UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For Fiscal Year Ended February 25, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from to
Commission File Number: 0-14394
TOWN & COUNTRY CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2384321
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. Number)
25 Union Street, Chelsea, Massachusetts 02150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 884-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock, $.01 par value American Stock Exchange
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. [ ]
The aggregate market value of voting stock, based on the actual price at
which the Class A common stock sold, held by non-affiliates of the Registrant
was $28,541,704 as of June 3, 1996.
On June 3, 1996, the Registrant had outstanding 21,928,303 shares of Class
A Common Stock, $.01 par value and 2,664,941 shares of Class B Common Stock,
$.01 par value.
<PAGE>
PART I
Item 1. Business 1
General Business Developments 1
Narrative Description of Business 3
Financial Information about Foreign and
Domestic Operations and Export Sales 10
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security-Holders 12
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15
Item 8. Financial Statements and Supplementary
Data 22
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 22
PART III
Item 10. Directors and Executive Officers of
the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial
Owners and Management 23
Item 13. Certain Relationships and Related Transactions 23
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 24
This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference are discussed throughout this Form 10-K.
<PAGE>
PART I
Item 1. Business
General Business Developments
GENERAL
Town & Country Corporation, a Massachusetts corporation incorporated in 1965,
(collectively with its consolidated subsidiaries unless the context otherwise
requires, the "Company") designs, manufactures, and markets an extensive
collection of fine jewelry, scholastic and sports specialty products in the
United States and internationally. Prior to May 14, 1993, the Company consisted
of seven operating entities: the parent company, Town & Country Corporation
("Town & Country"), headquartered in Chelsea, Massachusetts; its wholly owned
subsidiaries, Anju Jewelry Limited, a Hong Kong company and its subsidiaries
("Anju"); Gold Lance, Inc. ("Gold Lance"), located in Houston, Texas; Verilyte
Gold, Inc. ("Verilyte"), located in Chelsea, Massachusetts and Dallas, Texas;
L.G. Balfour Company, Inc. ("Balfour"), headquartered in North Attleboro,
Massachusetts; and Feature Enterprises, Inc. ("Feature"), located in New York
City, New York; and its majority-owned subsidiary Essex International Public
Company Limited and its affiliates ("Essex"), a Thailand company. As of May 14,
1993, Verilyte and Feature were merged into a new operating entity, Town &
Country Fine Jewelry Group, Inc. ("Fine Jewelry Group").
SUBSEQUENT EVENT
On May 20, 1996, the Company entered into an agreement to sell assets and
liabilities of its Balfour and Gold Lance subsidiaries constituting
substantially all of the operations of Balfour and Gold Lance to Class Rings,
Inc. (CRI), a new company formed by Castle Harlan Partners II, L.P. and the
Company. Separately, CRI entered into an agreement with CJC Holdings, Inc. (CJC)
to acquire its school ring business.
The Company's agreement with CRI is subject to a number of significant
contingencies including approval by the Federal Trade Commission and CRI's
ability to raise sufficient capital to consummate the acquisition of Balfour and
Gold Lance and the acquisition of CJC's school ring business.
Under the Company's agreement with CRI, the Company will receive cash of $55
million, adjustable for the fluctuation in working capital as of the date of
closing, 8% of the common stock of CRI and the cash equivalent to the value of
gold on hand as of the date of closing. In addition, the Company may receive
additional shares of common stock of CRI based on CRI's exceeding certain
defined levels of profitability. Under this contingent earnout arrangement, the
Company can earn up to an additional 10% interest in the common stock of CRI. If
the Company is able to consummate the transaction as contemplated, it is not
expected that the transaction would have an unfavorable impact on the Company's
financial position and operating results.
CAPITALIZATION AND FINANCING
On June 7, 1996, the Company received a commitment letter to enter into a new
credit agreement from Foothill Capital Corporation ("Foothill"). The agreement
would provide senior secured financing consisting of a $40 million revolving
credit facility and a $30 million letter of credit in support of a Gold
Consignment Facility provided by Fleet Precious Metals ("Fleet"); however, the
aggregate amount of the combined facilities which may be outstanding at any date
is $65 million. The agreement would be for a period of two years and provides
Foothill with an option to renew for three additional years. The loans would
bear interest at a rate per annum equal to the greater of (a) 2% above the
reference rate announced by an identified group of major banks selected by
Foothill or (b) 8%. The agreement would contain standard covenants for
facilities of this type including financial covenants relating to interest
coverage, minimum net worth, minimum working capital, debt to net worth and
current ratios and limitations on dividends, distributions and capital
expenditures. Advances under the credit line would be based on eligible accounts
receivables and inventory. Foothill would have first security priority interest
in receivables, inventory and substantially all real estate and fixed assets
owned by the Company and its domestic subsidiaries subject to Fleet's first
position as gold consignor, supported by the letter of credit. The closing of
this agreement is subject to finalization of documentation.
The Company's 13% Senior Subordinated Notes, due May 31, 1998, were issued with
terms providing for the right to issue additional notes in lieu of the first
four semiannual interest payments . As of February 25, 1996, the Company had
exercised these rights; and, therefore, the carrying value of the notes,
including unamortized premium of approximately $4.0 million, is approximately
$72.8 million. The Company makes semi-annual cash interest payments of
approximately $4.5 million. The most recent payment was made May 15, 1996.
On November 23, 1994, holders of approximately 94% of the Company's Exchangeable
Preferred Stock exchanged their shares for shares of Little Switzerland, Inc.
Common Stock on a share-for-share basis. Such an exchange was provided for by
the terms of the Exchangeable Preferred Stock. In addition, the Company issued
to each participant one share of new Convertible Preferred Stock with each share
of Little Switzerland, Inc. Common Stock. The Company retains an investment in
Little Switzerland, Inc. equal to approximately 4% of the outstanding shares.
The Exchangeable Preferred Stock has a liquidation value of $14.59 per share and
accrues cumulative dividends at the rate of 6% of the liquidation value per
annum. Currently, there are 152,217 shares of Exchangeable Preferred Stock
outstanding and, in fiscal 1996, the Company paid cash dividends of $66,625.
Since the carrying value of the Company's investment in Little Switzerland, Inc.
was substantially less than the recorded value of the Exchangeable Preferred
Stock, the transaction resulted in a nonrecurring, noncash gain of approximately
$17 million, net of the estimated fair value of the Convertible Preferred Stock
issued.
Each share of Convertible Preferred Stock is initially convertible, at the
option of the holder, into two shares of Class A Common Stock, subject to
adjustment in certain circumstances and has voting rights as though it had been
converted. The Convertible Preferred Stock has a liquidation value of $6.50 per
share and accrues cumulative dividends at the rate of 6% of the liquidation
value per annum. The Company may pay such dividends in cash or in additional
shares of Convertible Preferred Stock, as defined by the agreement. Currently,
there are 1,977,905 shares of Convertible Preferred Stock outstanding and, in
fiscal 1996, the Company paid dividends of approximately $713,000 through the
issuance of additional shares of stock.
May 14, 1993 RECAPITALIZATION
The Company completed a recapitalization on May 14, 1993. The recapitalization
revised the Company's consolidated capitalization, including debt structure. The
amount of debt outstanding was reduced and a significant portion of old
subordinated debt was exchanged for new debt and shares of Class A Common Stock
and Exchangeable Preferred Stock.
The Company obtained a revolving credit agreement from Foothill to provide
secured financing in an aggregate amount of up to $30 million, which currently
has a seasonal increase up to $35 million, and new gold consignment agreements
from the Company's existing gold suppliers which currently provide an aggregate
gold consignment availability of up to approximately 63,000 troy ounces.
The Company sold $30 million of its 11 1/2% Senior Secured Notes due September
15, 1997. At February 25, 1996, approximately $13 million was outstanding.
The Company issued approximately $61.5 million, including unamortized premium of
approximately $8 million, of 13% Senior Subordinated Notes, due May 31, 1998,
approximately $34.3 million of Exchangeable Preferred Stock, par value $1.00,
and approximately 10 million shares of Class A Common stock valued at
approximately $26.9 million. These securities were issued in exchange for
approximately 93% of the Company's 13% Senior Subordinated Notes due December
15, 1998, and approximately 98% of the Company's 10 1/4% Subordinated Noes due
July 1, 1995. The total carrying value retired, including deferred financing
costs, was approximately $122.7 million.
(See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition" and Note 3 of Notes to Consolidated Financial
Statements).
NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Company designs and manufactures an extensive line of fine jewelry which it
markets on a wholesale basis throughout the U.S., and to a lesser extent, in the
international jewelry market. Its products include 10, 14, and 18-karat gold
rings, earrings, pendants, and bracelets, many of which are set with precious
and semi-precious stones. The Company also manufactures scholastic and sports
specialty products.
Town & Country Corporation
(Headquartered in Chelsea, Massachusetts)
Town & Country Gold Lance L.G. Balfour Anju Jewelry Essex
Fine Jewelry Inc. Company, Inc. Limited International
Group, Inc. (Houston, TX) (North Attleboro, (Hong Kong) Public Company
(Chelsea, MA) MA) Limited
(Bangkok,Thailand)
The Company has manufacturing facilities located in Massachusetts, New York,
Texas, Kentucky, and in Thailand. These facilities are located close to
available labor forces and suppliers of necessary raw materials.
PRODUCTION METHODS
The Company utilizes a variety of production methods to produce jewelry.
Principal among these is the "lost wax" method of investment casting. This
manufacturing operation originates with a hand designed original which is then
taken through a reverse molding procedure to create a mold. The mold is infused
with wax, and a series of such wax pieces are then surrounded with plaster of
Paris. The plaster of Paris is placed in a furnace where the wax is eliminated
by subjecting the plaster to high temperatures. Molten gold is then poured into
the areas from which the wax has been eliminated and a rough gold piece is
removed after cooling. The piece produced through the investment casting method
may then be ground, polished, and set with stones.
One of the other production methods used is die striking. This process begins by
tooling a master hub (male impression) from an original design. The hub is used
to create dies (female impression) for machine stamping. Additional tools are
created to trim and shape the final product. Gold or base metal is struck in
hydraulic presses or with pneumatic drop hammers in multiple steps with
alternating annealing steps. The product is then trimmed and rounded. Stamping
dies are custom produced by computer-aided tool cutting machines or are hand
crafted. The rough, stamped pieces are polished and finished. Precious,
semi-precious, or synthetic stones may be set in the individual pieces.
In addition, the Company utilizes the carbide, or swiss-cutting, manufacturing
operation. This method uses ring blanks of various widths and dimensions which
have been cut from tubes of karat gold in a lathing process. The blanks are then
placed on a cutting machine which is set up to cut designs into the ring using
diamond tipped or carbide tipped tools.
Photo-etching technology is used to manufacture precious metal charms and
earrings. The process consists of several stages. First, a graphic image of a
charm or earring is transferred to a photographic tool and is replicated by
computer control in an optimum layout. The tool is then placed on a thin metal
plate and passed through an exposure unit which photographically transfers the
images from the tool onto that plate. Next, the metal plate passes by conveyer
through an etching solution where a chemical milling of the exposed surfaces
takes place. Finally, the etched pieces from the plate are cleaned, shaped, and
polished.
The Company uses foil stamping and embossing, offset printing, die stamp and
engraving presses, and laser technology in the manufacture of graduation
announcements, diplomas, certificates, and other printed products.
MARKETING
There are numerous channels of distribution for fine jewelry, including jewelry
stores (ranging from the independent store with one location to the large
national chains), department stores, catalogue showrooms, warehouse clubs, and
home shopping networks. The Company distributes its products through all of
these channels.
As part of its marketing program, the Company provides a variety of customer
support services designed to meet the varying needs of customers. For some
customers, the Company designs product lines and develops total merchandising
programs including displays and advertising to market these lines. The Company's
sales staff provides quick reaction to customer pricing and design requirements.
The Company utilizes computerized data bases and electronic data interfaces
which assist these customers by providing information that may be used in
marketing, merchandising, and inventory management. For the independent retail
jewelers, the Company has designed promotional flyer programs through which
marketing and merchandising support pertaining to a select group of products at
specific price ranges is provided.
An increasing portion of retail sales in the fine jewelry industry is being made
through discount department stores, warehouse clubs and television shopping
networks. These customers are particularly interested in unique designs, volume
production, price and credit terms.
The Fine Jewelry Group has a single product development organization built
around product category specialists. Each product category is analyzed so that
each category is limited to items providing the maximum return to the Company
and its customers. Utilizing this structure, the Company believes it is able to
be more responsive to trends in the marketplace.
Gold Lance and Balfour are engaged in the production and distribution of high
school and college class rings on a made-to-order basis. Gold Lance distributes
through retail jewelry stores, while Balfour markets directly to students on
campus and at campus book stores. Each customer may choose from a wide variety
of options. These selling methods enable Gold Lance and Balfour to maintain low
levels of inventory in these product lines. Gold Lance and Balfour have
libraries of reusable tools and dies, allowing them to offer a large selection
of styles, including fashion-oriented class rings with intricate designs.
In conjunction with its school ring sales, Balfour also offers a variety of
graphics products, including graduation announcements, diplomas, and memory
books, and novelty items, such as T-shirts, key chains, and pendants.
Balfour markets licensed products, particularly rings and jewelry licensed by
the major professional sports organizations. Customized rings, insignia pins,
and novelty items are also marketed to associations and organizations.
The Company also markets directly from its Bangkok facility where wholesale
buyers are able to select and direct order jewelry from the Company. The
Company's products are also sold internationally by the Company's marketing
groups and are exhibited at the major international jewelry trade fairs.
As of May 26, 1996, the Company had approximately $16 million of orders believed
to be firm, as compared to approximately $19 million at a corresponding date
last year. The Company believes that substantially all of these orders will be
filled during fiscal 1997. The Company believes that comparative open order
information is not necessarily indicative of comparative results due to the high
level of timing sensitivity in the fine jewelry business which depends
significantly on orders from large retailers.
COMPETITION
The Company competes with both domestic and foreign jewelry suppliers, ranging
in size from small regional suppliers to those which have national distribution
capabilities. The principal competitive factors are price, quality, design, and
customer service. Management believes that the Company has a reputation for
providing extensive customer services and delivering a quality product line with
broad customer appeal. The Company tries to achieve relative cost savings as a
result of the large volume of its purchases of diamonds and stones.
The Company historically has competed in all of the channels of distribution
across its price range and is therefore competing directly with the specialists
in each distribution category. It has been most successful with retail jewelry
stores and the department and discount store chains which are also buying the
numerous marketing and credit related support services of the Company.
The Company also competes in the class ring industry which is comprised of a few
national companies and a few regional companies. The industry is made up of two
components, the "in-school" component in which ring orders are taken at the
school by the suppliers, and the "retail" component in which local jewelry
stores display samples and take orders. Historically, the "in-school" component
of this industry has been heavily influenced by the school representative/sales
person relationship. Factors which affect the strength of this relationship
include delivery time, price, quality, design and customer service. Class ring
sales are affected by student demographics and economic conditions. Management
believes that the Company currently is competitive with other distributors with
regard to the factors listed above. Management believes that Jostens, Herff
Jones, Inc. and CJC Holdings, Inc. currently represent major competitors in this
industry.
Management believes that Balfour's name recognition and association with the
class ring business and championship team rings gives it a competitive advantage
in the direct marketing of graphics products, such as diplomas, graduation
announcements, and accessories, and also, general sports insignia products
including those with professional team logos.
SEASONALITY
The Company is impacted by the seasonal demands of its customers. A significant
portion of sales in the fine jewelry industry is concentrated in the fall in
anticipation of the holiday season. Balfour is also impacted by fluctuations in
connection with the scholastic year. Accordingly, the Company's operating
results, and working capital requirements fluctuate considerably during the
year.
<PAGE>
The following chart sets forth unaudited quarterly data for fiscal 1996 and
fiscal 1995.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
May 28 August 27 November 26 February 25
<S> <C> <C> <C> <C>
Net sales $68,970,983 $48,194,042 $86,395,380 $47,017,411
Gross profit 21,896,424 14,644,996 27,404,915 13,490,170
Net income (loss) (514,424) (4,181,012) 6,636,293 (3,806,971)
Income (loss)
attributable to
common stock-
holders (758,159) (4,468,316) 6,380,973 (4,060,414)
Income (loss)
per common share $ (0.03) $ (0.19) $ 0.27 $ (0.17)
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
Fiscal 1995 May 29, August 28, November 27, (1)February 26,
<S> <C> <C> <C> <C>
Net sales $70,568,460 $54,799,928 $96,719,682 $66,026,538
Gross profit 24,619,290 14,736,513 28,831,858 19,393,057
Net income (loss) (2,477,963) (7,169,427) 16,424,043 (6,204,735)
Income (loss)
attributable to
common stock-
holders (2,945,159) (7,648,979) 15,944,492 (6,466,455)
Income (loss)
per common share $ (0.13) $ (0.33) $ 0.68 $ (0.28)
</TABLE>
(1) Net income in the third quarter of fiscal 1995 includes a gain of
approximately $17 million as a result of the exchange of the Exchangeable
Preferred Stock, see Note 4 of Notes to Consolidated Financial Statements.
SIGNIFICANT CUSTOMER
The Company's largest customer for a number of years has been the Zale
Corporation and its affiliated companies. Net sales to Zale were approximately
$22 million or 9% of consolidated net sales in fiscal 1996 compared to $29
million or 10% of consolidated net sales in fiscal 1995 and $33 million or 12%
of consolidated net sales in fiscal 1994. The loss of Zale as a customer of the
Company or a substantial reduction in the amount of sales to Zale would have a
material adverse effect on the Company.
RAW MATERIALS
The principal raw materials purchased by the Company are gold and precious and
semi-precious stones. The Company currently takes delivery of most of its gold
through consignment programs. The Company's intention is that as the gold
selling price for orders is confirmed, the Company purchases the gold
requirements at the then current market prices. The Company attempts to match
the price it pays for gold with the price it charges its customers. The
Company's gold agreements require that the Company own gold under certain
circumstances and it is possible for this required ownership to exceed the
Company's hedging requirements and expose the Company to gold fluctuations. The
Company pays a fee, which is subject to periodic change, for the value of the
gold held by it as a consignee during the period prior to sale. The Company has
consignment arrangements in place with a group of suppliers of gold which
currently provide for carrying on consignment up to approximately 63,000 troy
ounces.
Colored precious and semi-precious stones are purchased by the Company mainly in
Asia and Europe. Diamonds are purchased principally at major diamond markets
throughout the world, including Bombay, Tel Aviv, Antwerp, and New York. The
Company is not dependent on one supplier or a small number of suppliers for the
purchases of these raw materials. Availability and cost of these materials are
affected by market conditions and, when there is a period of volatility in the
market, operating results may be affected.
EMPLOYEES
The Company employs, on average, 2,200 persons, with approximately 26% of these
persons located in the Far East. The number of employees from quarter to quarter
may vary significantly because of the seasonality of the Company's business. See
"Narrative Description of Business--Seasonality." Of these 2,200 employees,
approximately 600 are involved with selling and administrative functions of the
Company, and the remainder are involved in the manufacturing functions of the
Company.
A division of Fine Jewelry Group has collective bargaining contracts covering
its manufacturing employees, who are represented by the Service Employees
International Union, Jewelry Workers Division. The number of employees covered
by collective bargaining contracts is approximately twenty.
The Company considers relations with its employees to be satisfactory.
Management does not believe the Company would experience any significant
difficulties in hiring or training additional employees at any of its
facilities.
INDUSTRY PRACTICES
In the jewelry industry, traditionally the wholesaler has provided considerable
working capital in the form of credit terms, inventory stocking, consignment
transactions, and transactions with a right of return. The Company has
historically provided this working capital, but in today's retail and banking
environment, has become more selective in its commitment of resources. The
Company is scrutinizing customer credit- worthiness more closely and, as a
result, is restricting customer credit and requires security before providing
consignment inventory. The Company also is restricting the availability of
consigned merchandise to items that are actively promoted by the customer.
TRADEMARKS AND COPYRIGHTS
While the Company maintains certain trademarks and copyrights on product styles
and business names and enforces its rights relative to those trademarks and
copyrights, these are not economically material to the Company and while the
Company has licensing agreements with certain major professional sports
organizations, the Company believes that it has no franchises or licenses which
are of a material nature to the Company.
Financial Information about Foreign and Domestic Operations and Export Sales
For information on foreign and domestic operations, see Note 18, "Consolidating
Financial Information and Segment Information," in Notes to Consolidated
Financial Statements.
Item 2. PROPERTIES
The Company occupies facilities in the United States and the Far East as
described below. (1)
<TABLE>
<CAPTION>
Location Use Square Footage Ownership
<S> <C> <C> <C>
Chelsea, Executive and administrative 88,000 Leased/
Massachusetts offices, manufacturing, marketing, Owned
and distribution facility.
Dallas, Texas Administrative offices, marketing
and distribution facility. 23,000 Leased
New York,New York Administrative offices, product
development and marketing 90,000 Owned
Attleboro, Massachusetts Manufacturing and distribution 56,000 Owned
facility.
North Attleboro, Administrative offices, 101,000 Leased
Massachusetts manufacturing, marketing,
and distribution facility.
Louisville, Kentucky Manufacturing and distribution 100,000 Leased
facility.
Dallas, Texas Manufacturing and distribution 55,000 Leased/
facility. Owned
Houston, Texas Administrative offices, 31,000 Owned
manufacturing, marketing, and
distribution facility.
Hong Kong Administrative offices, product 8,000 Leased
development, purchasing, and
quality control facility.
Bangkok, Thailand Administrative offices, 36,000 Leased/
manufacturing, marketing, and Owned
distribution facility.
Chiang Mai, Thailand Manufacturing facility. 7,000 Leased
(1) The Company's interests in these properties are security for loans made by
the Company's lenders. See Note 3 of Notes to Consolidated Financial Statements.
</TABLE>
The fine jewelry manufacturing and distribution business is seasonal.
Historically, the Company's facilities operate in excess of full capacity during
the peak demand part of the season and are underutilized during the slower
portions of the season (See "Narrative Description of Business--Seasonality").
Additional capacity requirements are satisfied utilizing outside contractors and
seasonal staffing is adjusted accordingly. The school ring business is also
seasonal and its factories are impacted similarly, but the total and peak
demands on the school ring business are not sufficient to stress the capacity
constraints at any time.
During fiscal 1996, the Company leased a portion of its Chelsea, Massachusetts
facility (approximately 39,000 square feet of combined manufacturing and
administrative space) from Carey Realty Trust, a Massachusetts business trust,
which is wholly owned by C. William Carey, the Chairman, President, and a major
stockholder of the Company. The lease, which was revised on March 1, 1996,
expires on August 31, 1998, and provides the Company with three ten-year options
to renew. The current lease provides for an annual rental payment of
approximately $350,000. The Company obtained comparative information from a
third party when negotiating the revised lease and believes that these lease
arrangements are on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
Management believes that all its facilities are well maintained, in good
condition and adequate for its present business.
Item 3. LEGAL PROCEEDINGS
The Company is not party to any pending legal proceedings, other than ordinary
routine litigation incidental to the business. In the opinion of management,
adverse decisions on those legal proceedings, in the aggregate, would not have a
materially adverse impact on the Company's financial condition or result of
operations.
It is the Company's current understanding that companies which may be considered
predecessors to Balfour have been designated potentially responsible parties by
the Environmental Protection Agency ("EPA") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 with respect to
cleanup of hazardous waste in four cases. One of the parties that may be
considered such a predecessor (the "1983 Owner") has, to date, assumed
responsibility for all of these cases in accordance with understandings the 1983
Owner has reached with the party who bought the assets of the predecessor
Balfour Company in 1983 (the "1988 Owner"). In the first of these cases, it is
the Company's understanding that the predecessor 1983 Owner is participating in
the cleanup and has provided financial assurance that it will pay its expected
share of the cleanup expenses (which are currently estimated to be under
$200,000). In the other three cases, it is the Company's understanding that the
1983 Owner has settled its liability as a de minimis waste contributor in each
case and has been given comprehensive releases from further liability for
cleanup costs. The Company acquired the stock of Balfour from the 1988 Owner and
believes that it did not assume responsibility for these cases as a result of
this acquisition. Since its acquisition of Balfour in 1988, the Company has
never paid any amounts with respect to any of these matters and there are no
outstanding claims against the Company or Balfour with respect to any of these
matters. While it is possible that a person or agency could claim that Balfour
as a successor to the 1983 Owner is jointly and severally liable for the cost of
the entire cleanup in these cases, the Company believes that such a claim would
have no merit and would vigorously defend and contest any such claim. Because of
the assumption of responsibility for these cases by the 1983 Owner and the small
waste shares attributed to the 1983 Owner, Management believes that it is
unlikely that the Company will suffer material liability in connection with
these cases.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of security-holders during the fourth
quarter of fiscal 1996.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock is traded on the American Stock Exchange (the
"AMEX") under the symbol TNC. Set forth below are the high and low sales prices
for the shares of Class A Common Stock as reported by the AMEX.
<TABLE>
<CAPTION>
Class A Common
Stock Price Range
Fiscal Year Ended High Low
February 26, 1995:
<S> <C> <C>
First Quarter 3 3/8 2 3/8
Second Quarter 2 7/8 2
Third Quarter 2 7/16 7/8
Fourth Quarter 1 9/16
February 25, 1996:
First Quarter 7/8 9/16
Second Quarter 13/16 9/16
Third Quarter 1 1/8 5/8
Fourth Quarter 7/8 1/2
</TABLE>
There is no established public trading market in effect at this time for the
Class B Common Stock. Shares of Class B Common Stock, however, are convertible
on a share for share basis into shares of Class A Common Stock.
On June 3, 1996, there were 970 holders of record of Class A Common Stock and 29
holders of record of the Class B Common Stock. The Company's present policy is
to reinvest its earnings in the business. No cash dividends have been paid
during the last two fiscal years, and the Company has no intention to pay cash
dividends in the foreseeable future.
The Company's ability to pay cash dividends is limited by its financing
agreements and other outstanding indebtedness. As a result of these
restrictions, the Company currently may not pay cash dividends on common stock.
Item 6. SELECTED FINANCIAL DATA
The following table presents certain selected consolidated financial data of the
Company. The information for each of the five years in the period ended February
25, 1996, has been derived from consolidated financial statements audited by
Arthur Andersen LLP, independent public accountants. <PAGE>
<TABLE>
<CAPTION>
Statement of Operations Data:
Fiscal Year Ended
(In thousands, except per share data)
Feb. 25, Feb. 26, Feb. 27, Feb. 28, Feb. 29,
1996 1995(1) 1994 1993 (2) 1992 (3)
<S> <C> <C> <C> <C> <C>
Net sales $250,578 $288,115 $277,750 $270,364 $272,194
Net income (loss) (1,866) 572 3,138 (47,296) (19,018)
Income (loss)
attributable to
common stockholders (2,906) (1,116) 1,684 (47,296) (19,018)
Income (loss)
per common
share: (0.12) (0.05) 0.08 (3.80) (1.58)
</TABLE>
Balance Sheet Data:
Fiscal Year Ended (In Thousands)
<TABLE>
<CAPTION>
Feb. 25, Feb. 26, Feb. 27, Feb. 28, Feb. 29,
1996 1995 1994 1993(2) 1992 (3)
<S> <C> <C> <C> <C> <C>
Total assets $211,129 $206,623 $223,921 $246,858 $262,288
Senior debt 13,653 15,128 22,022 35,688 6,424
Subordinated debt 79,766 77,545 71,285 120,285 119,496
Exchangeable
preferred stock 2,319 2,266 35,785 - -
Stockholders' equity 57,871 59,835 55,334 24,744 70,709
</TABLE>
(1) In fiscal 1995, the Company recorded a gain of approximately $17 million as
a result of the exchange of Exchangeable Preferred Stock. See Note 4 of Notes to
Consolidated Financial Statements.
(2) In fiscal 1993, the Company recorded a restructuring charge related to its
New York facility of $5 million, a charge related to the disposal of certain
Balfour assets of approximately $14.5 million, and expenses associated with
recapitalizing the Company of approximately $14.4 million. See Notes 8 and 11 of
Notes to Consolidated Financial Statements.
(3) In fiscal 1992, the Company recorded restructuring and Zale bankruptcy
charges of $44 million and net gains from nonrecurring items of $51 million. See
Note 9 of Notes to Consolidated Financial Statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Results of Operations
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for the fiscal year ended February 25, 1996, decreased approximately
$37.5 million or 13% from approximately $288.1 million in fiscal 1995 to $250.6
million in fiscal 1996. Sales of fine jewelry decreased approximately $31.1
million from $196.0 million in fiscal 1995 to $164.9 million in fiscal 1996. The
Company believes that current year sales have been affected by a general
softening of demand for colored-stone products and that in the highly
competitive colored-stone and diamond product categories, the Company needs to
improve its ability to meet customer expectations. Also contributing to the
decrease has been management's continuing efforts to manage the credit extended
to certain customers and to eliminate low margin contributors from the sales
mix. Sales of consumer products including licensed sports and other specialty
products decreased $7.8 million from $12.1 million in fiscal 1995 to $4.3
million in fiscal 1996. This decrease is associated with the Company's decision,
in the third quarter of fiscal 1995, to scale back the consumer products
business.
Gross profit for the fiscal year ended February 25, 1996, decreased
approximately $10.2 million or 12% from $87.6 million in fiscal 1995 to $77.4
million in fiscal 1996. Decreases in gross profit are primarily associated with
the lower volume of sales in the consumer products and fine jewelry lines of
business. Gross profit margin increased slightly from 30.4% in fiscal 1995 to
30.9% in fiscal 1996. Improvements in margin in fine jewelry are being offset by
lower margins in the scholastic and consumer products lines of business.
Selling, general and administrative expenses ("SG&A") for fiscal 1996 decreased
approximately $24.4 million, or 27.0% from $90.4 million in fiscal 1995 to $66.0
million in fiscal 1996. As a percentage of net sales, SG&A expenses decreased
from 31.4% in fiscal 1995 to 26.3% in fiscal 1996. The decrease primarily
relates to lower costs associated with the consumer products line of business,
particularly advertising costs and lower provisions for uncollectible accounts.
Also contributing to the decrease are certain non-operating items in the current
year including a $1.5 million benefit associated with the liquidation of
additional Zale claim assets and a $1.6 million benefit from a fiscal 1989
acquisition contingency.
Interest expense for the fiscal year ended February 25, 1996, increased $1.0
million from approximately $12.2 million to $13.2 million in fiscal 1996. The
weighted average interest rate on overall borrowings was approximately 11.24%
for fiscal 1996 compared to 11.08% for fiscal 1995. Average borrowings increased
approximately $7.2 million from approximately $109.9 million in fiscal 1995 to
$117.1 million in fiscal 1996. See Note 3 of Notes to Consolidated Financial
Statements.
The Company has recorded a tax provision for fiscal 1996 of approximately $0.2
million compared with a provision of $1.8 million in fiscal 1995. These tax
provisions are primarily due to state and foreign income taxes.
FISCAL 1995 COMPARED TO FISCAL 1994
On November 23, 1994, holders of approximately 94% of the Company's Exchangeable
Preferred Stock exchanged on a share-for-share basis their shares for shares of
Little Switzerland, Inc. Common Stock held by the Company. Such an exchange was
provided for by the terms of the Exchangeable Preferred Stock. In addition, the
Company issued to each participant one share of new Convertible Preferred Stock
with each share of Little Switzerland, Inc. Common Stock.
Since the carrying value of the Company's investment in Little Switzerland, Inc.
was substantially less than the recorded value of the Exchangeable Preferred
Stock, the transaction resulted in a nonrecurring, noncash gain of approximately
$17 million, net of the estimated fair value of the Convertible Preferred Stock
issued.
Net sales for the fiscal year ended February 26, 1995, increased approximately
$10 million, or 4%, from approximately $278 million in fiscal 1994 to
approximately $288 million in fiscal 1995. Sales of fine jewelry increased
approximately $19 million, or 11%, from approximately $177 million in fiscal
1994 to approximately $196 million in fiscal 1995. This increase was achieved
despite a decline in sales to Zale of approximately $4 million, or 12%, from $33
million in fiscal 1994 to $29 million in fiscal 1995. The sales increase is
generally attributable to increased volume rather than increased prices. Sales
for the Company's direct response distribution business of licensed sports and
other specialty products have decreased approximately $10 million, or 37%, from
$27 million in fiscal 1994 to $17 million in fiscal 1995. The Company expects to
further scale back its direct response distribution business in fiscal 1996.
Gross profit for the fiscal year ended February 26, 1995, decreased
approximately $10 million, or 10%, from $97 million in fiscal 1994 to $87
million in fiscal 1995. Gross profit margin declined from 35% for the fiscal
year ended February 27, 1994, to 30% for the fiscal year ended February 26,
1995. The Company's sales increase has been primarily in the lower margin fine
jewelry product categories. In order to better manage and control inventory, the
Company has also sold, or made provisions to sell, inventory in excess of
current requirements, at less than normal margins. This product mix change and
these sales and provisions negatively impacted margin by approximately 3%.
Production requirements for direct response and other specialty products were
lower this year than last year, resulting in under absorbed fixed overhead which
impacted margin by approximately 2%.
Selling, general and administrative expenses ("SG&A") for fiscal 1995 increased
approximately $10 million, or 13%, from $80 million in fiscal 1994 to $90
million in fiscal 1995. As a percentage of net sales, SG&A expenses increased
from 29% in fiscal 1994 to 31% in fiscal 1995. This increase relates, primarily,
to higher costs, particularly for advertising, associated with the Company's
marketing, through direct response, of merchandise manufactured under licenses
from professional sports organizations. This accelerated advertising effort did
not generate sales of these products at the rate anticipated. Provision for
higher than anticipated uncollectible accounts also contributed to the increase
in SG&A as a percentage of sales. The Company anticipates that SG&A expenses
associated with its direct response business of licensed sports and other
specialty products will decline in fiscal 1996 due to the Company's intentions
to scale back its direct response distribution business.
Interest expense for the fiscal year ended February 26, 1995, declined
approximately $2 million from $14 million in fiscal 1994 to $12 million in
fiscal 1995. The weighted average interest rate on overall borrowings was
approximately 11.08% for fiscal 1995 versus 11.24% for fiscal 1994. Average
borrowings for the fiscal year ended February 26, 1995, declined approximately
$15 million from approximately $125 million in fiscal 1994 to approximately $110
million in fiscal 1995. See Note 3 of Notes to Consolidated Financial
Statements.
The Company has recorded a tax provision for fiscal 1995 of approximately $1.8
million compared with a provision of $1.0 million in fiscal 1994. These tax
provisions are primarily due to state and foreign income taxes.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales for the fiscal year ended February 27, 1994, increased approximately
$8 million or 3% from approximately $270 million in fiscal 1993 to approximately
$278 million in fiscal 1994. Sales of fine jewelry increased approximately $8
million or 5%, from approximately $169 million in fiscal 1993 to approximately
$177 million in fiscal 1994. This increase was achieved despite a decline in
sales to Zale of approximately $5 million or 13% from $38 million in fiscal 1993
to $33 million in fiscal 1994. The sales increase is attributable to increased
volume rather than increased prices. Product costs have remained relatively
stable while competitive pressure on margin has continued to intensify.
Gross profit for the fiscal year ended February 27, 1994, increased
approximately $6 million, or 7%, from $91 million in fiscal 1993 to $97 million
in fiscal 1994. Gross profit margin improved from 33% for the fiscal year ended
February 28, 1993, to 35% for the fiscal year ended February 27, 1994. Benefits
from elimination of low-margin recognition products and entry into higher-margin
sports specialty marketing were offset to some extent by continuing margin
pressure in the fine jewelry business. Gross profit also benefited from the $1.3
million liquidation of the Company's remaining LIFO based inventory.
Selling, general and administrative expenses for fiscal 1994 declined
approximately $5 million, or 6%, from $85 million in fiscal 1993 to $80 million
in fiscal 1994. As a percentage of net sales, selling, general and
administrative expenses declined from 32% in fiscal 1993 to 29% in fiscal 1994.
This decline results from consolidations related to the restructuring of the
fine jewelry business.
Interest expense for the fiscal year ended February 27, 1994, declined
approximately $6 million from $20 million in fiscal 1993 to $14 million in
fiscal 1994. The weighted average interest rate was approximately 11.24% for
fiscal 1994 versus 12.3% for fiscal 1993. Average borrowings for the fiscal year
ended February 27, 1994, declined approximately $38 million from approximately
$163 million in fiscal 1993 to approximately $125 million in fiscal 1994 due to
the recapitalization completed on May 14, 1993. See Note 3 of Notes to
Consolidated Financial Statements.
During the fiscal year ended February 27, 1994, the Company had equity income of
approximately $1.1 million from its ownership of Little Switzerland, Inc. stock
and approximately $156,000 from its ownership of Solomon Brothers, Limited
stock. This compares to approximately $1.9 million and approximately $800,000,
respectively, for the same period in fiscal 1993. Both companies are dependent,
to different extents, on tourist travel and spending patterns. The general level
of tourist activity has not met expectations, and the commitments for inventory
and overhead have negatively impacted Little Switzerland, Inc.'s and Solomon
Brothers, Limited's results of operations.
The Company has recorded a tax provision for fiscal 1994 of approximately $1
million. The tax provision was primarily due to state and foreign income taxes.
ZALE BANKRUPTCY
The Company's largest customer for a number of years has been the Zale
Corporation and its affiliated companies.
The Company's Consolidated Financial Statements at February 28, 1992, originally
reflected a net valuation, related to Zale Corporation's bankruptcy filing under
Chapter 11 of the United States Bankruptcy Code, of approximately $13 million,
which was classified as Other Assets in the Consolidated Balance Sheets, due to
the uncertainty of the timing of a final settlement. The Company has
subsequently received proceeds from Zale and from liquidation of claim assets of
approximately $14.5 million and recognized benefits of approximately $1.5
million in fiscal 1996.
The Company continues to conduct business with Zale.
LIQUIDITY
Cash provided by operations during fiscal 1996 was approximately $1.6 million
compared with cash used in operations of $0.8 million in fiscal 1995. During
fiscal 1996, the Company paid approximately $4.5 million of interest, on its 13%
Senior Subordinated Notes, in cash. The semi-annual payments required in fiscal
1995 were paid with the issuance of additional notes.
In fiscal 1995, cash flow from operations included proceeds from the Zale
bankruptcy claim of approximately $6.3 million versus $1.5 million during fiscal
1996. The Company is required to escrow net proceeds from the Zale bankruptcy
claim and Solomon investment for repayment of Senior Secured Notes. During
fiscal 1995 and fiscal 1996, $6.3 million and $0.7 million, respectively of
Senior Secured Notes were redeemed with such proceeds.
Cash used in investing activities was $1.7 million in fiscal 1996 compared to a
use of $2.7 million in fiscal 1995. The improvement is primarily the result of
proceeds received from the sale of a facility in the current fiscal year.
The Company's operations are primarily funded through its revolving credit
facility which was a net source of cash of approximately $4.1 million in fiscal
1996. These funds were used to make required debt payments of $1.9 million as
well as to meet the Company's operating and investing cash requirements.
On March 29, 1994, March 20, 1995, and April 4, 1996, as required by the
covenants of its Senior Secured Notes, the Company gave written notice to
Solomon Brothers, Limited of the Company's intention to redeem 70,000, 55,000
and 55,000 of its shares of nonvoting redeemable cumulative participating
preferred Class B stock, respectively. Solomon Brothers, Limited informed the
Company that it would not be able to redeem the 70,000, 55,000 and 55,000 share
requests when due as a result of constraints imposed by its banking facilities.
The Company currently believes that Solomon Brothers, Limited will be able to
meet its obligation and that the Company's investment is realizable, but it is
unable to estimate the timing of future redemption payments. The Company is
monitoring Solomon Brothers, Limited's operations and financial position and if
it determines in the future that carrying value is no longer reflective of fair
value, appropriate adjustments will be made.
FINANCIAL CONDITION
The Company currently has a revolving credit agreement from Foothill Capital
Corporation (Foothill) to provide secured financing in an aggregate amount of up
to $30 million, which currently has a seasonal increase up to $35 million,
(approximately $15 million outstanding at February 25, 1996), and gold
consignment agreements from the Company's existing gold suppliers which
currently provide an aggregate gold consignment availability of up to
approximately 63,000 troy ounces (approximately 63,000 troy ounces outstanding
at February 25, 1996). As of February 25, 1996, the Company was not in
compliance with certain covenants under its revolving credit and gold agreements
and such events of noncompliance have been waived. Subsequent to year end, the
Company received a commitment letter to enter into a new credit agreement from
Foothill. The agreement would provide senior secured financing consisting of a
$40 million revolving credit facility and a $30 million letter of credit in
support of a Gold Consignment Facility provided by Fleet Precious Metals
("Fleet"); however, the aggregate amount of the combined facilities which may be
outstanding at any date is $65 million. The agreement would be for a period of
two years and provides Foothill with an option to renew for three additional
years. The loans would bear interest at a rate per annum equal to the greater of
(a) 2% above the reference rate announced by an identified group of major banks
selected by Foothill or (b) 8%. The agreement would contain standard covenants
for facilities of this type including financial covenants relating to interest
coverage, minimum net worth, minimum working capital, debt to net worth and
current ratios and limitations on dividends, distributions and capital
expenditures. Advances under the credit line would be based on eligible accounts
receivables and inventory. Foothill would have first security priority interest
in receivables, inventory and substantially all real estate and fixed assets
owned by the Company and its domestic subsidiaries subject to Fleet's first
position as gold consignor, supported by the letter of credit. The Company
believes that it can meet its working capital needs over the next year through
cash flows from operations and the use of funds available under this new credit
agreement. The closing of this agreement is subject to finalization of
documentation.
The Company currently has approximately $13 million outstanding of its 11 1/2%
Senior Secured Notes which will come due September 15, 1997.
The Company's 13% Senior Subordinated Notes, due May 31, 1998, were issued with
terms providing for the right to issue additional notes in lieu of the first
four semiannual interest payments. As of February 25, 1996, the Company had
exercised these rights and; therefore, the carrying value of the notes,
including unamortized premium of approximately $4.0 million, is approximately
$72.8 million. The Company makes semi-annual cash interest payments of
approximately $4.5 million. The most recent payment was made May 15, 1996.
The Company also has a second series of 13% Senior Subordinated Notes due
December 15, 1998, which has a principle balance of approximately $7.0 million.
The Company makes cash dividend payments on the outstanding Exchangeable
Preferred Stock; payments amounted to $66,625 in fiscal 1996. The Company, to
date, has met its dividend requirements for its Convertible Preferred Stock by
issuing additional shares of stock as provided by the terms of the stock.
A subsidiary of the Company has available credit line facilities with two banks
in Thailand to provide aggregate commercial financing of up to approximately
$13.3 million. The subsidiary had no balance outstanding under these lines at
February 25, 1996, and February 26, 1995, respectively. This subsidiary also has
an agreement with a gold supplier to provide secured gold consignment
availability of up to approximately 4,800 troy ounces. This agreement runs
through December 10, 1996, and is secured by a standby letter of credit for $3.4
million under one of the subsidiary's credit facilities. There were
approximately 3,100 ounces on consignment under this gold agreement at February
25, 1996.
On May 20, 1996, the Company entered into an agreement to sell assets and
liabilities of its Balfour and Gold Lance subsidiaries constituting
substantially all of the operations of Balfour and Gold Lance to Class Rings,
Inc. (CRI), a new company formed by Castle Harlan Partners II, L.P. and the
Company. Separately, CRI entered into an agreement with CJC Holdings, Inc. (CJC)
to acquire its school ring business.
The Company's agreement with CRI is subject to a number of significant
contingencies including approval by the Federal Trade Commission and CRI's
ability to raise sufficient capital to consummate the acquisition of Balfour and
Gold Lance and the acquisition of CJC's school ring business.
Under the Company's agreement with CRI, the Company will receive cash of $55
million, adjustable for the fluctuation in working capital as of the date of
closing, 8% of the common stock of CRI and the cash equivalent to the value of
gold on hand as of the date of closing. In addition, the Company may receive
additional shares of common stock of CRI based on CRI's exceeding certain
defined levels of profitability. Under this contingent earnout arrangement, the
Company can earn up to an additional 10% interest in the common stock of CRI. If
the Company is able to consummate the transaction as contemplated, it is not
expected that the transaction would have an unfavorable impact on the Company's
financial position and operating results.
INFLATION
The Company's operating expenses are directly affected by inflation, resulting
in an increased cost of doing business. Because the cost of sales depends on the
price of raw materials bought in markets located throughout the world, the
Company is influenced by inflation on an international basis. In addition, gold
prices are affected by political factors, by changing perceptions of the value
of gold relative to currencies and by inflationary pressures.
The Company believes that inflation does not currently have a material effect on
the Company's operating expenses, although current rates of inflation are not
necessarily indicative of future effects of inflation on the Company, and thus,
inflation could have a material effect on the Company's operating expenses in
the future.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Town & Country Corporation
and subsidiaries are included as part of this Form 10-K:
Report of Independent Public Accountants F-3
Consolidated Balance Sheets - February 25, 1996
and February 26, 1995 F-4
Consolidated Statements of Operations - Years
Ended February 25, 1996, February 26, 1995,
and February 27, 1994 F-6
Consolidated Statements of Stockholders' Equity
Years Ended February 25, 1996, February 26, 1995,
and February 27, 1994 F-7
Consolidated Statements of Cash Flows - Years
Ended February 25, 1996, February 26, 1995,
and February 27, 1994 F-9
Notes to Consolidated Financial Statements F-11
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the age and principal occupation of each director and
executive officer is set forth under the captions "Election of Directors,"
"Executive Officers," and "Executive Compensation" in the Proxy Statement and is
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information concerning compensation of directors and executive officers of the
Registrant is set forth under the captions "Board Meetings, Committees,
Attendance and Fees," "Executive Officers," and "Executive Compensation" in the
Proxy Statement and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of executive officers and directors is set forth under the
caption "Election of Directors" and "Security Ownership of Principal
Stockholders and Management" in the Proxy Statement and is incorporated herein
by reference.
Solely for the purpose of calculating the aggregate market value of the voting
stock held by non-affiliates of the Registrant as set forth on the cover of this
report, it has been assumed that directors and executive officers of the
Registrant are affiliates.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information related to certain transactions with directors of the Registrant
is set forth under the caption "Certain Transactions and Business Relationships"
in the Proxy Statement and is incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) DOCUMENT LIST
1. Financial Statements
The following consolidated financial statements of Town & Country Corporation
and Subsidiaries are included in Item 8:
Page
Report of Independent Public Accountants F-3
Consolidated Balance Sheets - February 25, 1996 F-4
and February 26, 1995
Consolidated Statements of Operations - Years F-6
Ended February 25, 1996, February 26, 1995,
and February 27, 1994
Consolidated Statements of Stockholders' Equity - F-7
Years Ended February 25, 1996, February 26, 1995,
and February 27, 1994
Consolidated Statements of Cash Flows - Years F-9
Ended February 25, 1996, February 26, 1995,
and February 27, 1994
Notes to Consolidated Financial Statements F-11
2. Financial Statement Schedules
Report of Independent Public Accountants F-48
Schedules:
II Valuation Accounts F-49
Schedules other than those listed above are omitted because of the absence of
the condition under which they are required or because the required information
is reflected in the financial statements or notes thereto.
3. Exhibits
Page
3.1 Restated Articles of Organization,
as amended. *6*(3.1)
3.2 By-Laws, as amended. *2*(3.2)
4.1 Amended and Restated Indenture governing *6*(4.1)
13% Senior Subordinated Notes due 12/15/98,
(the "Old 13% Notes), dated as of 5/14/93,
from Town & Country Corporation to State
Street Bank and Trust Company, as Trustee.
4.2 Supplemental Indenture relating to the Old *6*(4.4)
13% Notes, dated as of 5/14/93, from
Town & Country Corporation to State Street
Bank and Trust Company, as Trustee.
4.3 Indenture governing 11 1/2% Senior Secured *6*(4.5)
Notes due 9/15/97, dated as of 5/14/93,
from Town & Country Corporation to Shawmut
Bank, N.A., as Trustee.
4.4 Indenture governing 13% Senior Subordinated *6*(4.6)
Notes due 5/31/98, dated as of 5/14/93,
from Town & Country Corporation to
Bankers Trust Company, as Trustee.
4.5 Certificate of Vote of Directors *6*(4.7)
Establishing the Exchangeable
Preferred Stock, par value $1.00
per share, dated as of 5/14/93.
4.7 Certificate of Vote of Directors *7*(4.8)
Establishing the Convertible Preferred
Stock, par value $1.00 per share, dated as
of November 23, 1994.
Material Contracts:
10.1 1989 Employee Stock Purchase Plan of the .#1#(10.21)
Registrant.
10.2 1995 Stock Option Plan &1&(B)
10.3 1994 Non-Employee Directors' Nonqualified *7*(10.44)
Stock Option Plan
10.4 Assignment, Consolidation, Amendment, and Filed Herewith
Restatement to the Lease Agreement between
the Registrant, Fine Jewelry Group, Inc.
and Carey Realty Trust dated 3/1/96
10.5 Lease Agreement between L.G. Balfour Company, *7*(10.9)
Inc. and C.L.C. North Attleboro Trust dated
March 14, 1994.
10.6 Letter-Agreement dated April 4, 1994, to Lease *7*(10.10)
between L. G. Balfour Company, Inc. and C.L.C.
North Attleboro Trust dated March 14, 1994.
10.7 Amended and Restated Consignment Agreement by *6*(10.9)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Fleet Precious Metals, Inc. dated as of
5/14/93.
10.8 First Amendment to Amended and Restated *7*(10.12)
Consignment Agreement dated 10/20/93 by
and between Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance, Inc.,
and Town & Country Fine Jewelry Group, Inc.
and Fleet Precious Metals, Inc. dated as of
5/14/93.
10.9 Second Amendment to Amended and Restated *7*(10.13)
Consignment Agreement dated 12/1/93 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Fleet Precious Metals, Inc. dated as of
5/14/93.
10.10 Third Amendment to Amended and Restated *7*(10.14)
Consignment Agreement dated July 1994 by
and between Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance, Inc.,
and Town & Country Fine Jewelry Group, Inc.
and Fleet Precious Metals, Inc. dated as of
5/14/93.
10.11 Fourth Amendment to Amended and Restated *7*(10.15)
Consignment Agreement dated 8/31/94 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Fleet Precious Metals, Inc. dated as of
5/14/93.
10.12 Fifth Amendment to Amended and Restated *7*(10.16)
Consignment Agreement dated 11/17/94 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Fleet Precious Metals, Inc. dated as of
5/14/93.
10.13 Amended and Restated Consignment Agreement by *6*(10.10)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Rhode Island Hospital Trust National Bank
dated as of 5/14/93.
10.14 First Amendment to Amended and Restated *7*(10.18)
Consignment Agreement dated 12/1/93 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Rhode Island Hospital Trust National Bank
dated as of 5/14/93.
10.15 Second Amendment to Amended and Restated *7*(10.19)
Consignment Agreement dated 7/13/94 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Rhode Island Hospital Trust National Bank
dated as of 5/14/93.
10.16 Third Amendment to Amended and Restated *7*(10.20)
Consignment Agreement dated 11/15/94 by
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Rhode Island Hospital Trust National Bank
dated as of 5/14/93.
10.17 Fourth Amendment to Amended and Restated *8*(10.1)
Consignment Agreement dated by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Rhode Island Hospital Trust National Bank
10.18 Amended and Restated Consignment Agreement by *6*(10.11)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
ABN Amro Bank, N.V. dated as of 5/14/93.
10.19 First Amendment to Amended and Restated *7*(10.22)
Consignment Agreement dated 12/1/93 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
ABN Amro Bank, N.V. dated as of 5/14/93.
10.20 Second Amendment to Amended and Restated *7*(10.23)
Consignment Agreement dated August 1994 by
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
ABN Amro Bank, N.V. dated as of 5/14/93.
10.21 Amended and Restated Consignment Agreement by *6*(10.12)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Republic National Bank of New York dated as
of 5/14/93.
10.22 First Amendment to Amended and Restated *7*(10.25)
Consignment Agreement dated 12/1/93 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Republic National Bank of New York dated as
of 5/14/93.
10.23 Second Amendment to Amended and Restated *7*(10.26)
Consignment Agreement dated July 1994 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Republic National Bank of New York dated as
of 5/14/93.
10.24 Letter Agreement to Amended and Restated *7*(10.27)
Collateral Sharing Agreement dated November
1994 by and among Fleet Precious Metals Inc.
and various consignors and the Consignment
Agreements as of May 14, 1993.
10.25 Loan Agreement dated as of 5/14/93, by and among *6*(10.15)
Town & Country Corporation, L.G. Balfour Company,
Inc., Gold Lance, Inc., and Town & Country Fine
Jewelry Group, Inc. and Foothill Capital
Corporation.
10.26 First Amendment to Loan Agreement dated 9/28/93 *7*(10.31)
by and among Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Foothill Capital Corporation dated as of 5/14/93.
10.27 Amendment Number Two to Loan Agreement dated *7*(10.32)
6/24/94 by and among Town & Country
Corporation, L.G. Balfour Company, Inc.,
Gold Lance, Inc., and Town & Country Fine
Jewelry Group, Inc. and Foothill Capital
Corporation dated as of 5/14/93.
10.28 Amendment Number Three to Loan Agreement dated *7*(10.33)
7/11/94 by and among Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Foothill Capital Corporation dated as of 5/14/93.
10.29 Amendment Number Four to Loan Agreement dated *7*(10.34)
7/25/94 by and among Town & Country
Corporation, L.G. Balfour Company, Inc.,
Gold Lance, Inc., and Town & Country Fine
Jewelry Group, Inc. and Foothill Capital
Corporation dated as of 5/14/93.
10.30 Amendment Number Five to Loan Agreement dated *8*(10.2)
by and between Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance,
Inc., and Town & Country Fine Jewelry
Group, Inc. and Foothill Capital
Corporation dated as of 11/1/95.
10.31 Collateral Agency and Intercreditor Agreement *6*(10.16)
dated as of 5/14/93, by and among Town & Country
Corporation, L.G. Balfour Company, Inc., Gold
Lance, Inc., and Town & Country Fine Jewelry
Group, Inc. and Foothill Capital Corporation,
Fleet Precious Metals, Inc., Rhode Island Hospital
Trust National Bank, Republic National Bank, ABN
Amro Bank N.V., Bankers Trust Company, Shawmut
Bank, N.A., and Chemical Bank.
10.32 Form of 1993 Management Stock Option. #3#(10.23)
10.33 Form of Executive Employment Agreement between #4#(10.20)
Town & Country Corporation and C. William Carey
effective as of February 28, 1994.
10.34 Form of Executive Employment Agreement between #4#(10.21)
Town & Country Corporation and Francis X. Correra
effective as of February 28, 1994.
10.35 Trust Agreement dated as of 5/14/93, between *6*(10.22)
Town & Country Corporation and Baybank, as
Trustee.
10.36 Registration Effectiveness Agreement dated *6*(10.23)
as of 5/14/93, between Town & Country
Corporation and Certain Funds managed by
Fidelity Management & Research Company.
10.37 Form of letter dated as of November 4, 1994, to #5#(10.21)
Certain Holders of Town & Country Exchangeable
Preferred Stock from Town & Country relating to
the offer by Town & Country to issue shares
of Convertible Preferred Stock.
10.38 Form of Registration Rights Agreement dated #5#(10.22)
as of November 23, 1994, between Town & Country
Corporation and the holders of Town & Country
Convertible Preferred Stock signatory thereto.
10.39 Letter Agreement dated as of November 15, #5#(10.23)
1994, by and among Town & Country
Corporation, L.G. Balfour Company, Inc.
Gold Lance, Inc., and Town & Country
Fine Jewelry Group, Inc. and Fleet Precious
Metals, Inc., Rhode Island Hospital Trust
National Bank, ABN-AMRO Bank, N.V., and
Republic National Bank of New York.
11 Earnings per Share Computations Filed Herewith
22 Subsidiaries of the Registrant Filed Herewith
24.1 Consent of Arthur Andersen LLP Filed Herewith
27 Financial Data Schedule Filed Herewith
*1* Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-1 No. 2-97557 filed June 21, 1985.
*2* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 26, 1987.
*3* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 18, 1988.
*4* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 25, 1990.
*5* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed July 6, 1992.
*6* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 27, 1993.
*7* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File Number 0-14394 filed May 24, 1995.
*8* Incorporated by reference to the designated exhibit in the Quarterly Report
on Form 10-Q, Commission File Number 0-14394 filed January 11, 1995.
#1# Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2 No. 33-25092 filed October 20, 1988.
#2# Incorporated by reference to the designated exhibit of Amendment No. 2 to
the Registration Statement on Form S-2 No. 33-25437 filed December 12, 1988.
#3# Incorporated by reference to the designated exhibit of Amendment No. 6 to
the Registration Statement on Form S-4 No. 33-49028 filed March 12, 1993.
#4# Incorporated by reference to the designated exhibit of Post-Effective
Amendment No. 2 to the Registration Statement on Form S-2 No. 33-49028 filed
July 26, 1994.
#5# Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2 No. 33-57407 filed January 23, 1995.
&1& Incorporated by reference to the designated exhibit of the Annual Proxy on
Form 14-A, Commission file number 0-014394 filed June 26, 1995.
(B) REPORTS ON FORM 8-K
No Form 8-K was issued by the Registrant during the quarter ended
February 25, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TOWN & COUNTRY CORPORATION
(Registrant)
Date: By: /s/ C. William Carey
C. William Carey, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
Registrant and in the capacities and on the date set forth above.
Signature Title
Principal Executive Officer:
/s/ C. William Carey President, Treasurer, and
C. William Carey Director
Principal Financial and Accounting Officer:
/s/ Francis X. Correra Senior Vice President and
Francis X. Correra Chief Financial Officer
/s/ Richard E. Floor Director
Richard E. Floor
/s/ William Schawbel Director
William Schawbel
/s/ Charles Hill Director
Charles Hill
/s/ Marcia Morris Director
Marcia Morris
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS' REPORT
<PAGE>
Report of Independent Public Accountants
To Town & Country Corporation:
We have audited the accompanying consolidated balance sheets of TOWN &
COUNTRY CORPORATION (a Massachusetts corporation) and subsidiaries as of
February 25, 1996, and February 26, 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended February 25, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Town & Country Corporation
and subsidiaries as of February 25, 1996, and February 26, 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended February 25, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
May 17, 1996
[Except for the matter discussed in Note 1 and Note 17 for which the date is
June 7, 1996 and May 20, 1996, respectively]
<PAGE>
TOWN & COUNTRY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 25, February 26,
1996 1995
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 5,151,929 $ 3,336,921
Restricted cash (Note 2) 102,012 1,889
Accounts receivable, less allowances for
doubtful accounts of $2,120,000 and
$7,780,000 at February 25, 1996 and
February 26, 1995, respectively 51,294,879 57,472,122
Inventories (Note 2) 90,138,403 80,349,412
Prepaid expenses and other current assets 1,956,537 573,611
Total current assets 148,643,760 141,733,955
PROPERTY, PLANT AND EQUIPMENT, at
cost (Note 2) 84,073,513 82,254,863
Less-Accumulated depreciation 43,814,604 39,018,645
40,258,909 43,236,218
INVESTMENT IN LITTLE SWITZERLAND, INC.
(Note 5) 1,651,482 1,651,482
INVESTMENT IN SOLOMON BROTHERS,
LIMITED (Note 6) 13,734,000 13,734,000
OTHER ASSETS (Note 2) 6,841,345 6,267,801
$211,129,496 $206,623,456
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-4
<PAGE>
TOWN & COUNTRY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
February 25, February 26,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Notes payable to banks (Note 3) $ 15,193,176 $ 11,117,827
Current portion of long-term debt
(Note 3) 244,928 1,235,477
Accounts payable 20,237,262 17,809,025
Accrued expenses (Note 2) 15,078,569 15,458,912
Accrued taxes (Notes 2 and 7) 659,744 1,352,523
Total current liabilities 51,413,679 46,973,764
LONG-TERM DEBT, less current portion
(Note 3) 93,174,432 91,437,975
OTHER LONG-TERM LIABILITIES 1,122,625 1,494,524
COMMITMENTS AND CONTINGENCIES (Note 13)
MINORITY INTEREST 5,228,363 4,617,018
EXCHANGEABLE PREFERRED STOCK,
$1.00 par value, $14.59 preference value-
Authorized--200,000 shares
Issued and outstanding--152,217
shares (Notes 3 and 4) 2,319,476 2,265,522
STOCKHOLDERS' EQUITY (Notes 3, 4, 12, 14, and 15):
Preferred stock, $1.00 par value-
Authorized and unissued--2,266,745
shares - -
Convertible Preferred Stock, $1.00 par value,
$6.50 preference value-
Authorized--2,533,255
Issued and outstanding--2,288,567 and 2,381,038
shares, respectively 2,288,567 2,381,038
Class A Common Stock, $ .01 par value-
Authorized--40,000,000 shares
Issued and outstanding--21,235,246 and 20,784,768
shares, respectively 212,352 207,848
Class B Common Stock, $.01 par value-
Authorized--8,000,000 shares
Issued and outstanding--2,664,941 shares 26,649 26,649
Additional paid-in capital 74,175,437 73,145,286
Retained deficit (18,832,084) (15,926,168)
Total stockholders' equity 57,870,921 59,834,653
$211,129,496 $206,623,456
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-5
<PAGE>
TOWN & COUNTRY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended
February 25, February 26, February 27,
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 250,577,816 $ 288,114,608 $ 277,750,162
COST OF SALES 173,141,311 200,533,890 180,356,292
Gross profit $ 77,436,505 $ 87,580,718 $ 97,393,870
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 65,990,264 90,407,855 80,221,216
Income (loss) from operations $ 11,446,241 $ (2,827,137)$ 17,172,654
INTEREST EXPENSE (13,153,660) (12,169,615) (14,044,933)
INTEREST AND OTHER INCOME, net 678,251 234,933 698,829
GAIN ON LITTLE SWITZERLAND, INC.
EXCHANGE (Note 4) - 17,277,988 -
INCOME FROM AFFILIATES (Notes 5 and 6) - 587,814 1,262,347
MINORITY INTEREST (Note 2) (673,079) (773,901) (941,341)
Income (loss) before provision for
income taxes $ (1,702,247)$ 2,330,082 $ 4,147,556
PROVISION FOR INCOME TAXES
(Notes 2 and 7) 163,867 1,758,164 1,010,000
Net income (loss) $ (1,866,114)$ 571,918 $ 3,137,556
ACCRETION OF DISCOUNT AND DIVIDENDS
ON PREFERRED STOCKS (Notes 3 and 4) 1,039,802 1,688,019 1,453,511
Income (loss) attributable to common
stockholders $ (2,905,916)$ (1,116,101)$ 1,684,045
INCOME (LOSS) PER COMMON SHARE
(Note 2) $ (0.12)$ (0.05)$ 0.08
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Note 2) 23,769,323 23,433,173 21,205,949
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-6
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 25, 1996, FEBRUARY 26, 1995, AND FEBRUARY 27, 1994
<TABLE>
<CAPTION>
Class A
Convertible Preferred Stock Common Stock
Number of Number of Par Value
Shares Par Value $1 Shares $.01
<S> <C> <C> <C> <C>
BALANCE, February 28, 1993 - $ - 10,000,309 $ 100,003
Share issuance related to
exchange offer - - 9,992,648 99,927
Share issuance related to purchase
commitment on senior secured notes - - 750,000 7,500
Accretion of discount on
exchangeable preferred stock (Note 3) - - - -
Net proceeds from the exercise of
options to purchase common stock
(Notes 14 and 15) - - 12,944 129
Net income - - - -
BALANCE, February 27, 1994 - $ - 20,755,901 $ 207,559
Share issuance related to Little
Switzerland, Inc. exchange 2,381,038 2,381,038 - -
Conversion of Class B Common Stock
into Class A Common Stock - - 5,752 58
Net proceeds from the exercise of
options to purchase common stock
(Notes 14 and 15) - - 23,115 231
Accretion of discount and dividends on
preferred stocks (Notes 3 and 4) - - - -
Net income - - - -
BALANCE, February 26, 1995 2,381,038 $ 2,381,038 20,784,768 $ 207,848
Conversion of Convertible Preferred Stock
into Class A Common Stock (202,277) (202,277) 404,554 4,045
Net proceeds from the exercise of
options to purchase common stock
(Notes 14 and 15) - - 45,924 459
Issuance of Convertible Preferred Stock as
payment of dividend 109,806 109,806 - -
Accretion of discount and dividends on
preferred stocks (Notes 3 and 4) - - - -
Net loss - - - -
BALANCE, February 25, 1996 2,288,567 $ 2,288,567 21,235,246 $ 212,352
</TABLE>
(Continued on Next Page)
Page F-7
<PAGE>
<TABLE>
<CAPTION>
Class B
Common Stock
Additional Retained Total
Number of Par Value Paid-in Earnings Stockholders'
Shares $.01 Capital (Deficit) Equity
<C> <C> <C> <C> <C>
2,670,693 $ 26,707 $ 41,111,259 $ (16,494,113)$ 24,743,856
- - 26,755,361 - 26,855,288
- - 2,008,125 - 2,015,625
- - - (1,453,511) (1,453,511)
- - 34,740 - 34,869
- - - 3,137,556 3,137,556
2,670,693 $ 26,707 $ 69,909,485 $ (14,810,068)$ 55,333,683
- - 2,976,297 - 5,357,335
(5,752) (58) - - -
- - 27,352 - 27,583
- - 232,152 (1,688,018) (1,455,866)
- - - 571,918 571,918
2,664,941 $ 26,649 $ 73,145,286 $ (15,926,168)$ 59,834,653
- - 198,232 - -
- - 22,502 - 22,961
- - (109,806) - -
- 919,223 (1,039,802) (120,579)
- - - (1,866,114) (1,866,114)
2,664,941 $ 26,649 $ 74,175,437 $ (18,832,084)$ 57,870,921
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-8
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
February 25, February 26, February 27,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (1,866,114)$ 571,918 $ 3,137,556
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities--
Depreciation and amortization 3,929,246 4,846,300 5,628,451
Loss (gain) on disposal of fixed assets (423,600) 73,773 (113,162)
Gain on Little Switzerland, Inc. exchange - (17,277,988) -
Undistributed earnings of affiliates, net
of minority interest 673,080 186,087 (227,894)
Interest paid with issuance of debt
(Note 3) 4,200,569 7,647,666 3,495,571
Ordinary dividends received from affiliate - - 2,045,532
Change in assets and liabilities--
(Increase) decrease in accounts
receivable 6,177,243 (1,848,704) (4,004,014)
(Increase) decrease in inventories (9,788,991) (5,320,015) (1,595,015)
(Increase) decrease in prepaid
expenses and other current assets (1,382,926) 3,418,272 2,467,636
(Increase) decrease in other assets (892,991) 6,542,404 3,722,423
Increase (decrease) in accounts payable 2,428,237 5,081,668 1,904,443
Increase (decrease) in accrued expenses (380,343) (4,597,420) 2,190,050
Increase (decrease) in accrued and
deferred taxes (692,779) 478,270 488,181
Increase (decrease) in other liabilities (371,899) (599,231) (1,162,891)
Net cash provided by (used in)
operating activities $ 1,608,732 $ (797,000)$ 17,976,867
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets $ 996,610 $ 45,331 $ 222,746
Capital expenditures (2,734,122) (2,759,204) (4,056,307)
Proceeds from sale of investments - - 3,486,000
Net cash used in
investing activities $ (1,737,512)$ (2,713,873)$ (347,561)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-9
<PAGE>
TOWN & COUNTRY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the Year Ended
February 25, February 26, February 27,
1996 1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Payments on revolving credit facilities $ (257,779,581)$ (279,990,373)$ (206,869,004)
Proceeds from borrowings under
revolving credit facilities 261,854,934 291,108,200 206,869,004
Decrease (increase) in restricted cash (100,123) 36,082 (37,971)
Payments to retire credit facility - - (37,250,000)
Proceeds from senior secured notes - - 30,000,000
Payments on other debt (1,926,044) (7,607,575) (13,666,180)
Payment of dividends (128,359) - (534,617)
Proceeds from the issuance of common stock 22,961 27,584 34,869
Payments for recapitalization expenses - - (8,254,790)
Net cash provided by (used in)
financing activities $ 1,943,788 $ 3,573,918 $ (29,708,689)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 1,815,008 $ 63,045 $ (12,079,383)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 3,336,921 3,273,876 15,353,259
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 5,151,929 $ 3,336,921 $ 3,273,876
SUPPLEMENTAL CASH FLOW DATA:
CASH PAID DURING THE YEAR FOR:
Interest $ 9,758,857 $ 4,908,642 $ 6,104,397
Income taxes $ 806,463 $ 1,119,864 $ 589,730
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES (Note 2)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page F-10
<PAGE>
TOWN & COUNTRY CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 25, 1996
(1) REFINANCING
On June 7, 1996, the Company received a commitment letter to enter into a new
credit agreement from Foothill Capital Corporation ("Foothill"). The agreement
would provide senior secured financing consisting of a $40 million revolving
credit facility and a $30 million letter of creditin support of a Gold
Consignment Facility provided by Fleet Precious Metals ("Fleet"); however, the
aggregate amount of the combined facilities which may be outstanding at any date
is $65 million. The agreement would be for a period of two years and provides
Foothill with an option to renew for three additional years. The loans will bear
interest at a rate per annum equal to the greater of (a) 2% above the reference
rate announced by an identified group of major banks selected by Foothill or (b)
8%. The agreement will contain standard covenants for facilities of this type
including financial covenants relating to interest coverage, minimum net worth,
minimum working capital, debt to net worth and current ratios and limitations on
dividends, distributions and capital expenditures. Advances under the credit
line will be based on eligible accounts receivables and inventory. Foothill will
have first security priority interest in receivables, inventory and
substantially all real estate and fixed assets owned by the Company and its
domestic subsidiaries subject to Fleet's first position as gold consignor
supported by the letter of credit. The Company believes that it can meet its
working capital needs over the next year through cash flow from operations and
the use of funds available under this new credit facility. The closing of this
agreement is subject to finalization of documentation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its controlled domestic and foreign subsidiaries. All significant
intercompany transactions have been eliminated.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform with the presentation of the fiscal 1996 financial
statements.
Cash and Cash Equivalents
Cash equivalents include highly liquid investments with original maturities of
three months or less.
Investments
On March 1, 1994, the Company adopted the Financial Accounting Standard Board's
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair market values and for all investments in debt securities. The
Company's financial condition and results of operations were not materially
impacted in fiscal 1995 as a result of adopting SFAS No. 115.
Long-Lived Assets
For the fiscal year beginning on February 26, 1996, the Company is required to
adopt SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" . SFAS No. 121 addresses accounting and
reporting requirements for long-term assets bas on their fair market values. The
Company has not evaluated the impact on its financial condition and results of
operations as a result of adopting SFAS No. 121.
Stock Options
For the fiscal year beginning on February 26, 1996, the Company is required to
adopt SFAS No. 123 "Accounting for Stock-Based Compensation" . SFAS No. 123
addresses accounting and reporting requirements for stock options and other
equity instruments issued or granted based on their fair market values. The
Company has not evaluated the impact on its financial condition and results of
operations as a result of adopting SFAS No. 123.
Restricted Cash
Restricted cash includes cash payments from the Company's investment in Solomon
Brothers, Limited and cash proceeds with respect to the Zale bankruptcy claim.
These funds are escrowed for the benefit of the holders of the Senior Secured
Notes. During fiscal 1996 and fiscal 1995, approximately $0.7 million and $6.3
million, respectively, of Senior Secured Notes were redeemed with such proceeds.
Foreign Currency
The Company is subject to fluctuating foreign currency exchange rates which are
reflected currently in the consolidated statements of operations. Transaction
and exchange gains and losses have not been material to the consolidated
financial position or results of operations for the three years ended February
25, 1996.
Inventories
Inventories, which include materials, labor and manufacturing overhead, are
stated at the lower of cost or market using the first-in, first-out (FIFO)
method.
Inventories consisted of the following at February 25, 1996, and February 26,
1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Raw materials $14,820,768 $16,932,724
Work-in-process 9,947,057 8,266,255
Finished goods 65,370,578 55,150,433
$90,138,403 $80,349,412
</TABLE>
The effects of gold price fluctuations are mitigated by the use of a consignment
program with bullion dealers. The Company's intention is that as the gold
selling price for orders is confirmed, the Company purchases the gold
requirements at the then current market prices; any additional requirements for
gold are held as consignee. The Company attempts to match the price it pays for
gold with the price it charges its customers. The Company pays a fee, which is
subject to periodic change, for the value of the gold it holds on consignment
during the period prior to sale. For the years ended February 25, 1996, February
26, 1995, and February 27, 1994, these fees totaled approximately $1.4 million,
$1.4 million, and $1.5 million, respectively.
The Company does not include the value of consigned gold in inventory or the
corresponding liability in borrowings for financial statement purposes. As of
February 25, 1996, and February 26, 1995, the Company held approximately 63,000
ounces, valued at $24.9 million, and 67,000 ounces, valued at $25.4 million,
respectively, of gold on consignment under its domestic gold agreements. A
foreign subsidiary of the Company held an additional 3,100 ounces, valued at
$1.2 million, and 5,000 ounces, valued at $1.8 million, outstanding at February
25, 1996, and February 26, 1995, respectively, under a separate consignment
agreement (Note 3).
Advertising
The Company expenses the costs of advertising as incurred, except for certain
direct-response advertising costs, which are capitalized and amortized over
their expected period of future benefits.
At February 25, 1996, February 26, 1995, and February 27, 1994, advertising
expense was approximately $5.8 million, $14.2 million and $11.0 million,
respectively. At February 25, 1996 and February 26, 1995, no advertising costs
were capitalized.
Property, Plant and Equipment
The Company provides for depreciation, principally on the straight-line method,
at rates adequate to depreciate the applicable assets over their estimated
useful lives which range from 3 to 40 years. Certain equipment is depreciated
using the declining balance method.
Property and equipment consisted of the following at February 25, 1996, and
February 26, 1995:
<TABLE>
<CAPTION>
Useful Life
Ranges 1996 1995
<S> <C> <C> <C>
Real estate 10 - 40 Years $28,991,637 $29,746,327
Furniture and fixtures 3 - 7 Years 3,754,091 3,564,753
Equipment 3 - 20 Years 46,161,078 44,358,277
Leasehold improvements 4 - 20 Years 4,795,245 4,450,876
Construction-in-progress 371,462 134,630
$84,073,513 $82,254,863
</TABLE>
Accrued Expenses
The principal components of accrued expenses at February 25, 1996, and February
26, 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Compensation and related costs $4,721,395 $5,458,037
Customer deposits 4,824,697 4,130,663
Interest 3,088,712 2,940,499
Commissions 517,606 545,659
Other 1,926,159 2,384,054
$15,078,569 $15,458,912
</TABLE>
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income (Loss) Per Common Share
Income (loss) per common share is computed based on the weighted average number
of common and common equivalent shares, where dilutive, outstanding during each
period. Common equivalent shares result from the assumed exercise of stock
options and warrants.
Long-term Intangible Assets
The excess of purchase price over the values assigned to net assets acquired is
being amortized using the straight-line method over periods ranging from 30 to
40 years. The Company continually evaluates whether events and circumstances
have occurred that indicate that the remaining estimated useful life of goodwill
may warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the related business
segments' undiscounted operating income over the remaining life of the goodwill
in measuring whether the goodwill is recoverable. Accumulated amortization was
approximately $3,286,000 and $3,103,000 at February 25, 1996, and February 26,
1995, respectively.
Minority Interest
Minority interest is determined based on the percent ownership of the equity by
other investors of the related consolidated subsidiary.
Subsidiary Sale of Stock
At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the Company's net investment in that subsidiary
increases. The Company records the increase as a gain in the consolidated
statement of operations.
<PAGE>
Supplemental Disclosures of Noncash Investing and Financing Activities
In fiscal 1994, as payment for the commitment to purchase up to 100% of the
Company's Senior Secured Notes, an investor received 750,000 shares of the
Company's Class A common stock with a value of $2,015,625 at the time of
issuance.
The Company completed a recapitalization on May 14, 1993 (See Note 3).
During fiscal 1995, the Company had fixed asset additions of approximately $.7
million funded by increases in capital lease obligations.
On November 23, 1994, holders of approximately 94% of the Company's Exchangeable
Preferred Stock exchanged their shares for shares of Little Switzerland, Inc.
common stock held by the Company and shares of the Company's Convertible
Preferred Stock (See Note 4).
Financial Instruments
Cash and Cash Equivalents
The carrying amount of cash and cash equivalents approximates fair value because
of the short-term maturity of the instruments.
Restricted Cash
The Company's restricted cash is invested in short-term, highly-liquid
investments. The carrying amount approximates fair value because of the
short-term maturity of these investments.
Investment in Little Switzerland, Inc.
The Company owns 318,962 shares of Little Switzerland, Inc. Common Stock as of
February 25, 1996. Of these shares, 152,217 are held by a trustee for the
benefit of the holders of the Company's Exchangeable Preferred Stock and are
considered held-to-maturity. The remaining shares owned by the Company are
considered available-for-sale. The Company believes that the carrying value
approximates the fair value of these securities.
Investment in Solomon Brothers, Limited
The fair value of the Company's investment in Solomon Brothers, Limited is
considered to be equal to its carrying value as of February 25, 1996, based on
the valuation method agreed upon for the redemption of shares as discussed in
Note 6 and the estimated fair value of the underlying net assets.
<PAGE>
Long-Term Subordinated Debt and Exchangeable Preferred Stock
The Company believes that the fair value of the Company's long-term subordinated
debt and Exchangeable Preferred Stock approximates its carrying value as of
February 25, 1996, based on the valuation methodology required for the
recapitalization.
Long-Term Secured Debt
The fair value of the Company's various long-term secured debt, which are
secured by various assets, are considered to approximate their carrying value as
of February 25, 1996. This conclusion is based on the relationship of carrying
value to the value of the related security and the relatively short-term
maturities of the related debt.
(3) LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt at February 25, 1996, and February 26, 1995, consists of the
following:
<TABLE>
<CAPTION>
Town & Country Corporation 1996 1995
<S> <C> <C>
Senior Subordinated Notes due 1998
with interest payable semiannually at
13%, including unamortized premium
of $4.0 million and $5.6 million in
1996 and 1995, respectively. The first
four interest payments were made with
issuance of additional notes of
approximately $15.3 million. $72,843,528 $70,185,718
Senior Secured Notes due 1997 with
interest payable monthly at 11.5%.
Payments required prior to maturity for
proceeds received by the Company related
to the Company's investment in Solomon
Brothers, Limited and/or settlement of
the Zale bankruptcy claim and certain
other limited conditions. 13,254,000 13,947,000
Senior Subordinated Notes due 1998 with
interest payable semiannually at 13%,
net of unamortized discount of $37,248
and $47,868 in 1996 and 1995,
respectively. 6,922,752 6,912,132
Subordinated Notes due 1995 with
interest payable semiannually at
10 1/4%, net of unamortized original
issue discount of $3,519 in 1995. $ - $ 447,481
Subsidiaries
Obligation under New York City
Industrial Development Agency
industrial revenue bond. Quarterly
interest determined at 75% above
Chemical Bank's "reference" rate
(9% at February 26, 1995). - 383,358
Obligation under New York City
Industrial Development Agency
industrial revenue bond. Quarterly
interest determined at 1.25% above
Chemical Bank's "reference" rate
(9% at February 26, 1995). - 164,682
Lease obligation for office furniture
and equipment payable in monthly
installments with interest at 9.67% 399,080 621,524
Other notes - 11,557
$93,419,360 $92,673,452
Less-Current portion 244,928 1,235,477
$93,174,432 $91,437,975
</TABLE>
On May 14, 1993, the Company completed a recapitalization. The recapitalization
was accounted for as a "troubled debt restructuring" under Statement of
Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings," whereby the net carrying value of the old debt
was allocated to the new securities, issued in the recapitalization, based on
their estimated, relative, fair market values, and no gain or loss was
recognized. Recapitalization costs were expensed as incurred.
As a result of this transaction, long-term debt with a carrying value of
$122,673,945, including deferred financing costs, was retired. New debt with a
carrying value of $61,486,762, exchangeable preferred stock valued at
$34,331,895, and common stock valued at $26,855,288 were issued in exchange for
these redemptions.
On May 14, 1993, the Company entered into a revolving credit facility with
Foothill Capital Corporation ("Foothill") providing senior secured financing in
an aggregate amount of up to $30 million. The line of credit matured on May 14,
1996, and was automatically renewed for a two year period. The loans bear
interest at a rate per annum equal to the greater of (a) 2% above the reference
rate (the highest "prime rate" or "reference rate" announced by an identified
group of major banks) selected by Foothill or (b) 8%. The agreement contains the
standard covenants for facilities of this type including, without limitation,
financial covenants relating to interest coverage, minimum net worth, minimum
working capital, debt to net worth and current ratios, and limitations on
dividends and distributions, dispositions of assets and capital expenditures.
Advances under the credit facility are based on eligible receivables and
inventory. Foothill has a first priority security interest in receivables,
certain inventory, primarily stones and diamonds, and substantially all real
estate and fixed assets owned by the Company and its domestic subsidiaries. The
Company had $15 million outstanding under its revolving credit agreement, at an
effective interest rate of 11.6% at February 25, 1996. The Company had $15
million of additional borrowings available under its revolving credit agreement
as of February 25, 1996.
On May 14, 1993, the Company entered into gold agreements with its gold
suppliers providing secured gold consignment availability of up to approximately
100,000 troy ounces. The agreements are terminable upon thirty days' written
notice and contain the standard covenants for facilities of this type including,
without limitation, financial covenants relating to interest coverage, minimum
net worth, minimum working capital, debt to net worth and current ratios, and
limitations on dividends and distributions and first priority security interest
in the precious metal content of inventory. During fiscal 1995, the Company
agreed to reduce its gold consignment facilities to approximately 73,000 ounces,
and during fiscal 1996, further agreed to reduce its gold consignment facility
to approximately 67,000 ounces. The Company had approximately 63,000 troy ounces
on consignment at February 25, 1996. In connection with these reductions, some
modifications were made to the financial covenants in the gold consignment
agreements with the Company's gold suppliers. Subsequent to year-end, the
Company agreed to reduce its gold facility to approximately 63,000 ounces.
During the second quarter of fiscal 1995, modifications to the consolidated
tangible net worth covenant were made in the revolving credit and gold
agreements. The covenant previously provided that the Company was required to
maintain consolidated tangible net worth of $38,000,000 through February 27,
1994, and $43,000,000 thereafter. As amended, the covenant provides that the
Company maintain consolidated tangible net worth of $40,000,000 from July 1,
1994, through November 26, 1994, and $43,000,000 thereafter.
As of February 25, 1996, the Company was not in compliance with certain
covenants under its revolving credit and gold agreements and such events of
noncompliance have been waived. Subsequent to year end, the Company received a
commitment letter from Foothill as described in Note 1.
On May 14, 1993, the Company issued $30 million of Senior Secured Notes due
September 15, 1997. Following receipt, by the Company, of cash payments from the
Company's investment in Solomon Brothers, Limited and/or cash or other payments
from the Zale Companies with respect to the Zale bankruptcy claim, net of
certain expenses, the Company is required to redeem an amount of the notes equal
to the amount of such net proceeds at a redemption price equal to 100% of the
principal amount thereof plus accrued interest, if any. During fiscal 1996 and
fiscal 1995, the Company redeemed $0.7 million and $6.3 million, respectively,
of Senior Secured notes with such proceeds. In the event that the Company's
consolidated net worth declines below a defined minimum (75% of net worth at May
31, 1993, plus 37.5% of net income for each fiscal year thereafter) for two
consecutive quarters, the Company is required to make an offer to redeem 7.5% of
the outstanding notes semiannually and to continue to do so as long as the
condition persists.
On May 14, 1993, the Company issued approximately 2,533,000 shares of
Exchangeable Preferred Stock, the outstanding shares of which will be redeemed
by the Company on December 31, 2000, for $14.59 per share plus accrued and
unpaid dividends payable in cash or shares of Little Switzerland, Inc. common
stock. No dividends will be paid until after the second anniversary of the date
of issuance of the stock. Thereafter, holders will be entitled to receive
cumulative cash dividends at a rate of 6% per annum based on $14.59 per share.
Dividends will be payable semiannually on each six-month and twelve-month
anniversary of the issuance date. During fiscal 1996, $66,625 of dividends were
paid. At any time after March 1, 1994, each share of Exchangeable Preferred
Stock may be exchanged by the holder for a share of Little Switzerland, Inc.
common stock held by the Company or redeemed by the Company, for cash, at a
declining premium through 1998 (See Note 4). At February 25, 1996, cumulative
unpaid dividends amounted to $38,865. For the years ended February 25, 1996, and
February 26, 1995, accretion of dividends and discount on Exchangeable Preferred
Stock amounted to $120,579 and $1,455,866, respectively.
A subsidiary of the Company has available credit line facilities with two banks
in Thailand to provide aggregate commercial financing of up to approximately
$13.3 million. The subsidiary had no balance outstanding under these lines at
February 25, 1996, and February 26, 1995, respectively. This subsidiary also has
an agreement with a gold supplier to provide secured gold consignment
availability of up to approximately 4,800 troy ounces. This agreement runs
through December 10, 1996, and is secured by a standby letter of credit for $3.4
million under one of the subsidiary's credit facilities. There were
approximately 3,100 ounces on consignment under this gold agreement at February
25, 1996.
On April 3, 1995, the Company repaid approximately $181,000 of its obligation
under the New York City Industrial Revenue Development Agency industrial revenue
bonds ("IRB"). On April 3, 1995, the remaining obligation, approximately
$367,000, was purchased by Foothill. As a result of this transaction, the
Company was required to make quarterly payments on the IRB to Foothill.
Additionally, the interest rate for the outstanding bonds was modified to be the
same as that on the Company's revolving line of credit. On February 22, 1996,
the Company repaid its remaining obligation under the IRB, approximately
$317,000, to Foothill.
Aggregate maturities of long-term debt for each of the next five years are
approximately $245,000, $13,408,000, $75,785,000, $0 and $0, respectively.
(4) EXCHANGE OF STOCK
On November 23, 1994, holders of approximately 94% of the Company's Exchangeable
Preferred Stock exchanged their shares for shares of Little Switzerland, Inc.
Common Stock held by the Company on a share-for-share basis. Such an exchange
was provided for by the terms of the Exchangeable Preferred Stock. In addition,
the Company issued to each participant one share of new Convertible Preferred
Stock with each share of Little Switzerland, Inc. Common Stock.
Since the carrying value of the Company's investment in Little Switzerland, Inc.
was substantially less than the recorded value of the Exchangeable Preferred
Stock, the transaction resulted in a nonrecurring, noncash gain of approximately
$17 million, net of the estimated fair value of the Convertible Preferred Stock
issued.
Convertible Preferred Stock
Each share of Convertible Preferred Stock is initially convertible, at the
option of the holder, into two shares of Class A Common Stock, subject to
adjustment in certain circumstances. In the event the market price of a share of
Class A Common Stock equals or exceeds $3.25 for 30 consecutive trading days,
the Company may require the holders of Convertible Preferred Stock to convert
such stock into shares of Class A Common Stock at the then-applicable conversion
rate. Beginning on November 23, 1995, the Company may redeem, in whole or in
part, shares of Convertible Preferred Stock at a price equal to 104% of the
liquidation value and thereafter at prices declining annually to 100% of the
liquidation value on or after November 23, 1997. The Convertible Preferred Stock
has a liquidation value of $6.50 per share and accrues cumulative dividends at
the rate of 6% of the liquidation value per annum. Dividends are payable in cash
or in additional shares of Convertible Preferred Stock as defined by the
agreement. During fiscal 1996, dividends of approximately $713,000 were paid
with the issuance of approximately 110,000 new shares of Convertible Preferred
Stock. At February 25, 1996, and February 26, 1995, cumulative unpaid dividends
amounted to $438,129 and $232,152, respectively.
The Convertible Preferred Stock is subordinate on liquidation and with respect
to dividend payments to the outstanding shares of Exchangeable Preferred Stock
but senior to the Class A Common Stock and the Class B Common Stock. Holders of
shares of Convertible Preferred Stock are entitled to vote on all matters on
which the holders of Class A Common Stock are entitled to vote. Each share of
Convertible Preferred Stock entitles the holder to the number of votes per share
equal to the number of shares of Class A Common Stock into which each share of
Convertible Preferred Stock is then convertible.
The Company has agreed with the holders of the Convertible Preferred Stock to
register such stock (and the Class A Common Stock into which it is convertible)
under the Securities Act and to keep such registration effective until the
earlier of (i) the date on which such holders no longer own any of such
securities or (ii) the date on which each of the holders has notified the
Company that such holder may dispose of all of its securities pursuant to Rule
144(k) under the Securities Act. The effectiveness of the registration statement
covering these shares was suspended by the Company on March 28, 1996.
(5) INVESTMENT IN LITTLE SWITZERLAND, INC.
The sale of approximately 68% of Little Switzerland, Inc.'s common stock by a
subsidiary of the Company resulted in the deconsolidation of Little Switzerland,
Inc. in the fiscal 1992 consolidated financial statements of the Company. The
continuing investment in Little Switzerland, Inc. is now classified as a
long-term asset in the accompanying consolidated balance sheets.
As a result of the exchange discussed in Note 4, the Company's investment in
Little Switzerland, Inc., as of November 23, 1994, was reduced to 318,962 shares
or approximately 4%. Due to the decrease in ownership, the Company has changed
its method of accounting for this investment from the equity method to the cost
method.
(6) INVESTMENT IN SOLOMON BROTHERS, LIMITED
On May 27, 1988, the Company purchased 410,000 shares of nonvoting, redeemable,
cumulative, Participating Preferred Class B Stock of Solomon Brothers, Limited
("Solomon Brothers"), a Bahamian company, for a total purchase price of
$17,220,020.
The Company is entitled, as holder, to a fixed, cumulative, preferred dividend
equal to 1% of the purchase price annually. The Company is also entitled to a
cumulative, ordinary dividend equal to the change in net book value per ordinary
share of Solomon Brothers, calculated as if the Company was a holder of ordinary
shares, less the preferred dividend and to a fee determined as a percent of
cumulative, accrued, unpaid ordinary dividends. The combined dividend rate for
the periods ended February 25, 1996, February 26, 1995, and February 27, 1994,
was approximately 0%, 0% and 1.1%, respectively. The Company received
distributions of $2,045,532 of previously accrued but unpaid ordinary dividends
during fiscal 1994. On May 31, 1993, the Company redeemed 83,000 of the
Company's shares for approximately $3.5 million. On March 29, 1994, March 20,
1995, and April 4, 1996, as required by the covenants of its Senior Secured
Notes, the Company gave written notice to Solomon Brothers of the Company's
intention to redeem 70,000, 55,000 and 55,000 additional shares, respectively.
Solomon Brothers informed the Company that it would not be able to redeem the
March, 1994, March, 1995, and April, 1996, share requests when due, as a result
of constraints imposed by its banking facilities. The Company believes its
investment is realizable, but it is unable to estimate the timing of future
redemption payments. The Company is monitoring Solomon Brothers' operations and
financial position and if it determines in the future that carrying value is no
longer reflective of fair value, appropriate adjustments will be made.
Presented below is summarized financial information for Solomon Brothers as of
and for the years ended October 27, 1995, October 28, 1994 and October 29, 1993,
prepared on a basis substantially in accordance with generally accepted
accounting principles (GAAP) (Bahamian Dollars, $000s):
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Working capital $13,556 $15,094
Total assets 64,165 73,378
Total shareholders' equity 24,101 27,828
Sales $69,952 $63,657 $87,709
Net income (loss) (3,728) 54 (15,539)
Cash flows from operating
activities 3,946 (2,346) 3,856
</TABLE>
Solomon Brothers' fiscal 1994 information has been restated for consistency
purposes for operations which were discontinued in fiscal 1995. Restated
information was not available for fiscal 1993.
(7) INCOME TAXES
The domestic and foreign components of income (loss) before provision for income
taxes for the years ended February 25, 1996, February 26, 1995 and February 27,
1994, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Domestic $(2,859,405) $(1,014,997) $ 221,748
Foreign 1,157,158 3,345,079 3,925,808
$(1,702,247) $ 2,330,082 $4,147,556
</TABLE>
The components of the provision for income taxes for the years ended February
25, 1996, February 26, 1995 and February 27, 1994, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Current--
<S> <C> <C> <C>
Federal $ - $ - $ -
State - 700,000 636,449
Foreign 163,867 1,058,164 373,551
Total provision $163,867 $1,758,164 $1,010,000
</TABLE>
<PAGE>
The Company's effective tax rate differs from the federal statutory rate of 35%
in fiscal 1996, 1995 and 1994 due to the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed tax provision
(benefit) at statutory rate $(595,786) $815,529 $1,451,645
Increases (reductions)
resulting from--
Difference between U.S.
and foreign tax rates 221,023 1,061,886 378,940
State taxes - 700,000 636,449
Tax basis differences related to
Little Switzerland, Inc.
common stock exchange - (2,110,946) -
Items not deductible for
income tax purposes 92,488 92,488 65,378
(Utilization) deferral of net
operating losses 446,142 1,199,207 (1,522,412)
163,867 $1,758,164 $1,010,000
</TABLE>
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS (in 000's) 1996 1995
<S> <C> <C>
Restructuring and recapitalization cost accruals $ 2,287 $4,227
Accounts receivable reserves 2,617 4,120
Accrual for loss on assets held for sale or disposal 561 742
Inventories 1,815 1,265
Other 1,945 1,640
Net operating loss carryforwards 19,666 14,810
Total gross deferred tax assets 28,891 26,804
Less--valuation allowance (17,885)(14,782)
Net deferred tax assets $11,006 $12,022
</TABLE>
<TABLE>
<CAPTION>
DEFERRED TAX LIABILITIES (in 000's) 1996 1995
<S> <C> <C>
Property, plant and equipment, principally due to
differences in depreciation $ 5,629 $6,121
Investments in affiliated companies, principally
due to undistributed income 4,971 5,479
Other 406 422
Total deferred tax liabilities 11,006 12,022
Net deferred tax asset (liability) $ - $ -
</TABLE>
<PAGE>
The valuation allowance relates to uncertainty surrounding the realizability of
the deferred tax assets in excess of the deferred tax liabilities, principally
the net operating loss carryforwards.
For tax reporting purposes, the Company has a U.S. net operating loss
carryforward of approximately $49 million, subject to Internal Revenue Service
review and approval. In addition, net operating loss carryforwards of
approximately $1,500,000 were generated by a U.S. subsidiary prior to its
acquisition by the Company. Utilization of the subsidiary's net operating loss
carryforward is contingent on the subsidiary's ability to generate income in
future years. The net operating loss carryforwards will expire from 2009 to 2010
if not utilized.
(8) LOSS ON ASSETS HELD FOR SALE OR DISPOSAL
In fiscal 1993, the Company's management decided to make changes with respect to
certain of the operations of its Balfour subsidiary. As a result of this
decision, the Company recognized a pretax charge of $14.5 million in the fourth
quarter of fiscal 1993 to reserve for the losses associated with the disposal of
certain inventory and fixed assets, including property, plant, and equipment of
approximately $12.9 million and intangible assets of approximately $1.6 million,
no longer considered necessary to its modified business. At February 25, 1996,
the disposals have been substantially completed and the remaining reserve, of
approximately $1.4 million, represents the expected loss associated with the
disposition of the plant site which is being prepared for sale to the Town of
Attleboro.
(9) ZALE CORPORATION AND AFFILIATES
The Company's largest customer for a number of years has been the Zale
Corporation and its affiliated companies. Sales to the Zale Companies were
approximately $22 million or 9% of consolidated sales in fiscal 1996 compared to
approximately $29 million or 10% of consolidated sales in fiscal 1995 and
compared to $33 million or 12% of consolidated sales in fiscal 1994.
The Company's Consolidated Financial Statements at February 28, 1992, originally
reflected a net valuation, related to Zale Corporation's bankruptcy filing under
Chapter 11 of the United States Bankruptcy Code, of approximately $13 million,
which was classified as Other Assets in the Consolidated Balance Sheets, due to
the uncertainty of the timing of a final settlement. The Company subsequently
received proceeds from Zale and from liquidation of claim assets of
approximately $14.5 million and has recognized benefits in selling, general and
administrative expenses in the accompanying statement of operations, of
approximately $1.5 million in fiscal 1996.
<PAGE>
(10) CONCENTRATION OF CREDIT RISK
A significant portion of the Company's business activity is with large jewelry
retailers and department store chains, many of which are not only subject to the
risks associated with economic impacts on retailers of discretionary, consumer
goods but also are companies with high debt-to-equity ratios.
(11) NONRECURRING EVENTS
Based on the success of its operational restructuring during fiscal 1993, the
Company concluded that the Feature facility in New York will not be required as
a long-term manufacturing site. The Company expects to maintain a continuing
presence in New York in the form of sales and marketing functions, product
development, and manufacturing support services, including a repair function and
subcontractor control operations. These functions will remain in the Feature
facility until the Company is able to sell the facility at a price which it
considers acceptable. As a result of its decision to dispose of the facility,
the Company adjusted the carrying value of the Feature facility by approximately
$5 million, which was recorded as a restructuring charge during the fourth
quarter of fiscal 1993. As of February 25, 1996, the Company has not sold this
facility.
(12) CAPITALIZATION
Each share of Class B Common Stock entitles the holder to ten votes, each share
of Class A Common Stock entitles the holder to one vote, and each share of
Convertible Preferred Stock entitles the holder to the number of votes per share
equal to the number of shares of Class A Common Stock into which each share of
Convertible Preferred Stock is then convertible, on matters submitted to
stockholders. The Class B Common Stock is convertible at any time, at the option
of the holder, into Class A Common Stock on a share-for-share basis. The
Convertible Preferred Stock is initially convertible, at the option of the
holder, into two shares of Class A Common Stock, subject to adjustment in
certain circumstances. As part of the recapitalization, the Company issued to
its financial advisors warrants to purchase 125,000 shares of Class A Common
Stock, with an exercise price of $2.685 per share and a final maturity of five
years from the date of issuance of the warrants.
The Company's ability to pay cash dividends is limited by its financing and
other outstanding indebtedness. As a result of these restrictions, the Company
currently may not pay cash dividends.
(13) COMMITMENTS AND CONTINGENCIES
The Company leases a portion of its Chelsea, Massachusetts, facility comprised
of approximately 39,000 square feet of combined manufacturing and administrative
space from Carey Realty Trust, a Massachusetts business trust (the "Trust"),
which is wholly owned by C. William Carey, the Chairman, President and a major
stockholder of the Company. The lease which was revised on March 1, 1996,
expires on August 31, 1998, and provides the Company with three ten-year options
to renew. The current lease provides for an annual rental payment of
approximately $350,000. The Company obtained comparative information from a
third party when negotiating the revised lease and believes that these lease
arrangements are on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
<PAGE>
Certain other Company facilities and equipment are leased under agreements
expiring at various dates through 2009. The Company's commitments under the
noncancelable portion of all operating leases for the next five years and in
total thereafter at February 25, 1996, are approximately as follows:
<TABLE>
<CAPTION>
Year Total Commitment
<S> <C>
1997 $1,908,000
1998 1,771,000
1999 1,453,000
2000 1,208,000
2001 1,119,000
Thereafter 7,579,000
</TABLE>
Lease and rental expense included in the accompanying consolidated statements of
operations amounted to approximately $1,919,000, $1,414,000 and $1,090,000 for
the years ended February 25, 1996, February 26, 1995 and February 27, 1994,
respectively.
A subsidiary of the Company is a party to certain contracts with some of its
sales representatives whereby the representative has purchased the right to sell
the subsidiary's products, in a territory, from his predecessor. The contracts
generally provide that the value of these rights is primarily determined by the
amount of business achieved by a successor sales representative and is therefore
not determinable in advance of performance by the successor sales
representative.
The Company is not party to any pending legal proceedings, other than ordinary
routine litigation incidental to the business. In management's opinion, adverse
decisions on those legal proceedings, in the aggregate, would not have a
materially adverse impact on the Company's consolidated results of operations or
financial position.
(14) STOCK OPTION PLAN
The Company has three active stock option plans.
An aggregate of 1,500,000 shares of Class A Common Stock were registered for
issuance under the 1985 Amended and Restated Stock Option Plan (the "1985
Plan"). Both incentive stock options and nonstatutory stock options were granted
under the 1985 Plan. All options outstanding were issued at fair market value at
the date of grant. On September 19, 1995, options under the 1985 Plan were
repriced at $0.8125, the market price on that date. Granting of options under
this plan expired in April, 1995.
An aggregate of 2,000,000 shares of Class A Common Stock were registered for
issuance under the 1995 Stock Option and Incentive Plan (together with the 1985
Plan, the "Employee Plans"). Stock options, stock appreciation rights,
restricted stock, performance shares, unrestricted stock and dividend equivalent
rights may be granted under this plan.
The Company also has a stock plan for non-employee directors, the 1994
Non-Employee Directors' Nonqualified Stock Option Plan (the Directors' Plan).
Each Director received a one-time grant of 20,000 shares of common stock on
October 1, 1994. New directors elected after that date receive 20,000 shares
upon their election. Each non-employee director who is a director on the last
day of the Company's fiscal year which is more than four full years after the
date of their initial grant date will be granted an option to purchase 4,000
additional shares of Class A Common Stock. All such options are immediately
exercisable at the fair market value of Class A Common Stock on the date of
issuance. The Company has set aside 200,000 shares of stock for issuance under
the Directors' Plan.
The following table summarizes the stock option transactions under the Company's
option plans for the three years ended February 25, 1996:
<PAGE>
<TABLE>
<CAPTION>
Employee Directors' Price Range
Plans Plan Per Share
<S> <C> <C> <C>
Options Outstanding at
February 28, 1993 758,500 - $2.38 - $8.00
Options granted 50,000 - 2.63
Options canceled (70,100) - 3.00 - 5.63
Options exercised - -
Options Outstanding at
February 27, 1994 738,400 - $2.38 - $8.00
Options granted 598,500 60,000 2.31 - 2.38
Options canceled (482,750) - 2.38 - 8.00
Options exercised - -
Options Outstanding at
February 26, 1995 854,150 60,000 $2.31 - $6.88
Options granted 1,680,000 20,000 0.01 - 0.81
Options canceled (170,450) - 0.81 - 2.38
Options exercised - -
Options Outstanding at
February 25, 1996 2,363,700 80,000 $0.01 - $0.81
Options Excercisable at
February 25, 1996 542,400 80,000
</TABLE>
At February 25, 1996, there were 350,000 shares reserved for future grants under
the 1995 Employee Plan and 120,000 shares reserved for grant under the
Directors' Plan.
The Company has also granted options not under any plan to consultants and
various individuals to purchase up to 2,580,000 of Class A Common Stock at
prices ranging from $0.81 to $6.75 per share. On September 19, 1995, non-plan
options granted to employees of the Company were repriced at $0.8125, the market
price on that date.
(15) EMPLOYEE STOCK PURCHASE PLAN
On January 25, 1988, the Board of Directors adopted the 1988 Employee Stock
Purchase Plan (the "Stock Purchase Plan") for 500,000 shares of the Class A
Common Stock. Under the Stock Purchase Plan, each eligible participating
employee is deemed to have been granted an option to purchase shares of the
Company's Class A Common Stock on a semiannual basis at a price equal to 90% of
the market value on the last day of the period. During the year ended February
25, 1996, 24,146 shares were issued at $0.50 per share and 21,778 shares were
issued at $0.50 per share. During the year ended February 26, 1995, 5,855 shares
were issued at $2.50 per share and 17,260 shares were issued at $0.75 per share.
During the year ended February 27, 1994, 7,926 shares were issued at $2.50 per
share and 5,018 shares were issued at $3.00 per share. At February 25, 1996,
there were 260,613 shares reserved for issuance under the Stock Purchase Plan.
(16) EMPLOYEE BENEFIT PLANS
(a) Postemployment Medical Benefits
A subsidiary of the Company provides certain health care and life insurance
benefits for employees who retired prior to December 31, 1990. The Company
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," in fiscal 1994 and is recognizing the actuarial present value of
the accumulated postretirement benefit obligation (APBO) of approximately $6.1
million on the delayed recognition method over a period of 20 years.
<PAGE>
The following table sets forth the plan status as of February 25, 1996, and
February 26, 1995.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated postretirement benefit
obligation (in 000's)
Retired employees $(5,710) $(6,088)
Active employees - -
Total (5,710) (6,088)
Plan assets at fair value - -
Unfunded accumulated benefit
obligation in excess of plan assets (5,710) (6,088)
Unrecognized net gain (336) (73)
Unrecognized prior service cost - -
Unrecognized transition obligation 5,487 5,810
Accrued postretirement medical
benefit cost $ (559) $ (351)
</TABLE>
The net periodic postretirement benefit costs for fiscal 1996 and fiscal 1995
included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost -- benefits attributed to
service during the period (in 000's) $ - $ - $ -
Interest cost 444 474 494
Actual return on assets - - -
Amortization of unrecognized transition
obligation 323 323 324
Net periodic postretirement benefit cost $767 $797 $818
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per-capita cost of
covered health care benefits is assumed for fiscal 1996; the rate was assumed to
decrease gradually down to 6% for fiscal 2000 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. To illustrate, increasing the assumed health care cost
trend rate one percentage point in each year would increase the accumulated
postretirement benefit obligation as of February 25, 1996, by approximately
$380,000 or by 7%, and the aggregate of the service and interest cost components
of the net periodic postretirement benefit cost for fiscal 1996 by approximately
$30,000 or by 7%.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% in fiscal 1996 and 1995.
(b) Pension Plans
Certain subsidiaries of the Company participate in multiemployer pension plans.
The plans provide for defined benefits for substantially all unionized
employees. The amounts charged for pension contributions were approximately
$21,000, $20,000 and $62,000, for the years ended February 25, 1996, February
26, 1995 and February 27, 1994, respectively.
(c) Deferred Compensation
A subsidiary of the Company has deferred compensation agreements with certain
sales representatives and executives which provide for payments upon retirement
or death based on the value of life insurance policies or mutual fund shares at
the retirement date. The cost of the subsidiary's liability under these
compensation agreements has been charged to selling, general and administrative
expense. The deferred compensation expense for the years ended February 25,
1996, February 26, 1995 and February 27, 1994, was approximately $57,000,
$156,000 and $156,000, respectively.
(17) SUBSEQUENT EVENT
On May 20, 1996, the Company entered into an agreement to sell assets and
liabilities of its Balfour and Gold Lance subsidiaries constituting
substantially all of the operations of Balfour and Gold Lance to Class Rings,
Inc. (CRI), a new company formed by Castle Harlan Partners II, L.P. and the
Company. Separately, CRI entered into an agreement with CJC Holdings, Inc. (CJC)
to acquire its school ring business.
The Company's agreement with CRI is subject to a number of significant
contingencies including approval by the Federal Trade Commission and CRI's
ability to raise sufficient capital to consummate the acquisition of Balfour and
Gold Lance and the acquisition of CJC's school ring business.
Under the Company's agreement with CRI, the Company will receive cash of $55
million, adjustable for the fluctuation in working capital as of the date of
closing, 8% of the common stock of CRI and the cash equivalent to the value of
gold on hand as of the date of closing. In addition, the Company may receive
additional shares of common stock of CRI based on CRI's exceeding certain
defined levels of profitability. Under this contingent earnout arrangement, the
Company can earn up to an additional 10% interest in the common stock of CRI. If
the Company is able to consummate the transaction as contemplated, it is not
expected that the transaction would have an unfavorable impact on the Company's
financial position and operating results.
(18) CONSOLIDATING FINANCIAL INFORMATION AND SEGMENT INFORMATION
The securities issued by the Company in connection with the Company's
recapitalization, discussed in Note 3, are guaranteed by its domestic
subsidiaries. These guarantees are full, unconditional, and joint and several.
As a result, the Company has included condensed consolidating financial
statements on a domestic and foreign basis for the Company, the domestic
subsidiaries, and the foreign subsidiaries for the years ended February 25,
1996, February 26, 1995 and February 27, 1994, (in 000's). Foreign gross profit
includes gross profit attributable to sales from foreign subsidiaries to
domestic subsidiaries, which is not included in the eliminations column as the
impact is included in cost of sales of the domestic subsidiaries.
<PAGE>
<TABLE>
<CAPTION>
February 25, 1996 (000's)
ASSETS Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalent $ 115 $ - $ 5,037 $ - $ 5,152
Restricted cash 102 - - - 102
Accounts receivable, net 55 50,313 1,918 (991) 51,295
Inventories 3,345 84,563 3,221 (991) 90,138
Prepaid expenses and other
current assets 696 792 469 - 1,957
Total current assets 4,313 135,668 10,645 (1,982) 148,644
PROPERTY, PLANT AND
EQUIPMENT, at cost 297 75,649 8,128 - 84,074
Less--Accumulated
depreciation 282 39,670 3,863 - 43,815
15 35,979 4,265 40,259
INTERCOMPANY LOANS 22,791 - 6,962 (29,753) -
INVESTMENT IN SUBSIDIARIES 138,894 - - (138,894) -
INVESTMENT IN LITTLE
SWITZERLAND, INC. 1,651 - - - 1,651
INVESTMENT IN SOLOMON
BROTHERS, LIMITED 13,734 - - - 13,734
OTHER ASSETS 155 5,917 769 - 6,841
$ 181,553 $ 177,564 $ 22,641 $ (170,629)$ 211,129
</TABLE>
Page F-33
<PAGE>
<TABLE>
<CAPTION>
February 25, 1996 (000's)
LIABILITIES AND STOCKHOLDERS' Parent Domestic Foreign
EQUITY Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT LIABILITIES:
<S> <C> <C> <C> <C> <C>
Notes payable $ 17,524 $ (2,331)$ - $ - $ 15,193
Current portion of long-
term debt - 245 - - 245
Accounts payable 1,648 18,490 1,090 (991) 20,237
Accrued expenses 3,624 10,719 736 - 15,079
Accrued and currently
deferred income taxes 558 - 102 - 660
Total current liabilities 23,354 27,123 1,928 (991) 51,414
LONG-TERM DEBT, less
current portion 93,020 29,907 - (29,753) 93,174
LONG-TERM DEFERRED
INCOME TAXES AND
OTHER LIABILITIES - 1,123 - - 1,123
MINORITY INTEREST - - - 5,228 5,228
EXCHANGEABLE PREFERRED STOCK 2,319 - - - 2,319
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock 2,289 - - - 2,289
Common stock 239 5 2,109 (2,114) 239
Additional paid-in capital 74,175 232,774 8,439 (241,212) 74,176
Retained earnings (deficit) (13,843) (113,368) 10,165 98,213 (18,833)
Total stockholders' equity 62,860 119,411 20,713 (145,113) 57,871
$ 181,553 $ 177,564 $ 22,641 $ (170,629)$ 211,129
</TABLE>
Page F-34
<PAGE>
<TABLE>
<CAPTION>
February 25, 1996 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF OPERATIONS Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
NET SALES $ - $ 236,559 $ 28,353 $ (14,334)$ 250,578
COST OF SALES - 162,548 23,182 (12,589) 173,141
Gross profit $ - $ 74,011 $ 5,171 $ (1,745)$ 77,437
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 454 62,328 3,962 (754) 65,990
Income (loss) from operations $ (454)$ 11,683 $ 1,209 $ (991)$ 11,447
INTEREST EXPENSE, net 9,427 (22,536) 633 - (12,476)
MINORITY INTEREST - - - (673) (673)
Income (loss) before income taxes $ 8,973 $ (10,853)$ 1,842 $ (1,664)$ (1,702)
PROVISION (BENEFIT)
FOR INCOME TAXES (147) 147 164 - 164
Net income (loss) $ 9,120 $ (11,000)$ 1,678 $ (1,664)$ (1,866)
</TABLE>
Page F-35
<PAGE>
<TABLE>
<CAPTION>
February 25, 1996 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF CASH FLOWS Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 9,120 $ (11,000)$ 1,678 $ (1,664)$ (1,866)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization (1,461) 4,766 624 - 3,929
Loss (gain) on disposal of
fixed assets - (417) - (6) (423)
Interest paid by issuance of debt 4,201 - - - 4,201
Undistributed earnings of
affiliates net of minority interest 287 - - 386 673
Change in assets and liabilities--
(Increase) decrease in accounts
receivable 19 5,140 2,113 (1,095) 6,177
(Increase) decrease in
inventories (2,632) (9,309) 1,161 991 (9,789)
(Increase) decrease in prepaid
expenses and other current
assets (1,057) (260) (66) - (1,383)
(Increase) decrease in other
assets 16 (429) (480) - (893)
Increase (decrease) in accounts
payable 67 1,820 (554) 1,095 2,428
Increase (decrease) in accrued
expenses (1,532) 695 457 - (380)
Increase (decrease) in accrued
and deferred taxes (266) - (427) - (693)
Increase (decrease) in other
liabilities - (371) (1) - (372)
Net cash provided by
(used in) operating
activities $ 6,762 $ (9,365)$ 4,505 $ (293)$ 1,609
</TABLE>
Page F-36
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF February 25, 1996 (000's)
CASH FLOWS (Continued) Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Proceeds from sale of fixed
assets $ - $ 961 $ 35 $ - $ 996
Capital expenditures (1) (2,326) (407) - (2,734)
Net cash provided by
(used in) investing
activities $ (1)$ (1,365)$ (372)$ - $ (1,738)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on revolving credit
facility $ (259,532)$ 1,752 $ - $ - $ (257,780)
Proceeds from borrowings under
revolving credit facility 261,855 - - - 261,855
(Increase) decrease in restricted
cash (100) - - - (100)
Change in intercompany notes
payable (7,722) 9,760 (3,653) 1,615 -
Payments on debt (1,150) (782) - - (1,932)
Payment of dividends (67) - (272) 211 (128)
Proceeds from the issuance of
common stock 23 - 77 (77) 23
Net cash provided by
(used in) financing
activities $ (6,693)$ 10,730 $ (3,848)$ 1,749 $ 1,938
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 74 $ - $ 279 $ 1,462 $ 1,815
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 41 - 4,758 (1,462) 3,337
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 115 $ - $ 5,037 $ - $ 5,152
</TABLE>
Page F-37
<PAGE>
<TABLE>
<CAPTION>
February 26, 1995 (000's)
ASSETS Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalent $ 41 $ - $ 4,758 $ (1,462)$ 3,337
Restricted cash 2 - - - 2
Accounts receivable, net 74 55,453 4,031 (2,086) 57,472
Inventories (2,109) 78,076 4,382 - 80,349
Prepaid expenses and other
current assets (361) 532 403 - 574
Total current assets (2,353) 134,061 13,574 (3,548) 141,734
PROPERTY, PLANT AND
EQUIPMENT, at cost 296 74,210 7,749 - 82,255
Less--Accumulated
depreciation 255 35,444 3,320 - 39,019
41 38,766 4,429 - 43,236
INTERCOMPANY LOANS 13,728 2,008 3,463 (19,199) -
INVESTMENT IN SUBSIDIARIES 148,501 - - (148,501) -
INVESTMENT IN LITTLE
SWITZERLAND, INC. 1,651 - - - 1,651
INVESTMENT IN SOLOMON
BROTHERS, LIMITED 13,734 - - - 13,734
OTHER ASSETS 211 5,687 370 - 6,268
$ 175,513 $ 180,522 $ 21,836 $ (171,248)$ 206,623
</TABLE>
Page F-38
<PAGE>
<TABLE>
<CAPTION>
February 26, 1995 (000's)
LIABILITIES AND STOCKHOLDERS' Parent Domestic Foreign
EQUITY Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT LIABILITIES:
<S> <C> <C> <C> <C> <C>
Notes payable $ 15,201 $ (4,083)$ - $ - $ 11,118
Current portion of long-
term debt 447 788 - - 1,235
Accounts payable 1,581 16,670 1,644 (2,086) 17,809
Accrued expenses 994 14,186 279 - 15,459
Accrued and currently
deferred income taxes 824 - 529 - 1,353
Total current liabilities 19,047 27,561 2,452 (2,086) 46,974
LONG-TERM DEBT, less
current portion 91,045 21,054 - (20,661) 91,438
LONG-TERM DEFERRED
INCOME TAXES AND
OTHER LIABILITIES - 1,494 1 - 1,495
MINORITY INTEREST - - - 4,617 4,617
EXCHANGEABLE PREFERRED
STOCK 2,266 - - - 2,266
STOCKHOLDERS' EQUITY:
Convertible preferred stock 2,381 - - - 2,381
Common stock 234 5 2,109 (2,114) 234
Additional paid-in capital 73,145 232,774 8,515 (241,289) 73,145
Retained earnings (deficit) (12,605) (102,366) 8,759 90,285 (15,927)
Total stockholders' equity 63,155 130,413 19,383 (153,118) 59,833
$ 175,513 $ 180,522 $ 21,836 $ (171,248)$ 206,623
</TABLE>
Page F-39
<PAGE>
<TABLE>
<CAPTION>
February 26, 1995 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF OPERATIONS Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
NET SALES $ - $ 271,294 $ 37,822 $ (21,001)$ 288,115
COST OF SALES (1,050) 192,766 30,178 (21,360) 200,534
Gross profit $ 1,050 $ 78,528 $ 7,644 $ 359 $ 87,581
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 1,058 85,391 3,959 - 90,408
Income (loss) from operations $ (8)$ (6,863)$ 3,685 $ 359 $ (2,827)
INTEREST EXPENSE, net (1,288) (10,730) 83 - (11,935)
INCOME FROM AFFILIATES 588 - - - 588
GAIN ON LITTLE SWITZERLAND,
INC. EXCHANGE 17,278 - - - 17,278
MINORITY INTEREST - - - (774) (774)
Income (loss) before income taxes $ 16,570 $ (17,593)$ 3,768 $ (415)$ 2,330
PROVISION FOR INCOME TAXES 195 435 1,058 70 1,758
Net income (loss) $ 16,375 $ (18,028)$ 2,710 $ (485)$ 572
ACCRETION OF DISCOUNT AND
DIVIDENDS ON PREFERRED 1,688 - - - 1,688
STOCKS
Income (loss) attributable
to common stockholders $ 14,687 $ (18,028)$ 2,710 $ (485)$ (1,116)
</TABLE>
Page F-40
<PAGE>
<TABLE>
<CAPTION>
February 26, 1995 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF CASH FLOWS Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 16,375 $ (18,028)$ 2,710 $ (485)$ 572
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization (1,302) 5,513 635 - 4,846
Loss on disposal of fixed assets - 70 4 - 74
Gain on Little Switzerland, Inc.
exchange (17,278) - - - (17,278)
Interest paid by debt issuance 7,648 - - - 7,648
Undistributed earnings of
affiliates net of minority
interest (588) - - 774 186
Change in assets and liabilities--
(Increase) decrease in accounts
receivable 1,522 (339) (1,449) (1,583) (1,849)
(Increase) decrease in
inventories 210 (5,003) (168) (359) (5,320)
(Increase) decrease in prepaid
expenses and other current
assets 594 2,798 (55) 81 3,418
(Increase) decrease in other
assets 56 6,340 146 - 6,542
Increase (decrease) in accounts
payable (248) 3,157 590 1,583 5,082
Increase (decrease) in accrued
expenses (3,830) (191) (576) - (4,597)
Increase (decrease) in accrued
and deferred taxes 498 (275) 266 (11) 478
Increase (decrease) in other
liabilities - (599) - - (599)
Net cash provided by
(used in) operating
activities $ 3,657 $ (6,557)$ 2,103 $ - $ (797)
</TABLE>
Page F-41
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF February 26, 1995 (000's)
CASH FLOWS (Continued) Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Proceeds from sale of fixed
assets $ - $ 43 $ 2 $ - $ 45
Capital expenditures (7) (2,210) (542) - (2,759)
Net cash used in
investing activities $ (7)$ (2,167)$ (540)$ - $ (2,714)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on revolving credit
facility $ (277,887)$ (2,103)$ - $ - $ (279,990)
Proceeds from borrowings under
revolving credit facility 291,108 - - - 291,108
(Increase) decrease in restricted
cash 36 - - - 36
Change in intercompany notes
payable (11,005) 12,343 (1,930) 592 -
Payments on debt (6,034) (1,574) - - (7,608)
Proceeds from the issuance of
common stock 28 - - - 28
Net cash provided by
(used in) financing
activities $ (3,754)$ 8,666 $ (1,930)$ 592 $ 3,574
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (104)$ (58)$ (367)$ 592 $ 63
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 145 58 5,125 (2,054) 3,274
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 41 $ - $ 4,758 $ (1,462)$ 3,337
</TABLE>
Page F-42
<PAGE>
<TABLE>
<CAPTION>
February 27, 1994 (000's)
ASSETS Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalent $ 145 $ 58 $ 5,125 $ (2,054)$ 3,274
Restricted cash 38 - - - 38
Accounts receivable, net 1,596 54,678 2,684 (3,334) 55,624
Inventories (1,899) 73,073 4,214 (359) 75,029
Prepaid expenses and other
current assets 233 3,329 349 81 3,992
Total current assets 113 131,138 12,372 (5,666) 137,957
PROPERTY, PLANT AND
EQUIPMENT, at cost 290 71,832 7,219 - 79,341
Less--Accumulated
depreciation 208 30,666 2,762 - 33,636
82 41,166 4,457 - 45,705
INTERCOMPANY LOANS 1,098 957 1,534 (3,589) -
INVESTMENT IN SUBSIDIARIES 163,819 - - (163,819) -
INVESTMENT IN LITTLE
SWITZERLAND, INC. 13,304 - - - 13,304
INVESTMENT IN SOLOMON
BROTHERS, LIMITED 13,734 - - - 13,734
OTHER ASSETS 303 12,331 587 - 13,221
$ 192,453 $ 185,592 $ 18,950 $ (173,074)$ 223,921
</TABLE>
Page F-43
<PAGE>
<TABLE>
<CAPTION>
February 27, 1994 (000's)
LIABILITIES AND STOCKHOLDERS' Parent Domestic Foreign
EQUITY Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT LIABILITIES:
<S> <C> <C> <C> <C> <C>
Notes payable $ 1,980 $ (1,980)$ - $ - $ -
Current portion of long-
term debt - 1,480 - - 1,480
Accounts payable 205 14,702 1,155 (3,334) 12,728
Accrued expenses 4,725 14,377 854 - 19,956
Accrued and currently
deferred income taxes 324 275 264 11 874
Total current liabilities 7,234 28,854 2,273 (3,323) 35,038
LONG-TERM DEBT, less
current portion 91,265 6,205 - (5,643) 91,827
LONG-TERM DEFERRED
INCOME TAXES AND
OTHER LIABILITIES - 2,093 1 - 2,094
MINORITY INTEREST - - - 3,843 3,843
EXCHANGEABLE PREFERRED
STOCK 35,785 - - - 35,785
STOCKHOLDERS' EQUITY:
Common stock 234 37,175 2,109 (39,284) 234
Additional paid-in capital 69,909 200,599 8,515 (209,114) 69,909
Retained earnings (deficit) (11,974) (89,334) 6,052 80,447 (14,809)
Total stockholders' equity 58,169 148,440 16,676 (167,951) 55,334
$ 192,453 $ 185,592 $ 18,950 $ (173,074)$ 223,921
</TABLE>
Page F-44
<PAGE>
<TABLE>
<CAPTION>
February 27, 1994 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF OPERATIONS Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
NET SALES $ 200 $ 258,898 $ 38,406 $ (19,754)$ 277,750
COST OF SALES (925) 170,785 30,250 (19,754) 180,356
Gross profit $ 1,125 $ 88,113 $ 8,156 $ - $ 97,394
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 960 75,824 3,437 - 80,221
Income from operations $ 165 $ 12,289 $ 4,719 $ - $ 17,173
INTEREST EXPENSE, net (3,589) (9,918) 161 - (13,346)
INCOME FROM AFFILIATES 1,262 - - - 1,262
MINORITY INTEREST - - - (941) (941)
Income (loss) before income taxes $ (2,162)$ 2,371 $ 4,880 $ (941)$ 4,148
PROVISION FOR INCOME TAXES (1,218) 1,946 282 - 1,010
Net income (loss) $ (944)$ 425 $ 4,598 $ (941)$ 3,138
ACCRETION OF DISCOUNT ON
EXCHANGEABLE PREFERRED 1,454 - - - 1,454
STOCK
Income (loss) attributable
to common stockholders $ (2,398)$ 425 $ 4,598 $ (941)$ 1,684
</TABLE>
Page F-45
<PAGE>
<TABLE>
<CAPTION>
February 27, 1994 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF CASH FLOWS Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ (944)$ 425 $ 4,598 $ (941)$ 3,138
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization (613) 5,646 595 - 5,628
Loss (gain) on disposal of
fixed assets - 25 (138) - (113)
Ordinary dividends received
from affiliate 3,274 - - (1,228) 2,046
Interest paid by debt issuance 3,496 - - - 3,496
Undistributed earnings of
affiliates net of minority
interest (1,169) - - 941 (228)
Change in assets and liabilities--
(Increase) decrease in accounts
receivable (1,380) (3,766) 887 255 (4,004)
(Increase) decrease in
inventories (925) (3,137) 2,467 - (1,595)
(Increase) decrease in prepaid
expenses and other current
assets 225 1,446 (86) 883 2,468
(Increase) decrease in other
assets (79) 3,557 244 - 3,722
Increase (decrease) in accounts
payable (1,471) 4,402 (772) (255) 1,904
Increase (decrease) in accrued
expenses 6,375 (3,557) (628) - 2,190
Increase (decrease) in accrued
and deferred taxes (776) 1,947 201 (883) 489
Increase (decrease) in other
liabilities - (1,086) (77) - (1,163)
Net cash provided by
(used in) operating
activities $ 6,013 $ 5,902 $ 7,291 $ (1,228)$ 17,978
Page F-46
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF February 27, 1994 (000's)
CASH FLOWS (Continued) Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Proceeds from sale of fixed
assets $ - $ 13 $ 210 $ - $ 223
Proceeds from sale of investments 3,486 - - - 3,486
Capital expenditures (207) (1,721) (2,129) - (4,057)
Net cash provided by
(used in) investing
activities $ 3,279 $ (1,708)$ (1,919)$ - $ (348)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on revolving credit
facility $ (204,889)$ (1,980)$ - $ - $ (206,869)
Proceeds from borrowings under
revolving credit facility 206,869 - - - 206,869
(Increase) decrease in restricted
cash (38) - - - (38)
Payments to retire credit facility (37,250) - - - (37,250)
Proceeds from senior secured notes 30,000 - - - 30,000
Change in intercompany notes
payable (701) 4,686 (1,931) (2,054) -
Payments for recapitalization
expenses (8,255) - - - (8,255)
Payments on debt (10,020) (3,646) - - (13,666)
Payment of dividends 6,800 - (8,563) 1,228 (535)
Proceeds from the issuance of
common stock 35 - - - 35
Net cash used in
financing activities $ (17,449)$ (940)$ (10,494)$ (826)$ (29,709)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (8,157)$ 3,254 $ (5,122)$ (2,054)$ (12,079)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 8,302 (3,196) 10,247 - 15,353
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 145 $ 58 $ 5,125 $ (2,054)$ 3,274
</TABLE>
Page F-47
<PAGE>
Report of Independent Public Accountants
On Schedules
To Town & Country Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Town & Country Corporation and subsidiaries
included in this Form 10-K and have issued our report thereon dated May 17, 1996
(except for the matter discussed in Note 1 and Note 17 for which the date is
June 7, 1996 and May 20, 1996, respectively). Our audit was made for the purpose
of forming an opinion on the basic consolidated financial statements taken as a
whole. The schedules listed in Item 14 (a) (2) are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state, in all material respects, the
financial data required to be set forth therein, in relation to the basic
consolidated financial statements taken as a whole.
Boston, Massachusetts Arthur Andersen LLP
May 17, 1996
<PAGE>
SCHEDULE II
Valuation Accounts
Balance Write-offs, Balance
Beginning Net of End of
Description of year Provision Recoveries Year
Allowance for Doubtful
Accounts:
For the Year Ended:
February 25, 1996 $ 7,780,000 $ 464,000 $ (6,124,000)$ 2,120,000
February 26, 1995 5,510,000 5,473,000 (3,203,000) 7,780,000
February 27, 1994 4,910,000 2,550,000 (1,950,000) 5,510,000
Page F-49
<PAGE>
EXHIBITS
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Exhibits, other than Exhibits 10.4, 11, 22, 24.1, and 27, have been omitted.
The Company will supply, upon written request, copies of any exhibit from the
Document list.
<PAGE>
EXHIBIT 11
Earnings Per Share Computations
Five Years Ended
(Unaudited)
<TABLE>
<CAPTION>
February 25, February 26, February 27, February 28, February 29
1996 1995 1994 1993 1992
PRIMARY EPS:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ (1,866,114)$ 571,918 $ 3,137,556 $(47,295,592)$(19,018,207)
Accretion of discount and
dividends on preferred
stocks (1,039,802) (1,688,019) (1,453,511) - -
Net income (loss)
attributable to
common stock $ (2,905,916)$ (1,116,101)$ 1,684,045 $(47,295,592) $(19,018,207)
Weighted average common
shares outstanding 23,769,323 23,433,173 21,205,949 12,450,290 12,005,752
Weighted shares issued from
exercise and assumed
exercise of:
warrants - - - - -
options - - - - -
Shares for EPS
calculation 23,769,323 23,433,173 21,205,949 12,450,290 12,005,752
Reported EPS:
Income (loss) before
extraordinary gain
and accretion of discount
and dividends on
preferred stocks $ (0.08)$ 0.02 $ 0.15 $ (3.80)$ (1.64)
Extraordinary gain - - - - 0.06
Accretion of discount and
dividends on preferred
stocks (0.04) (0.07) (0.07) - -
Net income (loss)
per common share $ (0.12)$ (0.05)$ 0.08 $ (3.80)$ (1.58)
</TABLE>
Fully Diluted EPS:
For the five years presented in this exhibit, there is no dilution from Primary
EPS.
This exhibit should be reviewed in conjunction with Note 2 of Notes to
Consolidated Financial Statements.
<PAGE>
EXHIBIT 22
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Subsidiaries of the registrant
Set forth below is a list of the Registrant's subsidiaries (1) as of February
25, 1996, with their state or other jurisdiction of incorporation, names under
which they do business, and the percentage of their voting securities owned by
the Registrant as of such date:
Percent
Name Incorporation and Date Ownership
Essex International Public Company Limited Thailand, 1984 70%
Gold Lance, Inc. Massachusetts, 1986 100%
L.G. Balfour Company, Inc. Delaware, 1982 100%
Anju Jewelry Limited Hong Kong, 1973 100%
Town & Country Fine Jewelry Group, Inc. (2) Massachusetts, 1991 100%
-----------------------
(1) Excluded are the names of particular subsidiaries, which, when considered in
the aggregate as a single subsidiary, would not constitute a significant
subsidiary as of February 25, 1996.
(2) Verilyte Gold, Inc. and Feature Enterprises, Inc. were merged into Town &
Country Fine Jewelry Group, Inc. as of May 14, 1993.
<PAGE>
EXHIBIT 24.1
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-2, File No. 33-49028, on Form S-8, File No.
33-23860, and Form S-2, File No. 33-57407.
Arthur Andersen LLP
Boston, Massachusetts
May 17, 1996
Exhibit 10.4
<PAGE>
ASSIGNMENT, CONSOLIDATION, AMENDMENT AND RESTATEMENT OF LEASE
by and between
Irving L. Adler and C. William Carey, Trustees of Carey Realty Trust, as Lessor,
Town & Country Corporation, as Assignor,
and
Town & Country Fine Jewelry Group, Inc., as Assignee and successor Lessee
As of March 1, 1996
<PAGE>
1.0 PREMISES 2
1.1 Addition 2
2.0 TERM 2
3.0 APPURTENANCES 3
4.0 BASE RENT; ADDITIONAL RENT 3
4.1 Base Rent 3
4.2 Adjusted Base Rent 4
4.3 4
Additional Rent With Respect To Addition 4
4.4 Net Lease 4
4.5 Late Payment of Rent 5
5.0 TAXES 5
6.0 TAX ESCROW 5
6.1 Tax Abatement 6
7.0 LESSEE INDEMNIFICATION OF LESSOR 6
8.0 INSURANCE 7
8.1 Casualty and Workers' Compensation Insurance 7
8.2 Plate Glass 7
8.3 Self Insurance 7
8.4 Public Liability Insurance 7
8.5 Certificates of Insurance; Other Requirements 8
8.6 Builders Risk Insurance 8
8.7 Failure To Insure 8
8.8 Casualty Insurance Proceeds 9
8.9 Waiver of Subrogation 9
9.0 CASUALTY OR TAKING 9
9.1 Lessor's Option To Terminate 9
9.2 10
9.3 Duty To Restore 10
9.4 Restoration 10
9.5 Award Proceeds 11
10.0 UTILITIES 11
10.1 Operation of Utilities 11
11.0 EXTENSION OPTION 11
11.1 Terms and Conditions of Extension Option 12
12.0 USE OF THE PREMISES 12
12.1 Hazardous Wastes 12
12.2 Definitions 13
12.3 Notices and Violations 13
13.0 COMPLIANCE 14
14.0 MAINTENANCE OF PREMISES 14
14.1 No Overloading 15
14.2 Installations, Alterations or Additions 15
15.0 OCCUPANCY 15
16.0 ASSIGNMENT; SUBLEASING 16
17.0 ASSIGNMENT AND SUBLETTING BY LESSEE 16
17.1 Assignment; Sublease of Premises 16
17.3 Transfers 17
17.4 Lease of Addition 17
17.5 Leasehold Mortgages 17
18.0 SUBORDINATION; MORTGAGEES' RIGHTS 17
18.1 Lease Subordinate 18
18.2 Rights of Mortgage Holders 18
18.4 Estoppel Certificate 19
18.5 Existing Mortgage 20
19.0 LESSOR'S ACCESS 20
20.0 DEFAULT AND BANKRUPTCY 20
20.1 Lessee's Default 20
20.2 Lessor's Remedies 22
20.3 Lessor's Right to Cure Defaults 23
20.4 Lessor's Default 24
20.6 Lessor's Cost of Enforcement 24
20.7 No Accord and Satisfaction 24
21.0 SURRENDER 25
21.1 Holding Over 25
22.0 MECHANIC LIEN 25
23.0 WAIVER OF REQUIREMENTS 26
24.0 PEACEFUL ENJOYMENT 26
25.0 ENTIRE AGREEMENT 26
26.0 CONSTRUCTION OF LEASE 27
27.0 MARGINAL NOTES 27
28.0 APPLICABLE LAW; PARTIAL INVALIDITY 27
29.0 SUCCESSORS AND ASSIGNS 27
29.1 Lessor's Liability 27
30.0 SPECIAL PROVISIONS REGARDING ADDITION 28
30.1 Construction of Addition. 28
30.3 Termination Due to Lessee's Default 28
30.4 Expiration or Termination Not Due to Lessee's Default 28
30.5 Lessor's Options 29
30.6 DEMOLITION OF ADDITION 31
31.0 RIGHT OF FIRST REFUSAL 31
31.1 Lessee's Right 31
31.2 Lessor's Rights 32
32.0 NOTICES 33
33.0 NOTICE OF LEASE 33
34.0 ACTS OF GOD 33
35.0 SECURITY DEPOSIT 33
<PAGE>
Assignment, Consolidation, Amendment and Restatement of Lease
This Assignment, Consolidation, Amendment and Restatement of Lease (this
"Lease") is entered into as of the first day of March, 1996, among Irving L.
Adler and C. William Carey, Trustees of Carey Realty Trust, under declaration
dated September 2, 1975, recorded in Suffolk County Registry of Deeds, Book
8816, Page 128, and registered in the Suffolk County Registry District of the
Land Court as Document No. 325417, as amended, having a principal place of
business at 27 Cambridge Street, Burlington, Massachusetts 01805 ("Lessor"),
Town & Country Corporation, a Massachusetts corporation with its principal place
of business at 25 Union Street, Chelsea, Massachusetts 02150 ("Assignor"), and
Town & Country Fine Jewelry Group, Inc., a Massachusetts corporation with its
principal place of business at 25 Union Street, Chelsea, Massachusetts 02150
("Lessee").
Reference is made to a lease dated September 1, 1984 (the "Original
Lease") between Lessor and Assignor's predecessor in interest, Town & Country
Jewelry Manufacturing Corporation ("T&C Jewelry"), as amended by that certain
Amendment #1 to Lease dated July 1, 1987 ("Amendment #1") between Lessor and T&C
Jewelry, and by that certain Amendment #2 to Lease dated July 27, 1989
("Amendment #2), between Lessor and Assignor. Assignor hereby ratifies and
confirms its assignment of its leasehold interest under the Original Lease, as
amended, and all of its obligations thereunder arising on and after the date of
such assignment to Lessee, and joins in this agreement for the sole purpose of
ratifying and confirming such assignment, and Lessor hereby acknowledges and
consents to such assignment. Lessee hereby ratifies and confirms its assumption
of, and agrees to be bound by and to discharge, all of the lessee's obligations
under the Lease arising on and after the date of such assignment.
Lessor and Lessee have agreed to consolidate the provisions of the
Original Lease, Amendment #1 and Amendment #2, and to further amend and restate
the same in order to (1) correct certain scrivener's errors therein, (2) to
incorporate certain provisions which will facilitate financing of the Premises,
Lessee's leasehold interest therein and the Addition (as each such capitalized
term is hereinafter defined) and the Lessee's operations therein, (3) to protect
Lessor's and Lessee's respective rights in the Premises and the Addition, in the
event of such financing, (4) to acknowledge the Lessee's exercise of its first
option to extend the term of the Lease, and (5) to provide for orderly
management and/or disposition of the Premises and the Addition in the event of
casualty, eminent domain taking, and termination or expiration of the Lease. For
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lessor and Lessee hereby agree to consolidate the Original Lease,
Amendment #1 and Amendment #2 and to amend and restate the same as follows:
Lessor hereby leases to Lessee the following described premises:
1.0 PREMISES.
(a) The land located at 1-9 Union Street, 9-25 Union Street and 348 Washington
Avenue, Chelsea, Suffolk County, Massachusetts, being more particularly
described in Exhibit A attached hereto, but excluding the Ground Lease Parcel
(as defined below) (the "Land").
(b) A manufacturing/office building located on the Land consisting of
approximately 40,000 square feet and other improvements located on the Land
(collectively, the "Building").
(c) The parcel of land beneath the footprint of the Addition (as defined below)
shown as Parcel A on Exhibit B attached hereto (the "Ground Lease Parcel").
(d) The Land, the Building and the Ground Lease Parcel are collectively referred
to in this Lease as the "Premises" The Premises shall include the rights,
privileges, easements and appurtenances belonging or in any way pertaining to
the Land, the Building, and the Ground Lease Parcel, including without
limitation, the appurtenances described in Paragraph 3.0 hereof.
(e) The Addition is specifically excluded from the Premises.
1.1 Addition. Assignor constructed a manufacturing/office building on the Ground
Lease Parcel consisting of 2 stories and approximately 50,000 square feet (the
"Addition"). For the purposes of this Lease, the Addition shall include any
Alterations to the Addition provided that such Alterations shall not in any
event operate to increase the size of the Addition. The Addition is owned by
Lessee and is specifically excluded from the Premises.
2.0 TERM. The Original Term of this Lease commenced on September 1, 1984 and
ended on August 31, 1993. The first Extension Term of this Lease commenced on
September 1, 1993 and shall end on August 31, 1998. Lessee shall have the option
to extend the Term for three (3) additional successive ten (10) year extension
terms (each hereinafter also an "Extension Term"), each commencing at the
expiration of the immediately preceding Extension Term. Lessee's option to
extend the Term for the Extension Terms shall be exercisable in the manner
hereinafter provided. The word "Term" as used herein shall mean the
then-existing Original Term or Extension Term and any Extension Terms which have
then been elected by Lessee whether or not the same have commenced.
3.0 APPURTENANCES. Lessor hereby leases to Lessee, as rights appurtenant to
Lessee's leasehold interest, the following:
(a) the right, in common with Lessor, to connect to and use the fresh water,
gas, steam, heat, electricity, data communications, telephone, sanitary sewer
(collectively the "Utilities") and the related pipes, cables, wires and conduits
located on the Premises and in the Building;
(b) the right, in common with Lessor, from time to time, to install, construct,
repair, replace, use, maintain, modify and relocate for service to the Addition
pipes, ducts, conduits, wires, cables and other facilities and fixtures for
water, sewer, steam, heat, electricity, gas, telephone, data communications,
storm drainage and other utilities wherever located on the Premises or in the
Building, provided that any replacements therefor are substantially equivalent
or better than those existing or hereinafter constructed, and provided further
that Lessee first secures Lessor's approval thereof, which approval shall not be
unreasonably withheld, delayed or conditioned. Lessee shall pay the cost of any
installation, construction, modifications and relocations to the extent the same
are undertaken to serve the Addition; and
(c) the right, in common with Lessor, to lateral and subjacent support and
foundation from the Building, the Land, the Addition and the Ground Lease
Parcel.
4.0 BASE RENT; ADDITIONAL RENT. Lessee covenants and agrees to pay base rent to
Lessor at the above address or at such other place or to such other person as
Lessor may by notice in writing to Lessee from time to time direct. All payments
of base rent are to be made in twelve (12) equal monthly installments, payable
in advance on the first day of each calendar month; and for any portion of a
calendar month at the beginning or end of the Original Term or Extension Terms,
at the applicable rent payable in advance for such portion.
4.1 Base Rent. The annual base rent for the period beginning September 1, 1984
until August 31, 1985 (the "Initial Lease Year") was $234,300 ($19,525 per
month). The annual base rent for the following twelve months and each successive
twelve month period (each a "Lease Year") was adjusted as provided in the
Original Lease. The annual base rent as of August 31, 1987 was $249,374, at
which time it was increased pursuant to Amendment #1. The new annual base rent
was then increased pursuant to Amendment #2 for each successive Lease Year, and,
as of February 29, 1996 equalled $483,426 per year. The parties hereby agree
that the annual base rent for the period commencing with the date hereof and
continuing through and including August 31, 1998 shall equal $352,340.
4.2 Adjusted Base Rent. In the event that the Term of this Lease is extended as
provided in Paragraph 11.0 hereof, then commencing on September 1, 1998 and
continuing on each successive September 1 of every Lease Year during the Term
hereof (each a "Rent Adjustment Date"), the annual base rent payable hereunder
for the Lease Year commencing upon such Rent Adjustment Date shall be computed
as follows:
NBR = OBR * (New CPI Old CPI)
where (a) "NBR" is the new annual base rent payable for the Lease Year just
beginning, (b) "New CPI" is the CPI (as defined in this Paragraph 4.2 below)
determined as of June 1 of the Lease Year immediately prior to such Rent
Adjustment Date, (c) "Old CPI" is the CPI determined as of June 1 occurring 15
months prior to such Rent Adjustment Date, and (d) "OBR" shall equal the annual
base rent for the Lease Year immediately preceding such Rent Adjustment Date.
Said base rent as adjusted shall become the annual base rent for the Lease Year
in question and shall be adjusted on the next succeeding Rent Adjustment Date as
herein provided.
For purposes of this Paragraph 4.2, the "CPI" shall mean the "Consumer
Price Index for All Wage Earners" as most recently published by the Department
of Labor Statistics, or its successor, for the Boston area. If such index is no
longer published, Lessor shall select a substitute, broadly defined comparable
index measuring consumer prices published thereafter, and shall use such
conversion index as may be published for the same or, if none, shall calculate
such conversion in its reasonable discretion.
4.3 Additional Rent With Respect To Addition. As additional rent, in addition to
all other costs and expenses set forth as additional rent in the Lease, Lessee
shall pay for all utilities, real estate taxes, insurance and other operating
expenses attributable to the Addition. Except as expressly otherwise provided
herein, all such amounts shall be paid by Lessee promptly to the providers of
the same, and upon request of Lessor, Lessee shall provide to Lessor evidence of
timely payment thereof.
4.4 Net Lease. Except as otherwise expressly provided herein, all base rent,
additional rent and other sums payable hereunder shall be net to Lessor, so that
this Lease shall yield to Lessor at least the annual base rent specified herein
during the Term. Except as expressly provided herein, (a) Lessor shall not be
obligated to pay any charge or bear any expense whatsoever with respect to the
Premises or the Addition, (b) the rent payable hereunder shall not be subject to
any reduction or offset whatsoever, and (c) all costs, expenses and obligations
of every nature whatsoever relating to the Premises or the Addition shall be
paid by Lessee pursuant to the applicable provisions hereof. As used herein, the
term "rent" shall mean the base rent, additional rent and all other charges of
any nature payable hereunder by Lessee.
4.5 Late Payment of Rent. If any payment of rent is not paid on or before the
date the same is due, the same shall bear interest from the tenth day following
the due date at the rate of 10% per annum, but in no event more than the maximum
rate of interest allowed by law, the payment of which shall constitute
additional rent hereunder.
5.0 TAXES. The Lessee shall pay to the Lessor, in addition to the amounts
hereinbefore set forth, as additional rent, all taxes, betterments, fees and
assessments whatsoever, whether in the nature of taxes now in being or not,
which may be payable for or in respect to the Premises, the Addition or any part
thereof, its use thereof, the rent payable hereunder, this Lease, or its
personal property therein, during the Term of this Lease and for such further
time as the Lessee shall hold the Premises or the Addition (collectively,
"Taxes").
6.0 TAX ESCROW. The Lessee hereby agrees to pay all Taxes in full prior to the
time any fee, penalty or charge could be imposed for late payment thereof.
Notwithstanding the foregoing, if (a) the Lessor's mortgagee requires that
Lessor make payments into escrow of the same, Lessee shall pay to Lessor, as
additional rent, the Taxes which it is required to pay hereunder in equal
monthly installments of one-twelfth of the amount of Taxes due annually, each
payable with the monthly installments of base rent paid during the period in
which such mortgage is outstanding (each such payment a "Tax Payment"), or (b)
Lessee shall default in making any payment of rent due hereunder and such
default shall continue for more than thirty (30) days following the date on
which such payment was due, then upon Lessor's written request therefor and
continuing for the remainder of the Term, Lessee shall pay to Lessor monthly Tax
Payments as set forth above. Said payments in each year shall be made on the
basis of Taxes assessed in the next preceding year until the Taxes shall have
been assessed and the amounts of such Taxes are ascertained in each year, and
any difference arising from increase or reduction of Taxes in any year shall be
adjusted and paid or credited, as the case may be, as soon as the amount of
Taxes assessed in that year is ascertained.
6.1 Tax Abatement. Lessor shall have the right (but not the obligation) to
contest the amount or validity of any Taxes payable with respect to the
Premises. In addition, Lessee shall have the right (but not the obligation),
with the consent of the Lessor, which shall not be unreasonably withheld,
conditioned or delayed, to contest in good faith by appropriate proceedings
diligently conducted, at Lessee's sole cost and expense, the amount or validity
of any Taxes payable with respect to the Premises or the Addition. Such
proceedings shall not operate to postpone or reduce any payment of Taxes
required to be made by Lessee hereunder, and Lessor or Lessor's mortgagee (if
any) shall be entitled to remit the same to the taxing authority when due, under
protest if appropriate. In the event the Lessee obtains a refund or abatement
which relates to a period contained within the Term hereof, Lessee shall be
entitled to deduct therefrom any reasonable expenses incurred by the Lessee in
connection with the abatement proceedings (including, without limitation,
reasonable attorney's fees), and shall promptly pay any remainder with respect
to the Premises to Lessor.
7.0 LESSEE INDEMNIFICATION OF LESSOR. The Lessee will defend, indemnify the
Lessor and save it harmless from and against any and all claims, actions,
damages, liability and expense (including, without limitation, any of the same
arising in connection with loss of life, personal injury and/or damage to
property): (a) arising from or out of any occurrence in, upon or at the Premises
or the Addition during the term of this Lease, or the occupancy or use by Lessee
of the Premises or the Addition, or any part thereof, in each case, unless
resulting from the negligence or willful act of Lessor or its employees,
representatives, agents, contractors or invitees (as to either party, its
"Representatives"), or (b) to the extent occasioned by any act or omission of
Lessee, its agents, contractors, employees, servants, lessees or
concessionaires, licensees or invitees, or breach by Lessee of any of the
provisions hereof. In case Lessor shall, without fault on its part, be made a
party to any litigation commenced by or against Lessee, then Lessee shall
protect and hold Lessor harmless and shall pay all costs, expenses and
reasonable attorney's fees incurred or paid by Lessor in connection with such
litigation. Lessee agrees that its use and occupancy of the Premises and the
Addition, and all of the furnishing, fixtures, equipment, effects and property
of every kind of Lessee and all other persons claiming by, through or under
Lessee which may be on the Premises or Addition, are at its own risk and hereby
releases to the full extent permitted by law the Lessor and its employees,
representatives, agents, contractors and invitees from all claims and demands of
every kind resulting from any accident, damage or injury occurring therein,
unless resulting from the negligence or willful act of the Lessor or such
persons.
8.0 INSURANCE.
8.1 Casualty and Workers' Compensation Insurance. During the Term of this Lease
the Lessee shall, at its own cost and expense, maintain with respect to the
Premises and the Addition and its tenant fit-up and improvements, fixtures,
equipment and operations therein (a) fire and extended coverage insurance in an
amount not less than the full replacement value of the Premises and the
Addition, tenant fit-up and improvements, fixtures, equipment, inventory and
other personal property therein on an all-risk basis, with a waiver of
co-insurance and a commercially reasonable deductible amount, and with
endorsements to include coverage for vandalism, flood, water damage, earthquake,
contingent operation of building and zoning laws, damage from sprinklers and
leakage or explosion, and debris removal and demolition, as Lessor may
reasonably require, (b) rental value or loss of rent insurance in an amount
equal to all the rent payable hereunder for one Lease Year, (c) workers'
compensation insurance as required by applicable law for its employees and its
contractors' employees, and (d) such other coverages as may from time to time be
customarily maintained with respect to properties similar to the Premises and
Addition which are used for similar purposes.
8.2 Plate Glass. The Lessee covenants at its own expense to insure all plate
glass and doors in insurance companies reasonably satisfactory to the Lessor and
in the name and behalf of Lessor and payable in case of loss to the Lessor,
against loss by fire, lightning, vandalism and explosion in the form of the
Massachusetts Standard Fire Insurance Policy. The amount of such insurance shall
be not less than the full replacement value of the property so insured.
8.3 Self Insurance. The Lessee may elect to be its own insurer under Paragraph
8.2. However, if such election is made, the Lessee must repair any damage to the
Premises and Addition expeditiously. If in the reasonable opinion of the Lessor
the repairs are not made within a reasonable time following the occurrence of
such damage, the Lessor may, after five (5) business days' notice to Lessee,
cause the repairs to be made, the cost of which will be considered as additional
rent.
8.4 Public Liability Insurance. During the Term of this Lease, the Lessee will
at its own cost and expense maintain and provide comprehensive general public
liability and property damage insurance, including the Broad Form Comprehensive
General Liability Extension Endorsement and contractual liability endorsement
covering its obligations hereunder, for the benefit and protection of the Lessor
and the Lessee, as their respective interests may appear, in an amount not less
than ONE MILLION DOLLARS ($1,000,000.00) for injuries to any one person and not
less than THREE MILLION DOLLARS ($3,000,000.00) for injuries to more than one
person, arising out of any one accident or occurrence and also provide property
damage insurance in the amount of ONE HUNDRED THOUSAND DOLLARS ($100,000.00),
with a commercially reasonable deductible amount. Such coverage limits shall be
increased from time to time to such higher limits as are customarily carried
with respect to properties which are similar to the Premises and which are used
for similar purposes.
8.5 Certificates of Insurance; Other Requirements. Each of the policies of
insurance required pursuant to this Paragraph 8.0 or a certificate thereof shall
be delivered to the Lessor together with proof of payment of premium. The Lessee
shall also deliver to the Lessor renewals of such policies with proof of payment
of premium within TWENTY (20) days before expiration of such coverage. All such
policies of insurance (except workmen's compensation) shall designate Lessor as
a named insured and Lessor's designees as additional insureds. The policies
required by Paragraph 8.1(a) shall, in case of loss to the Premises, and the
policies required by Paragraph 8.1(b) shall, in case of loss to the Premises
and/or the Addition, be first payable to the holder(s) of a Mortgage on the
Premises under a standard non-contributing mortgagee's clause, and shall also
provide for the adjustment of claims with the insurers under such policies by
Lessor and the holder of any first Mortgage on the Premises. All such policies
shall be obtained from responsible companies in good standing in and qualified
to do business in Massachusetts. Each such policy shall be non-cancelable and
non-amendable by either the insured or the carrier without at least twenty (20)
days' prior written notice to Lessor, and the holder(s) of any Mortgages given
by Lessor, to the extent Lessor provides Lessee with written notice of such
holders. In the event provision for any such insurance is to be by a blanket
insurance policy, the policy shall allocate a specific and sufficient amount of
coverage to the Premises.
8.6 Builders Risk Insurance. The Lessee shall obtain all risk, completed value
form, general liability insurance during the period of the making of repairs,
alterations, or improvements on the Premises or the Addition in the name of the
Lessor, its designees and the Lessee, as their respective interests may appear,
insuring them against any loss, claim or liability during such demolition or
construction.
8.7 Failure To Insure. If the Lessee fails at any time to keep the Premises or
the Addition or other property insured or take out and keep any insurance as
herein provided, except to the extent that Lessee elects to self-insure pursuant
to Paragraph 8.2 of this Lease, the Lessor, without prejudice to its other
remedies, may take out such insurance and charge the cost thereof to Lessee with
interest.
8.8 Casualty Insurance Proceeds. Provided that the holders of any Mortgage on
the Premises or the Addition shall permit the same, Lessor shall segregate any
and all amounts paid under said insurance policies for casualty to the Premises,
or the Addition, and make such funds available for use as provided under the
terms of this Lease.
8.9 Waiver of Subrogation. All policies of insurance carried by either party
with respect to the Premises or the Addition or to the furnishings, fixtures or
equipment therein or alterations or improvements thereto, whether or not
required, shall include provisions which either designate the other party as one
of the insureds or deny to the insurer the right of subrogation against the
other party to the extent such rights have been waived by the insured party
prior to occurrence of loss or injury, insofar as, and to the extent that such
provisions may be effective without making it impossible to obtain insurance
coverage from responsible companies qualified to do business in Massachusetts
(even though extra premium may result therefrom). Each party hereby waives all
rights of recovery against the other for loss or injury against which the
waiving party is protected by insurance containing said provisions, reserving,
however, any rights with respect to any excess of loss or injury over the amount
recovered by such insurance.
9.0 CASUALTY OR TAKING.
9.1 Lessor's Option To Terminate. (a) Should a substantial portion of (i) the
Premises and/or the Addition be substantially damaged by fire or other casualty,
or (ii) the Premises and/or Addition be taken by eminent domain, in each case
such that Lessor reasonably determines that the Premises and/or Addition cannot
be restored to a condition suitable for the permitted use set forth in Paragraph
12.0 within a period of nine (9) months following the date of destruction or
taking (plus such additional period of time as may be required to collect
appropriate insurance or condemnation proceeds therefore), or (b) should any
damage or taking of more than twenty percent (20%) of the floor area of the
Premises and/or Addition, or of the area of the Land, occur (i) within the last
two years of the Term and if Lessee shall not promptly elect, by written notice
given to Lessor at least eighteen (18) months prior to the expiration of the
Term, to extend the Term hereof for at least one additional Extension Term (if
available), or (ii) if Lessee does not elect to extend as provided in Paragraph
9.1(b)(i) above, if no such option to extend is available under the terms hereof
or if the casualty or taking occurs at any time within the last Extension Term,
then in any such event Lessor may elect, by written notice given to Lessee
within thirty (30) days following said fire, casualty or taking, to terminate
this Lease. Should a substantial portion of the Premises and/or the Addition be
substantially damaged by fire or other casualty or taken by eminent domain and
if Lessee reasonably demonstrates to Lessor that the Premises and Addition
cannot practically be used for the permitted use of the Premises and Addition as
set forth Paragraph 12.0 hereof, and cannot be restored to a condition suitable
for such use within a period of nine (9) months following the date of
destruction or taking (plus such additional period of time as may be required to
collect appropriate insurance or condemnation proceeds therefor), then in such
event Lessee may elect, by written notice given to Lessor within twenty (20)
days following said fire, casualty or taking, to terminate this Lease. This
Lease shall terminate thirty (30) days after the election to terminate is
exercised.
9.2 [Intentionally Omitted]
9.3 Duty To Restore. If this Lease is not terminated as stated above, and
provided that the holders of any Mortgage on the Premises and the Addition shall
make the proceeds available to Lessor for rebuilding and Lessee pays to Lessor
any applicable deductible amounts, plus, if Lessee has elected to self-insure as
provided in Section 8.3 hereof, any amounts necessary to restore the plate
glass, Lessor shall restore the Premises and the Addition (but not any of the
Lessee's tenant fit-up and improvements, fixtures, equipment or other personal
property therein, which Lessee shall promptly replace and to restore the
Premises and Addition to good operation condition) as provided in Paragraph 9.4
below, or at its option may require Lessee to restore the same or any portion
thereof in which event Lessor shall make the proceeds available to Lessee for
such restoration on such terms as Lessor may reasonably require.
9.4 Restoration. If this Lease is not terminated as provided above and provided
that the holders of any Mortgage on the Premises and on the Addition make the
proceeds or damages available to Lessor for rebuilding, Lessor or Lessee (as the
case may be) shall restore the Premises and the Addition to a proper condition
for use, with reasonable promptness and diligence to the extent permitted by the
net proceeds of insurance recovered or damages awarded from such taking,
destruction or damage, plus applicable deductible amounts, any amounts payable
by Lessee pursuant to Paragraph 8.3 hereof, and subject to zoning and building
laws then in existence. During such restoration period, an equitable abatement
of rent shall be made for the portion of the Premises not fit for use and
occupation. "Net proceeds of insurance recovered or damage awarded" refers to
the gross amount of such insurance or damages received by Lessor less the
reasonable expense of the Lessor or Lessee in connection with the collection of
the same, including without limitation, reasonable fees and expenses for legal
and appraisal services.
9.5 Award Proceeds. All rights to damages or compensation from eminent domain
takings and all proceeds of insurance with respect to the Premises and the
rental value of the Premises and the Addition only shall be paid to Lessor in
all cases. Lessee hereby grants to Lessor all of Lessee's rights to such damages
and proceeds and covenants to deliver such further assignments thereof as Lessor
may from time to time reasonably request. Lessee shall be entitled to recover by
separate action all Lessee's damage for the taking of the Addition, Lessee's
alterations, additions and improvements, personal property and for Lessee's
relocation expenses, provided that the same shall not reduce the amount of
Lessor's award for the taking of the Premises. If Lessor shall be obligated to
restore the Premises or Addition after such takings or if Lessor elects to
restore the Premises or the Addition even though Lessor is not so obligated,
Lessee shall promptly release to Lessor all of such award relating to such
restoration for application to such rebuilding (other than such amounts
allocated to personal property and relocation expenses).
10.0 UTILITIES. The Lessee shall pay all charges for utilities on the Premises,
including but not restricted to, any and all charges for heat, sewer, and water.
The Lessee further indemnifies the Lessor from all liability that may be
incurred as a result of nonpayment of these charges, and the Lessor, after five
(5) days written notice to Lessee without prejudice to its other remedies, may
apply such funds as are necessary to the payment of these items, and charge the
cost thereof to the Lessee with interest.
10.1 Operation of Utilities. Lessee agrees to heat and cool the Premises and the
Addition so as to prevent any damage to the same. It is understood and agreed
that Lessee shall make its own arrangements for supply of such utilities to the
Premises or the Addition and Lessor shall not be liable for any defect, failure
or interruption in the supply or character of any utilities, except to the
extent caused by the willful act or negligence of Lessor or its Representatives.
11.0 EXTENSION OPTION. The Term of this Lease shall automatically be extended
for Extension Terms, as set forth herein. The Term of this Lease shall
automatically be extended for an Extension Term provided that:
(a) Lessee is in substantial performance of all terms, conditions and/or
agreements of this Lease at the time set forth in Paragraph 11.0(b) below and at
the commencement of the Extension Term, and
(b) Lessee has not notified Lessor of its desire not to extend the Term by
registered or certified mail given at least One Hundred Eighty (180) days prior
to the termination date of the then existing Term of this Lease. In the event
that Lessee fails to timely notify Lessor of its desire not to extend the Term,
then Lessee shall be conclusively deemed to have exercised its option to extend
and, unless Lessee is in default hereunder as provided in Paragraph 11.0(a)
above and Lessor elects not to waive such default, this Lease and the Term
hereof shall be automatically extended for the period of the next succeeding
Extension Term.
11.1 Terms and Conditions of Extension Option. This extension right shall be
personal to Lessee. In the event of any assignment of this Lease in whole or in
part, or a sublease or subleases in the aggregate of more than forty percent
(40%) of the floor area of the Building as provided in this Paragraph 11.0 and
Paragraph 17.0, neither Lessee nor its assignee or subtenant shall have any
further option to extend the Term hereof. Except as expressly provided herein,
if such option is so exercised, all of the terms, conditions, covenants and
agreements contained herein shall apply during the respective Extension Term,
except that after the exercise of the fifth such option Lessee shall have no
further right to extend the Term.
12.0 USE OF THE PREMISES. The Lessee shall use and occupy the Premises and the
Addition for office purposes and for the operation of a manufacturing facility
and any uses customarily ancillary thereto.
12.1 Hazardous Wastes. Lessee represents and warrants to Lessor that it shall
not, and shall not permit anyone else to (a) generate, store or utilize (except
to the extent the same are used in the ordinary course of using the Premises and
the Addition for the permitted uses set forth herein), transport, dispose of,
manage, release or locate any Hazardous Substances (as hereinafter defined) on,
under or from the Premises or the Addition, except for de minimus releases
typically associated with the use of certain portions of the Premises for
driving and parking motor vehicles; or (b) violate any Environmental Requirement
applicable to the Premises or the Addition or its use thereof, or permit any
lien arising under or related to any of the Environmental Requirements to attach
to the Premises or the Addition. Lessee further represents to Lessor that,
except in each case for Hazard Substances which were located in, on, or under
the Premises prior to the commencement of the Term hereof, Lessee shall be fully
responsible for (i) the assessment, monitoring, restoration, containment,
remediation, removal or cleanup (collectively, "Remediation") of any Hazardous
Substances generated, stored, transported, utilized, disposed of, managed,
released or located in, on, under or from the Premises or the Addition during
the Term hereof, including without limitation any of the same required to cure a
violation of any of Lessee's covenants contained herein, (ii) the release or
threat of release of any Hazardous Substances in, on, under or from the Premises
and/or Addition or in, on, under or from any surrounding property which affects
the Premises or the Addition, (iii) compliance with all Environmental
Requirements governing the foregoing and providing evidence thereof to Lessor
upon request, and (iv) all costs, damages, claims, losses, liabilities and
expenses caused or alleged to be caused to any person, property or interest by
or as a result of any of the foregoing, or by a violation of provisions of this
Paragraph 12.1. Lessee shall indemnify and hold Lessor harmless against any and
all such costs, damages, claims, losses, liabilities and expenses arising or
resulting from or occurring in connection herewith.
12.2 Definitions. As used herein, the term "Hazardous Substances" shall mean any
and all "hazardous materials", "hazardous substances", "hazardous wastes",
"oil", "toxic substances", "restricted hazardous wastes", "special wastes", or
words of similar import as defined under any Governmental Regulations (as herein
defined) relating to environmental conditions existing on, under or emanating
from the Premises or the Addition, or the generation, storage, transportation,
utilization, disposal, management or any release of the foregoing (collectively,
"Environmental Requirements"), asbestos, urea formaldehyde foam insulation,
polychorinated biphenyls, radon gas flammable explosives, radioactive materials,
any chemical, contaminate, solvent, material, pollution or substance that may be
dangerous or detrimental to the Premises or the Addition, the environment or the
health or safety of the owners, lessees, or occupants thereof or of any property
near the Premises or Addition, or any substance, the generation, storage,
transportation, utilization, disposal, management, release or location of which
is prohibited or otherwise regulated pursuant to any of the Environmental
Requirements.
12.3 Notices and Violations. In the event that (a) Lessee or Lessor becomes
aware of any release or threat of release of any Hazardous Substances on, onto,
under or from the Premises and/or Addition or any property in the vicinity
thereof, (b) Lessee or Lessor receives any notice from any governmental
authority claiming that the Premises or the Addition or any use thereof violates
any of the Environmental Requirements or that Lessee's or Lessor's (as the case
may be) or any of its employees or agents have violated any of the Environmental
Requirements, (c) Lessee incurs any liability to any governmental authority
under any Environmental Requirements, (d) any lien against the Premises or the
Addition arises under or related to any of the Environmental Requirements, or
(e) any action or order is instituted, threatened, required, or completed by any
governmental authority or any claim is made or threatened by any person against
the Lessee or the Lessor, or the Premises or the Addition, or any property in
the vicinity thereof or any owner of such property, arising out of or in
connection with any of the Environmental Requirements, or the Remediation of, or
damages caused or alleged to be caused, by any Hazardous Substances located on
or under or emanating from the Premises or Addition, or generated, stored,
transported, utilized, disposed of, managed or released by the Lessee (whether
or not on, onto, under or from the Premises or the Addition), such party will in
each case promptly notify the other thereof and, with respect to Lessee, take
all actions which may be required by Paragraph 12.1 hereof with respect thereto.
13.0 COMPLIANCE. The Lessee acknowledges that no trade or occupation shall be
conducted in the Premises or the Addition or use made thereof which will be
unlawful, improper, or offensive, or contrary to any laws, ordinances, orders,
variances, regulations, licenses and permits of or granted by federal, state,
county and municipal authorities with respect to zoning, building, fire, health
and other codes, regulations, ordinances or laws applicable to the Premises or
the Addition and to the condition, use or occupancy thereof, including without
limiting the generality of the foregoing landlord-tenant laws and applicable
building, zoning and land use, environmental protection, sanitary and safety
laws, rules and regulations, and the Americans with Disabilities Act and
regulations thereunder (all the foregoing collectively "Governmental
Regulations"). Lessee will obtain all permits, licenses and approvals required
pursuant to applicable Governmental Regulations with respect to the Premises,
the Addition and its use and occupancy thereof.
14.0 MAINTENANCE OF PREMISES. The Lessee agrees to maintain the Premises and the
Addition, all utility systems, tenant improvements, fixtures and equipment
therein, and all parking, loading access and landscaped areas thereon, in clean
and safe condition and in good, tenantable order, condition and repair in
accordance with all applicable Governmental Regulations, and in any event in at
least in the same condition as they are at the commencement of the Term or as
they may be put in during the Term of this Lease, reasonable wear and tear,
damage by fire and other casualty only excepted, and, whenever necessary, to
replace plate glass and other glass therein, acknowledging that the Premises are
now in good order and the glass whole. Except to the extent caused by Lessor or
its Representatives, Lessee will make all repairs, renewals and replacements
(including without limitation, those due to glass breakage) to the Premises and
the Addition which are required (i) to maintain them in the condition provided
herein notwithstanding the nature of such repairs, replacements or renewals or
whether the same may be ordinary, extraordinary, foreseen or unforeseen, or (ii)
by any Governmental Regulations, provided all such alterations are first
approved in writing by the Lessor, which approval shall not be unreasonably
withheld or delayed.
14.1 No Overloading. The Lessee shall not permit the Premises or the Addition to
be overloaded, damaged, stripped or defaced, nor suffer any waste. Lessee shall
obtain written consent of Lessor before erecting any sign on the Premises or the
Addition, which consent shall not be unreasonable withheld or delayed. Lessor
acknowledges its consent to all signs currently on the Premises and the
Addition.
14.2 Installations, Alterations or Additions. Lessee shall not make any
renovations, installations, alterations, improvements, or additions in, to or on
the Premises or the Addition (collectively "Alterations"), except on each
occasion with the prior written consent of Lessor and then only pursuant to
plans and specifications approved by Lessor in advance in each instance, which
consent and approval shall not be unreasonably withheld or delayed.
14.2.1 For purposes of this Paragraph 14.2, any required consent of
Lessor shall not be deemed to be unreasonably withheld if Lessor determines at
its reasonable discretion that: (a) the Alteration would adversely affect or
damage the exterior appearance of the Building, the Addition or the structural
portions thereof, or utility systems or parking or access areas serving the
same; (b) the Alteration would change the general character, or impair the
usefulness, of the Premises or Addition, or reduce the fair market value of the
Premises below such value immediately before such Alteration; or (c) the
Alteration would diminish the net rentable area of the Premises.
14.2.2 Lessee shall secure and furnish to Lessor all permits, approvals,
plans, specifications, insurance certificates and other information in
connection with any such Alterations as Lessor may reasonably require. All
Alterations shall be made with due diligence in a first class manner and with
first class materials and workmanship, using reputable contractors, and upon
such other terms and conditions as Lessor may reasonably require. Unless
otherwise provided herein, all Alterations shall become the property of Lessor
at the end of the Term hereof and shall be surrendered with the Premises as a
part thereof.
15.0 OCCUPANCY. In the event that the Lessee vacates the Premises or Addition or
leaves any substantial portion thereof unoccupied or vacant, or does not
continuously during the entire Term conduct in the Premises and Addition the
type of business for which the Premises and Addition are leased, Lessee shall
(a) promptly notify Lessor thereof, (b) employ a security guard at the Premises
or Addition (or such vacant portions thereof) at all times, (c) operate all
utilities in or serving the Premises, Addition or vacant portions in such
fashion and at such level as shall insure that the same shall be fully
functional and shall not deteriorate, (d) comply with all other provisions of
this Lease, and (e) take such other action as Lessor may reasonably require.
16.0 ASSIGNMENT; SUBLEASING. All other provisions notwithstanding, the Lessor
shall have full power to assign its interests under this Lease upon notification
to the Lessee as provided herein.
17.0 ASSIGNMENT AND SUBLETTING BY LESSEE.
17.1 Assignment; Sublease of Premises. Lessee covenants and agrees that Lessee
will not assign this Lease or sublet (which term, without limitation, shall
include granting of concessions, licenses and the like) the whole or any part of
the Premises without, in each instance, having first received the express
consent of the Lessor, which consent shall not be unreasonably withheld, delayed
or conditioned. It shall be a condition of the validity of any such assignment
or subletting, that the assignee or sublessee agrees directly with the Lessor by
written instrument in form satisfactory to Lessor, to be bound by all the
obligations of Lessee hereunder, including, without limitation, the obligation
to pay rent and other amounts provided for under this Lease and the covenant
against further assignment or subletting, but such assignment or subletting or
any lease of the Addition shall not relieve the Lessee named herein of any of
the obligations of the Lessee hereunder, and Lessee shall remain fully liable
therefor. If this Lease be assigned or if the Premises or any part thereof be
sublet or occupied by anybody other than Lessee, Lessor may collect rent from
the assignee, subtenant or occupant, and apply the net amount collected to the
rent herein reserved, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of this covenant or the acceptance of the
assignee, subtenant or occupant as tenant or a release of Lessee from the
further performance by Lessee of covenants on the part of Lessee herein
contained, and Lessee shall not be released from performing any of the terms,
covenants and conditions of this Lease. Lessee shall be entitled to retain any
and all amounts received from such assignee or sublessee in excess of the
amounts which Lessee is obligated to pay to Lessor as rent or additional rent
hereunder.
17.2 No Default. Notwithstanding anything else contained herein to the contrary,
Lessee shall not be entitled to assign this Lease or sublease the Premises if it
is in default in the performance of any of its obligations hereunder.
17.3 Transfers. For purposes of this Paragraph 17.0 (a) a sale of all or
substantially all of the assets of Lessee, (b) a reorganization, merger or
consolidation of Lessee with another entity, or (c) a change, directly or
indirectly, in the identity of the stockholders (or any of them) which presently
control the Lessee, through voting trusts, forced redemption of shares, issuance
of additional shares or the like (specifically excluding any voluntary transfer
of shares by any beneficiary of Lessor or trusts for the family members of any
such beneficiary, or any transfer resulting from the death of any such
beneficiary), shall each be deemed an assignment of this Lease requiring the
assent of Lessor as herein provided. For the purposes of this Paragraph 17.3(c),
the term "control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of the
Lessee, through the ownership of voting securities, partnership interests or
other equity interests, voting trusts or the like. This prohibition against any
assignment or subletting shall be construed to prohibit any assignment or
subletting by operation of law without Lessor's consent as provided in Paragraph
17.1 hereof. Any attempted assignment, transfer, sublease or other encumbrance
requiring Lessor's consent and for which such consent has not been obtained
shall be void.
17.4 Lease of Addition. Lessee shall have the right to lease the Addition for
the Term hereof without Lessor's consent. Provided that Lessee is not in default
under the terms hereof, Lessor hereby agrees, at Lessee's request, to enter into
a non-disturbance agreement with any tenant of the Addition under the terms of
which Lessor shall not disturb the use or possession by such tenant of the
Addition, subject to the terms and provisions hereof, so long as the rent and
additional rent under this Lease are current and there are otherwise no defaults
beyond the applicable cure period by Lessee under this Lease, and provided that
such tenant complies with all the applicable terms and conditions hereof, which
agreement shall contain such additional terms as Lessor and its mortgagee may
reasonably require.
17.5 Leasehold Mortgages. Lessee shall have the right to mortgage its interest
in this Lease and/or the Addition with Lessor's consent, which shall not be
unreasonably withheld, and upon reasonable terms and conditions imposed by
Lessor. Lessor hereby acknowledges its consent to that certain Leasehold
Mortgage, Assignment of Rents, Security Agreement and Fixture Filing, dated as
of May 14, 1993, executed by Town & Country Corporation in favor of Foothill
Capital Corporation as Collateral Agent, recorded with said Suffolk Deeds at
Book 18226, Page 120 and filed with said Suffolk Registry District as Document
No. 499,434.
18.0 SUBORDINATION; MORTGAGEES' RIGHTS.
18.1 Lease Subordinate. The Lease shall be subject and subordinate to any and
all mortgages, deeds of trust and other instruments in the nature of a mortgage
(collectively a "Mortgage"), which at any time now or hereafter constitute a
lien or liens on the property of which the Premises are a part at the election
of the holder thereof, and Lessee shall, when requested, promptly execute and
deliver such written instruments as shall be necessary to show the subordination
of this Lease to said Mortgages, provided that the holder of such Mortgage
(excluding the Mortgage described in Paragraph 18.5 hereof) executes and
delivers to Lessee a recognition attornment and non-disturbance agreement
providing (a) that such holder agrees not to disturb Lessee's use or possession
of the Premises or Addition so long as Lessee and its assignees and subtenants
are not in default under this Lease, (b) that if the holder of any Mortgage
succeeds to Lessor's interest in the Premises, Lessee agrees to recognize the
holder of such Mortgage as Lessor and attorn to such holder, which agreement
shall expressly be binding and inure to the benefit of the successors and
assigns of such holder and upon anyone purchasing said Premises at any
foreclosure sale brought by such holder or accepting a deed in lieu of
foreclosure, (c) the applicable provisions of Paragraph 18.2 hereof, and (d)
such other commercially reasonable terms as such holder may request. Any such
Mortgage to which this Lease is subordinated may contain such terms, provisions
and conditions as the holder reasonably deems appropriate or customary. Lessee
shall provide Lessor or its designed with all such financial information as
shall be reasonably required by any financing institution in the event that
Lessor elects to subject the Premises and/or this Lease to a Mortgage.
18.2 Rights of Mortgage Holders. Until the holder of a Mortgage shall enter and
take possession of the Premises for purposes of foreclosure, such holder shall
have only such rights of Lessor as are necessary to preserve the integrity of
this Lease as security. Upon entry and taking possession of the Premises for the
purposes of foreclosure, such holder shall have all the rights of Lessor
hereunder. Notwithstanding any other provision of this Lease to the contrary (a)
no such holder of a Mortgage shall be liable either as a mortgagee or as an
assignee to perform or be liable in damages for failure to perform any of the
obligations of Lessor unless and until such holder shall specifically otherwise
elect by written notice given to Lessee or shall take title to the Premises, and
(b) such holder shall not in any event be liable to cure any default of Lessor
hereunder, or to perform or for failure to perform the obligations of Lessor
under Paragraph 9.3, and shall not be bound by Paragraphs 31.1 or 30.4 (but
shall have the option to elect such remedy provided therein as if the same were
included in Paragraph 30.5 hereof) hereof, provided that a discontinuance of any
foreclosure proceeding shall be deemed a conveyance under said provisions to the
owner of the Premises. No base rent, additional rent or any other charge shall
be paid more than 10 days prior to the due dates thereof, and payments made in
violation of this provision shall (except to the extent that such payments are
actually received by a mortgagee in possession or in the process of foreclosing
its mortgage) be a nullity as against such mortgagee and Lessee shall be liable
for the amount of such payments to such mortgagee. The covenants and agreements
contained in this Lease with respect to the rights, powers and benefits of a
holder of a Mortgage constitute a continuing offer to any person, corporation or
other entity, which by accepting a Mortgage subject to this Lease, assumes the
obligations herein set forth with respect to such holder; such holder is hereby
constituted a party to this Lease as an obligee hereunder to the extent as
though its name were written hereon as such; and such holder shall be entitled
to enforce such provisions in its own name. Lessee agrees upon request of Lessor
to execute and deliver from time to time any agreement reasonably acceptable to
both parties which may be necessary to implement the provisions of this
Paragraph 18.2.
18.3 Assignment of Rents. In the event of any assignment by Lessor of Lessor's
interest in this Lease, or the rents payable hereunder, which is conditional in
nature or otherwise, which assignment is made to a holder of a Mortgage on the
Premises, Lessee agrees that the execution thereof by Lessor and the acceptance
thereof by the holder of such Mortgage shall not be treated as an assumption by
such holder of any of the obligations of Lessor hereunder unless such holder
shall, by notice sent to Lessee, specifically otherwise elect and that, as
aforesaid, no such holder shall be liable either as a mortgagee or as an
assignee to perform or be liable in damages for failure to perform any of the
obligations of Lessor unless and until such holder shall enter and take
possession of the Premises for purposes of foreclosure.
18.4 Estoppel Certificate. Upon not less than ten (10) business days' prior
written request by Lessor or Lessee, Lessee or Lessor shall execute, acknowledge
and deliver to the requesting party a statement in writing, addressed to such
party or parties as shall be designated in such notice, certifying that (a) this
Lease is unmodified and in full force and effect and that the certifying party
has no defenses, offsets or counterclaims against its obligations to pay the
base rent and additional rent and any other charges hereunder and to perform its
other covenants under this Lease, as applicable (or, if there have been any
modifications that the same is in full force and effect as modified and stating
the modifications and, if there are any defenses, offsets or counterclaims,
setting them forth in reasonable detail), (b) the dates to which the base rent
and additional rent and other charges have been paid, (c) a statement that the
certifying party is not in, and is not aware that the requesting party is in,
default hereunder (or if in default, the nature of such default, in reasonable
detail), and (d) such other information as the requesting party may reasonably
specify. Any such statement delivered pursuant to this Paragraph 18.4 may be
relied upon by any prospective purchaser or mortgagee of the Premises or
Lessee's leasehold estate (as the case may be), or any prospective assignee of
any such Mortgage.
18.5 Existing Mortgage. Lessor represents and warrants to Lessee that Eastern
Bank, successor in interest to Saugus Bank and Trust Company, is the holder of
the only Mortgage encumbering the Premises as of the date of this Lease. Under
the terms of a letter dated December 15, 1987 attached hereto as Exhibit C,
Saugus Bank and Trust Company agreed to give to Lessee notice and an opportunity
to cure any default by Lessor under such Mortgage.
19.0 LESSOR'S ACCESS. The Lessor, or agents of the Lessor, may at reasonable
times after twenty-four (24) hours' prior notice to Lessee (which may be oral)
or at any time in the event of an emergency, enter to view the Premises or
Addition and may remove placards and signs not approved and affixed as herein
provided, and make repairs and alterations as Lessor should elect to do (such
repairs and alterations shall be at Lessor's sole cost expense unless the same
are made for the purpose of curing a default by Lessee hereunder or at Lessee's
request), and may show the Premises or Addition to others, and at any time
within eighteen (18) months before the expiration of the Term, may affix to any
suitable part of the Premises or Addition a notice for letting or selling the
Premises or property of which the Premises or Addition are a part and keep the
same so affixed without hindrance or molestation, so long as it does not
unreasonably interfere with Lessee's business.
20.0 DEFAULT AND BANKRUPTCY. In the event that:
20.1 Lessee's Default. The Lessee shall default in the payment of any
installment of base rent and such default shall continue (i) for one hundred
twenty (120) days after written notice thereof, if the then Lessee hereunder is
the original Lessee named herein, or (ii) for fifteen (15) days after written
notice thereof, if the then Lessee is not the original named Lessee, or
(b) The Lessee shall default in the payment of any other sum herein specified
(including without limitation, any payment for utilities, taxes or insurance)
and such default shall continue for ten (10) days after written notice thereof
as hereinafter provided; or
(c) the Lessee shall default in the observance or performance of any other of
Lessee's covenants, agreements, or obligations hereunder and such default shall
not be corrected within (i) one hundred twenty (120) days after written notice
thereof, if the then Lessee hereunder is the original Lessee named herein, or
(ii) for thirty (30) days after written notice thereof, if the then Lessee is
not the original named Lessee, provided that such period shall be extended until
Lessee is able to cure said default if said default cannot be reasonably
remedied prior to the expiration of such period and Lessee has commenced
promptly and is engaged in good faith in curing such default during such cure
period or has given to Lessor adequate security to remedy said default; or
(d) The Lessee shall be declared bankrupt or insolvent according to law; or, if
any assignment shall be made of Lessee's or any assignee's property for the
benefit of creditors;
(e) Lessee's leasehold interest or if any substantial part of the property of
Lessee or any assignee shall be taken on execution or by other process of law;
(f) A lien, attachment, or other involuntary encumbrance is filed against
Lessee's leasehold interest and is not discharged within thirty (30) days
thereafter;
(g) A receiver, trustee, custodian, guardian, liquidator or similar agent is
appointed with respect to Lessee, or if any such person or a mortgagee, secured
party or other creditor takes possession of the Premises or of any substantial
part of the property of Lessee, and, in either case, if such appointment or
taking of possession is not terminated within sixty (60) days after it first
occurs;
(h) A petition is filed by or with the consent of Lessee under any federal or
state law concerning bankruptcy, insolvency, reorganization, arrangement, or
relief from creditors; or
(i) or a petition is filed against Lessee or any assignee under any federal or
state law concerning bankruptcy, insolvency, reorganization, arrangement or
relief from creditors, and such petition is not dismissed within sixty (60) days
thereafter;
then the Lessor shall have the right thereafter, without demand or notice and
with or without process of law (forcibly, if necessary), immediately or at any
time thereafter, to re-enter and take possession of the Premises and Addition or
any part thereof and/or mail a notice of termination addressed to Lessee at the
Premises, and expel Lessee and those claiming through or under Lessee and remove
its and their effects (forcibly, if necessary) without being deemed guilty of
any manner of trespass, and to declare the term of this Lease ended, without
prejudice to any remedies which might be otherwise used for arrears of rent or
other default of Lessee hereunder. Lessee hereby waives all statutory rights
(including without limitation, rights of redemption, if any) and Lessor, without
notice to Lessee, may store Lessee's effects, and those of any person claiming
through or under Lessee at the expense and risk of Lessee, and, if Lessor so
elects, may retain such effects or sell such effects at public auction or
private sale and apply the net proceeds to the payment of all sums due to Lessor
from Lessee, if any, and pay over the balance, if any, to Lessee.
20.2 Lessor's Remedies. In the event that this Lease is terminated for breach of
any obligation of Lessee, Lessee covenants that it will immediately pay to
Lessor the base rent, additional rent and any other charges due and unpaid at
the time of or with respect to the period prior to termination, and will, at the
election of Lessor (which election may be made at any time), either:
(a) pay to Lessor forthwith on account of the unexpired portion of the Term, as
liquidated current damages, the rent, additional rent and other payments herein
required at the same times and in the same installments as such payments would
be due hereunder, provided that Lessee agrees that Lessor may, but shall not be
obligated to, relet the Premises or the Addition or any portion thereof on such
terms as it deems reasonably appropriate, and the sums so payable by Lessee
shall be abated in an amount equal to the excess of moneys actually received
from the new tenant over Lessor's reasonable expenses of such reletting,
including, without limitation, all repossession costs, brokerage commissions,
attorney's fees, advertising expenses, and expenses of preparing the Premises
and the Addition for such reletting, it being agreed by Lessee that Lessor may
(i) relet the Premises or the Addition or any part or parts thereof, for a term
or terms which may at Lessor's option be equal to or less than or exceed the
period which would otherwise have constituted the balance of the Term and may
grant such concessions and free rent as Lessor in its reasonable judgment
considers advisable or necessary to relet the same, (ii) make such alterations,
repairs and decorations in the Premises and the Addition as Lessor in its
reasonable judgment considers advisable or necessary to relet the same, and the
making of such alterations, repairs and decorations shall not operate or be
construed to release Lessee from liability hereunder, or (iii) keep the Premises
and/or the Addition vacant unless and until Lessor is able to rent the Premises
or Addition to a tenant which is as least as desirable and financially
responsible as Lessee is on the date of this Lease, on terms not less favorable
to Lessor than those of this Lease. No action of Lessor in accordance with the
foregoing or failure to relet or to collect rent under reletting shall render
Lessor liable to Lessee therefore or operate or be construed to release or
reduce Lessee's liability as aforesaid; or
(b) at any time after such termination, whether or not Lessor shall have
collected any such current damages, as liquidated final damages and in lieu of
all such current damages beyond the date of such demand, Lessee shall pay to
Lessor a sum which at the time of such termination represents the excess (if
any) of the total rent and other payments herein named for the residue of the
Term (assuming that, for the purposes of this paragraph, annual payments by
Lessee on account of Taxes, utilities, maintenance and insurance for each year
of the residue of the Term would equal 120% of the payments required for the
Lease Year immediately preceding the termination) over the fair market rental
value of the Premises for such period. In calculating such rent and other
payments there shall be included, in addition to the base rent and additional
rent the value of all other consideration agreed to be paid or performed by
Lessee for said residue.
20.2.1 Damages in Proceedings. Nothing herein contained, however, shall
limit or prejudice the right of Lessor to prove for and obtain in proceedings
under any federal or state law relating to bankruptcy, insolvency,
reorganization or arrangement, 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, the damages are to be proved, whether or not the amount be greater
than the amount of the loss or damage referred to above.
20.3 Lessor's Right to Cure Defaults. If the Lessee shall default, after notice
thereof given as provided in Paragraph 20.1 above, in the observance or
performance of any conditions or covenants on Lessee's part to be observed or
performed under or by virtue of any of the provisions in any article of this
Lease, the Lessor, without being under any obligation to do so and without
thereby waiving such default, may (after the expiration of any applicable cure
period) remedy such default for the account and at the expense of the Lessee.
Notwithstanding the foregoing, Lessor shall be entitled to proceed to cure any
default upon notice to Lessee but without expiration of any cure period in cases
of emergency or if any portion of the Premises or Addition would be subject to
forfeiture or loss (by reason of nonpayment of Taxes or assertion of a mechanics
lien or other liens,or otherwise), or if the same would constitute a default
under any Mortgage on the Premises or Addition. Lessor shall have the right to
enter the Premises or Addition for the purposes of correcting or remedying any
such default and to remain therein until the same shall have been corrected or
remedied. If the Lessor makes any expenditures or incurs any obligations for the
payment of money in connection therewith, including but not limited to,
reasonable attorney's fees in instituting, prosecuting or defending any action
or proceeding, such sums paid or obligations incurred, with interest at the rate
of TEN PERCENT (10%) per annum until paid and costs, shall be paid promptly to
the Lessor by the Lessee as additional rent.
20.4 Lessor's Default. If the Lessor defaults in compliance with any term or
condition of this Lease on its part to be performed, the Lessee shall give the
Lessor One Hundred Twenty (120) days' written notice to cure said breach or
default, provided that such period will be extended if such default cannot be
reasonably remedied prior to such date and the Lessor has commenced promptly and
is engaged in good faith in curing such default prior to expiration of such
notice period or has given Lessee adequate security to remedy such default. In
the event that such default continues beyond the cure period provided in this
Paragraph 20.4, the Lessee, without being under any obligation to do so and
without thereby waiving such default, may (after the expiration of such cure
period) cure such default. If the Lessee makes any expenditures or incurs any
obligations for the payment of money in connection therewith, including but not
limited to, reasonable attorney's fees in instituting, prosecuting or defending
any action or proceeding, such sums paid or obligations incurred, with interest
at the rate of TEN PERCENT (10%) per annum until paid and costs, shall be
promptly paid to the Lessee by the Lessor. In no event, however, shall Lessee
have the right to deduct any such sums from any amounts payable hereunder.
Notwithstanding the foregoing, Lessee shall be entitled to proceed to cure any
default upon notice to Lessor but without expiration of any cure period in cases
of emergency or if any portion of the Premises or Addition would be subject to
forfeiture or loss, or if the same would constitute a default under any Mortgage
on the Premises or Addition. Lessor shall not be liable in any event for
incidental or consequential damages to Lessee by reason of any default by Lessor
hereunder.
20.5 Lessee's Right to Cure. Notwithstanding anything contained herein, the
Lessee shall, at its option, have the power to cure any default under this Lease
by any permitted assignee of Lessee's interest herein within the cure period as
provided in Paragraph 20.1 above, notwithstanding any acts or omissions of any
such assignees of this Lease. The Lessor expressly agrees that any such timely
cure shall fully restore any and all rights under this Lease.
20.6 Lessor's Cost of Enforcement. Lessee shall pay on demand Lessor's expenses,
including reasonable attorneys' fees, incurred in enforcing any obligation of
Lessee under this Lease or in curing any default by Lessee under this Lease as
provided in Paragraph 20.3
20.7 No Accord and Satisfaction. No payment by Lessee or acceptance by Lessor of
a lesser sum than the base rent, additional rent or any other charge then due
shall be deemed to be other than an account of the earliest installment of such
rent or charge due, unless Lessor elects by notice to Lessee to credit such sum
against the any other installment due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent or other
charge be deemed a waiver, an agreement or an accord and satisfaction, and
Lessor may accept such check or payment without prejudice to Lessor's right to
recover the balance of such installment or pursue any other remedy in this Lease
provided.
21.0 SURRENDER. The Lessee shall at the expiration or other termination of this
Lease remove all Lessee's goods and effects from the Premises (including,
without hereby limiting the generality of the foregoing, all signs and lettering
affixed or painted by Lessee, either inside or outside the Premises) and repair
all damage caused by such removal. Lessee shall deliver to the Lessor the
Premises, and all keys, locks thereto, and other fixtures connected therewith
and all Alterations thereto approved by Lessor, and additions made to or upon
the Premises, in the same condition as they were at the commencement of the
Term, or as they were put in during the Term hereof, reasonable wear and tear
and damage by fire or other casualty only excepted. No surrender (other than a
surrender at the stated expiration of the Term) made in accordance with the
terms and conditions hereof) shall be valid or effective unless agreed to and
accepted in writing by Lessor. In the event of the Lessee's failure to remove
any of Lessee's property from the Premises, Lessor is hereby authorized without
liability to the Lessee for loss or damage thereto, and at the sole risk of
Lessee, to remove and store any of the property at Lessee's expense. Lessee
agrees to indemnify the Lessor for any amounts or costs incurred in execution of
the above. The Premises shall at such time be free and clear of all tenants and
occupants and rights to use and occupancy of the same. Notwithstanding the
foregoing provisions of this Paragraph 21.0, in the event that any mortgagee
which holds a leasehold mortgage to which Lessor has consented as provided in
Paragraph 17.5 hereof exercises a right pursuant to such mortgage to execute a
new lease as provided therein, Lessee shall surrender and deliver the Premises
to such party or its nominee.
21.1 Holding Over. Any holding over after the expiration of the Term hereof,
with or without the prior written consent of the Lessor, shall be construed to
be a tenancy at sufferance at the one and one-half times the rent herein
specified and shall otherwise be on the terms and conditions herein specified so
far as applicable.
22.0 MECHANIC LIEN. Lessee shall pay promptly when due the entire cost of any
work to the Premises or Addition undertaken by or for Lessee and all sums of
money that may become due for any labor, services, materials, supplies, or
equipment furnished or alleged to have been furnished to or for the Lessee in,
upon or about the Premises or Addition. The Lessee at its own expense will bond,
pay or otherwise vacate any liens or attachments, or mechanic liens for work or
material furnished during the Term of this Lease, within THIRTY (30) days next
following the filing of such attachments or liens against the Premises or the
Addition. Should the Lessee fail to comply with any requirement on the Lessee's
part to be performed as herein provided, within the time limited for such
compliance, the Lessor may thereafter, but shall not be obligated to, take
whatever action that may be appropriate to cure the default, and the Lessee
agrees to pay the Lessor the reasonable cost of curing any such default.
23.0 WAIVER OF REQUIREMENTS. No requirement whatsoever of this Lease shall be
deemed waived or varied by any consent or permission by Lessor to any act or
omission which otherwise would be a breach of any covenant or condition herein,
nor shall the Lessor's failure or delay to take advantage of any default
constitute a waiver of the Lessor's rights thereby, nor shall any waiver by
Lessor of any default constitute a waiver of any subsequent or continued breach
of any requirement of this Lease. The receipt by Lessor of rent with knowledge
of the breach of any covenant of this Lease shall not be deemed to have been a
waiver of such breach by Lessor, unless such waiver be in writing signed by
Lessor. Except as expressly limited herein, all remedies herein provided for
shall be in addition to and not in substitution for any other remedies available
to the parties at law and at equity, including specific performance. Any and all
rights and remedies which either party may have under this Lease, and at law and
equity, shall be cumulative and shall not be deemed inconsistent with each
other, and any two or more of all such rights and remedies may be exercised at
the same time insofar as permitted by law.
24.0 PEACEFUL ENJOYMENT. Lessor covenants and agrees that upon Lessee's paying
rent and performing all the terms and conditions of this Lease on the Lessee's
part to be performed, Lessee shall and may peaceably and quietly have, hold and
enjoy the Premises hereby demised for the Term aforesaid, without hindrance or
ejection by the Lessor or any persons lawfully claiming under the Lessor,
subject to the terms and conditions of this Lease and any Mortgage to which this
Lease is subject.
25.0 ENTIRE AGREEMENT. This Lease contains all the oral and written agreements,
representations and warranties between the parties hereto, and any rights which
the respective parties hereto may have had under any previous agreements are
hereby canceled and terminated. No representations and warranties are made or
implied under this Lease, except as specifically set forth herein. This Lease
cannot be changed, amended, waived of modified except in writing signed by both
parties, and it can only be terminated as provided in this Lease.
26.0 CONSTRUCTION OF LEASE. Words of any gender used in this Lease shall be held
to include any other gender, and words in the singular number shall be held to
include the plural and vice versa when the context so requires.
27.0 MARGINAL NOTES. The marginal notes set forth as titles to the paragraphs in
this Lease are inserted only for convenience, and are not to be construed as
binding on the parties or as a limitation of the scope of the respective
paragraph to which they refer.
28.0 APPLICABLE LAW; PARTIAL INVALIDITY. This Lease shall be governed by the
laws of the Commonwealth of Massachusetts as such shall from time to time be
altered or amended. If any term, covenant, condition or provision of this Lease
or the application thereof to any person or circumstance shall to any extent be
declared invalid or unenforceable by the final ruling of a Court of competent
jurisdiction having final review, the remaining terms, covenants, conditions and
provisions of this Lease or the application of such term, covenant, condition or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforced to the fullest extent permitted by law. In the place of such invalid or
unenforceable provision, there shall be substituted a like, but valid and
enforceable provision which comports to the findings of the aforesaid Court and
most nearly accomplishes the original intentions of the parties. This Lease and
any exhibits or riders attached hereto and forming a part hereof set forth all
the covenants, promises, agreements, conditions and understandings between
Lessor and Lessee concerning the Premises and the Addition.
29.0 SUCCESSORS AND ASSIGNS. All the provisions herein contained shall bind and
inure to the benefit of the parties herein and their respective heirs,
executors, administrators, successors, and assigns. Wherever used herein, the
words "Lessor" and "Lessee" shall be deemed to include
the heirs, personal representatives, successors and assigns of said parties,
unless the context excludes such construction. The reference contained to
successors and assigns of Lessee is not intended to constitute a consent to an
assignment by Lessee, but has reference only to those
instances in which Lessor may have given written consent to a particular
assignment as required by Paragraph 17.0 hereof.
29.1 Lessor's Liability. No owner of the Premises shall be liable under this
Lease except for breaches of Lessor's obligations occurring while it is the
owner of the Premises. The obligations of Lessor shall be binding upon the
assets of Lessor which comprise the Premises but not upon other assets of
Lessor. No individual partner, trustee, stockholder, officer, director, employee
or beneficiary of Lessor shall be personally liable under this Lease and Lessee
shall look solely to Lessor's then interest in the Premises in pursuant of its
remedies upon an event of default of Lessor hereunder and for recovery of any
judgment from Lessor, and Lessee specifically agrees that Lessor and its
successors shall never be personally liable for any such judgment or for the
payment of any monetary obligation to Lessee, and that the general assets of
Lessor and of the individual partners, trustees, stockholders, officers,
employees or beneficiaries of Lessor and their successors and assigns shall not
be subject to levy, execution or other enforcement procedures for the
satisfaction of any such judgment, obligation or the remedies of Lessor. The
term "Lessor" as used in this Lease shall mean the owner for the time being of
the Premises, and if the Premises be sold or transferred, the seller or assignor
shall be entirely relieved of all covenants and obligations arising thereafter
under this Lease.
<PAGE>
30.0 SPECIAL PROVISIONS REGARDING ADDITION.
30.1 Construction of Addition. Lessor hereby acknowledges that the Assignor has
constructed the Addition, and that Lessee is operating the same, and Lessee
acknowledges that certain structures located on the Premises were demolished in
connection with construction of the Addition.
30.2 [Intentionally Omitted]
30.3 Termination Due to Lessee's Default. In the event of a termination of this
Lease as a result of Lessee's default hereunder, Lessee shall surrender the
Addition and all its interest therein to Lessor free and clear of all liens and
encumbrances other than those assented to by Lessor in writing, and in the
manner and condition required in Paragraphs 21.0 and 21.1 hereof with respect to
surrender of the Premises, and free and clear of all tenants and occupants,
except for any such tenancies with respect to which Lessor shall have executed a
recognition and nondisturbance agreement as provided in Paragraph 17.5 hereof,
which tenants shall be entitled to continue to occupy the Addition or such
portion thereof, subject in each case to the terms of such agreement, and Lessee
shall deliver such instruments (including a quitclaim deed or bill of sale) as
Lessor shall reasonably require in connection therewith.
30.4 Expiration or Termination Not Due to Lessee's Default. At the expiration of
the Term or at the earlier termination (for whatever reason except for
termination as a result of Lessee's default hereunder) of the Lease, and
commencing at least fourteen (14) months prior to such expiration, and as soon
as possible prior to or upon any such termination, Lessee shall have the right
to sell the Addition. In the event that Lessee receives an offer to purchase the
Addition, Lessee shall notify Lessor thereof and Lessor shall have the right to
purchase the same on the terms and conditions set forth in Paragraph 31.2 (even
if the Term hereof shall have terminated). In the event that Lessor does not
elect to purchase the Addition as provided by the applicable provisions of
Paragraph 31.2 hereof and provided that the prospective purchaser is reasonably
satisfactory to Lessor, Lessor agrees to negotiate in good faith and use
reasonable efforts to lease the Ground Lease Parcel to such purchaser for a term
which shall not exceed twenty-five (25) years, and on commercially reasonable
terms and conditions (which may include, without limitation, the provisions set
forth in Paragraphs 30.5 and 31.2 hereof, provisions for surrender of the
Addition without compensation upon expiration or termination of the term
thereof, and provisions for physically separating the rentable area of the
Building from the rentable area of the Addition, installing separate utility
meters, and/or other appropriate provisions to operate and maintain the Building
and Addition as independent buildings). In the event that the parties are unable
to agree on the provisions of a sale and/or a ground lease prior to the
expiration of the Term or within four (4) months following any such termination
(the "Negotiation Period"), Lessor shall have the options provided in Paragraphs
30.5 and 30.6 hereof.
30.5 Lessor's Options. If Lessee is unable to sell the Addition and/or if Lessor
is unable to negotiate a satisfactory ground lease of the Ground Lease Parcel
(the "Negotiation Period") as provided in Paragraph 30.4, Lessor shall have the
right to exercise any of the options provided in this Paragraph 30.5 by written
notice given to Lessee within ninety (90) days following the expiration of the
Negotiation Period, specifying the date for completion of the option so elected,
which date shall be not more than ninety (90) days nor less than thirty (30)
days following the giving of such notice:
(a) To purchase the Addition and Lessee's interest therein at a price equal to
the "Stated Percentage" specified in Paragraph 30.5(d) below times the lesser
of: the book value of the Addition as shown on Lessee's records, or the fair
market value of the Addition, determined in each case as of the date of giving
of such notice. For purposes of the preceding sentence, the fair market value of
the Addition shall be determined by mutual agreement of Lessor and Lessee. In
the event that Lessor and Lessee fail to agree on the fair market value of the
Addition within 20 days following the giving of Lessor's notice, Lessor and
Lessee shall each immediately appoint one appraiser who is an MAI appraiser, and
is a member of the Greater Boston Real Estate Board having at least 10 years'
experience in appraising commercial and industrial property in the Greater
Boston area. If within 20 days after such appointment, such appraisers fail to
agree on the fair market value of the Addition, each appraiser shall submit a
formal appraisal of the fair market value of the Addition to Lessor, Lessee and
to each other. Lessor and Lessee shall promptly request the President of the
Greater Boston Real Estate Board to appoint a third appraiser having the same
qualifications as the previous two appraisers appointed, who shall appraise the
Addition within 20 days of appointment. The average of the two closest
appraisals shall constitute for the purposes hereof the fair market value of the
Addition. All costs of such appraisal process shall be shared equally by Lessor
and Lessee.
(b) To lease the Addition from the Lessee for a period of ten (10) years for the
sum of One Dollar per year, in which event Lessor shall use reasonable efforts
to sublet the same on such terms and conditions as it shall reasonably deem
appropriate, provided that the same do not violate the provisions hereof and the
net proceeds of any such reletting (after deduction of all expenses of Lessor
reasonably incurred in connection therewith) shall be split equally between the
parties. In the event that the Addition is sublet to a party which also leases
therewith any portion of the Premises, the net proceeds of such reletting shall
be divided proportionately, first according to the area of the Building occupied
by such subtenant and the area of the Addition occupied by such subtenant, and
the amount allocated to the Addition shall then be divided equally between the
parties; or
(c) To sell the Premises and Lessor's interest therein to Lessee at a "Fixed
Percentage" specified in Paragraph 30.5(d) below times the fair market value of
the Premises, determined as provided in Paragraph 30.5 above as of the date of
giving of such notice.
(d) The Stated Percentage of the book value or fair market value and the Fixed
Percentage of fair market value which shall be used to determine the purchase
price pursuant to this Paragraph 30.5(a) and (c) shall be determined as follows:
If the date of
expiration or
termination is Stated Fixed
during the period: Percentage Percentage
July 27, 1989 through
September 1, 1998 20% 120%
September 2, 1998 through
September 1, 2008 45% 115%
September 2, 2008 through
September 1, 2018 60% 110%
September 2, 2018 through
September 1, 2028 75% 105%
(d) In the event Lessor elects the options provided in Paragraph 30.5(a) or (b)
hereof, the Addition shall be delivered in compliance with the provisions of
Paragraph 30.3 hereof. In the event Lessor elects the option provided in
Paragraph 30.5(b) hereof, upon termination of any such lease, Lessor shall again
have the options provided in this Paragraph 30.5.
30.6 DEMOLITION OF ADDITION. In the event that Lessor is entitled to exercise
its options as provided in Paragraph 30.5 hereof, and (a) if Lessor elects
either to lease the Addition as provided in Paragraph 30.5(b) but Lessor is
unable, after exercising reasonable efforts, to sublease
the same within twelve (12) months following the date of such termination or
expiration, or (b) if Lessor elects to require Lessee to purchase its interest
in the Premises as provided in Paragraph 30.5(c) but Lessee fails or refuses to
do so, then in any such event by further written notice given to Lessee upon
expiration of the period specified for completion of the option so elected as
provided in Paragraph 30.5, Lessor shall be entitled at its option to (i)
require Lessee to deliver the Addition to Lessor in the condition required by
the provisions of Paragraph 30.3 hereof, (ii) to demolish the Addition at its
full cost and expense and to grade and restore the Ground Lease Premises to
clean and level condition, to repair all damage to the Building caused by such
removal, and to make all repairs, replacements and renewals to the Building as
are necessary to restore it to an independent operating unit and otherwise to
its condition immediately prior to commencement of construction of the Addition,
or (iii) exercise any other rights or remedies which it may have pursuant to the
provisions hereof or under law or in equity including, without limitation, the
remedy of specific performance.
31.0 RIGHT OF FIRST REFUSAL.
31.1 Lessee's Right. Lessee is hereby granted a right of first refusal in the
event that Lessor desires to sell the Land, the Building and/or the Ground Lease
Parcel. If Lessee is not in default hereunder extending beyond any applicable
grace and cure periods, and Lessor receives a bona fide offer for the Land, the
Building, and/or the Ground Lease Parcel, Lessor shall not accept such offer
without offering the Land, the Building, and/or the Ground Lease Parcel, as the
case may be, to Lessee on the same terms and conditions (net of any brokers'
fees and commissions payable in connection with the sale of the Land, the
Building and/or the Ground Lease Parcel to such third party purchaser). If
Lessee does not elect within 30 days after Lessor notifies Lessee of the offer
(the "Pre-emption Period") to accept the offer, Lessor may during the
three-month period following expiration of the Pre-emption Period, transfer the
Land, the Building, and/or the Ground Lease Parcel, as the case may be, on terms
no more favorable than offered to Lessee and, after so transferred, Lessee's
right of first refusal granted to Lessee herein shall be terminated. Otherwise,
the right of first refusal shall continue in full force and effect. A "transfer"
for purposes of this Paragraph 31.1 shall mean a sale or other transfer or
assignment of the Land, the Building and/or the Ground Lease Parcel, whether by
operation of law or otherwise. A transfer which does not require Lessor to offer
the Land, the Building, and/or the Ground Lease Parcel to Lessee shall not be
deemed to terminate Lessee's rights hereunder. Notwithstanding anything
contained herein to the contrary, Lessee acknowledges and agrees that the
provisions of this Paragraph 31.1 shall not apply to (a) any grant of a Mortgage
by Lessor, or (b) exercise by the mortgagee of its rights thereunder, including
without limitation, a foreclosure of such Mortgage or acceptance of a deed in
lieu of foreclosure thereof, in which event all rights of Lessee pursuant to
this Paragraph 31.1 shall terminate and be of no further force and effect.
31.2 Lessor's Rights. Lessor is hereby granted a right of first refusal in the
event that the Lessee desires to sell the Addition. If Lessee receives a bona
fide offer for the Addition, Lessee shall not accept such offer without offering
the Addition to Lessor on the same terms and conditions (net of any brokers'
fees and commissions payable in connection with the sale of the Land, the
Building and/or the Ground Lease Parcel to such third party purchaser). If
Lessor does not elect within 30 days after Lessee notifies Lessor of the offer
(the "Lessor Pre-emption Period") to accept the offer, Lessee may during the
three-month period following expiration of the Lessor Pre-emption Period,
transfer the Addition on terms no more favorable than offered to Lessor and,
after so transferred, Lessor's right of first refusal shall be terminated.
Otherwise, the right of first refusal granted to Lessor herein shall continue in
full force and effect. A "transfer" for purposes of this Paragraph 31.2 shall
mean a sale or other transfer or assignment of the Addition whether by operation
of law or otherwise. A transfer which does not require Lessee to offer the
Addition to Lessor shall not be deemed to terminate Lessor's rights hereunder.
Notwithstanding that anything contained herein to the contrary, Lessor
acknowledges and agrees that the provisions of this Paragraph 31.2 shall not
apply to (a) any grant of a leasehold mortgage by Lessee in accordance with the
provisions of Paragraph 17.5 hereof, or (b) exercise by the mortgagee of its
rights thereunder, including, without limitation, the right of such mortgagee to
require Lessor to enter into a new lease with the mortgagee in accordance with
the provisions thereof, but that the rights of Lessor shall be applicable to
transfers as defined in this Paragraph 31.2 made thereafter.
32.0 NOTICES. All notices required or permitted under this Lease shall be in
writing and shall be deemed duly served if and when delivered by hand or mailed
by registered or certified mail, return receipt requested, postage prepaid,
addressed, if to Lessee, at the address set forth on page 1 hereof, with a copy
to Goodwin, Procter & Hoar, Exchange Place, Boston, MA 02109 Attn: Kevin M.
Dennis, Esq., and if to Lessor, at the address set forth on page 1 hereof, with
a copy to Marjorie S. Cooke, Esq., Cooke, Clancy & Gruenthal, 150 Federal
Street, Boston, Massachusetts 02110. Either party may change the address or the
parties to which notices to it are to be given by a notice given to the other
party as specified herein.
33.0 NOTICE OF LEASE. Lessee agrees that it shall not record or file this Lease.
Upon execution of this Lease, both parties shall, execute, acknowledge and
deliver a notice or short form of this Lease in recordable form to be recorded
with the Suffolk County Registry of Deeds and filed with the Suffolk County
Registry District of the Land Court. If this Lease is terminated before the Term
expires, the parties shall execute, deliver, record and file an instrument
acknowledging such fact and the actual date of termination of this Lease. In the
event that Lessee fails or refuses to execute such an instrument within ten (10)
business days following written request therefor by Lessor, Lessee hereby
irrevocably appoints Lessor its attorney-in-fact, coupled with an interest, with
full power of substitution to execute and record such instrument.
34.0 ACTS OF GOD. In any case where either party hereto is required to do any
act (other than payment of rent and other charges or giving of a notice of
election not to extend the Term hereof by Lessee hereunder), delays caused by or
resulting from act, omission or neglect of the other party or its
representatives or any person claiming by, through or under such other party,
Acts of God, war or other emergency, civil commotion, fire, accident, or other
casualty, strike, labor difficulties, failure of supply or shortages of labor,
materials or equipment, Governmental Regulations, unusually severe weather, or
other causes beyond such party's reasonable control shall not be counted in
determining the time during which work shall be completed, and such time shall
be deemed to be extended by the period of such delay.
35.0 SECURITY DEPOSIT. Upon request of Lessor, Lessee shall deposit with Lessor
the sum of Fifty-Eight Thousand Seven Hundred Twenty-Three and 34/100 Dollars
($58,723.34) (the "Security Deposit"), to be held by Lessor throughout the Term
hereof and any renewal or extension thereof, whether by operation of law,
statutory tenancy, Governmental Regulations, or otherwise, as security for the
payment of rents and the full and faithful performance of Lessee's obligations
hereunder and not as a prepayment of rent. In the event of any default or
defaults by Lessee in such payment or performance, Lessor shall have the right
from time to time, without prior notice to Tenant, and without prejudice to any
other remedy Lessor may have, to apply or retain such deposit or any part
thereof to payment of any rent or any other sum due, or any cost, expense, or
other damage, including but not limited to any damage or deficiency accrued
before or after summary proceedings or other re-entry by Lessor, incurred by
Lessor as a result of such default(s) of Lessee hereunder, without waiving such
default. In such event, Lessee agrees upon demand to restore the Security
Deposit to its original amount, failing which Lessor shall have the same
remedies provided for non-payment of rent hereunder.
Provided that Lessee shall fully and faithfully comply with all of the
terms and provisions of this Lease, Lessor shall return the Security Deposit (or
so much thereof as shall have not have been applied in accordance with this
Section 35) to Lessee on the expiration or earlier termination of the Term and
surrender of possession of the Addition and the Premises by Lessee to Lessor.
Lessor shall have no obligation to pay interest on the Security Deposit and
shall have the right to commingle the same with Lessor's other funds. If Lessor
conveys Lessor's interest under this Lease, the Security Deposit, or any part
thereof not previously applied, may be turned over by Lessor to Lessor's
grantee, and thereupon Lessee shall look solely to such grantee for proper
application and return thereof, and Lessor, its successors and assigns shall be
fully released from all liability therefore. The holder of a mortgage shall not
be responsible to Lessee for the return or application of any such Security
Deposit, whether or not it succeeds to the position of Lessor hereunder, unless
such Security Deposit shall have been received in hand by such holder. In the
event of any default hereunder, such Security Deposit shall not be considered as
liquidated damages, nor limit Lessor's damages, and Lessee shall be and remain
fully liable for any other loss or damage as herein provided.
Lessee further covenants that it will not assign or encumber or attempt
to assign or encumber the Security Deposit or any part thereof and that neither
Lessor nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
As consolidated, amended and restated hereby, the Lease is hereby
authorized, ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as
of the day and year first set forth above.
TOWN & COUNTRY CORPORATION-
Assignor, for purposes of the second paragraph
hereof only
BY: /s/ Francis X. Correra
Name: Francis X. Correra
Title: Senior Vice President and Chief Financial Officer
hereunto duly authorized
BY: /s/ Irene Shea
Name: Irene Shea
Title: Assistant Clerk
hereunto duly authorized
TOWN & COUNTRY FINE JEWELRY
GROUP, INC. - Lessee
BY: /s/ Francis X. Correra
Name: Francis X. Correra
Title: Vice President and Treasurer
hereunto duly authorized
BY: /s/ Irene Shea
Name: Irene Shea
Title: Assistant Clerk
hereunto duly authorized
CAREY REALTY TRUST - Lessor
BY: /s/ Irving L. Adler
IRVING L. ADLER, TRUSTEE
BY: /s/ C. William Carey
C. WILLIAM CAREY, TRUSTEE
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