisions of this Agreement.
b. The term of this Agreement may be renewed at the option of
LICENSEE to the extent, if any, provided in a Schedule hereto.
However, LICENSOR shall have the right to cancel this
Agreement at the end of its original term and any subsequent
renewal term in the event royalties accruing based on actual
sales are insufficient to meet a minimum royalty condition or
any other condition set forth in the Schedule relating to
renewal has not been satisfied.
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<PAGE> 5
3. ROYALTIES
a: For the rights licensed herein, LICENSEE shall pay
REPRESENTATIVE on behalf of LICENSOR royalties on Net Sales of
Licensed Products in accordance with the particular Schedule
to which royalty bearing activities producing such royalties
pertain, unless in any particular Schedule the basis for
royalty calculation is other than Net Sales as defined herein.
In the latter case the basis shall be specifically set forth
in the applicable Schedule. Annual Advances and Guaranteed
minimum royalties, if applicable, shall be included in each
scheduled project and stated in the applicable Schedule.
Unless otherwise specifically provided for in the applicable
Schedule, advances and guaranteed royalty amounts shall be
paid in advance, within the first five (5) business days of
the period to which they apply, and thereafter applied as a
set-off against future earned royalties accruing to
REPRESENTATIVE on behalf of LICENSOR as specified herein.
b. Unless otherwise provided in a particular Schedule, the basis
for calculation of royalties shall be Net Sales. "Net Sales"
for purposes of this Agreement shall mean gross selling price
by LICENSEE, its distributors, agents, etc. at the wholesale
level just prior to retail, to customers for the sale of
Licensed Products, or the price actually paid, whichever is
higher, less sales taxes, shipping costs, customary discounts
and allowances, and credits for returns actually made and
allowed (hereinafter "Deductions"). In computing Net Sales, no
costs incurred in manufacturing, selling, advertising or
distributing the Licensed Products covered by this Agreement
other than those set forth above shall be deducted, nor shall
any deduction be made for uncollectible accounts. Net Sales
shall be deemed to have occurred and royalties shall accrue
when the Licensed Products are sold, shipped, distributed,
billed and/or paid for, or invoiced, whichever comes first.
Non-cash, trade-in-kind and other barter transactions shall be
accounted as if sold at the highest catalog list price
published by LICENSEE in the preceding year.
4. REPORTS AND PAYMENTS
a. Royalties accruing from activities hereunder shall be computed
on a periodic basis as set forth in the applicable Schedule.
Within thirty (30) days after the end of each such accounting
period, LICENSEE shall provide to REPRESENTATIVE a written
report, in the format and with the content set forth under
subparagraph 4.b below, and shall pay REPRESENTATIVE all
royalties accruing hereunder during such period. Within thirty
(30) days following any termination or expiration of this
Agreement, LICENSEE shall render a written closing report to
REPRESENTATIVE applicable to any sales not previously
reported, said report to be accompanied by payment of
royalties, if any, not previously paid. Said closing report
shall also include an inventory of all Licensed Products on
hand and in process of manufacture for LICENSEE upon
termination or expiration of this Agreement.
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<PAGE> 6
b. Each and every report shall show in detail, for the accounting
period to which the report pertains, activity under each
scheduled project hereunder, including the identities and
quantities of Licensed Products sold hereunder, the actual
invoice or billing price of the Licensed Products supplied,
the actual price paid for them if more than the invoice price,
the applicable Deductions, and the royalties due from
LICENSEE. Each such report shall include a computation of the
royalty accrued, and any set-offs against royalties due and
owing (e.g., advance royalties paid). The methods used in
computing and reporting the required information shall be in
conformity with standard accounting practice.
5. BOOKS AND RECORDS
a. LICENSEE shall keep and maintain true and complete books and
records pertaining to its manufacture, purchase, supply and
sale of Licensed Products. LICENSEE shall be responsible for
assuring that such books and records shall be kept, and the
information maintained in sufficient detail to enable the
royalties payable to REPRESENTATIVE for each of the Licensed
Products to be accurately determined, as well as the sales and
pricing information required under this Agreement.
b. LICENSEE shall make such books and records available, upon
request, at reasonable times during regular business hours for
inspection by REPRESENTATIVE, at REPRESENTATIVE'S expense, and
supply REPRESENTATIVE with the details and supporting data
necessary to verify the reports and payments required by this
Agreement. No more than one (1) such examination may be made
during any twelve (12) month period that this Agreement is in
effect.
c. If an error of more than five percent (5%) in royalty payments
made since the beginning of the license term or the last
inspection, as applicable, is discovered during any such
inspection, the costs to REPRESENTATIVE for such inspection
shall be borne by LICENSEE.
d. LICENSEE shall maintain its books and records relevant to this
Agreement for at least two (2) years after the end of the
calendar year to which they pertain.
6. SUPERVISION AND APPROVAL
a. All Licensed Products manufactured and sold hereunder, as well
as all labels, packaging, catalogs, brochures, advertising and
other forms of publicity, shall be created and designed to be
of reasonable and customary industry standard of quality so as
to protect and preserve the image and goodwill that are
associated by the public with LICENSOR, and LICENSEE shall
conduct its business accordingly under this Agreement.
5
<PAGE> 7
b. All Licensed Products manufactured and sold hereunder shall
meet all applicable product safety, consumer protection, and
product liability requirements, including those provided by
federal, state, and local laws and regulations, and also those
requirements covering the activities of LICENSEE adopted by
the industry whereunder LICENSEE operates; and LICENSEE shall
at all times conduct its business in accordance with such
laws, regulations, and requirements under this Agreement.
c. All Licensed Products manufactured and sold hereunder, and all
labels, packaging, catalogs, brochures, advertising and other
forms of publicity material for the Licensed Products, shall
be subject to LICENSOR's written approval in advance of use.
Failure of LICENSOR to disapprove an item within ten (10)
working days of receipt of a representative sample shall be
deemed an approval provided LICENSEE gives LICENSOR and
REPRESENTATIVE three (3) days prior written notice of its
intent to invoke the deemed approval and neither LICENSOR nor
REPRESENTATIVE objects within said three (3) day period.
Without cost to LICENSOR, LICENSEE shall submit to LICENSOR
for its inspection and written approval, at reasonable times
in advance of manufacture, sale or distribution, as
applicable: 1) a proposed design for each proposed Licensed
Product to be sold by LICENSEE; 2) [INTENTIONALLY OMITTED]; 3)
a production sample thereof; as well as a pre-production
sample and a production sample of each proposed label,
package, catalog, brochure, advertisement, and such other
forms of material containing or relating to Licensed Works or
Licensed Products as may be applicable, which LICENSEE
proposes to use in connection with activities hereunder,
including the promotion or sale of the Licensed Products. This
right of prior approval shall be at the sole discretion of
LICENSOR who shall act in good faith, and approval in writing
or by failure to respond shall be a condition of the right to
exercise the grant of license hereunder. LICENSEE shall not
materially depart from any approved sample submitted, without
LICENSOR's prior consent obtained in writing or by failure to
respond after submission of a new sample incorporating the
material departures from a previously approved sample.
d. LICENSEE will provide LICENSOR, without cost to LICENSOR, a
sample of each Licensed Product actually offered for sale or
sold, and of each label, packaging, catalog, brochure,
advertisement or other form of publicity material therefor,
which LICENSOR may periodically request to assure adherence of
LICENSEE to the requirements of this Agreement.
e. For purposes of this Agreement a "sample" shall consist of
four (4) specimens of each Licensed Product, label, package,
catalog, brochure, advertisement or such other forms of such
material containing or relating to Licensed Works as may be
applicable.
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<PAGE> 8
7. COPYRIGHTS AND TRADEMARKS
a. LICENSEE recognizes the great value of the goodwill that is
associated with the Licensed SUZY'S ZOO Trademark and the
Licensed Works, including the characters that are the subject
thereof, and LICENSEE acknowledges that as between the parties
such goodwill is owned exclusively by LICENSOR and any
goodwill that may be created by the use of the Licensed SUZY'
S ZOO Trademark and the Licensed Works by LICENSEE hereunder
shall inure to the benefit of LICENSOR. LICENSEE further
acknowledges that, as between the parties, all right, title
and interest in and to the Licensed SUZY'S ZOO Trademark and
the Licensed Works are owned exclusively by LICENSOR,
including the right to use the Licensed Works and the Licensed
SUZY' S ZOO Trademark in LICENSOR's own business.
b. The copyrights in Licensed Works shall remain in the sole and
exclusive control of LICENSOR. Any adaptation or modification
of Licensed Works or new works prepared under this Agreement,
any copyrights therein, and all of the rights comprised in
said copyrights, shall be in the sole and exclusive control of
LICENSOR. If LICENSEE develops or acquires any such
adaptation, modification or new work, LICENSEE shall assign to
LICENSOR the copyright in any such adaptation, modification or
new work, and shall execute all documents reasonably required
or requested to effect such assignment or to permit LICENSOR
to register or maintain title to copyright in any such
adaptation, modification or new work, in LICENSOR.
c. Adaptations and modifications of Licensed Works and new works
prepared under this Agreement shall be included as part of
said Licensed Works.
d. LICENSEE shall take reasonable precautions in dealing with its
suppliers to preserve LICENSOR'S copyright and trademark
rights and to prevent infringement thereof.
8. PRODUCT MARKING
a. Licensed Products made and sold by LICENSEE hereunder and all
labels, packaging, catalogs, brochures, advertising and other
forms of publicity material for the Licensed Products, which
incorporate or display the Licensed Works, shall be marked
with an appropriate copyright notice. Such notice shall be of
proper form and content and be properly displayed in a manner
that complies with all applicable laws in the particular
location within the Territory where each Licensed Product is
sold, as well as the Universal Copyright Convention. An
initial approved copyright notice for each of the Licensed
Works shall be provided by LICENSOR, in connection with
provision of copies of the Licensed Works, or artwork
embodying same, to LICENSEE.
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<PAGE> 9
b. Licensed Products, where reasonably feasible, and, in any
event, labels, packaging, catalogs, brochures, advertising and
other forms of publicity material for the Licensed Products,
shall state that the Licensed Products incorporating or
displaying Licensed Works are made under this Agreement, as,
for example, by stating:
"Made under license from SUZY' S ZOO(R),
San Diego, California, U.S.A."
c. The Licensed SUZY'S ZOO Trademark, which is registered in the
United States and elsewhere, shall be displayed with an
appropriate trademark registration notice in accordance with
applicable United States trademark law (i.e. (R)), or other
applicable' law within the Territory, as appropriate.
d. LICENSEE shall provide LICENSOR, upon request to LICENSEE,
with such reasonable quantities of identical specimens of
items incorporating or displaying Licensed Works or works
derived therefrom, and of any labels, packaging, catalogs,
brochures, advertising and other forms of publicity material
therefor, reasonably necessary for copyright or trademark
registration purposes. LICENSEE shall also provide LICENSOR,
upon request to LICENSEE, with all use dates and other
information necessary to enable LICENSOR to apply for and
obtain registration of copyrights and trademarks.
9. INDEMNIFICATION, INSURANCE AND INFRINGEMENT
a. LICENSEE shall defend, indemnify and hold harmless LICENSOR
and its officers, employees and agents, including
REPRESENTATIVE (hereinafter collectively referred to as the
"Indemnified Parties") from and against any and all claims,
demands, suits, losses, injuries, or liabilities arising out
of the manufacture or sale of the Licensed Products or
resulting from LICENSEE's exercise of the license granted
hereunder.
b. LICENSEE shall obtain and maintain at all times product
liability insurance for the Licensed Products in an amount of
coverage reasonable and adequate in view of all relevant
circumstances. Such product liability insurance shall cover
any claims, demands, causes of action or property or personal
injury damages, including reasonable attorneys' fees, arising
from or out of any alleged defects in the Licensed Products,
or otherwise from or out of any use or misuse of the Licensed
Products. The limit of coverage shall be based upon both the
nature of the Licensed Product and the environment in which it
may be used. Such insurance policy or policies shall in any
event contain a combined single limit of no less than one
million dollars ($1,000,000.00) for bodily injuries and
property damage arising out of each occurrence, and, if
reasonable and prudent business practice dictates a higher
limit, as reflected in common practice in the industry, or by
another verifiable and accepted standard throughout the
industry, such higher minimum
8
<PAGE> 10
limit shall apply. A Certificate of Insurance demonstrating
compliance with the provisions of this paragraph by LICENSEE
and naming LICENSOR and REPRESENTATIVE as additional insureds
shall be provided to REPRESENTATIVE on an annual basis upon
request by REPRESENTATIVE. Such insurance shall provide that
it may not be canceled without 30 days' prior written notice
to LICENSOR and REPRESENTATIVE. LICENSEE shall give immediate
notice to LICENSOR of all occurrences that might reasonably be
expected to result in any claim against it or any one or more
of the Indemnified Parties, or which could impose any
liability upon any one or more of the Indemnified Parties.
c. LICENSEE shall promptly notify LICENSOR of any infringement or
suspected infringement of the copyrights in the Licensed Works
or the trademarks that comprise the Licensed SUZY'S ZOO
Trademark by any third party. Any action taken by LICENSEE to
enforce said copyrights or trademarks against such infringers,
including the giving of notice of infringement of the
institution of legal proceedings, shall be subject to the
prior approval of LICENSOR. LICENSOR shall not be obligated to
take any such action, and any decision to take such action by
LICENSOR, and the conduct of any such action taken, shall be
entirely within the discretion and control of LICENSOR.
LICENSEE shall cooperate fully with LICENSOR in any such
action LICENSOR may choose to take in this regard. If LICENSOR
elects not to proceed with such action and if any such
infringement or imitation by a third party shall materially
interfere with LICENSEE'S exercise of the rights granted to it
under this Agreement, LICENSEE may terminate this Agreement
prospectively by so notifying LICENSOR in writing, without
limitation of any other rights or remedies LICENSEE may have,
subject to the payment to LICENSOR of all Royalties then due
or accrued to LICENSOR in respect of sales made through the
date of LICENSEE'S termination of this Agreement.
10. PROTECTION OF LICENSOR'S RIGHTS
a. LICENSEE and LICENSOR shall each cooperate with the other
party as reasonably required to protect and maintain the
copyrights in the Licensed Works and the trademarks that
comprise the Licensed SUZY'S ZOO Trademark.
b. LICENSEE shall not challenge or contest LICENSOR'S ownership
of the copyrights in the Licensed Works or the trademarks that
comprise the Licensed Trademark, or their validity, or the
validity of the License granted hereunder.
c. LICENSEE shall protect and preserve LICENSOR's copyrights and
trademarks, subject to the provisions of paragraphs 7 and 9.c
above, and in no way whatsoever will LICENSEE harm or misuse
them or otherwise cause them to be reduced in value to
LICENSOR. In this connection, LICENSEE will not manufacture,
advertise, sell, or distribute the Licensed Products in any
manner which violates
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<PAGE> 11
applicable laws, the terms of this Agreement, standards of
reasonable and ethical business practice, or commonly accepted
standards of propriety.
11. TERMINATION
a. In the event of any material breach of this Agreement, or any
default in performance by LICENSEE, including the failure to
pay royalties when due, LICENSOR may, at its option, terminate
this Agreement by giving written notice thereof. However,
LICENSEE shall have thirty (30) days following receipt of such
notice within which to cure the breach or default and thus
reinstate this Agreement as of the date of such notice.
b. This Agreement may, in the sole discretion of LICENSOR, be
terminated on ten (10) days written notice from LICENSOR as to
any and all Licensed Works, as listed on the applicable
Schedule, that are not actively marketed and sold in
connection with Licensed Products within a time period of
ninety (90) days from the effective date of this Agreement, or
ninety (90) days from the date any such Licensed Work is added
to this Agreement by inclusion in one of the Schedules hereto,
whichever is later.
c. This Agreement shall be automatically and immediately
terminated if any one or more of the following events occur:
1. The filing of a voluntary or involuntary petition in
bankruptcy with respect to LICENSEE;
2. The execution by LICENSEE of an assignment for the
benefit of creditors or a compromise with creditors;
3. The insolvency of LICENSEE, as that term is defined
under United States federal bankruptcy law; or
4. The appointment of a receiver for LICENSEE or any of
its property;
provided, however, that LICENSEE shall have ninety (90) days
following such event within which to nullify the event or the
effect of the event, in which case the Agreement shall be
automatically and immediately reinstated.
d. Provided this Agreement shall not have been terminated for
LICENSEE'S breach, LICENSEE shall have the non-exclusive
right, upon termination or expiration of this Agreement, to
sell all of its then-existing inventory of Licensed Products,
including items in process in the normal course of its
business, during the three (3) month period immediately
following such termination or expiration. Notwithstanding any
other provisions of this Agreement, all obligations and
requirements of this Agreement shall apply to sales of
Licensed Products during
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<PAGE> 12
the three (3) month sell-off period, including payment of
royalties thereon and the reporting requirements regarding
such sales. LICENSEE shall refrain from manufacturing, selling
and distributing any Licensed Products, whether during the
term of this Agreement or following the termination or
expiration thereof, which fail to meet the within requirements
of quality, product safety, consumer protection and product
liability, or fail to carry appropriate copyright or trademark
notices. Upon the expiration of the three (3) month sell-off
period, any further stock on hand of Licensed Products shall
be destroyed. LICENSEE shall not manufacture quantities of
Licensed Products in anticipation of the sell-off period which
materially exceed the quantities LICENSEE could anticipate
selling prior to the expiration of this Agreement.
e. LICENSEE acknowledges that a failure (except as otherwise
expressly provided herein) to cease the manufacture, sale or
distribution of the Licensed Products upon the termination or
expiration of this Agreement will result in immediate and
irreparable damage to LICENSOR. LICENSEE further acknowledges
that there is no adequate remedy at law for such failure to
cease manufacture, sale or distribution, and, in the event of
such failure, LICENSOR shall be entitled to equitable relief
and such further relief as a court or agency with jurisdiction
may deem just and proper.
f. Termination of this Agreement for any reason shall not relieve
LICENSEE of its obligation to pay all royalties owing or
accrued prior to the termination.
g. Upon termination of this Agreement, all of the rights granted
hereunder to LICENSEE shall revert to LICENSOR. Except as
herein provided, LICENSEE will cease and desist from
manufacturing, selling or distributing Licensed Products
incorporating or displaying the Licensed Works, and from
making any use whatsoever of the Licensed Works or the
Licensed SUZY'S ZOO Trademark. Upon the termination of this
Agreement, all original artwork bearing or incorporating the
Licensed Works in the custody or control of LICENSEE shall be
returned to LICENSOR and any other materials incorporating,
displaying or otherwise making use of Licensed Works,
including, but not limited to, plates, masks, transparencies,
negatives, screens, and the like, computer data or algorithms,
or other electronic means of incorporating or embodying same,
as well as any other non-product representations bearing or
incorporating the Licensed Works owned by, or within the
custody or control of, LICENSEE, shall be destroyed.
12. LICENSOR REPRESENTATIONS
LICENSOR represents that LICENSOR is free to enter into this Agreement;
that the Licensed Works are LICENSOR's own and original creations (except for
matters in the public domain or material which LICENSOR is fully licensed to
use); and that, to the best of LICENSOR's knowledge, the Licensed Works, and the
manufacture, advertisement, distribution
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<PAGE> 13
and sale hereunder of same embodied in the Licensed Products, do not infringe
upon any rights of any third party. LICENSOR shall defend, indemnity and hold
harmless LICENSEE and its officers, employees and agents, from and against any
and all claims, demands, suits, losses, or liabilities, including, but not
limited to, reasonable outside attorneys' fees, arising from copyright or
trademark infringement claims by third parties and arising solely out of the use
by LICENSEE of the LICENSED PROPERTY as authorized under this Agreement.
13. GOVERNING LAW, DISPUTE RESOLUTION, FORUM SELECTION AND JURISDICTION
This Agreement shall be governed by and construed under the laws of the
State of California of the United States of America, without regard to choice of
law principles. Any dispute arising under this Agreement which cannot be
resolved by the parties within thirty (30) days after it arises shall be
submitted to binding arbitration in San Diego County of said State of
California, in accordance with the rules for expedited arbitration of the
American Arbitration Association and the parties hereby expressly accept and
submit to such jurisdiction. The prevailing party shall be entitled to recover
its reasonable attorney's fees and costs of arbitration from the non-prevailing
party.
14. FORCE MAJEURE
In the event either party hereto is prevented from performing or is
unable to perform any of its obligations under this Agreement due to fire,
flood, earthquake, state of war, governmental regulation, national emergency,
strikes, lockouts, labor troubles, failure of public utilities, injunctions, or
other events beyond the reasonable control of the party affected, the affected
party shall give notice promptly to the other party in writing and, thereupon,
the affected party's non-performance shall be excused and the time for
performance of this Agreement shall be extended for the period of delay or
inability due to such Force Majeure, but for not more than one (1) year in the
aggregate. Any royalties due or accrued as of the commencement date of such
event of Force Majeure shall be paid within thirty (30) days thereafter.
15. ATTRIBUTES OF NOTICES, REPORTS AND PAYMENTS
Any notice, approval, report or payment required or permitted under the
terms of this Agreement shall be in writing and sent by certified or registered
mail, postage prepaid, return receipt requested, or by facsimile transmission
with confirmation sent by certified or registered mail, postage prepaid, return
receipt requested, or by courier (e.g. Federal Express, UPS, DHL, and the like)
with confirmation of receipt by signature requested.
Notices to the parties shall be addressed as follows:
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<PAGE> 14
To LICENSOR: Mr. Raymond L. Lidstrom
President
SUZY'S ZOO
9401 Waples Street, Suite 150
San Diego, California 92121-3909
Facsimile: (619) 452-2170
To REPRESENTATIVE: Sheryl S. Hardy
Chief Executive Officer
MOON MESA MEDIA, LLC
14945 Ventura Boulevard, Suite 300
Sherman Oaks, California 91403
Facsimile: (818) 528-1467
To LICENSEE: Chris Lanigan
V.P., Marketing and Creative Services
Gerber Childrenswear
7005 Pelham Road
Greenville, SC 29615
Facsimile: (864) 987-5401
A proper notice shall be deemed to have been given when sent, subject to proof
of receipt.
16. GENERAL PROVISIONS
a. The parties to this Agreement are independent contractors, and
nothing herein contained shall be construed so as to place the
parties in the relationship of partners or joint venturers,
and LICENSEE and its sublicensees, if any are permitted
hereunder, shall have no power to obligate or bind LICENSOR in
any manner whatsoever. Neither LICENSEE nor LICENSOR is
authorized to or shall act as the agent of the other, except
for the express purpose of obtaining any necessary government
approvals of this Agreement and the payments to be made
hereunder should such approvals be required.
b. This Agreement sets forth the entire agreement and
understanding of LICENSOR and LICENSEE with respect to the
subject matter hereof, and supersedes any prior agreements,
arrangements and understandings between them. No
representation, promise or inducement has been made by any
party that is not embodied in this Agreement, and no party
shall be bound by, or liable for, any alleged representation
or promise of inducement not so set forth. Any changes made to
this Agreement or the Schedules thereto shall be in writing
and signed by an authorized representative of each of the
respective parties.
c. This Agreement is personal to LICENSEE, and neither the
Agreement nor any of LICENSEE's rights or obligations
hereunder may be assigned, pledged, encumbered or sublicensed
by LICENSEE without prior written consent of LICENSOR, not to
be unreasonably withheld. However, should LICENSEE'S
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<PAGE> 15
rights hereunder be sublicensed, with the consent of LICENSOR
or as otherwise provided herein, all the terms and conditions
of this Agreement which reasonably could, and in law-or equity
should, be applied to a Sublicensee shall be applied thereto,
whether or not in any instance a Sublicensee or applicability
of any particular term of this Agreement thereto is mentioned.
For purposes of this subparagraph c, a purchaser of all or
substantially all of the issued and outstanding shares of the
capital stock of LICENSEE shall be considered a successor,
regardless of the form of the transaction, in which event
LICENSEE shall so notify LICENSOR in writing, but no consent
from LICENSOR shall be required.
d. Subject to the provisions of subparagraph 16.c above, and
where not otherwise inconsistent with the terms of this
Agreement, this Agreement shall be binding upon and inure to
the benefit of the successors, heirs and assigns of LICENSOR
and LICENSEE.
e. This Agreement may be amended, modified, superseded, or
canceled, or the terms or covenants hereof waived, only by a
written instrument executed by the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure
of either party at any time to require performance of any
provision hereof shall not affect the right at another time to
enforce the same. No waiver by either party of the breach of
any term or covenant contained in this Agreement shall be
deemed to be a continuing waiver of any such breach or a
waiver of the breach of any other term or covenant contained
in this Agreement.
f. Any provision of this Agreement which in any way contravenes
or is unenforceable under any law of a state or locality in
which this Agreement is effective shall be deemed separable
and not a part of this Agreement and to that extent void.
However, all remaining provisions of this Agreement shall be
valid and in full force and effect, and the parties shall
negotiate in good faith a replacement provision that is in
harmony with applicable law and effects, insofar as possible,
the original purpose of the Agreement term in question.
g. The captions are inserted herein only as a matter of
convenience and for reference, and in no way define, limit or
describe the scope of this Agreement or the intent of any
provision herein.
h. This Agreement may be executed in one or more counterparts,
each of which shall for all purposes be deemed to be an
original and all of which shall constitute the same
instrument. Facsimile signatures shall be accepted as proof of
execution.
i. In the event LICENSOR shall provide notice to LICENSEE that
LICENSOR has ceased utilizing the services of REPRESENTATIVE,
all obligations otherwise accruing to REPRESENTATIVE hereunder
shall accrue to LICENSOR.
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<PAGE> 16
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed effective as of the day and year first above written.
SUZY' S ZOO ("Licensor")
/s/ Raymond L. Lidstrom
- ----------------------------------------
Raymond L. Lidstrom, President
4/14/99 Date
- -------
MOON MESA MEDIA, LLC ("Representative")
/s/ Sheryl S. Hardy, CEO
- ----------------------------------------
Sheryl S. Hardy, CEO
4/13/99 Date
- -------
GERBER CHILDRENSWEAR, INC. ("Licensee")
/s/ David L. Gold
- ----------------------------------------
David L. Gold, Senior Vice President
4/13/99 Date
- -------
APPROVED:
/s/ Suzanne Spafford Robie
- ----------------------------------------
Suzanne Spafford Robie
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<PAGE> 17
Schedule A
to
LICENSE AGREEMENT
between
SUZY'S ZOO ("Licensor") and GERBER CHILDRENSWEAR, INC. ("Licensee")
(continued on next page)
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<PAGE> 18
LICENSED INFANT BEDDING
PRODUCTS: Comforter*
Bumper*
Crib Sheets*
Receiving Blankets*
Crib Blankets*
Baby Blankeys (security blanket)
Hooded Towel & wash mitts*
Wash cloths*
Crib ruffle*
Diaper stacker*
Laundry bag
Sheet saver
Birth certificate and decorative pillows (non-exclusive)*
Window Treatments to coordinate with bedding patterns only, to
be approved on a case by case basis (non-exclusive)
Wall borders to be supplied by LICENSOR'S designated
Wallpaper licensee (non-exclusive)
Pack & play sets
INFANT LAYETTE
Sleep n play*
Pajamas (infant to 4T)
Prams/pram bags
Gowns/Dorm Shirts
Blanket Sleepers (infant to 4T)*
One-piece underwear*
Infant Gowns*
Undershirts (slip-on & snap-side)
Caps*
Booties*
Union suits
Coveralls
2 piece underwear sets
Cardigan set
Burp cloths
Bibs
Overalls (infant to 4T) (non-exclusive)
Gift Sets (non-exclusive, it being
understood that others who wish to include
goods exclusively licensed hereunder in gift
sets must acquire those goods from LICENSEE,
and that LICENSEE may elect whether or not
to provide those goods in its own
discretion. LICENSEE understands the same
conditions will apply should it wish to use
goods in gift sets under exclusive license
to others of LICENSOR'S licensees.)*
17
<PAGE> 19
LICENSED Little Suzy's Zoo - specific character set as delineated in
WORKS: style guide. No derivative rights will be granted at this
time.
TERRITORY: United States (including its territories, its military bases
throughout the world and international stores of United States
retailers to which LICENSEE is marketing in the United States
and Canada. In the event LICENSOR shall, in its sole
discretion, elect to license the Licensed Products outside the
Territory, LICENSEE shall have a 30 day right of first
negotiation with respect to acquiring such license. In the
event LICENSOR and LICENSEE cannot agree on the terms of the
license within such 30 day period, LICENSOR shall be free to
license such rights to a third party, but only on terms equal
to or more favorable than those offered by LICENSEE. If
LICENSOR is unable to negotiate terms equal to or more
favorable than those offered by LICENSEE, LICENSOR will
reconsider LICENSEE'S offer in good faith.
LICENSE TYPE: Exclusive, except where Licensed Products are specifically
noted to the contrary.
ROYALTIES: Three (3%) of Net Sales for all apparel and for bedding
products sold to mass merchants, and four percent (4%) for
bedding products sold to mid-tier merchants, with royalties to
be reported quarterly on a country-by-country basis.
GUARANTEED A total of Thirty Thousand Dollars ($30,000) during the Term,
MINIMUM payable as follows: (i) Ten Thousand Dollars ($10,000) as a
ROYALTY PAYMENT non-refundable advance payable upon execution of the License
SCHEDULE Agreement; plus (ii) Ten Thousand Dollars ($10,000) on
December 31, 1999; plus (iii) Ten Thousand Dollars ($10,000)
on December 31, 2000; to the extent not otherwise already paid
by earned Royalties prior to each of such dates, and to be
credited against earned royalties otherwise payable during the
year of the term immediately following any of such payments.
18
<PAGE> 20
TERM: Three (3) years and three (3) months, commencing October 1,
1998 and expiring December 31, 2001. Provided LICENSEE shall
have earned and paid at least Ten Thousand Dollars ($10,000)
in royalties during the final year of the Term, the Term may
be automatically renewed for one (1) year, provided LICENSEE
so notifies LICENSOR in writing on or before October 31, 2001.
Any future renewals shall be subject to good faith
negotiation. Provided LICENSEE has renewed the Term as
aforesaid and gives LICENSOR notice in writing of LICENSEE'S
desire to extend the Term on or before July 31, 2002, LICENSOR
will negotiate exclusively with LICENSEE regarding further
renewals for a period of up to ninety (90) days. In the event
LICENSOR and LICENSEE cannot agree on the terms of the license
within such 90 day period, LICENSOR shall be free to license
such rights to a third party, but only on terms more favorable
than those offered by LICENSEE. If LICENSOR is unable to
negotiate terms more favorable than those offered by LICENSEE,
LICENSOR will reconsider LICENSEE'S offer in good faith.
MARKETS: General consumer markets, through all channels of trade, but
excluding traditional department stores. LICENSOR will not
distribute or license others to distribute Licensed Products
incorporating Licensed Works through traditional department
stores unless in upscale product from using artwork which is
differentiated in appearance from that used by LICENSEE.
PRODUCT LICENSEE shall introduce into the Territory and Markets each
INTRODUCTION: of the Licensed Products in commercially reasonable quantities
during the Term. The first introduction to the trade in the
United States of those Licensed Products marked with an
asterisk shall occur at JPMA in October, 1998 with a retail
shelf date no later than June 30, 1999. The first introduction
to the trade in the United States of the remaining Licensed
Products shall occur no later than March 1, 2000 with a retail
shelf date no later than September 1, 2000. In the event
Licensee shall have failed to introduce any of the Licensed
Products in the United States by on or before any of the
relevant dates, this Agreement shall become non-exclusive, but
only as to those non-introduced products which otherwise were
exclusive hereunder, during the balance of the Term.
19
<PAGE> 21
ART CHARGES: An initial art fee of $5000 payable to LICENSOR upon execution
of the License Agreement for original artwork completed on
LICENSEE'S behalf for the mid-tier market design. The fees for
any additional designs requested by LICENSEE will be charged
as follows -
$100/design for adaptations of existing artwork to fit other
media, reproduction, methods or formats
$400/design for original artwork created to order LICENSEE'S
for non-exclusive use.
PRODUCT MARKING: LICENSOR'S logo and/or trademark shall be prominently
displayed on all product packaging and on all products and
marketing materials, including catalogs, sell sheets,
point-of-purchase displays and promotional materials.
APPROVALS: All individual products, the product packaging, marketing
materials and introduction dates are subject to Licensor's
approval, except as otherwise herein preapproved.
MARKETING: LICENSEE shall use its best efforts market, advertise and
promote the Licensed Products in a manner to promote and
create a presence for the Little Suzy's Zoo product line at
Trade Shows, in Trade Advertising and Product Catalogs.
SELL-OFF PERIOD: Notwithstanding anything to the contrary in Paragraph 11.d of
the LICENSE AGREEMENT, the sell-off period shall be six (6)
months.
SALES TO LICENSEE shall, if requested by LICENSOR, sell LICENSED
LICENSOR: PRODUCT to LICENSOR, at LICENSEE'S cost, for sale by LICENSOR
through LICENSOR's existing distribution channels, including,
without limitation, any further stock on hand upon expiration
of the sell-off period set forth in Paragraph 11.d of the
LICENSE AGREEMENT, should LICENSOR opt to purchase such stock
on hand in lieu of it being destroyed.
20
<PAGE> 22
RIDER TO
LICENSE AGREEMENT
This Rider is attached to and made part of the License Agreement
("Agreement"), dated the 10th day of March, 1999 between SUZY'S ZOO
("Licensor"), duly represented by MOON MESA MEDIA, LLC, ("Representative"), and
GERBER CHILDRENSWEAR, INC. ("Licensee"). Paragraph references herein correspond
to those contained in the Agreement.
The Agreement shall be modified as follows:
3.b The second sentence shall be deleted in its entirety and replaced with
the following:
""Net Sales" for purposes of this Agreement shall mean the gross
selling price by LICENSEE to LICENSEE'S bona fide, third party
customers for the sale of Licensed Products, less sales taxes, shipping
costs, customary discounts and allowances, and credits for returns
actually made and allowed (hereinafter "Deductions")."
The following shall be added at the end of the third sentence,
following the words, "uncollectible accounts":
"in excess of an amount equal to two percent (2%) of Net Sales or
LICENSEE'S actual uncollectible accounts, whichever shall be lower".
6.c The second sentence shall be deleted in its entirety and replaced with
the following:
"Failure of LICENSOR to disapprove an item within ten (10) working days
of receipt of a representative sample shall be deemed an approval."
11.b. This paragraph shall be deleted in its entirety and superseded by the
Section entitled "Product Introduction" in Schedule "A."
Except as herein expressly modified, the Agreement remains in full
force and effect.
END OF RIDER
/s/ RLL / SSH / DLG
- -------------------
Initialed behalf of Licensor/Representative/Licensee
21
<PAGE> 1
EXHIBIT 21.1 - SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Other Names Under Which
Subsidiary Jurisdiction of Incorporation Such Subsidiary Does Business
<S> <C> <C>
GCW Holdings, Inc. Delaware None
Costura Dominicana, Inc. Delaware None
GCI IP Sub, Inc. Delaware None
Auburn Hosiery Mills, Inc Kentucky None
GCI Spainco, S.L. Spain None
Sport Socks Co. (Ireland) Ltd. Ireland None
Sport Socks Co. (UK) Limited United Kingdom None
Sport Socks Co. (Belgium) BVBA Belgium None
Gerber Childrenswear Canada, Inc. Delaware None
Costura Matamoros S.A. de C.V. Mexico None
GCW Mexico S.A. de C.V. Mexico None
</TABLE>
<PAGE> 1
Exhibit 23 -- Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-81557) pertaining to the Gerber Childrenswear, Inc. 1998 Long-Term
Performance Incentive Plan of our report dated February 29, 2000 with respect to
the consolidated financial statements and schedule of Gerber Childrenswear, Inc.
and subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1999.
Greenville, South Carolina
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,503,000
<SECURITIES> 0
<RECEIVABLES> 38,364,000
<ALLOWANCES> 1,103,000
<INVENTORY> 65,286,000
<CURRENT-ASSETS> 124,981,000
<PP&E> 39,149,000
<DEPRECIATION> 12,273,000
<TOTAL-ASSETS> 178,424,000
<CURRENT-LIABILITIES> 34,134,000
<BONDS> 12,843,000
0
0
<COMMON> 171,000
<OTHER-SE> 111,755,000
<TOTAL-LIABILITY-AND-EQUITY> 178,424,000
<SALES> 277,702,000
<TOTAL-REVENUES> 277,702,000
<CGS> 210,713,000
<TOTAL-COSTS> 210,713,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (13,000)
<INTEREST-EXPENSE> 2,678,000
<INCOME-PRETAX> 23,719,000
<INCOME-TAX> 8,053,000
<INCOME-CONTINUING> 15,666,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,666,000
<EPS-BASIC> .94
<EPS-DILUTED> .79
</TABLE>
