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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 2, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 000-21250
THE GYMBOREE CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 94-2615258
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 AIRPORT BOULEVARD, SUITE 200, BURLINGAME, CALIFORNIA 94010-1912
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415)-579-0600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of each exchange on which registered
COMMON STOCK, $0.001 PAR VALUE NASDAQ NATIONAL MARKET
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), 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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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
this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 31, 1997, was approximately $672,400,201, based upon
the last price reported for such date on the Nasdaq National Market.
As of March 31, 1997, 25,024,198 shares of the registrant's common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended February 2, 1997 (hereinafter referred to as the "1996 Annual Report
to Stockholders") are incorporated into Parts II and IV.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 16, 1997 (hereinafter referred to as the "1996
Proxy Statement") are incorporated into Part III.
The exhibit index is located on page 22
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THE GYMBOREE CORPORATION
TABLE OF CONTENTS
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PART I PAGE
NUMBER
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ITEM 1. BUSINESS.................................................................. 3
ITEM 2. PROPERTIES................................................................ 14
ITEM 3. LEGAL PROCEEDINGS......................................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................... 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.... 15
ITEM 6. SELECTED FINANCIAL DATA................................................... 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................ 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................... 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES................................................ 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................ 16
ITEM 11. EXECUTIVE COMPENSATION.................................................... 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K................... 18
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PART 1
ITEM 1. BUSINESS
The Gymboree Corporation and its wholly-owned subsidiaries ("Gymboree"
or the "Company") is a leading specialty retailer of high quality apparel and
accessories for children ages newborn to seven years old. The Company operates a
nationwide chain of stores, primarily in regional shopping malls, and as of
March 1, 1997, the Company operated 366 stores. Under the GYMBOREE(R) brand
name, the Company designs and manufactures children's active-wear for sale
exclusively by Gymboree. The Company's apparel is characterized by bright
colors, bold fun prints with complex embroidery, comfort, functionality and
durability. The Company also offers directed parent-child developmental play
programs for children ages newborn to five years old at approximately 375
franchised centers and 13 Company-operated locations.
This annual report on Form 10-K contains certain forward-looking
statements reflecting the Company's current expectations and there can be no
assurance that the Company's actual future performance will meet such
expectations. Factors that could cause future performance to vary from current
expectations include, but are not limited to, the factors discussed in the
"Business" section, and in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the 1996 Annual Report
to Stockholders incorporated by reference in this annual report on Form 10-K.
BUSINESS STRATEGY
The Company's business strategy consists of the following principal
elements:
o HIGH QUALITY APPAREL. Gymboree strives to offer its customers
high quality apparel with an excellent price/value relationship.
The Company designs its merchandise to be comfortable,
functional, safe and durable by placing particular emphasis on
high quality fabrics and detailed garment construction.
o BRAND NAME RECOGNITION. Gymboree has developed a clearly
recognizable brand image through its distinctive design,
merchandising and retailing. Customers associate Gymboree with
high quality, brightly colored children's clothing sold in an
attractive and friendly environment.
o INTEGRATED OPERATIONS: DESIGN, PRODUCTION AND RETAILING. The
Company believes that the vertical integration of its operations
enables it to identify and respond to market trends, maintain
rigorous product quality standards and closely monitor the
distribution of its products.
o EXCLUSIVE DISTRIBUTION CHANNEL. Gymboree products are sold
exclusively through its retail stores and, to a very limited
extent, through its play programs. During fiscal 1996, the
Company began a catalog operation which was terminated in 1996.
This exclusive distribution enables the Company to maintain and
enhance the Gymboree brand image, more effectively control the
presentation and pricing of its merchandise, obtain valuable
feedback from its customer base, provide a high level of
customer service and closely monitor the retail sell-through of
its products.
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o MERCHANDISE FOCUS. Gymboree apparel is designed, manufactured
and merchandised by line. Merchandise is displayed on the walls
of each Gymboree store in a manner designed to enhance visual
appeal and maximize customer convenience by enabling customers
to select among an assortment of coordinated items and
accessories. The Company offers a broad range of styles, themes
and colors, as opposed to relying primarily on certain key
items. To maintain the freshness of its merchandise, the Company
introduces between 30 and 40 new lines of boy's, girl's and
infant's apparel each year.
o RESPONSIVE CUSTOMER SERVICE. Customer service and satisfaction
are defining features of the Gymboree corporate culture.
Assisting customers in merchandise selection and outfit
coordination is the top priority of Gymboree sales associates.
The Company believes that this customer service in combination
with its merchandise encourages multiple item purchases per
customer.
STORE EXPANSION STRATEGY
Gymboree seeks to significantly increase its current store base by
opening new stores in major metropolitan malls, certain secondary regional
malls and in select downtown street locations and airport terminals that
satisfy its demographic and financial return criteria. In fiscal 1996, the
Company opened 75 new stores and expanded 19 existing stores. Over the past
year, the average size of new and relocated stores has increased to
approximately 1,700 square feet. The Company plans to open 80 to 85 new stores
in fiscal 1997, 12 of which were opened as of March 1, 1997. As indicated in
the table below, the Company has achieved increasing geographic diversification
within the United States in recent years. The Company started its international
expansion by opening five retail stores in Canada during fiscal 1996. During
fiscal 1997, the Company is planning to open approximately 15 stores in Canada,
the United Kingdom and the Republic of Ireland. The Company's ability to
continue to expand successfully in the future will depend on a number of
factors, including the availability of suitable store locations, the
negotiation of acceptable lease terms, the Company's financial resources and
the ability to control the operational aspects of this growth.
Gymboree expanded from two stores in California in 1986 to 361 stores in
48 states and 5 stores in 3 Canadian provinces as of March 1, 1997. The
following table sets forth, by geographic region, the net number of stores
opened and closed during each of the periods indicated:
<TABLE>
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Fiscal Year
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Prior to
1992 1992 1993 1994 1995 1996 1997(1) Total
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East 35 8 9 14 14 17 3 100
Midwest 7 10 9 12 19 25 3 85
South 6 9 10 23 26 12 4 90
West 32 5 12 8 11 16 2 86
Canada 0 0 0 0 0 5 0 5
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Total 80 32 40 57 70 75 12 366
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</TABLE>
(1) Includes stores opened through March 1, 1997.
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SITE SELECTION. In selecting new store sites, the Company typically
looks for high traffic locations ranging from 1,500 to 3,000 square feet in
regional malls, specialty centers and suburban main street locations. The
Company's real estate department conducts extensive analysis of potential store
sites and bases its selection on the performance of other specialty retail
tenants, size of the market and demographics of the surrounding area. In
evaluating a store location, placement of the store relative to retail traffic
patterns and the number of young children in the trade area are important
considerations. Although the Company's current stores are located primarily in
regional malls, the Company has opened stores in alternative locations. In
addition, the Company plans to relocate some higher volume stores within the
same malls where it anticipates receiving a competitive advantage. There can be
no assurance that the Company will continue to be successful in either obtaining
favorable sites for its new stores or negotiating favorable lease terms for such
sites.
NEW STORE ECONOMICS. The Company's average cost for leasehold
improvements, furniture and fixtures for stores opened in fiscal 1996 was
approximately $207,000 per store, before landlord construction allowances. In
addition, working capital requirements on these same stores, consisting almost
entirely of inventory purchases, averaged approximately $61,000 per store.
Average preopening costs per store, which are expensed as incurred, were $13,000
during fiscal 1996. Gymboree stores have typically achieved profitability at the
store operating level within their first full quarter of operation, although
there can be no assurance that new stores will continue to achieve the same
levels of profitability.
PRODUCTS AND MERCHANDISING
Gymboree's merchandise has evolved significantly over time. Prior to
1988, the Company offered unisex apparel for children ages six months to five
years and a selection of non-apparel products, including toys. Since 1989, the
Company has broadened its apparel merchandise assortment by developing separate
boy's and girl's lines for children ages eighteen months to seven years, the
GymBaby line for children ages newborn to eighteen months, and the Layette line
for infants from newborn to three months. Gymboree currently offers customers an
assortment of high quality, comfortable, fully coordinated lines of GYMBOREE(R)
brand apparel and accessories, consisting primarily of pants, tops, overalls,
dresses, socks, hats, crib shoes, swimwear, sweaters, outerwear, underwear,
bedding and, to a limited extent, shoes. The Company's merchandising strategy
focuses upon the quality and design of its apparel products and planned
introduction of new product lines. The Company strives to create a distinctive
look for its merchandise to enhance brand recognition and stimulate repeat
purchases. Gymboree apparel is designed, manufactured, purchased and
merchandised by line on a seasonal basis.
Each of the Company's stores features six major merchandising
presentations consisting of two boys' and two girls' lines, a Layette line, and
a seasonal line of swimwear. In 1996 the Company merged the GymBaby line into
Boy and Girl lines. Each merchandise line generally consists of approximately
60 to 150 clothing items, encompassing matching tops and bottoms, with similar
color pallets, patterns and designs. Additionally, each line features a wide
selection of related accessories that complement the apparel, such as
coordinated socks, hats, crib shoes and hair accessories. In order to maintain
the freshness of its merchandise, the Company regularly updates its assortments
by rotating each line on an eleven to thirteen week selling cycle. Although
Gymboree generally is unable to reorder items after a line has been purchased,
the Company carefully monitors its rotation schedule and has the ability to
move up the set-up of new lines based on selling demand. The Company does not
typically use special sales promotions, however, merchandise in each line
generally flows through a structured markdown process.
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Gymboree's customized wall systems display each merchandise line as a
separate coordinated group. This presentation maximizes customer convenience in
selection, creates a visually attractive selling environment and assists sales
associates in the process of wardrobing, which, the Company believes, stimulates
multiple purchases of matching items. Boy's and girl's lines are generally
displayed on opposite walls and accessories are located adjacent to the
coordinated line. A typical store offers approximately 200 to 250 styles of
apparel and approximately 100 to 120 accessories and other non-apparel items.
DESIGN, SOURCING AND CONTRACT MANUFACTURING
Gymboree apparel is characterized by colorful and distinctive designs,
quality fabrications and construction and an excellent price/value
relationship. The Company sources soft, comfortable and durable fabrics. The
Company's merchandising and design team creates unique color combinations and
original patterns for these fabrics and emphasizes functional features such as
grow cuffs which allow for extended use of tops, pants and overalls as children
grow.
The Company manages the production of Gymboree apparel from the initial
product concept, through color and pattern design, fabric development and
testing, sample approval and testing and garment manufacturing. The Company
believes that the vertical integration of its operations and the coordinated
efforts of its merchandising and design, production, and financial planning
teams enable Gymboree to create its distinctive offerings. The merchandising
and design team determines the styles for merchandise based on an evaluation of
current style trends as well as a review of the popularity of the prior year's
products. This team works closely with the Company's financial planning team to
select garment styles for each season. In conjunction with foreign buying
agents, the production team arranges fabric sourcing and garment production
while the quality team ensures that the final products satisfy Gymboree's
detailed specifications and strict quality and safety standards. The process
from initial product concept/design to finished product requires approximately
ten months. Fabric and production commitments are made approximately six months
before receipt of the finished garments at the Company's distribution center.
Throughout the design process, Gymboree's financial planning team
prepares financial plans for each line of clothing on an item-by-item basis.
Certain proposed items in a line may be revised or replaced as a result of this
team's financial analysis. This team also monitors inventories on a daily basis,
prepares seasonal plans and develops unit production forecasts.
The majority of Gymboree apparel is manufactured to its specifications
by approximately 60 independent manufacturers, located primarily in the Far East
(Hong Kong, China, Indonesia, Philippines, Thailand, Sri Lanka, and Saipan) and
to a lesser extent in Honduras, Israel and the United States. The Company
sources its fabric raw material from approximately 15 vendors. In fiscal 1996,
the Company's product assortment was approximately 70% knit and 30% woven. In
fiscal 1996, one vendor accounted for approximately 80% of the Company's cotton
knit fabric purchases. Although the Company believes that other sources could be
identified to satisfy its requirements for its cotton knit fabrics, the loss of
this vendor, or a delay in obtaining fabric from this vendor, could have a
material adverse effect on the Company's business and operating results. The
Company does business with all of its vendors in United States currency and has
not historically experienced any material difficulties as a result of any
foreign political, economic or social instabilities, although there can be no
assurance that it will not experience such difficulties
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in the future. The Company has no long-term contracts with suppliers and
typically transacts business on an order-by-order basis.
Gymboree's quality control team arranges with independent testing
laboratories to test fabrics prior to cutting against established performance
standards for quality and safety. During the prototype sampling stage and
following manufacturing, the technical teams subject the merchandise to tests
which ensure that construction, workmanship and fit, as well as the style and
appearance of the garments, satisfy Gymboree's stringent specifications.
Subsequently, the production and quality control teams review the garment test
and bulk production inspection results to verify that the quality is consistent
with Gymboree's high standards. Gymboree generally does not purchase its
finished apparel products until manufacturing has been completed and the
products have been approved by independent testing labs and Gymboree's quality
control and production teams.
STORE OPERATIONS
The primary objective of store management is to maximize sales by
providing superior customer service. Store management is principally responsible
for sales training and implementing performance evaluation systems. In a
continuing effort to minimize sales associates' time away from customers,
operational procedures are reviewed and streamlined by the store operations
group prior to implementation at the store level. This group is also responsible
for field and store staffing, daily sales motivation and central office to store
communications. The Company's merchandising group also interacts with store
personnel and is responsible for developing merchandise presentation plans that
can be effectively implemented at the store level.
Store operations are managed through 41 operating districts, divided
into seven geographic regions. Each district manager is responsible for
approximately eight stores. Stores are typically staffed with a manager, two
assistant managers and several sales associates which varies with store volume.
During the holiday selling season, staff levels are substantially increased to
accommodate peak traffic levels.
A number of Gymboree programs offers incentives to both sales
associates and management. Sales associates receive compensation primarily in
the form of hourly wages. Incentive structures are designed to maximize sales
associates' average sales transactions. Scheduling procedures allocate payroll
hours to sales associates based upon sales performance rather than simple
availability. Other programs provide bonuses or cash awards to high achieving
store personnel during contest periods, or to all employees of a store based on
store sales achievements. District and regional managers receive compensation
in the form of salaries, performance-based bonuses and stock options.
CUSTOMER SERVICE
Customer service is a defining feature of the Gymboree corporate
culture. The Company believes that knowledgeable and enthusiastic store
personnel have a direct impact on profitability. Gymboree places great emphasis
on the selling function through consistent and on-going training and evaluation
systems which are initiated by the central office and administered by field
management at all levels. The Company's store and district team leaders and
regional team director spend the majority of their work week on Gymboree
selling floors, providing leadership by coaching the sales staff and assisting
customers through a time approach.
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Customer service is a high priority for Gymboree store team members.
Gymboree's customer focus is emphasized in recruiting and, as measured by
sales, is the primary component in the on-going evaluation of sales associates.
The Company minimizes team members' time spent on administrative functions by
centrally determining merchandise display and replenishment, markdowns and
basic labor scheduling. By emphasizing friendliness, product knowledge and
personal attention, the Company believes that Gymboree has established a
reputation for excellent customer service.
STORE ENVIRONMENT
Gymboree stores are designed to create an energetic and enjoyable
shopping environment. The brightly lit stores and glass store fronts allow the
colorful in-store environments to attract customers from the outside. Stores are
constructed in an open manner which enables customers to see virtually all
product offerings from the store's entrance.
Customers enter the stores under natural wood colored arches supported
by giant children's building blocks. The dramatic archways and Gymboree's logo
attract the customer's attention, even from a distance. The Company believes
that the playful image created by its store fronts is carried into the stores
and maintained through product presentation and enthusiastic store personnel.
Inside the store, merchandise is displayed on store walls by coordinated
apparel lines, which allows easy accessibility and provides ample floor space
for customers to maneuver strollers within the store. While parents shop,
children are encouraged to play with small toys throughout the store and to
enjoy Gymboree videos which run continuously throughout the day.
MARKETING AND PROMOTION
To generate sales, Gymboree relies primarily on the location and design
of its stores and word-of-mouth advertising and, to a lesser extent,
cross-promotional activities with franchisees. The Company offers coupons for
limited retail merchandise discounts on a semi-annual basis to participants in
its Play Programs. Through their promotional activities on behalf of Gymboree
play centers, franchisees promote the GYMBOREE(R) brand name through
advertisements and periodic mailings. The Company's retail stores generally make
play center information available to retail customers.
NEW BUSINESS OPPORTUNITIES
The Company launched its first catalog at the beginning of fiscal 1996,
and then closed operation of the catalog in January, 1997 in order to more
fully devote time and effort to its retail stores. The estimated costs for the
termination of this business, were recorded during the fourth quarter of fiscal
1996.
The Company commenced international retail operations by opening five
retail stores in Canada during fiscal 1996. The Company plans to open during
fiscal 1997 up to 15 stores in Canada, the United Kingdom and the Republic of
Ireland.
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MERCHANDISE DISTRIBUTION
The Company's merchandise production calendar provides significant lead
time from the manufacturing completion date to the targeted in-store date. This
typically enables consolidation of larger merchandise shipments on
cost-efficient ocean carriers. The Company's transportation department
coordinates shipments from contract manufacturers or vendors, and regularly
monitors the timeliness of such shipments. Late merchandise is shipped on
conference ocean carrier with the manufacturer paying the difference between the
conference and non-conference ocean freight rates. The merchandise is shipped to
the Port of Oakland, California where customs clearance takes place. Samples of
all items are reviewed by U. S. Customs prior to actual merchandise shipments.
This process reduces the customs clearance time and speeds the delivery of the
merchandise to the Company.
The Company's merchandise is received, inspected, processed, warehoused
and distributed through its two distribution centers comprising 140,000 square
feet leased distribution facilities in Hayward, California. Merchandise received
at the distribution center is promptly reviewed and readied for shipment to the
stores. The Company's store inventory levels are analyzed through the Company's
central management information systems. Normally, merchandise is sent to the
stores once per week, however, during certain seasonal periods, stores may
receive more than one shipment per week. Various methods of domestic
transportation are used, including truck, pool distribution and air freight.
During 1997, the Company plans to construct a new 280,000 square feet
distribution center on 15 acres which will be located in Dixon, California. The
target opening for this new facility is January 1998.
MANAGEMENT INFORMATION SYSTEMS
Gymboree's information systems provide integration of store,
merchandising, distribution and financial systems. These systems operate on a
Unix platform with a central minicomputer running a third party software
package. Sales are updated daily in the merchandise reporting systems by polling
sales information from each store's point-of-sale ("POS") terminals. The
Company's POS system consists of registers providing price look-up, scanning of
bar-coded tickets and credit authorization. Through automated two-way electronic
communication with each store, sales information, payroll hours and store
initiated transfers are uploaded to the host system, and price changes are
downloaded to the POS devices. The communication with the stores also enables
the Company to receive physical inventory details and send electronic mail.
Information obtained from daily polling results in automatic merchandise
replenishment in response to the specific unit inventory requirements of each
store. The Company evaluates information obtained through daily reporting to
implement merchandising decisions regarding markdowns and allocation of
merchandise.
In the first quarter of 1997, Gymboree implemented a client/server GUI
based system for merchandise allocation and replenishment (MARS). MARS replaces
the legacy computer-aided distribution system which required time-consuming
manual corrections. MARS has eliminated much of this manual effort and has
increased time for allocation analysis and better tailors merchandise
replenishments to business needs. Other features of MARS are drill down/up
capabilities, a decrease in the communication time to the Distribution Center,
improved reporting capabilities, and a reduced processing load on the host
system.
The Company is in the process of installing a new PC based, in-store
POS system throughout all stores within the chain in 1997. This new system
configuration will allow for faster customer checkout, integrated tender
authorizations, and automatic collection of detailed sales data for analysis.
The Company believes that its management information systems are an
important factor in allowing the Company to efficiently support its growth and
maintain a competitive industry position. The Company is committed to utilizing
technology to enhance its competitive position
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and has installed a computer-aided design system to automate certain merchandise
design and production functions, and a client/server based production system.
In the event that the Company's existing management information systems
are inadequate to support the Company's operations or its change over to the
new MARS and POS system is disruptive to operations, the Company's business and
operating results could be materially adversely affected.
PLAY PROGRAMS
As of February 2, 1997, the Company's Play Programs included 13
Company-operated play centers in California and approximately 377
franchisee-operated play centers, of which approximately 80% of the play centers
are located in the United States, and the remaining 20% are located in foreign
countries, including Australia, Canada, Colombia, France, Indonesia, Korea,
Mexico, Singapore and Taiwan. The Company believes that its Play Programs
provide attractive cross-marketing opportunities for Gymboree stores and further
strengthen the GYMBOREE(R) brand name recognition with retail customers. See
"--Marketing and Promotion."
The Gymboree Play Programs are designed to enhance early childhood
development through fun-filled sensory and motor activities, which engage
children through sight, touch, sound and movement. Motor skill development is
stimulated through physical play and exercise in an exciting, safe environment
which includes colorful, developmentally appropriate play equipment. The
Gymboree Play Program generally involves weekly 45-minute classes offered
throughout the year. Classes are designed to interest and challenge children
through activities that are tailored to enhance mental and physical development
as well as to provide opportunities for socializing. In addition to sliding,
climbing, jumping and running, classes include music, structured play
activities, games and a finale featuring a colorful parachute, songs, bubbles
and GYMBO(R) the clown. Parents are generally present at play classes and
participate in the activities with their children.
Gymboree classes are offered to children ages newborn to six years old.
CradleGym (birth through 3 months) focuses on parent support and discussion
topics, as well as parent-child interaction through music, gentle movement and
at-home play ideas. In BabyGym classes (3-12 months) babies and parents enjoy
exploring the play equipment, socializing and music as well as an opportunity to
exchange parenting information. The Gymboree I, II and III programs (1-2 1/2
years) focus on developing balance, refining motor skills and building toddler
confidence and self-esteem through activities and play. In GymGrad classes
(2 1/2-4 years), children are introduced to pre-sport skills and non-competitive
games which are designed to promote physical development and social skills such
as cooperation. GymKids (4-5 years) is a parent-optional program which
emphasizes drama, creative movement and pre-sport skills.
The Company's standard franchise agreement provides for an initial term
of ten years. Upon signing the franchise agreement, each domestic and Canadian
franchisee currently pays an initial fee ranging from $35,000 for the
franchisee's first play center location to $20,000 for the fourth (and each
subsequent) location, and each international (excluding Canadian) franchisee
pays an initial fee ranging from $75,000 to $500,000. The franchises are
renewable for one additional ten year term, and Gymboree receives no fee upon
the renewal of the franchise from domestic franchisees. The Company receives a
royalty of 6% of each domestic franchisee's gross receipts from operations, and
a fee of approximately $10,500 upon the transfer of a franchise from one
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domestic franchisee to another. Currently, Gymboree supplies the franchisees
with program aids, equipment and consumer products and conducts initial and
ongoing training programs.
Gymboree will be offering franchises for sale in new market areas in
fiscal 1997. During fiscal 1996, the Company made no such offerings.
TRADEMARKS AND SERVICE MARKS
The Company is the owner in the United States of the trademark and
service mark "GYMBOREE", and the trademarks "GYMBO" and "GYMBABY", among
others. These marks and certain other of the Company's marks are registered in
the United States Patent and Trademark Office, and the mark "GYMBOREE" is also
registered, or is the subject of pending applications, in approximately 45
foreign countries. Each federal registration is renewable indefinitely if the
mark is still in use at the time of renewal. The Company's rights in the
"GYMBOREE" mark and other marks are a significant part of the Company's
business. Accordingly, the Company intends to maintain its mark and the related
registrations. The Company is not aware of any material claims of infringement
or other challenges to the Company's right to use its mark in the United
States.
COMPETITION
The children's apparel segment of the specialty retail business is
highly competitive. The Company competes with GapKids (a division of The Gap,
Inc.) and certain leading department stores as well as certain discount retail
chains such as Kids'R'Us (a division of Toys'R'Us, Inc.). Gymboree also competes
with a wide variety of local and regional specialty stores and with certain
other retail chains. Many of these competitors are larger and have substantially
greater financial, marketing and other resources than the Company, and there can
be no assurance that the Company will be able to compete successfully with them
in the future. The principal competitive factors in the Company's market include
quality and variety of merchandise, price, brand-name recognition, customer
service, convenience and the attractiveness of the stores.
Gymboree's play program competes with various regional and local play
programs on the basis of the reputation and quality of programs, convenience and
price.
EMPLOYEES
As of February 2, 1997, the Company had over 6,500 employees. In
addition, a significant number of seasonal employees are hired during each
holiday selling season. None of the Company's employees is represented by a
labor union, and the Company believes that its relationship with its employees
is good.
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<TABLE>
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James P. Curley.............. 41 Senior Vice President, Chief
Financial Officer/Chief
Administrative Officer and Director
Cynthia S. Dennis............ 39 Senior Vice President and General Merchandise
Manager of New Business Development
Mindy C. Meads............... 45 Senior Vice President and General
Merchandise Manager
Officers
Walter J. Blum............... 45 Vice President, Distribution
JoAnn H. Davis............... 53 Vice President, Real Estate
Diana Dobbs-Melton........... 33 Vice President, Planning & Distribution
John Estill.................. 36 Vice President of the United Kingdom
John Mazurk.................. 43 President of Play Programs
Trudi A. Muller.............. 38 Vice President, Design
Joseph T. Prusko............. 42 Vice President and Treasurer
George A. Rodriguez.......... 38 Vice President, Production and Sourcing
Michelle Van Hoose........... 40 Vice President, Human Resources
</TABLE>
Mr. Stuart G. Moldaw resumed the position of Chairman of the Board of
Directors of the Company in January 1994. Mr. Moldaw has been a director of the
Company since May 1982 and served as Chairman from January 1990 until January
1993. Until February 1990, Mr. Moldaw was a general partner, and is currently a
special venture partner of U.S. Venture Partners, a venture capital investment
firm. Mr. Moldaw is a director and Chairman Emeritus of Ross Stores, Inc.
Mr. Gary White has been President, Chief Executive Officer and director
of the Company since February 1997. Mr. White joined the Company as Senior Vice
President and Chief Operating Officer in January 1996. Prior to joining the
Company, Mr. White was Executive Vice President of Mervyn's, a division of
Dayton Hudson Corporation until January 1996. Mr. White was employed by Dayton
Hudson Corporation since 1976 having served in various positions as an officer
with Dayton Hudson from January 1988 to January 1996.
Mr. James P. Curley has been Chief Administrative Officer and director
of the Company since February 1996 and has been Senior Vice President and Chief
Financial Officer since July 1992. From May 1989 to July 1992, Mr. Curley was
Senior Vice President, Chief Financial Officer and Treasurer of Gantos, Inc., an
apparel retailer. Mr. Curley is a director of West Marine, Inc., a boating
supplies retailer.
Ms. Cynthia S. Dennis has been Senior Vice President and General
Merchandise Manager of New Business Development since December 1995. Ms. Dennis
previously served as the Company's Senior Vice President and General Merchandise
Manager from December 1994 to December 1995; Vice President, Production and
Merchandising from January 1994 to December 1995; Vice President, Production
from November 1991 to January 1994; and was the Company's merchandiser from
February 1990 to November 1991.
Ms. Mindy C. Meads joined the Company as Senior Vice President and
General Merchandise Manager in March 1996. Previously, Ms. Meads was with Lands'
End, Inc. as Senior Vice President of Merchandising & Design since 1994 and Vice
President, General Merchandise Manager from 1991 until 1994.
12
<PAGE> 13
Mr. Walter J. Blum joined Gymboree as Director of Distribution in
January 1992, and was promoted to Vice President of Distribution in April 1994.
Prior to joining the Company, Mr. Blum was Director of Operations for Electronic
Arts, an entertainment software developer and distributor, from July 1990 to
October 1991. From November 1988 to July 1990, Mr. Blum was Director of
Distribution Services for Imaginarium, a specialty retail toy company.
Ms. JoAnn H. Davis has been Vice President of Real Estate, Construction
and Store Planning since March, 1997. Ms. Davis joined Gymboree as Vice
President of Real Estate in July 1995 and served in that capacity until March,
1997. Prior to joining the Company, Ms. Davis provided consulting services to
the Company from July 1994 until July 1995. Ms. Davis served as President of
Davis McKinney Associates, a real estate consulting company, from July 1992 to
July 1995. From May 1988 to July 1992, Ms. Davis was Vice President of Real
Estate for Trans World Entertainment, a specialty retail music company.
Ms. Diana Dobbs-Melton joined Gymboree in February 1996 as Vice
President of Planning and Distribution. From February 1995 until joining the
Company, Ms. Dobbs-Melton was the Senior Director of Planning and Distribution
for GapKids, a division of the Gap, Inc. From March 1994 to February 1995, Ms.
Dobbs-Melton was the Senior Director of Planning and Distribution for the
International Gap and GapKids Divisions. From March 1991 to March 1994, Ms.
Dobbs-Melton was Director of Planning and Distribution for the same division. On
March 14, 1997, Ms. Dobbs-Melton passed away from complications of child birth.
Mr. John Estill joined Gymboree in June, 1996 as Vice President of the
United Kingdom. From March 1992 through July 1995, Mr. Estill was Retail
Director for Episode, a stylized women's wear retailer. From January 1988 until
December, 1991 he was Retail Sales Director for Next Retail, Ltd., a specialty
department store. Both Episode and Next Retail are located in the United
Kingdom.
Mr. John Mazurk joined Gymboree in August 1996, as President, Play
Programs. From January 1994 until joining the Company, Mr. Mazurk was Vice
President for Broadway Stores, Inc. From January 1977 to January 1994, Mr.
Mazurk was Vice President General Manager for Burdines, a division of Federated
Department Stores, Inc.
Ms. Trudi A. Muller joined the Company in January 1996 as Vice President
of Design. From September 1995 until joining the Company, Ms. Muller was
Director of Product Development for Kids Mart/Little Folks Shop. From January
1995 to September 1995, Ms. Muller was Manager of Children's Product for the
Broadway Stores. From July 1993 to January 1995, Ms. Muller was Director of
Product Development for Story Book Heirlooms. From January 1991 to July 1993,
Ms. Muller was the owner and designer of Trudiwear, specialty children's wear
apparel.
Mr. Joseph T. Prusko has been Vice President and Treasurer of the
Company since March, 1997. Mr. Prusko joined Gymboree in November 1994 as Vice
President and Controller and served in that capacity until March, 1997. Prior to
joining the Company, Mr. Prusko had been Vice President of Finance at
Waldenbooks, a subsidiary of Kmart, since December 1989. From August 1983 until
December 1989, Mr. Prusko was Controller for Pearle Vision Centers, retail
optical stores.
13
<PAGE> 14
Mr. George A. Rodriguez joined Gymboree as Director of Sourcing in
October 1992 and assumed the position of Director of Sourcing and Production in
January 1994. Since May 1995, Mr. Rodriguez has been Vice President, Sourcing
and Production of the Company. Prior to joining the Company, Mr. Rodriguez was
Sourcing and Production Manager for Generra Sportswear, a young men's and junior
sportswear company, from November 1989 until April 1992.
Ms. Michelle Van Hoose has been Vice President, Human Relations, since
October 1996. Ms. Van Hoose joined Gymboree in June 1995, as Director of Human
Resources. From March 1993 to June 1995, Ms. Van Hoose was Director of Human
Resources for H2O Plus, a retail cosmetic organization. Prior to that, Ms. Van
Hoose held numerous positions with The GAP from September 1992 to March 1993 and
with Eddie Bauer from February 1987 to September 1992.
ITEM 2. PROPERTIES
The Company's 45,000 square foot corporate headquarters is located in
an office facility in Burlingame, California, which the Company occupies under
a lease expiring in 1999. During 1996, the Company leased a nearby building of
25,000 square feet, which expires in 1999.
The Company's distribution centers are located in 140,000 square foot
facilities in Hayward, California, which the Company occupies under a lease
expiring in 1998.
During 1997, the Company plans to construct a new 280,000 square foot
distribution center on 15 acres which will be located in Dixon, California. The
Company is close to purchasing the land and will commence construction in May
1997.
At February 2, 1997, the Company's 354 stores included an aggregate of
approximately 519,000 square feet of space. The Company's stores are all leased,
typically for a ten-year term. In most cases, the Company pays a minimum rent
plus a percentage rent based on the store's net sales in excess of a certain
threshold. Substantially all of the leases require the Company to pay insurance,
utilities, real estate taxes and repair and maintenance expenses. See Note 3 of
Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "GYMB". The following table sets forth the quarterly high and low
sale prices per share, as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $29 $17 3/4 $28 1/4 $21 1/2
Second Quarter 35 3/4 20 1/8 32 3/8 20 7/8
Third Quarter 33 5/8 23 3/8 37 1/4 18 3/4
Fourth Quarter 34 3/4 21 1/4 25 1/8 14 3/8
</TABLE>
As of March 31, 1997, the approximate number of holders of record of
the Company's Common Stock was 786. The Company has never declared or paid cash
dividends on its Common Stock and anticipates that all future earnings will be
retained for development of its business. The payment of any future dividends
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, capital requirements, the financial
condition of the Company and general business conditions.
On February 28, 1997, the Company announced that its Board of Directors
had authorized a repurchase program in which shares of its Common Stock with an
aggregate value of $30 million may be purchased by the Company in the open
market. See Note 9 of Notes to Consolidated Financial Statements.
In March 1997, the Company adopted a Stockholder Rights Plan (the
"Plan"). The Plan entails a dividend of one right for each outstanding share of
the Company's common stock. The rights are represented by and traded with the
Company's common stock. There are no separate certificates or market for the
rights. The rights do not become exercisable or trade separately from the
common stock unless 17.5% or more of the common stock of the Company has been
acquired, or after a tender or exchange offer is made for 17.5% or greater
ownership of the Company's common stock. Should the rights become exercisable,
each right will entitle the holder thereof to buy 1/1,000th of a share of the
Company's Series A Preferred Stock at an exercise price of $125. Each 1/1,000th
of a share of the new Series A Preferred Stock will essentially be the economic
equivalent of one share of common stock. Under certain circumstances, the
rights "flip-in" and become rights to buy the Company's common stock at a 50%
discount. Under certain other circumstances, the rights "flip-over" and become
rights to buy an acquirer's common stock at a 50% discount.
15
<PAGE> 16
The rights may be redeemed by the Company for $0.01 per right at any time
on or prior to the fifth day (or a later date as determined by the Board of
Directors) following the first public announcement by the Company of the
acquisition of beneficial ownership of 17.5% of the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by
reference to page 1 of the 1996 Annual Report to Stockholders filed as Exhibit
13.1 to this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated herein by reference
to pages 2 through 7 of the 1996 Annual Report to Stockholders filed as Exhibit
13.1 to this Annual Report on Form 10-K, and to Note 9, Subsequent Events,
which covers a complete discussion of a Stock Repurchase Program and a
Stockholder Rights Plan, which is incorporated by reference on page 21 of the
1996 Annual Report to Stockholders filed as Exhibit 13.1 to this Annual Report
on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference
to pages 8 through 24 of the 1996 Annual Report to Stockholders filed as
Exhibit 13.1 to this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
to the sections entitled "Election of Directors - Nominees" and "Additional
Information-Compliance with Section 16(a) of the Securities Exchange Act" in
the 1996 Proxy Statement. See also Item 1.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the sections entitled "Election of Directors - Compensation of Directors"
and "Additional Information - Executive Compensation" in the 1996 Proxy
Statement.
16
<PAGE> 17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the section entitled "Additional Information - Security Ownership"
in the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the sections entitled "Additional Information - Employment
Contracts and Termination of Employment and Change-in-Control Arrangements" and
" Additional Information - Compensation Committee Interlocks and Insider
Participation" in the 1996 Proxy Statement.
17
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following documents are incorporated by reference to pages 8 through
24 of the 1996 Annual Report to Stockholders filed as Exhibit 13.1 to this
Annual Report on Form 10-K.
Consolidated Balance Sheets as of February 2, 1997 and February
4, 1996
Consolidated Statements of Income for each of the three fiscal
years ended February 2, 1997
Consolidated Statements of Cash Flows for the three fiscal years
ended February 2, 1997
Consolidated Statements of Stockholders' Equity for the three
fiscal years ended February 2, 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
(A)(2) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are not
required or are not applicable.
18
<PAGE> 19
(A)(3) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Registrant.(1)
3.2 Bylaws of Registrant.(1)
4.1 Article III of Restated Certificate of Incorporation of
Registrant (See Exhibits 3.1).(1)
4.2 Form of certificate for Common Stock.(1)
10.1 1983 Incentive Stock Option Plan, with form of stock Option
Agreement.(1)
10.2 1993 Stock Option Plan, with form of Stock Option Agreement.(4)
10.3 1993 Employee Stock Purchase Plan.(1)
10.4 Amended Line of Credit Agreement with Bank of America dated
October 27, 1995.(3)
10.5 Line of Credit Agreement with CoreStates Bank dated August 2,
1994.(2)
10.6 Amended Lease Agreement for 700 Airport Blvd., Suite 200,
Burlingame, California.(2)
10.7 Amended Lease Agreement for distribution center.(3)
10.8 California Uniform Franchise Offering Circular, including form
of Franchise Agreement.(1)
10.11 Restricted Stock Purchase Agreement with Nancy J. Pedot.(2)
10.12 Lease Agreement for 770 Airport Blvd., Burlingame, CA
10.13 Deferred Compensation Agreement
11.1 Statement re Computation of Net Income Per Share.
13.1 1996 Annual Report to Stockholders
23.1 Independent Auditors' Consent
27.1 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
A report on Form 8-K was filed on February 28, 1997, announcing the
election of Jerome A. Chazen, a new director and the resignation of Ms. Nancy
Pedot, from her positions as President, Chief Executive Officer and Director, as
of February 14, 1997. Gary White, formerly Chief Operating Officer and Senior
Vice President of the Company, has been appointed to the positions of President,
Chief Executive Officer and Director.
- ----------
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 filed with the Commission on February 18,1993 ( File No. 33-58322),
as amended.
(2) Incorporated by reference to the Registrant's 1994 Annual Report on
Form 10-K filed with the Commission on April 24, 1995.
(3) Incorporated by reference to the Registrant's 1995 Annual Report on
Form 10-K filed with the Commission on May 2, 1996.
(4) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 filed with the Commission on February 18, 1993 (File No. 33-58322),
as amended by numbers 33-60310, 33-90452, 33-94594 and 333-10811.
19
<PAGE> 20
THE GYMBOREE CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE GYMBOREE CORPORATION
May 5, 1997 By: /s/ Gary White
- -------------------- --------------------------------
(Date) Gary White
President and Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Stuart G. Moldaw Chairman of the Board of Directors May 5, 1997
- ------------------------------------
Stuart G. Moldaw
/s/ Gary White President and Chief Executive Officer May 5, 1997
- ------------------------------------ and Director
Gary White
/s/ Arthur S. Berliner Director May 5, 1997
- ------------------------------------
Arthur S. Berliner
/s/ Jerome A. Chazen Director May 5, 1997
- ------------------------------------
Jerome A. Chazen
/s/ James P. Curley Senior Vice President and May 5, 1997
- ------------------------------------ Chief Financial Officer/Chief
James P. Curley Administrative Officer
and Director
(Principal financial and accounting
officer of the registrant)
/s/ Walter F. Loeb Director May 5, 1997
- ------------------------------------
Walter F. Loeb
/s/ Barbara L. Rambo Director May 5, 1997
- ------------------------------------
Barbara L. Rambo
/s/ Peter L. Thigpen Director May 5, 1997
- ------------------------------------
Peter L. Thigpen
/s/ William U. Westerfield Director May 5, 1997
- ------------------------------------
William U. Westerfield
</TABLE>
20
<PAGE> 21
THE GYMBOREE CORPORATION
EXHIBIT INDEX
EXHIBIT
NUMBER
- ------
10.12 Lease Agreement for 770 Airport Blvd., Burlingame, CA
dated October 11, 1996
10.13 Deferred Compensation Agreement
11.1 Statement re: Computation of Net Income per Share
13.1 1996 Annual Report to Stockholders
23.1 Independent Auditors' Consent
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.12
LEASE SUMMARY
(770 Airport Boulevard)
BUILDING: 770 Airport Boulevard (currently the Purdy Building)
PREMISES: Approximately 25,578 square feet
TENANT: The Gymboree Corporation
TERM: Three (3) years with one five year option
Initial Term: December 1, 1996 - November 30, 1999
(700 Airport Lease expires September 30, 1998)
Early Entry: October 1, 1996 - November 30, 1996 (no rent)
OPTION AND REQUIRED EXTENSIONS:
A. Tenant has an option to extend the lease for 1 full five year period
beginning December 1, 1999 and expiring November 30, 2004; or
B. If Gymboree exercises its option to renew at 700 Airport Boulevard, Gymboree
must and will be required to renew at 770 Airport Boulevard for a period which
will be less than five years -- beginning December 1, 1999 and expiring
September 30, 2003 (which will make both lease terms coterminous and expire
September 30, 2003).
C. If Gymboree extends its lease at 700 Airport Boulevard (rather than exercise
its option) for a period beyond 770 lease expiration date (November 30, 1999),
Gymboree must and will be required to extend the 770 lease for same period so
both lease terms are coterminous. Any required extension on the 770 lease will
be for no longer than November 30, 2004.
Rent Credit (with option thru November 30, 2004 (60 MO): $125,000.00
If the full five year option is exercised, Landlord will reimburse Gymboree
$125,000.00 for its original tenant improvements. Reimbursement will be in the
form of a rent credit to be taken beginning on first day of option period until
fully recaptured.
Rent Credit (with required lease extension thru September 30, 2003 (46 MO):
$95,000.00
If there is a less than five full year lease renewal, Landlord will reimburse
Gymboree $95,000.00 for its original tenant improvements. Reimbursement will be
in the form of a rent credit to be taken beginning on first day of option period
until fully recaptured.
Rent Credit (with required lease extension through date TBD): NONE
X-Reference 700 Airport Boulevard Lease: 700 Airport Boulevard Lease expires
September 30, 1998. Gymboree has 1 five year option to renew which would extend
lease through September 30, 2003. Tenant must exercise option by giving notice
not later than 180 days = March 1, 1998. Rental rate to be FMV as agreed upon by
the parties.
- ------------------------------------------------------------------------------
Internal Calendar Dates: 1st calendar date October 1, 1997 (budget and notify
Jim Curley)
2nd calendar date January 1, 1998
3rd calendar date February 1, 1998
NOTICE TO BOTH LLs BY March 1, 1998
- ------------------------------------------------------------------------------
<PAGE> 2
RENT:
INITIAL TERM:
December 1, 1996 - November 30, 1997 Calculated at a rate of $0.65 PSF per month
$198,000/YR $16,500/MO ("First Year's Rent")
December 1, 1997 - November 30, 1998 First Years Rent as increased by CPI with
a minimum increase of 3% and a maximum increase of 5% ("Second Year's Rent")
December 1, 1998 - November 30, 1999 Second Year's Rent as increased by CPI with
a minimum increase of 3% and a maximum increase of 5%
OPTION TERM:
December 1, 1999 - November 30, 2004 Calculated at a rate of $0.95 PSF per month
$291,589.00/YR $24,299/MO
Thereafter, Rent shall be increased each year by application of CPI with a
minimum increase of 3% and a maximum increase of 5%.
*Rent same rate for less than 5 year option and/or an automatic renewal
TRIPLE NET EXPENSES/ADDITIONAL RENT:
Gymboree will pay LL property taxes and property insurance monthly (estimates
to be reconciled by LL year end). Property taxes and insurance estimated to be
$0.068 PSF per month or $1,739/MO.
Gymboree will arrange for and pay for all sewer, water, telephone, utilities,
garbage, all HVAC costs, window washing, and all outside landscaping maintenance
costs, and any other costs related to services in the premises and keeping the
exterior areas including the parking lot maintained and in good order.
ASSIGNMENT - Gymboree can assign/sublet to subsidiary or affiliate without LL's
prior consent. If assignment to an unrelated third party, Gymboree must obtain
LL prior consent, which consent cannot be unreasonably withheld. If Gymboree
gets "excess" rent from assignee/sublessee, excess split 25%LL/75% Gymboree.
BUILDING SIGN: Gymboree can remove Purdy Building sign or signs and replace
with Gymboree sign--subject to LL approval not to be unreasonably withheld
RENT PAYMENT ADDRESS:
Burlingame Shore Investments
2151 Irving Street, Room 201
San Francisco, CA 94122
ATTN: Martin Lin, General Partner
SECURITY DEPOSIT: $16,500.00
<PAGE> 3
OFFICE LEASE
dated this 11th day of October 1996
by and between
BURLINGAME SHORE INVESTMENTS,
a California General Partnership, as landlord ("Landlord")
and
THE GYMBOREE CORPORATION
a Delaware corporation, as tenant ("Tenant")
for the Premises located at
770 Airport Boulevard
Burlingame, California
1
<PAGE> 4
LEASE SUMMARY
This page is for the convenience of the parties and summarizes the principal
terms of the lease. It is not part of the lease and does not alter or define
any of the terms of the lease.
BUILDING: The building in which the Premises are located is 770 Airport
Boulevard, in the City of Burlingame, State of California.
PREMISES: Tenant is the single tenant in the Building and the Premises consists
of approximately 25,578 square feet as outlined in Exhibit A.
TENANT: The Tenant is The Gymboree Corporation, a Delaware corporation.
TERM: Three (3) years beginning December 1, 1996 and expiring November 30, 1999
with an option to extend for an additional five (5) years beginning December 1,
1999 and expiring November 30, 2004.
EARLY OCCUPANCY: Tenant's early occupancy of the Premises is rent free
beginning October 1, 1996 and continuing through and until November 30, 1996.
RENT:
December 1, 1996 - November 30, 1997, Tenant's Annual Rent shall be $198,000.00
("First Year's Rent") with monthly installments due and payable in the amount
$16,500.00 per month;
December 1, 1997 - November 30, 1998, Tenant's Annual Rent shall be Tenant's
First Year Rent, as increased by CPI (as defined in the Lease) with a minimum
increase of three percent (3%) and a maximum increase of five (5%) ("Second
Year's Rent"); and
December 1, 1998 - November 30, 1999, Tenant's Annual Rent shall be Tenant's
Second Year's Rent, as increased by CPI with a minimum increase of three
percent (3%) and a maximum increase of five (5%).
TRIPLE NET CHARGES;
Tenant shall pay Landlord's costs associated with Building Property Taxes and
Insurance and Landscaping. Tenant's Triple Net Expenses are estimated to be
$0.068 PSF per month or $1,739.00 per month.
LANDLORD'S RENT PAYMENT ADDRESS: Burlingame Shore investments
2151 Irving Street, Room 201
San Francisco, CA 94122
ATTN: Martin Lin, General Partner
SECURITY DEPOSIT: $16,500.00
2
INITIAL
[SIG]
<PAGE> 5
OFFICE LEASE
THIS LEASE ("Lease") is made and entered into by and between BURLINGAME
SHORE INVESTMENTS, a Cal. General Partnership ("Landlord") and THE GYMBOREE
CORPORATION, a Delaware corporation ("Tenant") and dated as of this 11th day of
October, 1996.
1. PREMISES/TERM/USE
PREMISES. Subject to the terms and conditions of this Lease, Landlord hereby
leases premises to Tenant, and Tenant hereby rents and accepts premises from
Landlord pursuant to the terms of this Lease. The "Premises" are approximately
25,578 square feet of space in the building located at 770 Airport Boulevard,
Burlingame, California (the "Building"), as shown on the Site Plan attached
hereto and marked Exhibit "A".
TERM. The term of this Lease (the "Term") shall be three (3) years, commencing
on December 1, 1996 ("Commencement Date") and expiring November 30, 1999
("Expiration Date").
SEE ADDENDUM
OPTION. Tenant shall have an option (the "Option") to extend the Term under the
provisions of Exhibit "B".
USE. Tenant shall use the Premises for general business offices uses.
2. RENT
RENT. Tenant shall pay Landlord, without offset or deduction, monthly rent
("Rent") commencing on the Commencement Date. Payment of monthly installments
shall be made at the office of Landlord, in advance for the following month, on
the first day of each and every month until the end of the Term, in the amounts
as follows:
1) For the period beginning December 1, 1996 and continuing through and until
December 30, 1997, Tenant's Annual Rent shall be $198,000.00 ("First Year's
Rent") with monthly installments due and payable in the amount $16,500.00 per
month.
2) For the period beginning December 1, 1997 and continuing through November
30, 1998, Tenant's Annual Rent shall be Tenant's First's Year Rent, as
increased by CPI (as defined in the Lease) with a minimum increase of three
percent (3%) and a maximum increase of five (5%) ("Second Year's Rent").
3) For the period beginning December 1, 1998 and continuing through November
30, 1999, Tenant's Annual Rent shall be Tenant's Second Year's Rent, as
increased by CPI with a minimum increase of three percent (3%) and a maximum
increase of five (5%).
For purposes of this Lease, "CPI" shall mean The Consumer's Price Index for
Urban Consumers. All Items (Base year 1982-1984 = 100) published by the U.S.
Department of Labor, Bureau of Labor Statistics, All City Average (U.S. City
Average being San Francisco-Oakland-San Jose, CA). If the Consumer's Price
Index shall be discontinued or no longer published, Landlord shall designate a
comparable non-partisan substitute price index or formula and such substitute
index or formula shall have the same effect as if it had been originally
designated herein.
3. TRIPLE NET CHARGES
Tenant shall pay Landlord's Real Estate Taxes (as defined below and estimated
to be $14,942.00 per year), Landlord's Insurance Premiums (as defined below and
estimated to be $5,927.00 per year), such costs hereinafter collectively
referred to as Tenant's Triple Net Expenses. Tenant's Triple Net Expenses are
initially estimated to be $0.068 PSF per month.
[EXPENSES SUBJECT TO REVIEW BY GYMBOREE PRIOR TO EXECUTION OF THIS LEASE]
3 INITIAL
[SIG]
<PAGE> 6
REAL ESTATE TAXES: Tenant shall pay the real estate taxes associated with the
Premises and the Building. Real Estate Taxes shall mean any taxes levied with
respect to the land and the Building. Real Estate Taxes shall not include
Landlord's federal or state income, franchise, inheritance or estate taxes or
any unpaid taxes or penalties assessed prior to Tenant's Commencement Date.
Tenant shall not be responsible for any real property taxes covering any period
of time prior to or after the Lease Term. Tenant shall not be required to pay
increases to the real property taxes if such increases occurred due to a
reassessment of the Building from a sale or other transfer occurring after the
Commencement Date.
INSURANCE PREMIUMS. Landlord shall at all times during the Term, maintain a
policy or policies of insurance covering loss of or damage to the Building and
the Premises in the full amount of its replacement value. Such policy shall
provide protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, special extended perils
(All Risk), sprinkler leakage and any other perils which Landlord deems
reasonably necessary or appropriate. Specific policy terms are described on
attached Exhibit D. Tenant shall pay the premiums for the insurance policy
which are applicable to the policy period in effect as of the Commencement
Date. Landlord's insurance coverage shall not include insurance against
earthquake damage.
BUILDING LANDSCAPING COSTS: SEE ADDENDUM
Tenant shall not be responsible for any Landscaping Costs covering any period
of time prior to or after the Lease Term.
4. PERSONAL PROPERTY TAXES.
Tenant shall be liable for and shall pay before delinquency all taxes, and
penalties and interest thereon, if any, levied against Tenant's furniture,
trade fixtures and equipment, and any other personal property of Tenant
situated or installed in and upon the Premises. For the purpose of determining
the amount of such taxes, figures supplied by the county assessor's office or
other taxing authority as to the amount thereof shall be conclusive.
5. UTILITIES
Tenant shall arrange for and pay to the appropriate supplier, the cost of all
gas, heat, light, power, sewer service, telephone, water, refuse disposal and
all costs of heating, ventilation, and air conditioning (including repair and
maintenance of any HVAC systems and equipment), and other utilities and
services required to be supplied to the Premises.
6. CONDITION OF THE PREMISES
SEE ADDENDUM
DUE DILIGENCE. Notwithstanding the full execution of this Lease, Tenant shall
have a period of twenty (20) days from the date of full execution to conduct
due diligence with regard to the Building and the Premises. Should any defect
be discovered that would materially alter the obligations of the parties under
this Lease such that it cannot be cured or resolved satisfactorily by the
parties hereto within the twenty (20) day period, and/or which will result in
additional unanticipated or unforeseen costs to Tenant, then Tenant shall have
the right to terminate this Lease by written notice to Landlord within said
twenty (20) day period.
SEE ADDENDUM.
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7. QUIET ENJOYMENT
Tenant, upon keeping, observing and performing all of the covenants and
agreements of this Lease, Tenant shall lawfully and quietly hold, occupy and
enjoy the Premises during the term of this Lease, subject, however, to the
covenants, agreements, terms, provisions and conditions of this Lease and to
underlying mortgages to which this Lease is subject and subordinate.
8. MAINTENANCE AND REPAIR
SEE ADDENDUM
LANDLORD'S OBLIGATIONS. Landlord shall make all repairs, restorations and
replacements as and when needed to those portions of the Building which are not
required to be made by Tenant, limited to the structural portions of the
exterior walls, roof and foundation of the Building (excluding windows, doors,
and glass), of the Building and all building systems that bring services to the
Building (i.e. gas and sewer lines, underlying pipes and electrical lines).
LANDLORD'S REQUIRED REPAIRS. If Landlord should be in default in the
performance of any of its obligations under this Lease, which default continues
for a period of more than thirty (30) days and continues beyond the time
reasonably necessary to cure, Tenant may at is option upon written notice, incur
any expense necessary to perform the obligations of Landlord specified in such
notice and bill Landlord for the costs thereof. Landlord shall reimburse Tenant
for the costs so billed within fifteen (15) days after receipt of the billing.
Nothing herein shall be deemed a waiver by Tenant of any remedy available to
Tenant at law, in equity or in this Lease.
9. TENANT'S ALTERATIONS
NO LIENS. Tenant will keep the Premises free and clear of all mechanic's liens,
and other liens on account of work done for Tenant or persons claiming under it.
Tenant shall indemnify and hold Landlord harmless against any liability, loss,
damage, costs or expenses, including attorney's fees, on account of any claims
of any nature whatsoever relating to Tenant Alterations, including claims of
liens of laborers or material persons or others for work performed for, or
materials or supplies furnished to Tenant or persons claiming under Tenant.
TENANT FIXTURES AND OTHER PROPERTY. All built-in furniture, cabinetwork,
movable business and trade fixtures and equipment installed by Tenant may be
removed by Tenant at the termination of this Lease if Tenant so elects, and
shall be so removed if required by Landlord, or if not so removed shall, at the
option of Landlord, become the property of Landlord. All such removals and
restoration shall be accomplished in a good and workmanlike manner so as not to
damage the Premises or the Building.
10. ASSIGNMENT AND SUBLETTING
PROHIBITION OF ASSIGNMENT AND OTHER TRANSFERS. Tenant shall not, except as
otherwise provided herein without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, assign or sublet all or any part of
the Premises. The consent of Landlord to any assignment, other transfer or
sublease of this Lease shall not relieve Tenant of the obligation to obtain
such consent to any further assignment or other transfer.
PROPOSED ASSIGNMENT AND SUBLEASES. If Tenant desires to assign or sublease this
Lease or any part hereof, then at least thirty (30) days, but not more than one
hundred eighty (180) days, prior to the date when Tenant desires the assignment
or sublease to be effective (the "Transfer Date"), Tenant shall give Landlord a
Notice (the "Assignment Notice") which shall set forth the name, address and
business of the proposed assignee or sublessee, the Transfer Date, information
(including references) on the credit and financial condition of the proposed
assignee or sublessee and such other material as Landlord shall reasonably
require. Landlord shall within ten (10) days following the Assignment Notice
with all required information notify Tenant in writing that Landlord elects (a)
either to disapprove the proposed
5 INITIAL
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assignee or sublessee; or (b) to terminate this Lease as to the space so
affected as of the date so specified by Tenant, in which event Tenant will be
relieved of all further obligation hereunder as to such space (unless Tenant
upon Landlord's notification to terminate this Lease, revokes its Assignment
Notice, in which case Landlord shall not be permitted to terminate the Lease
hereunder); or (c) to permit Tenant to assign or sublet such space to the
proposed assignee of sublessee. If Landlord should fail to notify Tenant in
writing of such election within said thirty (30) day period, Landlord shall be
deemed to have elected to approve the proposed assignee or sublessee. If the
Rent agreed to by Tenant and its subtenant or assignee is greater than the Rent
payable under this Lease, 25% of excess Rent, after Tenant shall have recovered
therefrom its costs for tenant improvements paid by Tenant for the benefit of
the assignee or sublessee and the amount of any leasing commissions incurred by
Tenant in connection with the assignment or sublease shall be paid to Landlord
at the same time and in the same manner as the Rent.
TENANT TO REMAIN LIABLE. Notwithstanding any assignment or subletting, Tenant
shall at all times remain fully responsible and liable for the payment of all
Rent under this Lease and for compliance with all of Tenant's other obligations
under this Lease, unless otherwise agreed upon by the parties.
ASSIGNMENT TO AFFILIATES AND SUCCESSORS. Tenant shall not require Landlord's
approval or prior consent for a proposed assignee or sublessee which is a
subsidiary or other affiliate of Tenant, or is a corporation into which Tenant
is merged, with which Tenant is consolidated or which acquired all or
substantially all of the assets of Tenant.
LANDLORD'S ASSIGNMENT. Landlord may sell, transfer, mortgage, encumber or
assign the Building or this Lease. Within twenty (20) days after request by
Landlord, upon such sale, transfer, mortgage, encumbrances or assignment, by
Landlord, Tenant shall execute, acknowledge and deliver a certificate ("Estoppel
Certificate") certifying the capacity of the person executing such certificate
and that such person is dully authorized to execute it on behalf of Tenant; the
commencement date of this Lease and the date upon which the Term expires; that
this Lease is unmodified and in full force and effect (or if modified, in full
force and effect as modified); that Landlord is not in default thereunder, that
there are no defenses or offsets thereto known to Tenant (if such be the case);
and the date to which Rent has been paid.
II. USE OF THE PREMISES
LEGAL USE AND VIOLATIONS OF INSURANCE COVERAGE. Tenant shall use the Premises
in a careful, safe and proper manner and shall not occupy or use, or permit any
portion of the Premises to be occupied or used, for any business or purpose
which is unlawful or deemed to be disreputable in any manner, or extra
hazardous on account of fire.
12. INDEMNITY/LIABILITY
INDEMNITY BY TENANT. Tenant shall indemnify, defend, protect, and hold harmless
Landlord from and against any and all claims, losses, proceedings, damages,
causes of action, liability, costs and expenses (including attorney's fees)
arising from or in connection with, or caused by any act, omission or negligence
of Tenant or any sublessee of Tenant, or their respective contractors,
licensees, invitees, agents, or employees, on or about the Premises or the
Building, or any breach or default in the performance of any obligations on
Tenant's part to be performed under the terms of this Lease. Nothing contained
herein however shall be construed as excusing Landlord, its agents and employees
from liability for its negligence or intentional misconduct.
LANDLORD NOT LIABLE. Tenant hereby agrees that Landlord shall not be liable for
injury to Tenant's business or any loss of income therefrom or for damage to the
good, wares, merchandise or other property of Tenant, Tenant's employees,
invitees, customers, contractors, workers, or any other person in or about the
Premises, nor shall Landlord be liable for injury to the person of Tenant,
Tenant's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water, or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air-conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises. Landlord shall not be liable or responsible for any injury, loss
or damage to any property or person occasioned by theft, fire, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition, on order of governmental body of authority, or other matter beyond
the control of Landlord. Nothing contained herein however shall be construed as
excusing Landlord, its agents and employees from liability for its negligence or
intentional misconduct.
INITIAL
[SIG]
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MUTUAL RELEASE AND WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waive, and release the other from any claim or liability for damage to such
party's property occurring during the Term which is covered by insurance. Each
party shall cause the property hazard insurance carried by it, with respect to
the Building, the Premises or such party's other property located therein, to be
endorsed, if necessary, to prevent any invalidation of such insurance by reason
of the waivers and releases contained in this Section, provided such endorsement
can be obtained at no cost. If additional costs are involved, the party carrying
such insurance shall give the other party the opportunity to apply for such
endorsement.
TRANSFER OF OWNERSHIP. Upon the sale or transfer of the Building, the
obligations and duties of the Landlord selling or transferring the Building
under the Lease shall terminate, except as to liabilities that shall have
accrued prior to the transfer or which are the result of the conduct of that
Landlord.
13. ACCESS FOR REPAIRS
Landlord and Landlord's agents shall have the right to enter the Premises at all
reasonable hours to perform maintenance, repairs, and improvements as Landlord
may deem necessary or desirable for the safety, improvement or preservation of
the Premises or the Building, without such acts constituting an eviction of
Tenant in whole or in part or entitling Tenant to any abatement of rent by
reason of loss or interruption of business of Tenant, or otherwise. Excepting
emergencies, any entry by Landlord under this Section shall be made only after
such notice as is reasonable under the circumstances of the entry and made in a
manner that shall not unreasonably interfere with Tenant's business.
14. FIRE OR OTHER CASUALTY
MAJOR CASUALTY. If the Building shall be damaged by fire or other casualty so as
to render thirty three percent (33%) or more of the Premises untenantable, and
if the damage is such that an architect selected by Landlord shall certify in
writing to Landlord that the Building cannot be repaired and fully restored
within one hundred eighty (180) days from the date of the occurrence of the fire
or other casualty, or if insurance proceeds are not made available to Landlord
for repair of such damages, then, in either event, this Lease may be terminated
by Landlord or Tenant as of the date of the occurrence of the fire or other
casualty by giving written notice to the other party of such termination within
thirty (30) days after receipt of the architect's certification. Upon such
notice of termination, Tenant shall surrender to Landlord the Premises and all
interest therein under this Lease, Landlord and Tenant shall be free and
discharged from all obligations arising under this Lease after the date of such
termination. If, however, the damage is such that Landlord's architect shall
certify that the Building can be repaired within the one hundred and eighty
(180) days the date of the occurrence happening of the fire or other casualty,
and insurance proceeds are made available to Landlord for repair of such damage,
then Landlord shall, with reasonable promptness, repair the damage except that
Landlord shall not be required to repair, replace or restore any items which
Tenant is obligated to repair or replace. Unless and until the Building is
repaired and the Premises is restored to a condition such that Tenant can begin
its restoration work, Rent and all other expenses, including Triple Net
Expenses, shall be abated in proportion to the part of the Premises which is
unusable by Tenant in the reasonable conduct of its business or profession.
Notwithstanding anything in the Lease to the contrary, Tenant shall at its
option have the right to terminate this Lease notwithstanding the amount of
time it may take Landlord to rebuild or the availability of insurance proceeds
in the event (i) there is Major Damage (meaning more than fifty percent (50%)
or more the Building is damaged) or if (ii) there is damage to the Building in
excess of thirty three percent (33%) and such damage occurs during the last two
years of the term. Tenant shall exercise its right to terminate upon thirty
(30) days notice to Landlord and the Lease shall be terminated effective as of
the date of the occurrence of the casualty.
15. CONDEMNATION
CONDEMNATION. Upon any taking under the power of eminent domain, or sale under
threat of the exercise of said power ("Condemnation") of the whole or a
substantial part of the Building, the Premises or the parking area that shall
substantially interfere with Tenant's use and occupancy of the balance thereof,
this Lease shall, at the election of either Tenant or Landlord exercised by
either party giving written notice to the other of such termination, terminate
as of the date the condemning authority takes title or possession, whichever
first occurs. Nothing herein however shall prevent Tenant from prosecuting
claims in connection with condemnation proceeding for the value of its interest.
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Restoration After Partial Taking. If there is Condemnation which does not result
in a termination of this Lease, Landlord shall, to the extent of any funds
received from the condemning authority for repair or restoration, restore the
Building substantially to the condition prior to such partial Condemnation and,
thereafter, Rent shall be abated in the proportion which the square footage of
the part of the Premises so made unusable bears to the amount of square footage
immediately prior to the Condemnation. No temporary taking of a part of the
Premises or of the Building shall give Tenant any right to terminate this Lease
or to any abatement of Rent.
16. HOLDOVER
If Tenant or any person claiming through or under Tenant is in possession of
any part of the Premises after the expiration of the Term, with or without the
express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and not a renewal of this Lease or an extension for any
further term, and such month-to-month tenancy shall be subject to each and
every term, covenant and agreement contained herein. SEE ADDENDUM.
17. INSURANCE
Tenant's Insurance - Liability. Tenant shall keep in force with respect to the
Premises and Tenant's business and other activities a policy of commercial
general liability insurance providing coverage of not less than $2,000,000.00
naming Landlord as an additional insured.
Tenant's Insurance - Property. Tenant shall carry and maintain a policy of
insurance covering all of Tenant's property: additions or improvements to the
Premises in an amount of not less than ninety percent (90%) of the full
replacement value. Such policy shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (All Risk), sprinkler leakage and
any other perils which Tenant deems reasonably necessary or appropriate. The
provisions of this Section will be subject to the provisions of Section 11.
Evidence of Insurance. Tenant shall deliver to Landlord policies or duly
executed certificates of insurance. Renewals shall be delivered to Landlord at
least (10) days prior to the expiration of the respective policy terms.
Landlord Not To Insure. Landlord shall have no obligation to carry insurance of
any kind on Tenant's goods, furniture or furnishings or other property, and
Landlord shall not be obligated to repair any damage thereto or to replace the
same except with respect to any damage thereto caused by Landlord's willful
misconduct or negligence.
18. DEFAULT
The occurrence of any one or more of the events set forth below shall
constitute a material default and breach of this Lease by Tenant.
Non-Payment of Rent. The failure by Tenant to make any payment of Rent or any
other charges as and when due where such failure shall continue for a period of
ten (10) days after notice from Landlord that said payment is delinquent.
Breach. The failure by Tenant to observe or perform any covenants, conditions
or provisions of the Lease to be observed or performed by Tenant, other than
the failure to pay Rent and other charges where such failure shall continue for
a period of thirty (30) days after written notice from Landlord to Tenant
(unless the event of a default is a "curable" default and if Tenant has
commenced to cure and is diligently prosecuting to cure following notice from
Landlord, Tenant shall not be deemed in default hereunder).
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<PAGE> 11
Insolvency. (a) The making by Tenant of any general arrangement or assignment
for the benefit of creditors; (b) Tenant becomes a "debtor" as defined in the
Federal Laws of Bankruptcy (unless, in the case of a petition filed against
Tenant, the petition is dismissed within sixty (60) days); (c) the appointment
of a trustee or receiver to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within fifteen (15) days; or (d) the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within fifteen (15) days without notice.
Abandonment. The abandonment of the Premises by Tenant.
Remedies. Upon default by Tenant, Landlord shall have the right (i) to
terminate the Lease and Tenant's right to possession or (ii) to continue this
Lease in full force and effect even though Tenant may have defaulted in its
obligations under this Lease.
In the event that Landlord elects the remedy provided for in subsection (i)
above, then Landlord may recover from Tenant the following: (i) the amount of
the unpaid Rent and other charges payable by Tenant under this Lease at the time
of termination; (ii) an amount equal to the Rent and other charges reserved and
payable under this Lease for the balance of the Lease Term discounted at the
discount rate of the Federal Reserve Bank of San Francisco plus one percent (1%)
at the time of Tenant's obligation to pay which shall be the date of termination
by Landlord; and, (iii) such reasonable amounts as necessary to compensate
Landlord for Tenant's failure to perform its obligations under the Lease which
in the ordinary course of business are likely to arise therefrom (i.e.,
cleaning, reletting, altering, repairing, or otherwise preparing the Premises
for reletting). Nothing herein shall be deemed to limit Tenant's rights to
allege and prove that any such future rental loss could have reasonably been
avoided by Landlord.
In the event that Landlord elects the remedy provided for in subsection (ii)
above, then Landlord may recover from Tenant all damages Landlord may sustain
by reason of Tenant's default, and may enforce all other rights and remedies
under this Lease provided, however, that Tenant shall have the right, unless
Landlord elects to terminate this Lease and Tenant's right to possession of the
Premises, to assign this Lease or sublet the entire Premises as provided in
this Lease.
If Landlord elects to terminate this Lease and Tenant's possession of the
Premises, Landlord at any time thereafter may relet the Premises, or
any part or parts thereof for a term or terms which may, at Landlord's option,
be less than, exceed or equal the period of the remainder of the Lease Term
hereof. Landlord shall receive the rents from such reletting and shall apply
the same first, to the payment of any indebtedness other than Rent due
hereunder from Tenant; second, to the payment of such expenses as Landlord may
have incurred in connection with re-entering; and the balance, if any, to the
fulfillment of the terms, covenants and conditions of this Lease to be
performed by Tenant hereunder, and Tenant hereby waives all claims to the
surplus, if any. Landlord shall in no event be liable in any way whatsoever for
the failure to relet the Premises or in the event of such reletting for failure
to collect the rents reserved thereunder and any such efforts to mitigate
damages caused by Tenant's default shall not waive Landlord's rights to recover
damages. Landlord is hereby authorized and empowered to make such repairs,
alterations, or other preparations for the reletting of the Premises as
Landlord shall deem fit, advisable or necessary, without in any way releasing
Tenant from any liability under this Lease.
If Landlord elects to terminate this Lease and Tenant's possession of the
Premises, Landlord and Tenant covenant and agree that Landlord shall have the
right to immediately re-enter the Premises by summary proceedings, if necessary,
and to dispossess Tenant and all other occupants thereof and to remove and
dispose of all property therein or to store such property in a public
warehouse or elsewhere at the cost and for the account of Tenant.
The parties hereby expressly waive trial by jury in any action, proceeding or
counterclaim brought by either party against the other (notwithstanding any
statute, rule of law or public policy to the contrary) on any matter not related
to negligently caused personal injury or property damage connected with this
Lease and further covenant and agree that they shall confirm such waivers in
writing at the time of commencement of any such action, proceeding or
counterclaim.
In the event of any breach or threatened breach by Landlord or Tenant of any of
the terms and provisions of this Lease, Landlord and Tenant shall have the right
to injunctive and/or declaratory relief as if no other remedies were provided
for such breach.
INITIAL
/s/ H.L.
/s/ J.P.
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The rights and remedies herein reserved by or granted to Landlord and Tenant
are distinct, separate and cumulative, and the exercise of any one of them
shall not be deemed to preclude, waive or prejudice their right to exercise any
or all others.
Landlord and Tenant hereby expressly waive any right to assert a defense based
on merger and agree that neither the commencement of any action or proceeding,
nor the settlement thereof nor the entry of judgment therein shall bar Landlord
or Tenant from bringing any subsequent actions or proceedings from time to time.
Landlord shall in no event be charged with a default in the performance of any
obligations under this Lease unless and until Landlord shall have failed to
perform such obligations for a period of thirty (30) days (or within such
additional time as is reasonably required) to cure any such default after
written notice to Landlord by Tenant properly specifying Landlord's failure to
perform any such obligations.
In the event of any litigation or formal legal proceeding between the parties
to this Lease, Landlord and Tenant specifically covenant and agree that the
prevailing party in such litigation, including appellate proceedings, shall be
entitled to recover, in addition to other damages, full and complete
compensation for all court costs, expenses and reasonable attorneys' fees that
it may incur in connection with such litigation or proceeding.
19. UNDERLYING MORTGAGES
SUBORDINATION. This Lease and the term and estate hereby granted are and shall
be subject and subordinate to the lien of each mortgage which may now or at any
time hereafter affect Landlord's interest in the Building (an "Underlying
Mortgage"). Each holder of each Underlying Mortgage shall have the right,
exercisable at such holders' sole option at any time, to cause any of the
Underlying Mortgages which such holder owns to be and become subordinate and
inferior to the lien and change of this Lease by delivering Notice of such
exercise to Tenant. Tenant shall from time to time execute and deliver such
instruments as Landlord or the holder of any Underlying Mortgage, may
reasonably request to confirm the status of this Lease.
ATTORNMENT TO MORTGAGEE. Tenant confirms that if by reason of a default under
any Underlying Mortgage the holder of such Underlying Mortgage or its successor
or assignee in interest becomes the Landlord hereunder, Tenant shall attorn to,
and shall recognize, such holder as Tenant's landlord under this Lease,
provided such Underlying Mortgagee has agreed in writing to be bound by the
terms and conditions of this Lease. Tenant shall execute and deliver, at any
time and from time to time, upon request of Landlord or of the holder of any
Underlying Mortgage, and instrument which may be reasonably necessary or
appropriate to evidence such non disturbance and attornment.
LANDLORD'S DEFAULT. In the event of any act or omission by Landlord which
pursuant to this Lease or by law would give Tenant the right to terminate this
Lease, Tenant shall not exercise such right unless or until (a) it has given
written Notice on such act or omission to the holder of each underlying
Mortgage who has previously given Tenant written Notice of the existence of
such Underlying Mortgage and (b) a reasonable period of time for remedying such
act or omission shall have elapsed following the giving of such Notice.
NON-DISTURBANCE. Notwithstanding anything contained in this Section, as a
condition to the attornment and subordination obligations set forth in this
Section, this Lease and the leasehold estate hereby created shall not be
extinguished or terminated or the possession or the right of Tenant (including
the rights with respect to enjoyment and removal of Tenant's property) be
disturbed so long as this Lease shall be in force and no material default by
Tenant exists and the Underlying Mortgagee shall enter into a non-disturbance
and attornment agreement at the request of Tenant in form and substance
reasonably acceptable to Tenant, Landlord and such Underlying Mortgagee.
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20. PARKING
PARKING. Tenant shall have the right to exclusively use for the benefit of its
employees the entire parking area, as shown on the Exhibit A. Parking spaces
are located on the uncovered surface parking area and there shall be no monthly
charge.
LANDLORD NOT TO BE LIABLE. Tenant, its agents, employees, customers, business
invitees, and all persons using the drives and parking areas do so at their own
risk and Landlord shall not be responsible for, or in any way have any
obligation or liability for, any damage, loss, theft, or injury to any vehicle
or other equipment, any contents thereof or any other personal property or for
the death or injury to any person while located in or entering or exiting any
portion of the drives and parking areas. Nothing contained herein shall be
construed as excusing Landlord from liability for its negligence or intentional
misconduct.
21. HAZARDOUS MATERIALS
SEE ADDENDUM.
TENANT'S REPRESENTATIONS AND INDEMNITY AS TO HAZARDOUS MATERIALS. Tenant
represents and warrants that it will not cause or permit the presence,
discharge, storage or disposal of any Hazardous Materials on the Premises at
any time during the Term. *Except with regard to asbestos which is known to be
present and except with regard to asbestos or any other hazardous materials not
placed in the Premises or the Building by Tenant, Tenant agrees to indemnify
and hold Landlord harmless for costs of any monitoring, testing, removal,
cleanup or compliance with the laws of any federal, state or local government
having jurisdiction over Hazardous Materials which Tenant has caused or
permitted to be present, discharged, stored or disposed at the Premises during
the Term.
HAZARDOUS MATERIALS DEFINED. "Hazardous Materials", for purposes of this
Section 16, means any substances defined as "hazardous substances", "hazardous
materials", "hazardous waste", "toxic substances", or related terms by the
California Health and Safety Code, or applicable Federal law from time to time.
22. BUILDING NAME/SIGN
*Landlord shall not unreasonably withhold its approval as to a building sign
that Tenant may wish to place on the Building. *Tenant shall be permitted to
remove references to the "Purdy" building and install a Gymboree sign (or
signs) sufficient to identify Gymboree as the tenant in the Building.
23. NOTICES
Any notice, demand or request provided for or permitted to be given pursuant to
this Lease must be in writing and shall be properly given and effective when
personally served, when sent by air courier or when deposited in an official
depository under the regular care and custody of the United States Mail,
addressed as specified below, sent by registered or certified mail, return
receipt requested, with postage prepaid. The time period in which a response of
any such mailed Notice must be given, however, shall commence to run from the
date of receipt on the return receipt of the Notice by the addressee. Rejection
or other refusal to accept or the inability to deliver because of change in
address of which no Notice was given shall be deemed to be receipt of the
Notice. Notices shall be addressed as follows:
To Landlord: Burlingame Shore Investments
2151 Irving Street, Room 201
San Francisco, CA 94122
ATTN: Martin Lin, General Partner
To Tenant at the Premises or to:
THE GYMBOREE CORPORATION
700 Airport Boulevard, Suite 200
Burlingame, CA. 94010
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Notice of change of address shall be given in the same manner as prescribed
herein for other Notices.
24. BROKER'S OR AGENT'S COMMISSION
Cushman & Wakefield represents the Tenant and CB Commercial represents the
Landlord. All commissions shall be payable by Landlord. Landlord agrees to
indemnify Tenant and hold Tenant harmless from and against all liabilities and
costs and fees arising from any claims by any brokers in connection with this
Lease, including without limitation attorneys' fees in connection therewith.
25. GENERAL
Place of Performance - Governing Law. This Lease shall be governed by and
construed in accordance with the laws of the State of California.
Severability. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the Term, then, and
in that event, the parties intend that the remainder of this Lease shall not be
affected thereby, and it is the parties also intend that in lieu of each clause
or provision of this Lease that is illegal, invalid, or unenforceable, there is
added as a part of this Lease a clause or provision as similar in terms to such
illegal, invalid or unenforceable clause or provision as may be possible and be
legal, valid, and enforceable.
Successors. Subject to the provisions of this Lease governing assignments and
transfers by Landlord and Tenant, respectively, the terms, provisions,
covenants and conditions contained in this Lease shall apply to, inure to the
benefit of, and be binding upon the parties hereto, and upon their respective
successors in interest and legal representatives.
Integration. This Lease and the Exhibits hereto constitute the entire
understanding between Landlord and Tenant. All previous conversations,
memorandums, and writings pertaining to leasing of the Premises not
incorporated or referenced in this Lease are not binding or effective. Any
modification hereto must be made by a separate written instrument. No officer,
employee or representative of Landlord or of Tenant has the authority to make
any representation or promise not already contained herein or made pursuant to
the within provisions, and Landlord and Tenant expressly agree that by
executing this Agreement, and any other document required herein or caused to
be executed hereby that it is not doing so in reliance upon any representation
or promise which is not set forth herein.
No Waiver. No delay or failure of Landlord in exercising any right, privilege
or remedy hereunder or any single or partial exercise of any right, power or
privilege shall preclude other or further exercise thereof or the exercise of
any other right, power or privilege. Any waiver, permission or consent of any
kind by Landlord must be in writing and shall be effective only to the extent
provided herein.
Attorneys' Fees. If suit is instituted to enforce or construe the terms of this
Lease, the prevailing party shall be entitled to recover reasonable costs and
attorneys' fees in connection therewith in addition to any other remedy to
which it may be entitled.
Captions. Captions used in this Lease are for ease of reference only and do not
define or limit provisions.
Authority. If Tenant is a corporation, partnership, trust, association or other
entity, Tenant and each person executing this Lease on behalf of Tenant hereby
covenant and warrant that (a) Tenant is duly incorporated or otherwise
established or formed and validly existing under the laws of its state of
incorporation, establishment or formation, (b) Tenant is duly qualified to do
business in California, (c) Tenant has full corporate, partnership, trust,
association or other appropriate power and authority to enter into this Lease
and to perform all Tenant's obligations hereunder, and (d) each person (and all
of the persons if more than one signs) signing this Lease on behalf of Tenant
is duly and validly authorized to do so. If Landlord is a corporation,
partnership, trust, association or other entity, Landlord and each person
executing this Lease on behalf of Landlord hereby covenant and warrant that (a)
Landlord is duly incorporated or otherwise established or formed and validly
existing under the laws of its state of incorporation, establishment or
formation, (b) Landlord is duly qualified to do business in California, (c)
Landlord has full corporate, partnership, trust, association or other
appropriate power and authority to enter into this Lease and to perform all
Landlord's obligations hereunder, and (d) each person (and all of the persons
if more than one signs) signing this Lease on behalf of Landlord is duly and
validly authorized to do so.
12
<PAGE> 15
Submission of Lease. The submission of this Lease to Landlord or Tenant for
examination or execution does not constitute a reservation of or option on the
Premises or an agreement to lease the Premises or any other space. This Lease
shall become effective only upon the execution and delivery of this Lease by
Landlord and Tenant.
Exhibits. The following Exhibits are part of this Lease and by reference
incorporated herein.
A -- Site Plan Exhibit D: Existing Insurance Summary
B -- Option To Extend Term
C -- Tenant Improvements
SEE ADDENDUM FOR ADDITIONAL TERMS
In witness whereof the parties have executed this Lease as of the date first
set forth hereinabove.
Landlord:
BURLINGAME SHORE INVESTMENTS,
a California General Partnership
By: Martin Lin
------------------------------
Its: Managing Partner
-----------------------------
Tenant:
THE GYMBOREE CORPORATION,
a Delaware corporation
By: Joseph T. Prusko
------------------------------
Its: Vice President
-----------------------------
INITIAL
/s/ M.L.
/s/ J.P.
13
<PAGE> 16
EXHIBIT A
Site Plan
(to be attached by Landlord)
To be supplied by Landlord
INITIAL
/s/ M.L.
/s/ J.P.
14
<PAGE> 17
EXHIBIT B
OPTIONS AND EXTENSIONS OF TERM
1. Five Year Option (through November 30, 2004)
Tenant shall have the right to renew this Lease for one (1) additional
period of five (5) years. The Option shall be exercised, if at all, by
written Notice to Landlord of its exercise of this Option not later than
(a) Tenant's exercise of its option for the premises located at 700
Airport Boulevard, or (b) December 1, 1998, whichever shall first occur.
Upon exercise of this Option, the Lease shall be extended on the same
terms and conditions, except as set forth in paragraph 3 below.
2. Co-Terminating Lease Extension
A. In the event that Tenant exercises its option to renew its
existing lease for premises located at 700 Airport Boulevard, this Lease
shall be automatically extended for a period of three years and ten
months and shall terminate on September 30, 2003 so as to be
co-terminous with the lease at 700 Airport Boulevard. Tenant shall
provide written Notice to Landlord of its exercise of its 700 Airport
Boulevard option not later than (a) Tenant's exercise of its option for
the premises located at 700 Airport Boulevard, or (b) December 1, 1998,
whichever shall first occur.
All terms and conditions of this Lease shall remain in effect, except
for those terms set forth in paragraph 3 below.
B. In the event that Tenant enters into a new lease at 700 Airport
Boulevard, or extends its existing lease beyond November 30, 1999 other
than by way of exercising the option referred to above, this Lease shall
be automatically extended for a period which shall be co-terminous with
the lease at 700 Airport Boulevard (as so extended or renewed), but
shall not in any event extend beyond November 30, 2004. Tenant shall
provide written Notice to Landlord of the consummation of a new lease or
lease extension at 700 Airport Boulevard, and the termination date
thereof, not later than December 1, 1998.
All terms and conditions of this Lease shall remain in effect, except
for those terms set forth in paragraph 3 below.
3. Rental and Reimbursement
A. Rent: In the event that this lease is extended by virtue of the
provisions of Paragraph 1 or Paragraph 2 above, the rent for the
extended term shall be calculated at $0.95 PSF per month (or $24,299.00
per month) for the first twelve (12) months of the
EXHIBIT B - PAGE 15.1
INITIAL
/s/ M.L.
/s/ J.P.
<PAGE> 18
extended or option term. Thereafter, Rent shall be increased each year
by an application of CPI (as defined in the Lease) with a minimum
increase of three percent (3%) and a maximum increase of five percent
(5%).
B. Tenant Improvement Reimbursement:
1) In the event Tenant exercises its five year option to extend
under Paragraph 1 above, Landlord shall pay to Tenant the sum of
$125,000.00 to compensate Tenant for the cost of the Tenant Improvements
initially installed and completed by Tenant ("Tenant Allowance
Recapture").
2) In the event that the term of this Lease is extended pursuant to
the provisions of Paragraph 2A. above for a period of three years and
ten months, the Tenant Allowance Recapture shall be in the amount of
$95,000. In the event the term of this Lease is extended pursuant to the
provisions of 2B, the Tenant Allowance Recapture shall be 0.
3) The Tenant Allowance Recapture shall be taken as a credit
against monthly Rent then due and payable beginning on the first day of
the option or extension period (December 1, 1999) until the total amount
is recaptured by Tenant.
EXHIBIT 15 - PAGE 15.2
INITIAL
/s/ M.L.
/s/ J.P.
<PAGE> 19
EXHIBIT C
TENANT IMPROVEMENTS
GENERAL PROVISIONS
Tenant generally intends to remodel and make certain upgrades to the interior
of the Premises (the "Tenant Improvements"). Tenant shall supply Landlord with
the proposed scope of the Tenant Improvements. Tenant represents that it will
spend a minimum of $250,000.00 constructing the Tenant Improvements with at
least $50,000.00 being allocated to the repair, restoration or replacement of
the existing HVAC system or the installation of additional equipment.
Tenant shall cause its contractor to perform the work and supply the materials
in compliance with the approved plans and to have the work performed
diligently and in a first-class workmanlike manner in compliance with
applicable laws and codes and with applicable standards of the local Building
Code.
Prior to construction Tenant's General Contractor shall provide Landlord with a
certificate of insurance naming Landlord as an additional insured with general
liability and property damage insurance with respect to construction of the
improvements of not less than One Million Dollars ($1,000,000.00) combined
single limit for bodily injury, death and property damage liability and Workers
Compensation in compliance with California law.
SEE ADDENDUM, Amendment to Exhibit C
INITIAL
/s/ M.L.
/s/ J.P.
16
<PAGE> 20
EXHIBIT D
EXISTING INSURANCE
SUMMARY
<TABLE>
<S> <C> <C> <C>
COMMON [ ] TRUCK INSURANCE [X] MID-CENTURY INSURANCE [ ] FARMERS INSURANCE
POLICY EXCHANGE COMPANY EXCHANGE
DECLARATIONS
</TABLE>
---------------------------------------------------------------
MEMBERS of FARMERS INSURANCE GROUP OF COMPANIES
HOME OFFICE: 4680 WILSHIRE BLVD., LOS ANGELES, CALIFORNIA 90010
1. Named BURLINGTON SHORE INVESTMENT
Insured ------------------
Mailing 67 WATERSIDE CIRCLE Prematic Acc't No.
Address 96-24-35A 60152-24-28
REDWOOD CITY CA 94065 ------------------ -------------
Agent Policy Number
<TABLE>
<S> <C>
Type of
The named insured is an individual [X] Partnership [ ] Corp. Business LESSORS RISK
unless otherwise stated: [ ] Joint Venture [ ] Organization (Other than Partnership
or Joint Venture)
2. Policy period from 04/23/96 (not prior to time applied for) to 04/23/97 12:01 a.m. Standard Time.
</TABLE>
If this policy replaces other coverages that end at noon standard time on the
same day this policy begins, this policy will not take effect until the other
coverage ends. This policy will continue for successive policy periods as
follows: If we elect to continue this insurance, we will renew this policy if
you pay the required renewal premium for each successive policy period subject
to our premiums, rules and forms then in effect.
THIS POLICY CONSISTS OF THE FOLLOWING COVERAGE PARTS FOR WHICH A PREMIUM IS
INDICATED. THIS PREMIUM MAY BE SUBJECT TO ADJUSTMENT.
Premium After Applicable Discount
and Modification
Commercial Property Coverage Part $3,419.00
- --------------------------------------------------------------------------------
Commercial General Liability Coverage Part $2,167.00
- --------------------------------------------------------------------------------
Commercial Auto Coverage Part $
- --------------------------------------------------------------------------------
Commercial Crime Coverage Part $
- --------------------------------------------------------------------------------
Commercial Inland Marine Coverage Part $
- --------------------------------------------------------------------------------
Commercial Boiler and Machinery Coverage Part $
- --------------------------------------------------------------------------------
Professional Liability Coverage Part $
- --------------------------------------------------------------------------------
Other $
- -------------------------------------------------------------------------------
TOTAL $ SEE INVOICE
-------------------------------
Forms applicable to all Coverage parts
IL00171185 565166-ED1
IL00030689
COUNTERSIGNED MAY 30 1996 BY [SIG.]
------------------------------ ------------------------------
(Date) (Authorized Representative)
[FARMERS INSURANCE GROUP LOGO]
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
DECLARATIONS [ ] TRUCK INSURANCE [X] MID-CENTURY INSURANCE [ ] FARMERS INSURANCE
COMMERCIAL EXCHANGE COMPANY EXCHANGE
GENERAL
LIABILITY
</TABLE>
---------------------------------------------------------------
MEMBERS OF FARMERS INSURANCE GROUP OF COMPANIES
HOME OFFICE: 4680 WILSHIRE BLVD., LOS ANGELES, CALIFORNIA 90010
[ ] POLICY
[X] COVERAGE PART
1. Named BURLINGTON SHORE INVESTMENT
Insured ------------------
Mailing 67 WATERSIDE CIRCLE Prematic Acc't No.
Address 96-24-35A 60152-24-28
REDWOOD CITY CA 94065 ------------------ -------------
Agent Policy Number
<TABLE>
<S> <C>
Type of
The named insured is an individual [X] Partnership [ ] Corp. Business LESSORS RISK
unless otherwise stated: [ ] Joint Venture [ ] Organization (Other than Partnership
or Joint Venture)
2. Policy period from 04/23/96 (not prior to time applied for) to 04/23/97 12:01 a.m. Standard Time
</TABLE>
This policy replaces other coverages that end at noon standard time on the same
day this policy begins, this policy will not take effect until the other
coverage ends. This policy will continue for successive policy periods as
follows: If we elect to continue this insurance, we will renew this policy if
you pay the required renewal premium for each successive policy period subject
to our premiums, rules and forms then in effect.
- -------------------------------------------------------------------------------
LIMITS OF INSURANCE
<TABLE>
<S> <C> <C>
General Aggregate Limit (Other Than Products-Completed Operations) $2,000,000
Products Completed Operations Aggregate Limit $
Personal & Advertising Injury Limit $1,000,000
Each Occurrence Limit $1,000,000
Fire Damage Limit $ 50,000 ANY ONE FIRE
Medical Expense Limit $ 5,000 ANY ONE PERSON
_______________________________________________________________ $
</TABLE>
- --------------------------------------------------------------------------------
RETROACTIVE DATE (Applies only when Claims - Made form CG 00 02 is attached.)
Coverage A of the insurance does not apply to "bodily injury" or "property
damage" which occurs before the Retroactive Date, if any.
Retroactive Date: (enter Date or "none" if no Retroactive Date applies)
- --------------------------------------------------------------------------------
LOCATION OF ALL PREMISES YOU OWN, RENT OR OCCUPY: (Same as mailing address
unless otherwise shown)
700 AIRPORT BLVD
BURLINGAME CA 94010
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
(A) Area (C) Total Cost (M) Admissions (P) Payroll (S) Gross Sales (U) Units (T) Other
- ------------------------------------------------------------------------------------------------------------------------------
CLASS PREMIUM 'X' IF ADVANCE PREM (May
(C) N CLASSIFICATION CODE BASIS EXPOSURE COVERED RATE be subject to adjustment)
- ------------------------------------------------------------------------------------------------------------------------------
[ ] BUILDINGS OR PREMISES - 61211 A 24,500 [X] Premises/Operations 88.435 2,167.00
BANK OR OFFICE -
[ ] INCLUDES PROD AND/OR [ ] Products/Completed
COMP QPS Operations
[ ] Other
- ------------------------------------------------------------------------------------------------------------------------------
[ ] Premises/Operations
[ ] Products/Completed
Operations
[ ] Other
- ------------------------------------------------------------------------------------------------------------------------------
INCLUDES EXPERIENCE MODIFICATION AND/OR PACKAGE CREDIT IF APPLICABLE. MINIMUM PREMIUM APPLIES
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ENDORSEMENTS ATTACHED TO THIS POLICY: CG21441185 IL00211185 CG24021185
E0207-ED1 CG21460187 CG21470989 E6036-ED1 CG00011188 IL02700294
Countersigned MAY 30, 1996 By [SIG]
------------------------------ -----------------------------
(Date) (Authorized Signature)
[FARMERS INSURANCE GROUP LOGO]
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
COMMON [ ] TRUCK INSURANCE [X] MID-CENTURY INSURANCE [ ] FARMERS INSURANCE
PROPERTY EXCHANGE COMPANY EXCHANGE
DECLARATIONS
---------------------------------------------------------------
[ ] POLICY MEMBERS of FARMERS INSURANCE GROUP OF COMPANIES
[X] COVERAGE PART HOME OFFICE: 4680 WILSHIRE BLVD., LOS ANGELES, CALIFORNIA 90010
</TABLE>
1. Named BURLINGTON SHORE INVESTMENT
Insured ------------------
Mailing 67 WATERSIDE CIRCLE Prematic Acc't No.
Address 96-24-35A 60152-24-28
REDWOOD CITY CA 94065 ------------------ -------------
Agent Policy Number
<TABLE>
<S> <C>
Type of
The named insured is [X] Partnership [ ] Corp. Business LESSORS RISK
an individual less [ ] Joint Venture [ ] Organization (Other than Partnership
otherwise stated: or Joint Venture)
2. Policy period from 04/23/96 (not prior to time applied for) to 04/23/97 12:01 a.m. Standard Time
</TABLE>
If this policy replaces other coverages that end at noon standard time on the
same day this policy begins, this policy will not take effect until the other
coverage ends. This policy will continue for successive policy periods as
follows: If we elect to continue this insurance, we will renew this policy if
you pay the required renewal premium for each successive policy period subject
to our premiums, rules and forms then in effect.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
DESCRIPTION OF PREMISES
- -------------------------------------------------------------------------------------------------------
LOC.# BLDG.# ADDRESS CONSTRUCTION
001 001 770 AIRPORT BLVD FRAME
BURLINGAME CA 94010
- -------------------------------------------------------------------------------------------------------
COVERAGE PROVIDED LIMIT OF COVERED CAUSE OF LOSS(X) COIN-
LOC# BLDG# COVERAGE INSURANCE BASIC BROAD SPECIAL SURANCE
001 001 BUILDING $1,249,500 X 90%
001 001 BUSINESS INCOME W/O EXTRA EXP $96,000 X 100%
*IF EXTRA EXPENSE COVERAGE, LIMITS ON LOSS PAYMENT
- -------------------------------------------------------------------------------------------------------
OPTIONAL COVERAGES. Applicable only when entries are made in the schedule below.
- -------------------------------------------------------------------------------------------------------
REPLACEMENT COST(X)
PERSONAL INCLUDING
LOC# BLDG# AGREED VALUE(X) BUILDING PROPERTY "STOCK"
001 001 X
INFLATION GUARD (Percentage) *MONTHLY LIMIT OF *MAXIMUM PERIOD *EXTENDED PERIOD
BUILDING PERSONAL PROPERTY INDEMNITY (FRACTION) OF INDEMNITY(X) OF INDEMNITY (DAYS)
4%
*Applies to Business Income only
- -------------------------------------------------------------------------------------------------------
MORTGAGE HOLDERS
- - CHINA TRUST BANK OF CALIFORNIA -
- - -
- - 22939 HAWTHORNE BLVD -
- - -
- - TORRANCE CA 90505 -
Ln# 122100590 Ln#
- -------------------------------------------------------------------------------------------------------
DEDUCTIBLE: $ 500 Exceptions:
- -------------------------------------------------------------------------------------------------------
EARTHQUAKE DEDUCTIBLE:
- -------------------------------------------------------------------------------------------------------
FORMS APPLICABLE CP00900788 CP02991185 IL02700294 E6036-ED1 CP00101091 CP10301091 CP00321091
COUNTERSIGNED MAY 30, 1996 BY /s/ [SIG]
----------------------------------------- --------------------------------------------
(Date) (Authorized Representative)
</TABLE>
<PAGE> 23
The endorsement shown below applies only if (so) indicated in the Declarations
on the reverse side. Further, it applies only to buildings insured under the
Buildings Coverage Form, if any, in your policy. It replaces the Mortgage
Holders Conditions.
Form 438BFU NS
(Rev. May 1, 1942)X
LENDER'S LOSS PAYABLE ENDORSEMENT
1. Loss or damage, if any, under this policy, shall be paid to the Payee named
in the Declarations of this Policy, its successors and assigns, hereinafter
referred to as "the Lender", in whatever form or capacity its interest may
appear and whether said interest be vested in said Lender in its individual or
in its disclosed or undisclosed fiduciary or representative capacity, or
otherwise, or vested in a nominee or trustee of said Lender.
2. The insurance under this policy, or any rider or endorsement attached
thereto, as to the interest only of the Lender, its successors and assigns,
shall not be invalidated or suspended: (a) by any error, or omission, or change
respecting ownership, description, possession or location of the subject of the
insurance or the interest therein, or the title thereto; (b) by the
commencement of foreclosure proceedings or the giving of notice of any property
covered by this policy by virtue of any mortgage or trust deed; (c) by any
breach of warranty, act, omission, neglect, or non-compliance with any of the
provisions of this policy, including any and all riders now or hereafter
attached thereto, by the named insured, the borrower, mortgagor, trustor,
vendee, owner, tenant, warehouseman, custodian, occupant, or by the agents of
either or any of them or by the happening of any event permitted by them or
either of them, or their agents, or which they failed to prevent, whether
occurring before or after the attachment of this endorsement, or whether before
or after a loss, which under the provisions of this policy of insurance or of
any rider or endorsement attached thereto would invalidate or suspend the
insurance as to the named insured, excluding herefrom, however, any acts or
omissions of the Lender while exercising active control and management of the
property.
3. In the event of failure of the insured to pay any premium or additional
premium which shall be or become due under the terms of this policy or on
account of any change in occupancy or increase in hazard not permitted by this
policy, this Company agrees to give written notice to the Lender of such
nonpayment of premium after sixty (60) days from and within one hundred and
twenty (120) days after due date of such premium and it is a condition of the
continuance of the rights of the Lender hereunder that the Lender when so
notified in writing by this Company of the failure of the insured to pay such
premium shall pay or caused to be paid the premium due within ten (10) days
following receipt of the Company's demand in writing therefor. If the Lender
shall decline to pay said premium or additional premium, the rights of the
Lender under this Lender's Loss Payable Endorsement shall not be terminated
before ten (10) days after receipt of said written notice by the Lender.
4. Whenever this Company shall pay to the Lender any sum for loss or damage
under this policy and shall claim that as to the Insured no liability therefore
exists, this Company, at its option may pay to the Lender the whole principal
sum and interest and other indebtedness due or to become due from the insured,
whether secured or unsecured (with refund of all interest not accrued), and
this Company, to the extent of such payment, shall thereupon receive a full
assignment and transfer, without recourse, of the debt and all rights and
securities held as collateral thereto.
5. If there be any other insurance upon the within described property, this
Company shall be liable under this policy as to the Lender for the proportion
of such loss or damage that the sum hereby insured bears to the entire
insurance of similar character on said property under policies held by, payable
to and expressly consented to by the Lender. Any Contribution Clause included
in any Fallen Building Clause Waiver or any Extended Coverage Endorsement
attached to this contract of insurance is hereby nullified, and also any
Contribution Clause in any other endorsement or rider attached to this contract
of insurance hereby nullified except Contribution Clauses for the compliance
with which the insured has received reduction in the rate charged or has
received extension of the coverage to include hazards other than fire and
compliance with such Contribution Clause is made part of the consideration for
insuring such other hazards. The Lender upon the payment to it of the full
amount of its claim, will subrogate this Company (pro rata with all other
insurers contributing to said payment) to all of the Lender's right of
Contribution under said other insurance.
6. This Company reserves the right to cancel this policy at any time, as
provided by its terms, but in such case this policy shall continue in force for
the benefit of the Lender for ten (10) days after written notice of such
cancellation is received by the Lender and shall then cease.
7. This policy shall remain in full force and effect as to the interest of the
Lender for a period of ten (10) days after its expiration unless an acceptable
policy in renewal thereof with loss thereunder payable to the Lender in
accordance with the terms of this Lender's Loss Payable Endorsement, shall have
been issued by some insurance company and accepted by the Lender.
8. Should legal title to and beneficial ownership of any of the property
covered under this policy become vested in the Lender or its agents, insurance
under this policy shall continue for the term thereof for the benefit of the
Lender but, in such event, any privileges granted by this Lender's Loss Payable
Endorsement which are not also granted the insured under the terms and
conditions of this policy and/or under other riders or endorsement attached
thereto shall not apply to the insurance hereunder as respects such property.
9. All notices herein provided to be given by the Company to the Lender in
connection with this policy and this Lender's Loss Payable Endorsement shall be
mailed to or delivered to the Lender at its office or branch described in the
Declarations of this policy. Approved:
Board of Fire Underwriters of the Pacific,
California Banker's Association,
- Committee on Insurance -
<PAGE> 24
POLICY NUMBER 60152-24-28 COMMERCIAL GENERAL LIABILITY
THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.
LIMITATION OF COVERAGE TO DESIGNATED
PREMISES OR PROJECT
This endorsement modifies insurance provided under the following:
COMMERCIAL GENERAL LIABILITY COVERAGE PART.
SCHEDULE
PREMISES: 770 AIRPORT BLVD
BURLINGAME CA 94010
PROJECT:
(If no entry appears above, information required to complete this endorsement
will be shown in the Declarations as applicable to this endorsement.)
This insurance applies only to "bodily injury," "property damage," "personal
injury," "advertising injury" and medical expenses arising out of:
1. The ownership, maintenance or use of the premises shown in the
Schedule and operations necessary or incidental to those premises; or
2. The project shown in the Schedule.
CG 21 44 11 85 Copyright, Insurance Services Office, Inc., 1984
<PAGE> 25
ADDENDUM TO OFFICE LEASE
BY AND BETWEEN
BURLINGAME SHORE INVESTMENTS,
A CALIFORNIA GENERAL PARTNERSHIP, AS LANDLORD
AND
THE GYMBOREE CORPORATION,
A DELAWARE CORPORATION, AS TENANT
THIS LEASE ADDENDUM is entered into this 11th day of October, 1996, and
modifies and amends the Office Lease between BURLINGAME SHORE INVESTMENTS, a
California General Partnership, as Landlord and THE GYMBOREE CORPORATION, a
Delaware Corporation, as Tenant. In the event of any inconsistency between the
Lease and this Addendum, this Addendum shall prevail.
1. PREMISES/TERM/USE
Early Occupancy Date. Tenant shall be permitted to take early occupancy of the
Premises on October 1, 1996, except for that portion of the Premises
(approximately 500 square feet) currently occupied by an existing tenant on a
month to month lease. Upon the expiration of Tenant's Due Diligence (as defined
in Paragraph 6 below), or such time within the Due Diligence period that Tenant
notifies Landlord in writing of Tenant's unconditional acceptance of the
premises and waiver of its right to terminate this Lease under said Paragraph
6, Landlord shall deliver to the existing month to month tenant a written
thirty (30) day notice to terminate said tenancy; and thereafter, Tenant shall
be permitted to take occupancy of that portion of the Premises immediately upon
vacation by the existing tenant. Tenant's early occupancy shall be on all the
terms and conditions of this Lease, except that Tenant shall not be required to
pay rent or any Triple Net Expenses (as defined below) until December 1, 1996.
Tenant shall not be required to pay rent on the 500 square foot portion of the
Premises unless and until Tenant has legal possession thereof.
3. TRIPLE NET CHARGES.
Building Landscaping Costs: Tenant shall contract for and pay for all
Landscaping Costs which shall specifically include the following: Landscape
maintenance, repair, and gardening services; all to Landlord's reasonable
satisfaction to a standard consistent with the appearance of landscaping in
existence at the Commencement Date (currently estimated at a cost of $4,500.00
per year).
Payment of Triple Net Charges: Upon the lease term Commencement Date, and
commencing at the same time as any rental commences under this Lease, Tenant
shall pay said estimated Triple Net Expenses on a monthly basis concurrently
with the payment of rent. Tenant shall continue to make
Lease2: with CoTerminating Option 1
<PAGE> 26
said monthly payments until notified by Landlord of a change thereof. By March
1 of each year Landlord shall be required to give Tenant a statement showing
the actual Triple Net Expenses incurred for the prior calendar year, prorated
from the lease term Commencement Date. In the event the total of the monthly
payments which Tenant has made for the prior calendar year is less than the
actual Triple Net Expenses, then Tenant shall pay the difference in a lump sum
within ten days after receipt of such statement from Landlord. Thereafter, the
monthly payment of Triple Net Expenses shall be calculated and adjusted based
on the prior year's experience. Any overpayment by Tenant shall be credited
towards the Triple Net Expenses next coming due.
6. CONDITION OF THE PREMISES.
Condition of Premises on Delivery. The Premises are rented "as is," except for
Landlord's obligation with respect to exterior asbestos, as set forth below.
Tenant hereby agrees to accept possession of the premises in its existing
condition, and, at Tenant's expense, to make all repairs, improvements, and
installations that Tenant may deem necessary for the proper conduct of Tenant's
business. Tenant shall notify Landlord in advance of any such work, and shall
provide at Landlord's request copies of any plans or specifications therefor.
Exterior Asbestos: In the event that Landlord replaces the roof on the Building
during the Term or Option period, Landlord shall at that time remove or repair,
as required by law, the asbestos located in the exterior areas of the Building
(specifically, the parapet sheeting and gray penetration tar).
Inspection Reports and Results of Due Diligence. [Add] Tenant shall promptly
deliver to Landlord a copy of any inspection reports or results of any due
diligence inspections, examinations or studies which relate to or reflect upon
the condition of the Premises or the Building which are received by Tenant at
any time prior to or during the Term of the Lease.
8. MAINTENANCE AND REPAIRS.
Tenant's Obligations. Tenant will, at Tenant's own cost and expense, repair or
replace any damage done to the Premises or any part thereof, caused by Tenant
or Tenant's agents, employees, invitees or visitors, subject to the provisions
of Paragraph 12. Subject to Landlord's Obligations below, any cosmetic or
aesthetic modifications, maintenance or repair of the exterior portions of the
Premises or the Building (limited to painting, landscaping, and maintenance)
shall be Tenant's sole responsibility. Tenant shall be solely responsible for
parking lot striping and maintenance and may at Tenant's expense (but shall not
be required to) resurface the parking lot in conjunction with such maintenance;
provided, however, that in no event shall Landlord be obligated to repave or
resurface said parking lot during the Lease Term or Option periods, whether by
virtue of Tenant's restriping of the parking lot or otherwise. Tenant shall
take reasonable care of the Building and the Premises, including the parking
lot and surrounding exterior areas of the Premises, and the fixtures and
improvements therein and shall not commit waste thereon or therein.
Tenant's Required Repairs. If Tenant should be in default in the performance of
any of its
Lease2: with CoTerminating Option 2
<PAGE> 27
obligations under the terms of this Section 8, which default continues for a
period of more than thirty (30) days and continues beyond the time reasonably
necessary to cure, Landlord may at its option upon written notice, incur any
expense necessary to perform the obligations of Tenant specified in such notice
and bill Tenant for the costs thereof. Tenant shall reimburse Landlord for the
costs so billed within fifteen (15) days after receipt of the billing. Nothing
herein shall be deemed a waiver by Landlord of any remedy available to Landlord
at law, in equity or in this Lease.
16. HOLDOVER. [Add] In the event of such a holdover, the monthly Rent
payable by Tenant shall be increased to one hundred fifty (150%) percent of the
Rent payable by Tenant at the expiration of the Term. Said monthly Rent shall be
payable in advance on or before the first day of each month. If either party
desires to terminate such month to month tenancy, it shall give the other party
not less than thirty (30) days advance written notice of the date of
termination.
21. HAZARDOUS MATERIALS.
Landlord's Representations and Indemnity as to Hazardous Materials. Tenant
acknowledges that it has been advised that asbestos has been located in the
Building and in the Premises. Landlord shall have no responsibility for removal
or abatement of such asbestos located in the interior portions of the Premises.
Landlord represents and warrants that, to the best of Landlord's knowledge and
other than the asbestos described herein, no Hazardous Materials are present on
or affect the Premises or the Building, and (other than as pertains to the
asbestos described herein) Landlord agrees to indemnify and hold Tenant
harmless for costs of any monitoring, testing, removal, cleanup or compliance
with the laws of any federal, state or local government having jurisdiction
over Hazardous Materials present on or affecting the Premises or the Building.
Upon execution of this Lease, Landlord shall deliver to Tenant a copy of any
reports or estimates in Landlord's possession concerning said asbestos,
consisting of (1) asbestos survey dated May, 1995, and (2) Phase I
Environmental Assessment Report dated October 3, 1995.
6. SECURITY DEPOSIT. Tenant agrees to deposit with Landlord a Security
Deposit equal to one month's Rent upon execution of this Lease, as security for
Tenant's faithful performance of its obligations under this Lease. Landlord and
Tenant agree that the Security Deposit may be commingled with funds of Landlord
and Landlord shall have no obligation or liability for payment of interest on
such deposit. Tenant shall not mortgage, assign, transfer or encumber the
Security Deposit without the prior written consent of Landlord and any attempt
by Tenant to do so shall be void, without force or effect and shall not be
binding upon Landlord.
If Tenant fails to pay any rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate
and apply or use all or any portion of the Security Deposit for Rent payments
or any other amount then due and unpaid, for payment of any amount for which
Landlord has become obligated as a result of Tenant's default or breach, and
for any loss or damage sustained by Landlord as a result of Tenant's default or
breach, and Landlord may so apply or use this deposit without prejudice to any
other remedy Landlord may have by reason of Tenant's default or breach. If
Landlord so uses any of the Security Deposit, Tenant shall, within
Lease2: with CoTerminating Option 3
<PAGE> 28
ten (10) days after written demand therefor, restore the Security Deposit to the
full amount originally deposited; Tenant's failure to do so shall constitute an
act of default hereunder and Landlord shall have the right to exercise any
remedy provided for herein. Within fifteen (15) days after the Term (or any
extension thereof) has expired or Tenant has vacated the Premises, whichever
shall last occur, and provided Tenant is not then in default on any of its
obligations hereunder, Landlord shall return the Security Deposit to Tenant,
or, if Tenant has assigned its interest under this Lease, to the last assignee
of Tenant. If Landlord sells its interest in the Premises, Landlord may deliver
this deposit to the purchaser of Landlord's interest and thereupon be relieved
of any further liability or obligation with respect to the Security Deposit.
AMENDMENT TO EXHIBIT C: TENANT IMPROVEMENTS
Upon completion of Tenant Improvements, Tenant shall provide Landlord with
copies of invoices pertaining to the cost of the Tenant Improvements.
Landlord:
BURLINGAME SHORE INVESTMENTS
a California General Partnership
By /s/ MARTIN LIN
------------------------------
Martin Lin
Its Managing General Partner
Tenant:
THE GYMBOREE CORPORATION,
a Delaware corporation
By /s/ JOSEPH T. PRUSKO
-----------------------------
Its Vice President
-----------------------------
Lease2: with CoTerminating Option 4
<PAGE> 1
EXHIBIT 10.13
The Merrill Lynch Special Non-Qualified Deferred Compensation Plan
ARTICLE 1 -- INTRODUCTION
1.1 PURPOSE OF PLAN
The Employer has adopted the Plan set forth herein to provide a means by which
certain employees may elect to defer receipt of designated percentages or
amounts of their Compensation and to provide a means for certain other
deferrals of Compensation.
1.2 STATUS OF PLAN
The Plan is intended to be "a plan which is unfunded and is maintained by an
employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of Sections 201(2) and 301(a)(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA"), and shall be interpreted and administered to the extent
possible in a manner consistent with that intent.
ARTICLE 2 -- DEFINITIONS
Wherever used herein, the following terms have the meanings set forth below,
unless a different meaning is clearly required by the context:
2.1 ACCOUNT means, for each Participant, the account established for his or her
benefit under Section 5.1.
2.2 ADOPTION AGREEMENT means the Merrill Lynch Special Non-Qualified Deferred
Compensation Plan for Select Employees Adoption Agreement signed by the
Employer to establish the Plan and containing all the options selected by the
Employer, as the same may be amended from time to time.
2.3 CHANGE OF CONTROL means (a) the purchase or other acquisition in one or
more transactions other than from the Employer, by any individual, entity or
group of persons, within the meaning of section 13(d)(3) or 14(d) of the
Securities Exchange Act of 1934 or any comparable successor provisions, of
beneficial ownership (within the meaning of Rule 13d-3 of Securities Exchange
Act of 1934) of 30 percent or more of either the outstanding shares of common
stock or the combined voting power of the Employer's then outstanding voting
securities entitled to vote generally, or (b) the approval by the stockholders
of the Employer of a reorganization, merger, or consolidation, in each case,
with respect to which persons who were stockholders of the Employer immediately
prior to such reorganization, merger or consolidation do not immediately
thereafter own more than 50 percent of the combined voting power of the
reorganized, merged or consolidated Employer's then outstanding securities that
are entitled to vote generally in the election of directors or (c) the sale of
substantially all of the Employer's assets.
2.4 CODE means the Internal Revenue Code of 1986, as amended from time to
time. Reference to any section or subsection of the Code includes reference to
any comparable or succeeding provisions of any legislation which amends,
supplements or replaces such section or subsection.
2.5 COMPENSATION has the meaning elected by the Employer in the Adoption
Agreement.
2.6 EFFECTIVE DATE means the date chosen in the Adoption Agreement as of which
the Plan first becomes effective.
2.7 ELECTION FORM means the participation election form as approved and
prescribed by the Plan Administrator.
2.8 ELECTIVE DEFERRAL means the portion of Compensation which is deferred by a
Participant under Section 4.1.
2.9 ELIGIBLE EMPLOYEE means, on the Effective Date or on any Entry Date
thereafter, each employee of the Employer who satisfies the criteria
established in the Adoption Agreement.
2.10 EMPLOYER means the corporation referred to in the Adoption Agreement, any
successor to all or a major portion of the Employer's assets or business which
assumes the obligations of the Employer, and each other entity that is
affiliated with the Employer which adopts the Plan with the consent of the
Employer, provided that the Employer that signs the Adoption Agreement shall
have the sole power to amend this Plan and shall be the Plan Administrator if
no other person or entity is so serving at any time.
2.11 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time. Reference to any section or subsection of ERISA
includes reference to any comparable or succeeding provisions of any
legislation which amends, supplements or replaces such section or subsection.
2.12 INCENTIVE CONTRIBUTION means a discretionary additional contribution made
by the Employer as described in Section 4.3.
2.13 INSOLVENT means either (i) the Employer is unable to pay its debts as they
become due, or (ii) the Employer is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
2.14 MATCHING DEFERRAL means a deferral for the benefit of a Participant as
described in Section 4.2.
2.15 PARTICIPANT means any individual who participates in the Plan in
accordance with Article 3.
2.16 PLAN means the Employer's plan in the form of the Merrill Lynch Special
Non-Qualified Deferred Compensation Plan for Select Employees and the Adoption
Agreement and all amendments thereto.
2.17 PLAN ADMINISTRATOR means the person, persons or entity designated by the
Employer in the Adoption Agreement to administer the Plan and to serve as the
agent for "Company" with respect to the Trust as contemplated by the agreement
establishing the Trust. If no such person or entity is so serving at any time,
the Employer shall be the Plan Administrator.
2.18 PLAN YEAR means the 12-month period chosen in the Adoption Agreement.
2.19 TOTAL AND PERMANENT DISABILITY means the inability of a Participant to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months, and the permanence and degree of which shall be
supported by medical evidence satisfactory to the Plan Administrator.
2.20 TRUST means the trust established by the Employer that identifies the Plan
as a plan with respect to which assets are to be held by the Trustee.
2.21 TRUSTEE means the trustee or trustees under the Trust.
2.22 YEAR OF SERVICE means the computation period and service requirement
elected in the Adoption Agreement.
ARTICLE 3 -- PARTICIPATION
3.1 COMMENCEMENT OF PARTICIPATION
Any individual who elects to defer part of his or her Compensation in
accordance with Section 4.1 shall become a Participant in the Plan as of the
date such deferrals commence in accordance with Section 4.1.
<PAGE> 2
Any individual who is not already a Participant and whose Account is credited
with an Incentive Contribution shall become a Participant as of the date such
amount is credited.
3.2 CONTINUED PARTICIPATION
A Participant in the Plan shall continue to be a Participant so long as any
amount remains credited to his or her Account.
ARTICLE 4 - ELECTIVE AND MATCHING DEFERRALS
4.1 ELECTIVE DEFERRALS
An individual who is an Eligible Employee on the Effective Date may, by
completing an Election Form and filing it with the Plan Administrator within 30
days following the Effective Date, elect to defer a percentage or dollar amount
of one or more payments of Compensation, on such terms as the Plan Administrator
may permit, which are payable to the Participant after the date on which the
individual files the Election Form. Any individual who becomes an Eligible
Employee after the Effective Date may, by completing an Election Form and filing
it with the Plan Administrator within 30 days following the date on which the
Plan Administrator gives such individual written notice that the individual is
an Eligible Employee, elect to defer a percentage or dollar amount of one or
more payments of Compensation, on such terms as the Plan Administrator may
permit, which are payable to the Participant after the date on which the
individual files the Election Form. Any Eligible Employee who has not otherwise
initially elected to defer Compensation in accordance with this paragraph 4.1
may elect to defer a percentage or dollar amount of one or more payments of
Compensation, on such terms as the Plan Administrator may permit, commencing
with Compensation paid in the next succeeding Plan Year, by completing an
Election Form prior to the first day of such succeeding Plan Year. In addition,
a Participant may defer all or part of the amount of any elective deferral or
matching contribution made on his or her behalf to the Employer's 401(k) plan
for the prior Plan Year but treated as an excess deferral, an excess
contribution or otherwise limited by the application of the limitations of
sections 401(k), 401(m), 415 or 402(q) of the Code, so long as the Participant
so indicates on an Election Form. A Participant's Compensation shall be reduced
in accordance with the Participant's election hereunder and amounts deferred
hereunder shall be paid by the Employer to the Trust as soon as administratively
feasible and credited to the Participant's Account as of the date the amounts
are received by the Trustee.
An election to defer a percentage or dollar amount of Compensation for any Plan
Year shall apply to subsequent Plan Years unless changed or revoked. A
Participant may change or revoke his or her deferral election as of the first
day of any Plan Year by giving written notice to the Plan Administrator before
such first day or any such earlier date as the Plan Administrator may prescribe.
4.2 MATCHING DEFERRALS
After each payroll period, monthly, quarterly or annually, at the Employer's
discretion, the Employer shall contribute to the Trust Matching Deferrals equal
to the rate of Matching Contribution selected by the Employer and multiplied by
the amount of the Elective Deferrals credited to the Participants' Accounts for
such period under Section 4.1. Each Matching Deferral will be credited as of the
later of the date it is received by the Trustee or the date the Trustee receives
from the Plan Administrator such instructions as the Trustee may reasonably
require to allocate the amount received among the asset accounts maintained by
the Trustee to the Participants' Accounts pro rata in accordance with the amount
of Elective Deferrals of each Participant which are taken into account to
calculating the Matching Deferral.
4.3 INCENTIVE CONTRIBUTIONS
In addition to other contributions provided for under the Plan, the Employer
may, in its sole discretion, select one or more Eligible Employees to receive an
Incentive Contribution to his or her Account on such terms as the Employer shall
specify at the time it makes the contribution. For example, the Employer may
contribute an amount to a Participant's Account and condition the payment of
that amount and accrued earnings thereon upon the Participant remaining employed
by the Employer for an additional specified period of time. The terms specified
by the Employer shall supersede any other provision of this Plan as regards
Incentive Contributions and earnings with respect thereto, provided that if the
Employer does not specify a method of distribution, the Incentive Contribution
shall be distributed in a manner consistent with the election last made by the
particular Participant prior to the year in which the Incentive Contribution is
made. The Employer, in its discretion, may permit the Participant to designate a
distribution schedule for a particular Incentive Contribution provided that such
designation is made prior to the time that the Employer finally determines that
the Participant will receive the Incentive Contribution.
ARTICLE 5 - ACCOUNTS
5.1 ACCOUNTS
The Plan Administrator shall establish an Account for each Participant
reflecting Elective Deferrals, Matching Deferrals and Incentive Contributions
made for the Participant's benefit together with any adjustments for income,
gain or loss and any payments from the Account. The Plan Administrator may cause
the Trustee to maintain and invest separate asset accounts corresponding to each
Participant's Account. The Plan Administrator shall establish sub-accounts for
each Participant that has more than one election in effect under Section 7.1 and
such other sub-accounts as are necessary for the proper administration of the
Plan. As of the last business day of each calendar quarter, the Plan
Administrator shall provide the Participant with a statement of his or her
Account reflecting the income, gains and losses (realized and unrealized),
amounts of deferrals, and distributions of such Account since the prior
statement.
5.2 INVESTMENTS
The assets of the Trust shall be invested in such investments as the Trustee
shall determine. The Trustee may (but is not required to) consider the
Employer's or a Participant's investment preferences when investing the assets
attributable to a Participant's Account.
ARTICLE 6 - VESTING
6.1 GENERAL
A Participant shall be immediately vested in, i.e., shall have a nonforfeitable
right to, all Elective Deferrals, and all income and gain attributable thereto,
credited to his or her Account. A Participant shall become vested in the portion
of his or her Account attributable to Matching Deferrals and income and gain
attributable thereto in accordance with the schedule selected by the Employer in
the Adoption Agreement, subject to earlier vesting in accordance with Sections
6.3, 6.4 and 6.5.
6.2 VESTING SERVICE
For purposes of applying the vesting schedule in the Adoption Agreement, a
Participant shall be considered to have completed a Year of Service for each
complete year of full-time service with the Employer or an Affiliate, measured
from the Participant's first date of such employment unless the Employer also
maintains a 401(k) plan that is qualified under section 401(a) of the Internal
Revenue Code in which the Participant participates, in which case the rules
governing vesting service under that plan shall also be controlling under this
Plan.
6.3 CHANGE OF CONTROL
A Participant shall become fully vested in his or her Account immediately prior
to a Change of Control of the Employer.
6.4 DEATH OR DISABILITY
A Participant shall become fully vested in his or her Account immediately prior
to termination of the Participant's employment by reason of the Participant's
death or Total and Permanent Disability. Whether a Participant's termination of
employment is by reason of the Participant's Total and Permanent Disability
shall be determined by the Plan Administrator in its sole discretion.
6.5 INSOLVENCY
A Participant shall become fully vested in his or her Account immediately prior
to the Employer becoming insolvent, in which case the Participant will have the
same rights
<PAGE> 3
as a general creditor of the Employer with respect to his or her Account
balance.
ARTICLE 7 - PAYMENTS
7.1 ELECTION AS TO TIME AND FORM OF PAYMENT. SEE RIDER ATTACHED.
A participant shall elect (on the Election Form used to elect to defer
Compensation under Section 4.1) the date at which the Effective Deferrals and
vested Matching Deferrals (including any earnings attributable thereto) will
commence to be paid to the Participant. The Participant shall also elect
thereon for payments to be paid in either:
a. a single lump-sum payment; or
b. annual installments over a period elected by the Participant up to 10
years, the amount of each installment to equal the balance of his or her
Account immediately prior to the installment divided by the number of
installments remaining to be paid.
Each such election will be effective for the Plan Year for which it is made and
succeeding Plan Years, unless changed by the Participant. Any change will be
effective only for Effective Deferrals and Matching Deferrals made for the
first Plan Year beginning after the date on which the Election Form containing
the change is filed with the Plan Administrator. Except as provided in Sections
7.2, 7.3, 7.4 or 7.5, payment of a Participant's Account shall be made in
accordance with the Participant's election under this Section 7.1
7.2 CHANGE OF CONTROL
As soon as possible following a Change of Control of the Employer, each
Participant shall be paid his or her entire Account balance (including any
amount vested pursuant to Section 6.3) in a single lump sum.
7.3 TERMINATION OF EMPLOYMENT
Upon termination of a Participant's employment for any reason other than death
and prior to the attainment of the Retirement Age specified in the Adoption
Agreement, the vested portion of the Participant's Account (including any
portion vested pursuant to Section 6.4 as a consequence of the Participant's
Total and Permanent Disability) shall be paid to the Participant in a single
lump sum as soon as practicable following the date of such termination;
provided, however, that the Plan Administrator, in its sole discretion, may pay
out a Participant's Account balance in annual installments if the Participant's
employment terminates by reason of the Participant's Total and Permanent
Disability.
7.4 DEATH
If a Participant dies prior to the complete distribution of his or her Account,
the balance of the Account shall be paid as soon as practicable to the
Participant's designated beneficiary or beneficiaries, in the form elected by
the Participant under either of the following options:
a. a single lump-sum payment; or
b. annual installments over a period elected by the Participant up to 10
years, the amount of each installment to equal the balance of the
Account immediately prior to the installment divided by the number of
installments remaining to be paid.
Any designation of beneficiary and form of payment to such beneficiary shall be
made by the Participant on an Election Form filed with the Plan Administrator
and may be changed by the Participant at any time by filing another Election
Form containing the revised instructions. If no beneficiary is designated or no
designated beneficiary survives the Participant, payment shall be made to the
Participant's surviving spouse or, if none, to his or her issue per stirpes in a
single payment. If no spouse or issue survives the Participant, payment shall be
made in a single lump sum to the Participant's estate.
7.5 UNFORESEEN EMERGENCY
If a Participant suffers an unforeseen emergency, as defined herein, the Plan
Administrator, in its sole discretion, may pay to the Participant only that
portion, if any, of the vested portion of his or her Account which the Plan
Administrator determines is necessary to satisfy the emergency need, including
any amounts necessary to pay any federal, state or local income taxes
reasonably anticipated to result from the distribution. A Participant
requesting an emergency payment shall apply for all the payment in writing in a
form approved by the Plan Administrator and shall provide such additional
information as the Plan Administrator may require. For purposes of this
paragraph, "unforeseen emergency" means an immediate and heavy financial need
resulting from any of the following:
a. expenses which are not covered by insurance and which the Participant or
his or her spouse or dependent has incurred as a result of, or is
required to incur in order to receive, medical care.
b. the need to prevent eviction of a Participant from his or her principal
residence or foreclosure on the mortgage of the Participant's principal
residence; or
c. any other circumstance that is determined by the Plan Administrator in
its sole discretion to constitute an unforeseen emergency which is not
covered by insurance and which cannot reasonably be relieved by the
liquidation of the Participant's assets.
See Rider Attached
7.6 FORFEITURE OF NON-VESTED AMOUNTS
To the extent that any amounts credited to a Participant's Account are not
vested at the time such amounts are otherwise payable under Section 7.1 or 7.3,
such amounts shall be forfeited and shall be used to satisfy the Employer's
obligation to make contributions to the Trust under the Plan.
7.7 TAXES
All federal, state or local taxes that the Plan Administrator determines are
required to be withheld from any payments made pursuant to this Article 7
shall be withheld.
ARTICLE 8 - PLAN ADMINISTRATOR
8.1 PLAN ADMINISTRATION AND INTERPRETATION
The Plan Administrator shall oversee the administration of the Plan. The Plan
Administrator shall have complete control and authority to determine the rights
and benefits and all claims, demands and actions arising out of the provisions
of the Plan of any Participant, beneficiary, deceased Participant, or other
person having or claiming to have any interest under the Plan. The Plan
Administrator shall have complete discretion to interpret the Plan and to
decide all matters under the Plan. Such interpretation and decision shall be
final, conclusive and binding on all Participants and any person claiming under
or through any Participant, in the absence of clear and convincing evidence
that the Plan Administrator acted arbitrarily and capriciously. Any
individual(s) serving as Plan Administrator who is a Participant will not vote
or act on any matter relating solely to himself or herself. When making a
determination or calculation, the Plan Administrator shall be entitled to rely
on information furnished by a Participant, a beneficiary, the Employer or the
Trustee. The Plan Administrator shall have the responsibility for complying with
any reporting and disclosure requirements of ERISA.
8.2 POWERS, DUTIES, PROCEDURES, ETC.
The Plan Administrator shall have such powers and duties, may adopt such rules
and tables, may act in accordance with such procedures, may appoint such
officers or agents, may delegate such powers and duties, may receive such
reimbursements and compensation, and shall follow such claims and appeal
procedures with respect to the Plan as it may establish.
8.3 INFORMATION
To enable the Plan Administrator to perform its functions, the Employer shall
supply full and timely information to the Plan Administrator on all matters
relating to the compensation of Participants, their employment, retirement,
death, termination of employment, and such other pertinent facts as the Plan
Administrator may require.
8.4 INDEMNIFICATION OF PLAN ADMINISTRATOR
The Employer agrees to indemnify and to defend to the fullest extent permitted
by law any officer(s) or employer(s) who serve
<PAGE> 4
as Plan Administrator (including any such individual who formerly served as
Plan Administrator) against all liabilities, damages, costs and expenses
(including attorneys' fees and amounts paid in settlement of any claims
approved by the Employer) occasioned by any act or omission to act in
connection with the Plan, if such act or omission is in good faith.
ARTICLE 9--AMENDMENT AND TERMINATION
9.1 AMENDMENTS
The Employer shall have the right to amend the Plan from time to time, subject
to Section 9.3, by an instrument in writing which has been executed on the
Employer's behalf by its duly authorized officer.
9.2 TERMINATION OF PLAN
This Plan is strictly a voluntary undertaking on the part of the Employer and
shall not be deemed to constitute a contract between the Employer and any
Eligible Employee (or any other employee) or a consideration for, or an
inducement or condition of employment for, the performance of the services by
any Eligible Employee (or other employee). The Employer reserves the right to
terminate the Plan at any time, subject to Section 9.3, by an instrument in
writing which has been executed on the Employer's behalf by its duly authorized
officer. Upon termination, the Employer may (a) elect to continue to maintain
the Trust to pay benefits hereunder as they become due as if the Plan had not
terminated or (b) direct the Trustee to pay promptly to Participants (or their
beneficiaries) the vested balance of their Accounts. For purposes of the
preceding sentence, in the event the Employer chooses to implement clause (b),
the Account balances of all Participants who are in the employ of the Employer
at the time the Trustee is directed to pay such balances shall become fully
vested and nonforfeitable. After Participants and their beneficiaries are paid
all Plan benefits to which they are entitled, all remaining assets of the Trust
attributable to Participants who terminated employment with the Employer prior
to termination of the Plan and who were not fully vested in their Accounts
under Article 6 at that time shall be returned to the Employer.
9.3 EXISTING RIGHTS
No amendment or termination of the Plan shall adversely affect the rights of
any Participant with respect to amounts that have been credited to his or her
Account prior to the date of such amendment or termination.
ARTICLE 10--MISCELLANEOUS
10.1 NO FUNDING
The Plan constitutes a mere promise by the Employer to make payments in
accordance with the terms of the Plan and Participants and beneficiaries shall
have the status of general unsecured creditors of the Employer. Nothing in the
Plan will be construed to give any employee or any other person rights to any
specific assets of the Employer or of any other person. In all events, it is
the intent of the Employer that the Plan be treated as unfunded for tax
purposes and for purposes of Title I of ERISA.
10.2 NON-ASSIGNABILITY
None of the benefits, payments, proceeds or claims of any Participant or
beneficiary shall be subject to any claim of any creditor of any Participant or
beneficiary and, in particular, the same shall not be subject to attachment or
garnishment or other legal process by any creditor of such Participant or
beneficiary, nor shall any Participant or beneficiary have any right to
alienate, anticipate, commute, pledge, encumber or assign any of the benefits
or payments or proceeds which he or she may expect to receive, contingently or
otherwise, under the Plan.
10.3 LIMITATION OF PARTICIPANTS' RIGHTS
Nothing contained in the Plan shall confer upon any person a right to be
employed or to continue in the employ of the Employer, or interfere in any way
with the right of the Employer to terminate the employment of a Participant in
the Plan at any time, with or without cause.
10.4 PARTICIPANTS BOUND
Any action with respect to the Plan taken by the Plan Administrator or the
Employer or the Trustee or any action authorized by or taken at the direction
of the Plan Administrator, the Employer or the Trustee shall be conclusive upon
all Participants and beneficiaries entitled to benefits under the Plan.
10.5 RECEIPT AND RELEASE
Any payment to any Participant or beneficiary in accordance with the provisions
of the Plan shall, to the extent thereof, be in full satisfaction of all claims
against the Employer, the Plan Administrator and the Trustee under the Plan,
and the Plan Administrator may require such Participant or beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect. If any Participant or beneficiary is determined by the Plan
Administrator to be incompetent by reason of physical or mental disability
(including minority) to give a valid receipt and release, the Plan
Administrator may cause the payment or payments becoming due to such person to
be made to another person for his or her benefit without responsibility on the
part of the Plan Administrator, the Employer or the Trustee to follow the
application of such funds.
10.6 GOVERNING LAW
The Plan shall be construed, administered, and governed in all respects under
and by the laws of the state in which the Employer maintains its primary place
of business. If any provision shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
10.7 HEADINGS AND SUBHEADINGS
Headings and subheadings in this Plan are inserted for convenience only and are
not to be considered in the construction of the provisions hereof.
<PAGE> 5
RIDER TO
THE MERRILL LYNCH
SPECIAL NON-QUALIFIED DEFERRED COMPENSATION PLAN
FIRST: Notwithstanding anything in this Article 7 to the contrary, distribution
of a Participant's Account shall be in accordance with the Participant's
Election Form in effect at the time of the distribution. If there is no
Election Form in effect at the time of the distribution, the provisions of this
Article 7 shall apply.
SECOND: The following Section 7.5a shall be added to Article 7:
"7.5a Voluntary Withdrawal
At the request of a Participant, the Plan Administrator may authorize a
withdrawal of the Participant's vested Account (including any earnings
attributable thereto) provided that as the consequence of making such a
withdrawal, (1) Participant shall forfeit an amount equal to ten percent (10%)
of the requested withdrawal; and (2) the Participant shall be suspended from
making further contributions to the Plan for a period of not less than twelve
(12) months following any such withdrawal. The Plan Administrator may establish
reasonable procedures and limitations concerning Participants' withdrawal
rights pursuant to this Section 7.5a as the Plan Administrator may, in its sole
discretion, deem necessary or appropriate or in furtherance of the purposes of
the Plan. Distributions pursuant to Participant withdrawal elections under this
Section 7.5a shall be made as soon as practicable following the Plan
Administrator's receipt of a Participant's written withdrawal election, which
election shall be in such form as the Plan Administrator shall prescribe."
<PAGE> 6
The Merrill Lynch Special Non-Qualified Deferred
Compensation Plan Adoption Agreement
Please complete the information requested in the Adoption Agreement to
establish the specific provisions of your plan. You do not have to provide a
copy to your Financial Consultant. (Only the Merrill Lynch account opening
agreements and an original executed copy of the associated Trust Agreement need
to be returned to Merrill Lynch at the address printed on those forms.) This
document and the Merrill Lynch Special Non-Qualified Deferred Compensation Plan
for Select Employees govern the rights of plan participants and should,
therefore, be disclosed to participants and retained as part of your permanent
records.
1. EMPLOYER INFORMATION
A. Name of the Plan: The Gymboree Corporation Deferred Compensation Plan
B. Name and Address of employer sponsoring the Plan. Please provide employer's
business name.
The Gymboree Corporation
------------------------
Business Name
700 Airport Blvd., Suite 200
----------------------------
Address
Burlingame
----------
City
California 94010-1912
----------------------
State Zip Code
C. Provide employer's primary contact for the Plan and telephone and FAX
numbers. Also include the employer's Tax Identification Number.
Janelle Dausch
---------------
Primary Contact
Benefits Manager
----------------
Title
415-696-7403
------------
Telephone
415-696-7400
------------
Fax
94-2615258
----------------------------------
Employer Tax Identification Number
D. Give the first day of the 12-month period for which the employer pays
taxes: __________
2. PLAN INFORMATION
A. What is the effective date of the Plan?
December 1, 1995
----------------
B. Plan Year Ends. Your "Plan Year" is the 12-consecutive-month period for
which you credit elective and matching deferrals and keep Plan records. Enter
the last day of your Plan Year. For example, if you use the calendar year as
your plan year, enter "December 31." If you use a different 12-month period -
for instance if your business is on a fiscal year - enter the last day of your
fiscal year, e.g., "July 31."
December 31
-----------
3. ELIGIBLE EMPLOYEES
The following persons or classes of persons shall be Participants (enter the
names or positions of individuals eligible to participate or the criteria used
to identify Participants, e.g., "Those key employees of the Company selected by
the Compensation Committee of the Board of Directors").
Directors (including Regional Directors), Vice Presidents,
------------------------------------------------------------------------
Senior Vice Presidents, the President, Members of the Board of Directors
------------------------------------------------------------------------
4. COMPENSATION
Compensation is used to determine the amount of Elective Deferrals a
Participant can elect. Compensation under the Plan is defined as (select one):
[ ] the Participant's wages, salaries, fees for professional services and other
amounts received (without regard to whether or not an amount is paid in cash)
for personal services actually rendered in the course of employment with the
Employer or an Affiliate to the extent that the amounts are includable in gross
income, including but not limited to commissions paid to salesmen, compensation
for services on the basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits, reimbursements, and expense
allowances, but not including those items excludable from the definition of
compensation under Treas. Reg. section 1.415-2(d)(3).
[ ] the regular or base salary payable to the individual by the Employer or an
Affiliate, excluding commissions and bonuses.
[XX] the cash compensation payable to the individual by the Employer or an
Affiliate, including any commissions and bonuses.
[ ] the cash bonuses payable to the individual by the Employer or an Affiliate.
For purposes of the Plan, Compensation will be determined before giving effect
to Elective Deferrals and other salary reduction amounts which are not included
in the Participant's gross income under Code section 125.401(k), 402(h) or
403(b).
5. CONTRIBUTIONS
A. Elective Deferrals. Participants may elect to reduce their Compensation and
to have Elective Deferrals credited to their Accounts by making an election
under the Plan (which may be changed each year for later Plan Years as
described in the plan), but no Participant may defer more than 100% (1%-100%)
of his or her Compensation for a Plan Year.
B. Matching Deferrals. If the Employer elects to match Elective Deferrals,
specify the matching rate and indicate the amount of the Participant's Elective
Deferrals that will be matched. You may also elect to decide each year whether
Matching Deferrals will be made and, if so, what that year's matching rate
will be.
For example, the Employer may decide to credit a Matching Deferral of, for
example, 50 cents for each dollar of a Participant's Elective Deferrals, but
limit the match to the first 5% of Compensation deferred by the Participant. If
you want to set a maximum dollar amount on the amount of Elective Deferrals
that will be matched, insert the dollar amount and interval over which that
amount is to be measured. For example, you could say that you will not match
Elective Deferrals in excess of $1,000 per month. Matching Deferrals can be
made after each payroll period, monthly, quarterly, or annually, at the
Employer's discretion. Matching Deferrals will be subject to the vesting
schedule selected in Item 6A (select one):
[XX] No Matching Deferrals will be credited.
[ ] The Employer will credit Matching Deferrals for each Participant equal to
____% of the first ____% of the Participant's Compensation which is elected as
an Elective Deferral, but no Matching Deferral will be made on Elective
Deferrals in excess of $______ per (specify time period if applicable).
______________________________________________________________________________
[ ] The Employer will decide from year to year whether Matching Deferrals will
be made and will notify Participants annually of the manner in which Matching
Deferrals will be calculated for the subsequent year.
<PAGE> 7
C. Discretionary Incentive Contributions. The Employer may make
Discretionary Incentive Contributions in any amounts the Employer selects. These
contributions will be subject to the vesting schedule selected in Item 6C.
The Employer will make Discretionary Incentive Contributions under the Plan.
[ ] yes [X] no
6. VESTING OF MATCHING DEFERRALS AND DISCRETIONARY INCENTIVE CONTRIBUTIONS
A. Vesting Schedule for Matching Deferrals.
Indicate how the portion of a Participant's Account attributable to Matching
Deferrals is to vest.
Matching Deferrals vest in accordance with the following schedule (select one):
[ ] 100% immediate.
[ ] 100% after _______ years of service.
[ ] 20% after _______ years of service and an additional 20% for each year
thereafter.
[ ] Other vesting schedule (specify):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
B. Vesting Service.
Indicate whether you will give credit for vesting service for time spent with a
predecessor employer, and if so, specify the maximum number of years and the
type of predecessor service for which credit will be given. For vesting purposes
(select one):
[ ] Service with a predecessor employer will not be considered.
[ ] Service (up to a maximum of ______ years) with the following
employer(s) will be considered:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
C. Vesting Schedule of Discretionary Incentive Contributions.
Indicate how the portion of a Participant's Account attributable to
Discretionary Incentive Contributions is to vest.
Unless otherwise specified by the Employer at the time a Discretionary
Incentive Contribution is made, Discretionary Incentive Contributions vest in
accordance with the following schedule (select one):
[ ] 100% immediate.
[ ] 100% after _____ years of service.
[ ] 20% after _____ years of service and an additional 20% for each year
thereafter.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
7. ACCOUNTS
The Trustee can either invest each Participant's Account balance as a separate
account (in which case the Trustee, could, but would not be required to, take
into consideration the investment preferences of the Participants) or invest
the Account balances of all Participants as a single fund (in which case the
Trustee could, but would not be required to, take into consideration the
investment preference of the Employer) (select one):
[X] Account balances are to be invested separately.
[ ] Account balances are to be invested as a single fund.
8. RETIREMENT AGE
The Retirement Age under the Plan is age 60. A Participant terminating
employment before Retirement Age for reasons other than death or Total and
Permanent Disability will not be entitled to receive any installment payments
elected on the Election Form.
See Rider Attached
9. WITHDRAWALS WHILE WORKING
Withdrawals for Unforeseen Emergency. If you check the first box, Participants
may make withdrawals while working in the event they encounter an unforeseen
emergency. They generally can withdraw the vested portion of their Accounts.
NOTE: Withdrawals are strictly limited as described in Plan Section 7.5. It is
the Plan Administrator's responsibility to ensure that the limits are being
followed. Excess withdrawals may result in loss of the tax deferral on all
amounts credited under the Plan for the benefit of all Participants.
Withdrawals of the vested portion of a Participant's Account for unforeseen
emergencies (select one):
[X] Are permitted to the full extent allowable under the plan.
[ ] Are not permitted.
See Rider Attached
10. ADMINISTRATION
Plan Administrator. The Plan Administrator is legally responsible for the
operation of the Plan, including:
o Keeping track of which employees are eligible to participate in the
Plan and the date each employee becomes eligible to participate.
o Maintaining Participants' Accounts, including all sub-accounts required
for different contribution types and payment elections, and keeping track of
all elections made by Participants under the Plan and any other relevant
information.
o Transmitting important communications to the Participants, and
obtaining relevant information from Participants such as changes in investment
selections.
o Filing important reports required to be submitted to governmental
agencies.
The Plan Administrator will be the person or persons identified below:
Nancy J. Pedot
- -----------------------------
Name
President and CEO
- -----------------------------
Title
James P. Curley
- -----------------------------
Name
Senior Vice President and CFO
- -----------------------------
Name
- -----------------------------
Name
- -----------------------------
Title
11. SIGNATURES
After reviewing the Adoption Agreement, enter the current date and the name of
the Employer. The signature of the Employer or the person signing for the
Employer must be witnessed. Note that the person signing for the Employer must
be authorized to do so, such as by a resolution of the Employer's board of
directors or governing by-laws.
While the Merrill Lynch Special Non-Qualified Deferred Compensation Plan for
Select Employees, including this Adoption Agreement, has been designed in a
manner to permit Participants to defer federal income tax on amounts credited
to their accounts until the amounts are actually paid, neither Merrill Lynch,
Pierce, Fenner & Smith Incorporated, the sponsor of this document, nor any of
its affiliates ("Merrill Lynch") provide any assurances of that result in the
Employer's particular situation or assume any responsibility in this regard.
Please consult your tax advisor regarding the tax consequences of this Plan to
you and your employees and the advisability of submitting this document to the
Internal Revenue Service to obtain a ruling concerning those consequences. In
addition, please consult your independent legal counsel with respect to
securities law issues. By signing this Adoption Agreement the Employer
acknowledges that no representations or warranties as to the tax consequences
to the Employer and Participants of the operation of this Plan have been made
by Merrill Lynch.
THE GYMBOREE CORPORATION
- --------------------------------
Name of Employer (Print or Type)
James P. Curley, Senior VP, CFO
- --------------------------------
Print Name and Title
Date:
WITNESS:
Janelle Dausch
- --------------------------------
Signature
<PAGE> 8
RIDER TO
THE MERRILL LYNCH
SPECIAL NON-QUALIFIED DEFERRED
COMPENSATION PLAN ADOPTION AGREEMENT
FIRST: Notwithstanding anything to the contrary in this Section 8 of
The Merrill Lynch Special Non-Qualified Deferred Compensation Agreement, a
Participant terminating employment before Retirement Age for reasons other than
death or Total and Permanent Disability shall be entitled to receive
installment payments elected on the Election Form.
SECOND: Notwithstanding anything to the contrary in this Section 9 of
The Merrill Lynch Special Non-Qualified Deferred Compensation Plan Adoption
Agreement, Participants shall also be permitted to make Voluntary Withdrawals in
accordance with Section 7.5a of the Plan.
<PAGE> 1
EXHIBIT 11.1
THE GYMBOREE CORPORATION
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------
FEBRUARY 2, FEBRUARY 4, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
NET INCOME (000'S) $ 31,788 $ 26,381 $ 22,195
=========== =========== ===========
Weighted average number of shares
outstanding during the period:
Common Stock 25,111,027 24,861,874 24,279,137
Add incremental shares from assumed
exercise of stock options and warrants 553,019 495,370 983,061
----------- ----------- -----------
25,664,046 25,357,244 25,262,198
=========== =========== ===========
PRIMARY NET INCOME PER SHARE $ 1.24 $ 1.04 $ 0.88
=========== =========== ===========
Weighted average number of shares
outstanding during the period:
Common Stock 25,111,027 24,861,874 24,279,137
Add incremental shares from assumed
exercise of stock options and warrants 558,526 494,704 985,518
----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding during
the period 25,669,553 25,356,578 25,264,655
=========== =========== ===========
FULLY DILUTED NET INCOME PER SHARE $ 1.24 $ 1.04 $ 0.88
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 13.1
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial data have been derived from the
consolidated financial statements of the Company. The data set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and notes thereto.
<TABLE>
<CAPTION>
(In thousands, except operating data
and per share amounts) 1996 1995 1994 1993 1992
--------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (1)
Net sales $ 303,111 $ 259,381 $ 188,424 $ 129,582 $ 86,367
Cost of goods sold, including buying
and occupancy expenses (164,052) (149,428) (100,651) (69,462) (47,630)
--------- ----------- ----------- --------- ---------
Gross profit 139,059 109,953 87,773 60,120 38,737
Selling, general and administrative expenses (91,540) (69,845) (53,095) (38,312) (28,107)
Play program income, net 74 316 554 1,237 740
--------- ----------- ----------- --------- ---------
Operating income 47,593 40,424 35,232 23,045 11,370
Interest income 3,678 2,823 1,760 867 227
--------- ----------- ----------- --------- ---------
Income before income taxes 51,271 43,247 36,992 23,912 11,597
Income taxes (19,483) (16,866) (14,797) (9,806) (4,650)
--------- ----------- ----------- --------- ---------
Net income $ 31,788 $ 26,381 $ 22,195 $ 14,106 $ 6,947
========= =========== =========== ========= =========
Net income per share(2) $ 1.24 $ 1.04 $ 0.88 $ 0.57 $ 0.31
Weighted average shares outstanding 25,670 25,357 25,265 24,858 22,112
Cash dividends per share --- --- --- --- ---
OPERATING DATA:
Number of stores at end of period 354 279 209 152 112
Net sales per average gross square foot $ 670 $ 827 $ 882 $ 851 $ 805
Net sales per average store 948,000 1,063,000 1,050,000 982,000 899,000
Comparable store net sales increase/(decrease) (3) (6%) 3% 12% 11% 21%
BALANCE SHEET DATA :
Working capital $ 105,190 $ 89,417 $ 73,937 $ 49,907 $ 13,757
Total assets 216,909 160,009 126,083 87,607 38,592
Long-term debt --- --- --- --- ---
Redeemable preferred stock --- --- --- --- 8,429
Stockholders' equity $ 161,933 $ 123,934 $ 92,629 $ 63,305 $ 15,497
</TABLE>
(1) 1996 included 52 weeks, 1995 included 53 weeks, and 1994 through 1992
included 52 weeks.
(2) Primary and fully diluted net income per share for all five years are
the same.
(3) A store becomes comparable after it is opened for 14 full months.
Comparable store net sales in fiscal years 1996 through 1992 were
calculated on a 52 week basis.
This annual report contains certain forward-looking statements reflecting the
Company's current expectations and there can be no assurance that the Company's
actual future performance will meet such expectations. Factors that could cause
future performance to vary from current expectations include, but are not
limited to, the factors discussed later under the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section.
-1-
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Gymboree Corporation was founded in 1976 as a provider of interactive
parent-child play programs and began to franchise this business in 1979. In
1986, the Company opened its first retail store featuring children's apparel and
accessories. Through the end of 1996, the Company has grown to 354 stores, which
includes 349 stores in 48 states in the United States and 5 stores in Canada.
The Company's net sales for the 52 weeks ended February 2, 1997 increased
to $303.1 million from $259.4 million in the 53 weeks ended February 4, 1996 and
$188.4 million in the 52 weeks ended January 29, 1995. Net income increased to
$31.8 million in 1996 from $26.4 million in 1995 and $22.2 million in 1994.
These increases in net sales and net income were due principally to the
Company's store expansion. Comparable store net sales, all based on a 52 week
period, decreased 6% for 1996 and increased 3% and 12% for 1995 and 1994,
respectively. The Company expects that future increases in net sales and net
income will be increasingly dependent on the opening and profitability of new
stores.
The Company's year typically ends on the Sunday closest to January 31 of
each year. 1996, which included 52 weeks, ended on February 2, 1997 while 1995,
which included 53 weeks, ended on February 4, 1996 and 1994, which had 52 weeks,
ended on January 29, 1995.
2
<PAGE> 3
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, (i) selected income
statement data expressed as a percentage of net sales, (ii) the percentage
change from the same period of the prior year in such selected income statement
data and (iii) the number of stores open at the end of each such period:
<TABLE>
<CAPTION>
Percentage Change
As a Percentage of Net Sales in Amounts
for the Year Ended From Year
---------------------------- ------------------------------------
(52 weeks) (53 weeks) (52 weeks) 1996 to 1995 to
1997 1996 1995 1995 1994
---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 17% 38%
Cost of goods sold, including
buying and occupancy
expenses (54.1) (57.6) (53.4) 10 48
----- ----- ----- --- --
Gross profit 45.9 42.4 46.6 26 25
Selling, general and
administrative expenses (30.2) (26.9) (28.2) 31 32
Play program income, net 0.0 0.1 0.3 (77) (43)
----- ----- ----- --- --
Operating income 15.7 15.6 18.7 18 15
Interest income 1.2 1.1 0.9 30 60
----- ----- ----- --- --
Income before income
taxes 16.9 16.7 19.6 19 17
Income taxes (6.4) (6.5) (7.8) 16 14
----- ----- ----- --- --
Net income 10.5% 10.2% 11.8% 20% 19%
===== ===== ===== === ==
Number of stores at
end of period 354 279 209 27% 33%
</TABLE>
3
<PAGE> 4
RESULTS OF OPERATIONS (CONTINUED)
1996 COMPARED TO 1995
NET SALES
Net sales increased 17% to $303.1 million for 1996, compared to $259.4
million for 1995. Sales for the 75 stores opened in 1996 contributed $35.3
million of the increase in net sales. Stores opened prior to 1996 but not
qualifying as comparable stores, including the 19 stores expanded in 1996,
contributed $20.9 million of the increase in net sales. These were offset, in
part, by a decrease in comparable store net sales for 1996 of $12.5 million.
Comparable store net sales for 1996 decreased 6% over the same period in 1995.
The decrease in comparable store net sales was primarily due to the Company
operating with significantly lower average store inventory levels and lower
levels of markdowns compared to 1995.
GROSS PROFIT
Gross profit increased 26% to $139.1 million in 1996 from $110.0 million in
1995. As a percentage of net sales, gross profit increased to 45.9% in 1996 from
42.4% in 1995. The increase in gross profit was attributable to the trend of
lower per store inventory levels which contributed to a reduction in average
markdowns per store in 1996 compared to 1995.
The Company is planning higher average per store inventory levels in 1997
as compared to 1996. While the increase in average per store inventory levels is
expected to have a favorable impact on comparable store sales, this may result
in downward pressure on gross profit as a percent of sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("S,G&A"), which principally
consist of non-occupancy store expenses, corporate overhead and distribution
expenses, increased as a percentage of net sales to 30.2% in 1996 compared to
26.9% in 1995. The increase in S,G&A, as a percentage of net sales, was largely
due to a decline in comparable store sales, the funding of a new catalog
business and international store expansion. The Company expects total S,G&A, as
a percentage of net sales, to decline slightly in 1997 due to a planned increase
in comparable store sales and the discontinuation of the Company's catalog
business at the end of 1996. However, this will be partially offset by expenses
associated with the international store expansion.
INTEREST INCOME
Interest income increased to $3.7 million in 1996, from $2.8 million in
1995, due to higher average cash and investment balances as compared to the
prior year.
4
<PAGE> 5
RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES
The Company's effective tax rate for 1996 was 38% compared to 39% in 1995
due to a lower aggregate state tax rate than the prior year. See Note 6 of Notes
to Consolidated Financial Statements.
1995 COMPARED TO 1994
NET SALES
Net sales increased 38% to $259.4 million in 1995 compared to $188.4
million in 1994. Sales for the 71 stores opened in 1995 contributed $35.6
million of the increase in net sales. Stores opened prior to 1995 but not
qualifying as comparable stores, including the 14 stores expanded in 1995,
contributed $26.7 million of the increase in net sales. Increases in comparable
store net sales for 1995 contributed $8.7 million of the increase in net sales.
Comparable store net sales for 1995 increased 3% over 1994.
The increase in comparable store net sales was primarily due to an increase
in unit sales attributable to increased promotional pricing and the introduction
of the new Layette line in the fall of 1994.
GROSS PROFIT
Gross profit increased 25% to $110.0 million in 1995 from $87.8 million in
1994. As a percentage of net sales, gross profit decreased to 42.4% in 1995 from
46.6% in 1994. The decrease was primarily due to an increased level of markdowns
compared to 1994. The largest portion of this increase in markdowns occurred in
the second half of 1995, when the Company strategically reduced inventory levels
per store through promotional pricing.
5
<PAGE> 6
RESULTS OF OPERATIONS (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, which principally consist of
non-occupancy store expenses, corporate overhead and distribution expenses,
decreased as a percentage of net sales to 26.9% in 1995 from 28.2% in 1994. The
decrease was primarily due to decreases, as a percentage of net sales, in
corporate office and store payroll expenses. In addition, overall expense
leverage was achieved due to the growth in net sales.
INTEREST INCOME
Interest income increased to $2.8 million in 1995 from $1.8 million in 1994
due to higher average cash and investment balances as compared to the prior
year.
INCOME TAXES
The Company's effective tax rate for 1995 was 39%, compared to 40% in
1994, due to a lower aggregate state tax rate than in the prior year. See Note 6
of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, 1995 and 1996, the Company satisfied its cash requirements
through cash flow from operations. Primary uses of cash have been to finance the
construction of new stores, purchase merchandise inventories and purchase
investments.
The combined balances of cash, cash equivalents and investments were $90.4
million and $73.6 million at the end of 1996 and 1995, respectively. Working
capital as of February 2, 1997 was $105.2 million compared to $89.4 million at
February 4, 1996. The increase in working capital was primarily due to higher
cash, cash equivalents and investments balances. The Company's investments are
largely made in short to medium term investment grade securities.
During 1996, the Company generated $49.1 million of cash from operations
and $4.8 million from the exercise of stock options. Uses of cash consisted
primarily of $37.1 million for capital expenditures, related largely to the
opening of 75 new stores, the expansion of 19 existing stores and the investment
in management information systems. During 1995, the Company generated $32.7
million of cash from operations and $2.4 million from the exercise of stock
options. In 1995, the Company used cash of $25.5 million primarily to open 71
new stores and expand 14 existing stores.
6
<PAGE> 7
The Company has no long-term debt and did not require any cash borrowings
in either 1996 or 1995. The Company's only outside financing requirement was for
documentary letters of credit used to fund its foreign sourcing of merchandise
inventories. As of February 2, 1997, the Company had two bank lines of credit
that allow up to $100 million of long-term, unsecured letters of credit, of
which $86.6 million was available pursuant to such lines.
The Company estimates that capital expenditures during 1997 will be between
$50 million and $60 million, which will primarily be used to open approximately
75 to 85 new stores and expand approximately 25 existing stores, and to purchase
land and construct a new 280,000 square foot distribution facility.
In February 1997, the Board of Directors authorized the Company to
repurchase up to $30 million of its outstanding common stock. See Note 9 of
Notes to consolidated Financial Statements.
The Company anticipates that cash generated from operations, together with
its existing cash resources and funds available from its current letters of
credit facilities, will be sufficient to satisfy its cash needs through at least
1997.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company has historically experienced and expects to continue to
experience seasonal fluctuations in its sales and net income. A disproportionate
amount of the Company's sales and net income is realized during the months of
November and December. The Company has also experienced periods of increased
sales activity in early spring and early fall. Furthermore, sales and net income
are weakest during the second quarter. If, for any reason, the Company's sales
were below seasonal norms during November and December, or during the early
spring or early fall, the Company's annual operating results could be materially
and adversely affected. Because of the seasonality of the Company's business,
results for any quarter are not necessarily indicative of results that may be
achieved for a full year. See Note 10 of Notes to Consolidated Financial
Statements.
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
The discussion in this annual report contains certain forward-looking
statements that involve risks and uncertainties. Actual results may differ
significantly from the results discussed in the forward-looking statements.
Future operating results will depend upon many factors, including general
economic conditions, levels of competition and the ability of the Company to
successfully identify and respond to emerging children's fashion trends, achieve
its expansion plans and effectively monitor and control costs. While the Company
expects that its increased inventory levels will have a favorable effect on
comparable store sales, there can be no assurance that the Company will
experience increases in comparable store sales.
During 1996, the Company opened five stores in Canada. In 1997, the
Company is planning to further its international expansion in Canada, the United
Kingdom and the Republic of Ireland. The success of this expansion will depend
upon a number of factors, including the ability to provide an adequate supply of
inventory and the ability to hire and train qualified employees, of which there
can be no assurance.
7
<PAGE> 8
THE GYMBOREE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
February 2, February 4,
1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,027 $ 8,755
Investments 82,360 64,893
Accounts receivable 4,336 2,868
Merchandise inventories 48,979 37,652
Prepaid expenses and other 1,893 1,886
--------- ---------
Total current assets 145,595 116,054
--------- ---------
PROPERTY AND EQUIPMENT:
Leasehold improvements 44,231 31,126
Furniture, fixtures, and equipment 45,820 24,367
--------- ---------
90,051 55,493
Less accumulated depreciation and amortization (19,465) (12,085)
--------- ---------
70,586 43,408
OTHER ASSETS 728 547
--------- ---------
TOTAL ASSETS $ 216,909 $ 160,009
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,949 $ 9,657
Accrued liabilities 11,825 10,736
Income taxes payable 6,631 6,244
--------- ---------
Total current liabilities 40,405 26,637
--------- ---------
DEFERRED RENT AND OTHER LIABILITIES 14,571 9,438
STOCKHOLDERS' EQUITY:
Common stock, including excess paid-in capital ($.001 par value:
100,000,000 shares authorized; 25,324,060 and 24,992,276 shares
outstanding at February 2, 1997 and February 4, 1996, respectively) 62,694 56,687
Restricted stock deferred compensation (753) (1,139)
Unrealized investment gain 220 402
Retained earnings 99,772 67,984
--------- ---------
Total stockholders' equity 161,933 123,934
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 216,909 $ 160,009
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-8-
<PAGE> 9
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
February 2, February 4, January 29,
1997 1996 1995
(52 weeks) (53 weeks) (52 weeks)
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 303,111 $ 259,381 $ 188,424
Cost of goods sold, including buying and occupancy expenses (164,052) (149,428) (100,651)
--------- --------- ---------
Gross profit 139,059 109,953 87,773
Selling, general and administrative expenses (91,540) (69,845) (53,095)
Play program income, net 74 316 554
--------- --------- ---------
Operating income 47,593 40,424 35,232
Interest income 3,678 2,823 1,760
--------- --------- ---------
Income before income taxes 51,271 43,247 36,992
Income taxes (19,483) (16,866) (14,797)
--------- --------- ---------
=========
Net income $ 31,788 $ 26,381 $ 22,195
========= ========= =========
Net income per share:
Primary and fully diluted $ 1.24 $ 1.04 $ 0.88
Weighted average shares outstanding 25,670 25,357 25,262
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-9-
<PAGE> 10
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
February 2, February 4, January 29,
1997 1996 1995
(52 weeks) (53 weeks) (52 weeks)
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 31,788 $ 26,381 $ 22,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,899 5,367 3,334
Non-cash compensation expenses 386 394 404
Loss on disposal of property and equipment 980 712 174
Provision for deferred income taxes 1,200 647 63
Tax benefit from exercise of stock options 1,167 1,217 4,879
Change in assets and liabilities:
Accounts receivable (1,468) (727) (436)
Merchandise inventories (11,327) (3,555) (13,699)
Prepaid expenses and other assets (1,338) (374) 44
Accounts payable 12,292 (1,983) 3,064
Accrued liabilities 1,089 (176) 2,897
Income taxes payable 387 1,695 679
Deferred rent and other 5,085 3,085 2,511
-------- -------- --------
Net cash provided by operating activities 49,140 32,683 26,109
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (37,059) (25,500) (11,645)
Purchases of investments (17,649) (11,905) (16,626)
-------- -------- --------
Net cash used in investing activities (54,708) (37,405) (28,271)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 4,840 2,449 2,402
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (728) (2,273) 240
CASH AND CASH EQUIVALENTS:
Beginning of year 8,755 11,028 10,788
-------- -------- --------
End of year $ 8,027 $ 8,755 $ 11,028
======== ======== ========
OTHER CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 16,822 $ 13,605 $ 9,188
======== ======== ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of restricted stock $ --- $ --- $ 1,937
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-10-
<PAGE> 11
THE GYMBOREE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK AND
EXCESS PAID-IN CAPITAL RESTRICTED
------------------------ STOCK UNREALIZED
DEFERRED INVESTMENTS RETAINED
SHARES AMOUNT COMPENSATION GAIN (LOSS) EARNINGS TOTAL
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance at January 30, 1994 23,919,944 $ 43,803 $ -- $ 94 $19,408 $ 63,305
Issuance of common stock under
stock plans 565,258 2,402 2,402
Tax benefit from exercise of
stock options 4,879 4,879
Unrealized loss on investments (556) (556)
Issuance of restricted stock 100,000 1,937 (1,937) --
Amortization of restricted stock 404 404
Net income 22,195 22,195
======================================================================================================================
Balance at January 29, 1995 24,585,202 $ 53,021 $(1,533) $(462) $41,603 $ 92,629
Issuance of common stock under
stock plans 407,074 2,449 2,449
Tax benefit from exercise of
stock options 1,217 1,217
Unrealized gain on investments 864 864
Amortization of restricted stock 394 394
Net income 26,381 26,381
======================================================================================================================
Balance at February 4, 1996 24,992,276 $ 56,687 $(1,139) $ 402 $67,984 $123,934
Issuance of common stock under
stock plans 331,784 4,840 4,840
Tax benefit from exercise of
stock options 1,167 1,167
Unrealized loss on investments (182) (182)
Amortization of restricted stock 386 386
Net income 31,788 31,788
======================================================================================================================
Balance at February 2, 1997 25,324,060 $ 62,694 $ (753) $ 220 $99,772 $161,933
======================================================================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-11-
<PAGE> 12
THE GYMBOREE CORPORATION
-------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include
The Gymboree Corporation and its wholly-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
NATURE OF THE BUSINESS. The Company is a leading specialty retailer of
high quality apparel and accessories for children ages newborn to seven years.
As of February 2, 1997, February 4, 1996 and January 29, 1995, the Company had
354, 279 and 209 retail stores, respectively. The Company also offers directed
parent-child developmental play programs at approximately 377 franchised
locations and 13 Company-operated locations.
FISCAL YEAR. The Company's fiscal year typically ends on the Sunday
closest to January 31 of each year. 1996, which included 52 weeks, ended on
February 2, 1997, while 1995, which included 53 weeks ended on February 4,
1996, and 1994, which included 52 weeks, ended on January 29, 1995.
CASH AND CASH EQUIVALENTS. Cash equivalents consist of highly liquid
investment instruments with a maturity of three months or less, at date of
purchase.
INVESTMENTS. The Company's investments, consisting primarily of
municipal bonds, are classified as available-for-sale and are recorded at fair
market value. Fair market value is based upon quoted market prices on the last
day of the year. Unrealized changes in value are recorded as a component of
stockholders' equity.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of
cash and cash equivalents, accounts receivable and accounts payable approximates
their estimated fair value.
MERCHANDISE INVENTORIES. Merchandise inventories are recorded under the
retail method of accounting and are stated at the lower of cost or market.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from approximately three to ten years.
Leasehold improvements are amortized over the lesser of the lease term or the
estimated useful lives of the improvements.
12
<PAGE> 13
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
COMPUTER SOFTWARE. Internally developed and purchased computer software
is recorded at cost and is amortized using the straight-line method based on an
estimated useful life of five years.
INCOME TAXES. The Company computes income taxes using the asset and
liability method. Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities.
DEFERRED RENT. Many of the Company's operating leases contain
predetermined fixed increases of the minimum rental rate during the initial
lease term. For these leases, the Company recognizes the related rental expense
on a straight-line basis and records the difference between the amount charged
to expense and the rent paid as deferred rent.
NET INCOME PER SHARE. Primary and fully diluted net income per share
are based on the weighted average number of shares of common stock and common
stock equivalents outstanding during the year. The dilutive effect of such
common stock equivalents is computed using the treasury stock method. The
computation of primary and fully diluted net income per share is the same for
1996, 1995, and 1994.
STORE PREOPENING COSTS. Store preopening costs are expensed as
incurred.
PLAY PROGRAM REVENUE RECOGNITION. Initial franchise fees for all sites
sold in a territory are recognized as revenue when the franchisee has paid the
initial franchise fee, has received government approval in the case of
international franchises, and has completed the training program. At that time,
the Company has provided substantially all of the initial services required by
the franchise agreement.
USE OF ESTIMATES. The preparation of the 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 amount of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION. In 1996, the Company adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", which
provide for the disclosure of pro forma net earnings and earnings per share as
if the fair value method were used to account for stock-based employee
compensation plans (see Note 7). Pursuant to SFAS No.123, the Company has
elected to continue to use the intrinsic value method to account for such plans
in the accompanying consolidated financial statements in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees".
RECLASSIFICATIONS. Certain amounts for prior years have been
reclassified to conform to the 1996 presentation.
13
<PAGE> 14
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share" ("EPS"), which requires dual presentation of basic EPS
and diluted EPS on the face of all income statements issued after December 15,
1997 for all entities with complex capital structures. Basic EPS is computed as
net income divided by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur
from common shares issuable through stock options, warrants and other
convertible securities. The pro forma effect assuming adoption of SFAS No. 128
at the beginning of each period is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Pro forma EPS:
Basic $1.26 $1.06 $0.91
Diluted $1.24 $1.04 $0.88
</TABLE>
2. INVESTMENTS
As of February 2, 1997 and February 4, 1996, all of the Company's
investment securities were classified as available-for-sale. The Company's
investments consist of the following (in thousands):
<TABLE>
<CAPTION>
February 2, 1997 February 4, 1996
--------------------------------- ----------------------------------
Gross Gross
Unrealized Fair Unrealized Fair
Amortized Holding Market Amortized Holding Market
Cost Gain Value Cost Gain (Loss) Value
--------- ---------- -------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Municipal bonds $47,597 $169 $47,766 $23,054 $ 98 $23,152
Treasury bills/notes 20,847 2 20,849 21,421 179 21,600
Commercial paper 8,755 19 8,774 19,211 139 19,350
Asset backed securities 2,618 5 2,623 0 0 0
Collateralized mortgage
obligations 2,323 25 2,348 805 (14) 791
------- ---- ------- ------- ----- -------
Totals $82,140 $220 $82,360 $64,491 $ 402 $64,893
======= ==== ======= ======= ===== =======
</TABLE>
14
<PAGE> 15
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following table shows the amortized cost and approximate fair market
value of investment securities by contractual maturity at February 2, 1997 (in
thousands):
<TABLE>
<CAPTION>
Fair
Amortized Market
Cost Value
--------- -------
<S> <C> <C>
Within one year $26,255 $26,366
After one but within five years 52,086 52,194
Over five years 3,799 3,800
------- -------
Totals $82,140 $82,360
======= =======
</TABLE>
3. LEASES
The Company leases its store locations, corporate headquarters, a
distribution center and certain fixtures and equipment under operating leases.
The leases expire at various dates through the year 2009. Store leases typically
provide for payment by the Company of operating expenses, real estate taxes and
additional rent based on a percentage of sales if a specified sales target is
exceeded.
Future minimum lease payments under operating leases at February 2, 1997 are as
follows:
<TABLE>
<CAPTION>
Operating
(In thousands) Leases
- ----------------------------------------------------------
<S> <C>
Year:
1997 $ 19,760
1998 19,231
1999 18,575
2000 18,523
2001 18,033
Later years 59,644
--------
Total minimum lease commitments $153,766
========
</TABLE>
Rent expense for all operating leases was $29.1 million, $23.1 million
and $16.4 million, in 1996, 1995 and 1994 respectively, which includes
percentage rent expense and other lease required expenses of $10.9 million, $9.7
million and $7.2 million for 1996, 1995 and 1994, respectively.
15
<PAGE> 16
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. LINES OF CREDIT
The Company's only outside financing requirement was for documentary
letters of credit used to fund its foreign sourcing of merchandise inventories.
As of February 2, 1997, the Company had two bank lines of credit that allow up
to $100 million of long-term, unsecured letters of credit, of which $86.6
million was available.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
February 2, February 4,
1997 1996
----------- -----------
<S> <C> <C>
Employee compensation $ 5,290 $ 4,042
Sales taxes 1,582 1,078
Percentage rent 561 1,808
Store credits and gift certificates 2,150 1,486
Other 2,242 2,322
------- -------
Total $11,825 $10,736
======= =======
</TABLE>
Other accrued liabilities relate primarily to store operating expenses.
16
<PAGE> 17
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Current:
Federal $15,100 $14,669 $ 12,825
State 3,183 1,550 1,909
------- ------- --------
Total current 18,283 16,219 14,734
------- ------- --------
Deferred:
Federal 960 467 122
State 240 180 (59)
------- ------- --------
Total deferred 1,200 647 63
------- ------- --------
Total provision $19,483 $16,866 $ 14,797
======= ======= ========
</TABLE>
A reconciliation of the statutory federal income tax rate with the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal rate 35% 35% 35%
State income taxes, net of federal
income tax benefit 3 4 5
-- -- --
Effective tax rate 38% 39% 40%
== == ==
</TABLE>
17
<PAGE> 18
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred income taxes reflect the impact of "temporary differences"
between amounts of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws. Temporary differences and carryforwards
which give rise to deferred tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
February 2, February 4,
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Uniform capitalization costs $ 735 $ 875
Accrued reserves 650 325
State taxes 388 302
Deferred rent 2,264 1,615
Other 210 245
------- -------
4,247 3,362
------- -------
Deferred tax liabilities:
Prepaid expenses (389) (372)
Deferred construction allowances (911) (519)
Software development (1,092) (444)
Assets written-off (1,682) (655)
------- -------
(4,074) (1,990)
------- -------
Net deferred tax assets: $ 173 $ 1,372
======= =======
</TABLE>
7. STOCK PLANS
STOCK OPTION PLANS
The Company's 1983 Incentive Stock Option Plan (the "1983 Plan") and 1993
Stock Option Plan (the "1993 Plan") provide for grants to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code and
for grants of non-statutory stock options and stock purchase rights to
employees, consultants and non-employee directors of the Company. The Company
has reserved a total of 3,600,000 shares of common stock for issuance under the
1983 Plan and 4,025,000 shares of common stock for issuance under the 1993 Plan.
Options granted pursuant to the plans have been granted at exercise prices equal
to the fair market value of the Company's common stock on the date of grant. The
options have a term of either five or ten years and generally vest over a four
year period. No further options may be granted under the 1983 Plan. There were
1,587,668 and 1,045,176 shares available for the grant of options under the 1993
Plan at February 2, 1997 and February 4, 1996, respectively.
18
<PAGE> 19
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following summarizes all stock option transactions for the three years
ended February 2, 1997 (shares in thousands):
<TABLE>
<CAPTION>
Weighted
Shares Average Price
Outstanding Per Share
- --------------------------------------------------------------------
<S> <C> <C>
Balance, January 30, 1994 2,088 $ 7.52
Options granted 712 22.50
Options exercised (512) 3.69
Options canceled (412) 12.19
- --------------------------------------------------------------------
Balance, January 29, 1995 1,847 12.26
Options granted 529 24.87
Options exercised (382) 5.28
Options canceled (226) 17.44
- --------------------------------------------------------------------
Balance, February 4, 1996 1,768 17.50
Options granted 704 24.37
Options exercised (294) 14.48
Options canceled (252) 23.92
- --------------------------------------------------------------------
Balance, February 2, 1997 1,926 $ 19.51
===== =========
</TABLE>
The following table summarizes information about stock options outstanding
at February 2, 1997 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable (Vested)
----------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Number Average
Exercisable Number Life Exercise of Options Exercise
Prices of Options (in years) Price at 2/2/97 Price
- --------------------------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 0.17 to 10.00 566 5.8 $ 9.21 530 $ 9.16
14.94 to 20.81 358 7.5 19.74 212 20.16
21.75 to 23.50 530 8.6 23.19 152 23.02
23.88 to 26.50 155 8.5 25.21 27 25.04
26.75 to 28.50 204 8.3 26.80 82 26.75
28.63 to 36.63 113 8.4 30.61 33 30.61
------ ------ ----- ------
$ 0.17 to 36.63 1,926 $19.51 1,036 $15.93
------ ------ ----- ------
</TABLE>
19
<PAGE> 20
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
At February 2, 1997, options to purchase 1,036,000 shares were exercisable
at a weighted average price of $15.93. At February 4, 1996, options to purchase
730,955 shares were exercisable at a weighted average price of $14.03. At
January 29, 1995, options to purchase 589,710 shares were exercisable at a
weighted average price of $8.27.
1993 EMPLOYEE STOCK PURCHASE PLAN
The Company has reserved a total of 600,000 shares of common stock for
issuance under the 1993 Employee Stock Purchase Plan (the "Purchase Plan"). The
price at which stock is purchased under the Purchase Plan is equal to 85% of the
fair market value of the common stock on the first day of the applicable
offering period or the last day of the applicable purchase period, whichever is
lower. Unless terminated earlier, the Purchase Plan will terminate in 2013.
There were 37,840 and 25,524 shares issued under the Purchase Plan in fiscal
1996 and fiscal 1995, respectively.
RESTRICTED STOCK
In 1994, the Company granted 100,000 shares of its common stock to its
former President and Chief Executive Officer at an aggregate purchase price of
$50.00. The aggregate fair market value of the shares, as measured by the stock
price on the vesting commencement date was $1,937,500. The shares, which were
issued pursuant to the 1993 Plan, are subject to a repurchase option that lapses
over a period of 60 months. The difference between the purchase price and the
aggregate fair market value of the shares will be amortized as compensation
expense over the five year vesting period. Accordingly, the Company recognized
compensation expense of $386,000 in 1996, $394,000 in 1995, and $404,000 in
1994.
ADDITIONAL STOCK PLAN INFORMATION
The Company has adopted only the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation"; therefore such adoption will have no
effect on the Company's consolidated net earnings or cash flows.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its three stock-based compensation plans, described above.
Accordingly, no compensation expense has been recognized for its stock option
plans and its employee stock purchase plan. Compensation expense has been
charged against income for its restricted stock plan. Had compensation expense
for the Company's stock option plans and the Purchase Plan been determined based
on the fair value at the grant dates for awards under these plans, consistent
with the method of SFAS No.123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
20
<PAGE> 21
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
Year Ended
-------------------------------
February 2, February 4,
1997 1996
----------- -----------
<S> <C> <C>
Net income (in thousands) As reported $31,788 $26,381
Pro forma 29,317 25,430
Primary & fully diluted
net income per share As reported $1.24 $1.04
Pro forma 1.14 1.00
</TABLE>
The weighted average fair value of options granted during 1996 and 1995
were $8.67 and $8.75, respectively. The fair value of each option grant is
estimated on the date of the grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
Year Ended
--------------------------
February 2, February 4,
1997 1996
----------- -----------
<S> <C> <C>
Expected Dividend Rate 0.0% 0.0%
Expected volatility 55.0% 55.0%
Risk-free interest rate 6.0% 6.0%
Expected lives (yrs.) 3.0 2.9
</TABLE>
8. 401(k) PLAN
The Company maintains a voluntary defined contribution 401(k) profit
sharing plan (the "Plan") covering all employees who have met certain service
and eligibility requirements. Employees may elect to contribute up to 20% of
their compensation to the Plan, not to exceed the dollar limit set by law. The
Company matches $0.50 to the Plan for each $1.00 contributed by an employee, up
to a maximum Company contribution of $500 per employee per year. The Company's
matching contributions to the Plan were $133,000, $102,000 and $40,000 in 1996,
1995 and 1994, respectively.
9. SUBSEQUENT EVENTS
STOCK REPURCHASE
In February 1997, the Board of Directors authorized the Company to
repurchase up to $30 million of its outstanding common stock in the open market.
As of March 3, 1997, no shares have been repurchased.
21
<PAGE> 22
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
STOCKHOLDER RIGHTS PLAN
In March 1997, the Company adopted a Stockholder Rights Plan (the
"Plan"). The Plan entails a dividend of one right for each outstanding share of
the Company's common stock. The rights are represented by and traded with the
Company's common stock. There are no separate certificates or market for the
rights.
The rights do not become exercisable or trade separately from the
common stock unless 17.5% or more of the common stock of the Company has been
acquired, or after a tender or exchange offer is made for 17.5% or greater
ownership of the Company's common stock. Should the rights become exercisable,
each right will entitle the holder thereof to buy 1/1,000th of a share of the
Company's Series A Preferred Stock at an exercise price of $125. Each 1/1,000th
of a share of the new Series A Preferred Stock will essentially be the economic
equivalent of one share of common stock.
Under certain circumstances, the rights "flip-in" and become rights to
buy the Company's common stock at a 50% discount. Under certain other
circumstances, the rights "flip-over" and become rights to buy an acquirer's
common stock at a 50% discount.
The rights may be redeemed by the Company for $0.01 per right at any
time on or prior to the fifth day (or a later date as determined by the Board of
Directors) following the first public announcement by the Company of the
acquisition of beneficial ownership of 17.5% of the Company's common stock.
22
<PAGE> 23
THE GYMBOREE CORPORATION
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The quarterly financial information presented below reflects all
adjustments which, in the opinion of the Company's management, are of a normal
and recurring nature necessary to present fairly the results of operations for
the periods presented.
<TABLE>
<CAPTION>
1996 Quarter Ended
------------------------------------------------
(In thousands, except
per share amounts May 5, Aug. 4, Nov. 3, Feb. 2,
and store data) 1996 1996 1996 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $69,103 $57,898 $84,685 $91,425
Gross profit 33,656 25,148 40,255 40,000
Operating income 12,969 5,949 13,690 14,985
Net income 8,593 4,285 8,995 9,915
Net income per share $ 0.34 $ 0.17 $ 0.35 $ 0.39
Stores at end of period 305 326 348 354
</TABLE>
<TABLE>
<CAPTION>
1995 Quarter Ended
---------------------------------------------------
Apr. 30, July 30, Oct. 29, Feb. 4,
1995 1995 1995 1996(1)
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales $55,077 $49,391 $66,225 $88,688
Gross profit 25,503 21,359 28,520 34,571
Operating income 9,617 6,320 11,067 13,420
Net income 6,288 4,283 7,032 8,778
Net income per share $ 0.25 $ 0.17 $ 0.28 $ 0.35
Stores at end of period 234 251 271 279
</TABLE>
- ----------
(1) The fourth quarter of 1995 included 14 weeks as 1995 included 53 weeks.
23
<PAGE> 24
THE GYMBOREE CORPORATION
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
the Gymboree Corporation:
We have audited the accompanying consolidated balance sheets of The Gymboree
Corporation and subsidiaries (the "Company") as of February 2, 1997 and
February 4, 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended February 2, 1997. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of The Gymboree Corporation and
subsidiaries as of February 2, 1997 and February 4, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended February 2, 1997 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
February 18, 1997
(March 3, 1997 as to Note 9)
THE GYMBOREE CORPORATION
<PAGE> 1
EXHIBIT 23.1
[DELOITTE & TOUCHE LLP LETTERHEAD]
[LOGO]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-60310, 33-90452, 33-94594, and 333-10811 of the Gymboree Corporation on
Forms S-8 of our report dated February 18, 1997 (March 3, 1997 as to Note 9),
incorporated by reference in the Annual Report on Form 10-K of The Gymboree
Corporation for the fiscal year ended February 2, 1997.
/s/ DELOITTE & TOUCHE LLP
April 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS INCLUDED
IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> FEB-02-1997 FEB-04-1996
<PERIOD-START> FEB-05-1996 JAN-30-1995
<PERIOD-END> FEB-02-1997 FEB-04-1996
<CASH> 8,027 8,755
<SECURITIES> 82,360 64,893
<RECEIVABLES> 4,336 2,868
<ALLOWANCES> 0 0
<INVENTORY> 48,979 37,652
<CURRENT-ASSETS> 145,595 116,054
<PP&E> 90,051 55,493
<DEPRECIATION> (19,465) (12,085)
<TOTAL-ASSETS> 216,909 160,009
<CURRENT-LIABILITIES> 40,405 26,637
<BONDS> 0 0
0 0
0 0
<COMMON> 62,694 56,687
<OTHER-SE> 99,239 67,247
<TOTAL-LIABILITY-AND-EQUITY> 216,909 160,009
<SALES> 303,111 259,381
<TOTAL-REVENUES> 303,111 259,381
<CGS> (164,052) (149,428)
<TOTAL-COSTS> (164,052) (149,428)
<OTHER-EXPENSES> (91,540) (69,845)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 51,271 43,247
<INCOME-TAX> (19,483) (16,866)
<INCOME-CONTINUING> 31,788 26,381
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 31,788 26,381
<EPS-PRIMARY> 1.24 1.04
<EPS-DILUTED> 1.24 1.04
</TABLE>
