UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 29, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT
For the transition period from ________________ to ________________.
Commission file number 1-09100
Gottschalks Inc.
(Exact name of Registrant as specified in its charter)
Delaware 77-0159791
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 River Park Place East, Fresno, California 93720
(Address of principal executive offices) (Zip code)
Registrant's telephone number,
including area code (209) 434-8000
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 shorter period that the Registrant
was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
The number of shares of the Registrant's common stock outstanding as of July
29, 1995 was 10,416,520.
<PAGE>
INDEX
GOTTSCHALKS INC. AND SUBSIDIARIES
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed consolidated balance sheets -
July 29, 1995 and January 28, 1995 2
Consolidated statements of operations -
thirteen weeks and twenty-six weeks ended
July 29, 1995 and July 30, 1994 3
Condensed consolidated statements of cash flows -
twenty-six weeks ended July 29, 1995 and
July 30, 1994 4
Notes to condensed consolidated financial
statements - thirteen weeks and twenty-six
weeks ended July 29, 1995 and July 30, 1994 5 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 22
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security
Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
Item I. GOTTSCHALKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Note 1)
(In thousands of dollars)
<CAPTION>
July 29, 1995 January 28, 1995
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 3,404 $ 3,156
Cash held by GCC Trust 245 2,365
Receivables - net (Note 2) 22,248 30,436
Merchandise inventories (Note 3) 91,156 80,678
Other 16,271 10,066
Total current assets 133,324 126,701
PROPERTY AND EQUIPMENT (Note 6) 122,632 129,626
Less accumulated depreciation
and amortization 37,487 35,817
85,145 93,809
OTHER LONG-TERM ASSETS 11,940 12,843
$230,409 $233,353
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving lines of credit (Note 4) $ 21,094 $ 17,844
Bank overdraft 7,187 9,853
Trade accounts payable 23,581 25,179
Accrued expenses 12,416 23,904
Accrued payroll and related
liabilities 4,961 5,267
Short-term obligation
(paid March 1995) 1,600
Current portion of long-term
obligations 5,959 5,154
Total current liabilities 75,198 88,801
LONG-TERM OBLIGATIONS
(less current portion):
Revolving line of credit (Note 4) 20,000
Notes and bonds payable (Note 4) 15,156 23,721
Capitalized lease obligations 9,585 9,951
44,741 33,672
DEFERRED INCOME (Notes 5 and 6) 20,609 16,366
DEFERRED LEASE PAYMENTS AND OTHER 11,411 10,937
CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common stock 104 104
Additional paid-in capital 55,954 55,964
Retained earnings 22,392 27,509
78,450 83,577
$230,409 $233,353
</TABLE>
See notes to condensed consolidated financial statements.<PAGE>
GOTTSCHALKS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED - Note 1)
<TABLE>
(In thousands of dollars, except share data)
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
Ended Ended
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 91,884 $ 80,515 $169,818 $150,736
Service charges
& other income 2,726 2,432 5,767 4,714
94,610 82,947 175,585 155,450
COSTS & EXPENSES:
Cost of sales 64,394 55,586 119,775 103,622
Selling, general
& administrative
expenses 28,974 25,959 55,176 49,920
Depreciation &
amortization 1,947 1,369 3,806 2,758
Interest expense 2,450 2,275 5,083 4,902
Provision for unusual
items (Note 7) 3,565 3,833
97,765 88,754 183,840 165,035
LOSS BEFORE INCOME
TAX BENEFIT (3,155) (5,807) (8,255) (9,585)
Income tax benefit (1,200) (1,824) (3,138) (3,259)
NET LOSS $ (1,955) $ (3,983) $ (5,117) $ (6,326)
Net loss per common
share $ (0.19) $ (.38) $ (0.49) $ (.61)
Weighted average
number of common
shares outstanding 10,416 10,416 10,416 10,414
</TABLE>
See notes to condensed consolidated financial statements.<PAGE>
GOTTSCHALKS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED - NOTE 1)
(In thousands of dollars)
<TABLE>
<CAPTION>
Twenty-Six Weeks
Ended
July 29, July 30,
1995 1994
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(5,117) $(6,326)
Adjustments to reconcile net
loss to net cash used in
operating activities (13,941) 2,699
Net cash used in
operating activities (19,058) (3,627)
INVESTING ACTIVITIES:
Purchases of property and equipment (16,764) (1,041)
Reimbursements received for
purchases of property and equipment 11,449
Proceeds from sale/leaseback
arrangement (Note 6) 11,600
Other 43
Net cash provided by (used in)
investing activities 6,328 (1,041)
FINANCING ACTIVITIES:
Proceeds from issuance of Fixed
Base Certificates (Note 2) 40,000
Proceeds from revolving lines
of credit and other financings 241,292 88,155
Principal payments on revolving lines
of credit and other financings (227,768) (123,931)
Other (546) 1,283
Net cash provided by
financing activities 12,978 5,507
INCREASE IN CASH 248 839
CASH AT BEGINNING OF YEAR 3,156 1,213
CASH AT END OF PERIOD $ 3,404 $ 2,052
</TABLE>
See notes to condensed consolidated financial statements.<PAGE>
GOTTSCHALKS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Thirteen Weeks and Twenty-Six Weeks Ended
July 29, 1995 and July 30, 1994
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the thirteen and twenty-six week periods
ended July 29, 1995 are not necessarily indicative of the results that may be
expected for the year ending February 3, 1996, due to the seasonal nature of the
Company's business and its LIFO inventory valuation adjustment ("LIFO
adjustment"), currently recorded only at the end of each fiscal year (Note 3).
It is suggested that these financial statements be read in conjunction with the
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended January 28, 1995.
The condensed consolidated balance sheet at January 28, 1995 has been derived
from the audited consolidated financial statements at that date. Certain
reclassifications have been made to 1994 amounts to conform with 1995
presentation.
2. RECEIVABLES SECURITIZATION PROGRAM
As described more fully in the Company's 1994 Annual Report on Form 10-K, the
Company entered into a five-and-a-half-year asset-backed securitization program
in March 1994. Under the program, the Company automatically sells, without
recourse, all of its accounts receivable arising under its private label
customer credit cards, together with rights to all collections and recoveries
on such receivables, to a wholly-owned subsidiary, Gottschalks Credit
Receivables Corporation ("GCRC") and certain of those receivables are
subsequently conveyed to a trust, Gottschalks Credit Card Master Trust
("GCC Trust"), to be used as collateral for securities issued to investors.
The Company services and
administers the receivables in return for a monthly servicing fee.
In March 1994, fractional undivided ownership interests in certain of the
receivables were sold through the issuance of $40.0 million principal amount
7.35% Fixed Base Class A-1 Credit Card Certificates ("Fixed Base Certificates")
to third-party investors. Interest on the Fixed Base Certificates is earned by
the Certificateholders on a monthly basis and the outstanding principal balance
is to be repaid in equal monthly installments commencing September 1998 through
September 1999, through the application of credit card receivable principal
collections during that period. The issuance of the Fixed Base Certificates was
accounted for as a sale for financial reporting purposes. Accordingly, the $40.0
million of receivables underlying those certificates and the corresponding
obligations are excluded from the accompanying financial statements.
In 1994, a Variable Base Class A-2 Credit Card Certificate ("Variable Base
Certificate") in the principal amount of up to $15.0 million was also issued to
Bank Hapoalim as collateral for a revolving line of credit financing arrangement
with that bank (Note 4). The issuance of the Variable Base Certificate was
accounted for as a financing transaction and, accordingly, receivables
underlying the Variable Base Certificate, totalling $7,738,000 at July 29, 1995,
are included in receivables reported in the accompanying financial statements.
Such receivables also include $8,734,000 of receivables representing GCRC's
retained interest in receivables sold in connection with the issuance of the
Fixed Base Certificates
and $5,776,000 of receivables and vendor claims that did not meet certain
eligibility requirements of the program as of July 29, 1995.
3. MERCHANDISE INVENTORIES
Inventories, which consist of merchandise held for resale, are valued by the
retail method and are stated at last-in, first-out (LIFO) cost, which is not in
excess of market. The Company includes in its valuation of inventories certain
indirect merchandise purchasing, handling and storage costs in conformity with
uniform capitalization ("UNICAP") rules. Current cost, which approximates
replacement cost, under the first-in, first-out (FIFO) method was equal to the
LIFO value of inventories at January 28, 1995. A valuation of inventory under
the LIFO method is presently made only at the end of each year based on actual
inventory levels and costs at that time. Since these factors are subject to
variability beyond the control of management, interim results of operations are
subject to the final year-end LIFO inventory valuation adjustment.
4. DEBT
On August 9, 1995, the total amount available for borrowings under the Company's
revolving line of credit facility with Shawmut Capital Corporation ("Shawmut")
was increased to $66.0 million through March 1997, primarily for the purpose of
financing increased inventory requirements associated with new store openings.
In
addition, the restrictive borrowing base under the line of credit was increased
from 50% to 60% of eligible merchandise inventories during the months of August
1995 through January 1996 and May 1996 through September 1996, for seasonal
inventory purchases. The line of credit previously provided for borrowings of up
to $50.0 million through March 1997, increasing to $60.0 million during the
months
of November and December of each year for seasonal inventory purchases, and such
borrowings were limited to 50% of eligible inventories. Interest on outstanding
borrowings is charged at a rate equal to LIBOR, as determined by Shawmut, plus
2.8% through August 9, 1995 and LIBOR plus 3.4% thereafter (8.68% at July 29,
1995). The maximum amount available for borrowings under the line of credit was
$41.6 million as of July 29, 1995 and $34.6 million was outstanding as of that
date. Of this amount, $20.0 million is classified as long-term in the
accompanying financial statements as the Company does not anticipate repaying
that amount within one year of the balance sheet date.
The Company's revolving line of credit arrangement with Bank Hapoalim (Note 2)
provides for borrowings of up to $15.0 million through March 1997. Borrowings
under the line of credit are limited to a percentage of the outstanding
principal
balance of receivables underlying the Variable Base Certificate and therefore,
are
subject to any seasonal variations that may affect the outstanding principal
balance of such receivables. Interest on outstanding borrowings on the line of
credit is charged at a rate of LIBOR, as determined by the bank, plus 1.0%
(6.88%
at July 29, 1995). At July 29, 1995, the maximum amount available for borrowings
of $6.5 million was outstanding under the line of credit with Bank Hapoalim.
On August 30, 1995, the Company signed a letter of commitment with Midland
Commercial Funding ("Midland") that will provide for a fifteen-year mortgage
loan
to be collateralized by the land, buildings and leasehold improvements of four
of
the Company's department stores. Management intends to use proceeds from the
arrangement, expected to be $20.0 million, to repay the outstanding balance
of the
Wells Fargo long-term loan and the Commercial Revenue Bonds, described more
fully
below, with the remainder to be used to reduce outstanding borrowings under the
Shawmut line of credit and pay certain costs associated with the transaction.
Monthly principal payments on the mortgage loan are expected to be based on a
twenty-five year amortization schedule and interest is expected to be charged at
a fixed rate of approximately 9.5%. Management expects to finalize the financing
and receive the proceeds in September 1995.
The Company has long-term loan facilities with Wells Fargo Bank, N.A., ("Wells
Fargo") and Heller Financial, Inc. ("Heller"). The long-term loan with Wells
Fargo, extended to February 5, 1997, bears interest at a rate of 11.0% and
had an
outstanding loan balance of $10.1 million at July 29, 1995. (See Note 6). As
previously described, management intends to repay the outstanding balance of the
Wells Fargo loan, prior to its maturity, with proceeds from the Midland
financing
arrangement. The long-term mortgage loan with Heller, due January 1, 2002, bears
interest at a rate of 10.45% and had an outstanding loan balance of $6.2 million
at July 29, 1995. The Company also has 8.55% Commercial Revenue Bonds, due
December 1, 1995, with outstanding balances totalling $2.8 million at July 29,
1995 ($2.7 million at December 1, 1995). Management expects to refinance the
bonds
upon their maturity with financings expected to be provided by the owner of
the mall in which the store is located.
In
the event such financing is not completed, the bonds will be repaid with
proceeds
from the previously described Midland financing arrangement.
The Company received a total of $1.3 million during the first half of 1995 in
connection with two of its fiscal 1995 store openings for the purpose of
financing
fixture and equipment expenditures at those locations. The $1.3 million is to be
repaid over ten-year maturity periods at interest rates ranging from 5.0% to
10.0%.
5. DEFERRED INCOME
The Company received $4.0 million in April 1994 as an incentive to enter into a
lease in connection with one of the fiscal 1995 new store openings. Pursuant to
the arrangement, the $4.0 million was applied towards the purchase of inventory
for the new store. The arrangement provides that in the event gross sales at
that
location are below a minimum specified amount as of the end of the fifth year of
the lease, either the Company or the lessor may elect to terminate the lease at
that time. In such an event, the Company would be required to repay the $4.0
million to the lessor. Management believes the likelihood the lease will be
terminated by either party after the fifth year of the lease is low. The $4.0
million received has been recorded as deferred income for financial reporting
purposes in the accompanying financial statements.
6. SALE AND LEASEBACK ARRANGEMENT
On June 27, 1995, the Company sold the land, building and leasehold improvements
comprising its department store in Capitola, California and subsequently leased
the department store back under a twenty-year lease with four five-year renewal
options. The lease has been accounted for as an operating lease for financial
reporting purposes. Proceeds received from the sale, totalling $11.6 million in
cash, were used to reduce the outstanding balance of the Company's long-term
loan
payable to Wells Fargo by $8.0 million (Note 4), with the remaining $3.6 million
used to reduce outstanding borrowings under the Company's line of credit
arrangement with Shawmut and pay certain costs associated with the transaction.
The gain associated with the sale, totalling $416,000, has been deferred for
financial reporting purposes and is being amortized on a straight-line basis
over
the twenty-year lease term.
7. CONTINGENCIES AND PROVISION FOR UNUSUAL ITEMS
As described more fully in the Company's 1994 Annual Report on Form 10-K, the
provision for unusual items in the Company's Consolidated Statements of
Operations
for the second quarter and first half of 1994 includes a provision of $3.5
million
representing costs incurred in connection with an agreement to settle the
stockholder litigation previously pending against the Company and related legal
fees and other costs. The Company funded $3.0 million into an irrevocable trust
in February 1995 in accordance with the terms of the final settlement agreement.
No costs in excess of such amounts previously accrued have been incurred.
The Company is also party to a lawsuit filed in 1992 by F&N Acquisition
Corporation ("F&N") under which F&N seeks damages arising out of the Company's
alleged breach of an oral agreement to purchase an assignment of a lease of a
former Frederick and Nelson store location in Spokane, Washington. In addition,
F&N is seeking an unspecified sum for its rejection of the next best offer to
purchase the assignment of the lease. In 1992, F&N received a partial summary
judgement against the Company under which the Company was ordered to pay F&N
damages of $3.0 million plus accrued interest from the date of the judgement.
The
judgement was reversed in 1994, however, and remanded to the United States
District Court for the Western District of Washington for further proceedings.
Management's estimate of amounts that may ultimately be payable to F&N were
previously accrued in fiscal 1993 and 1992. In connection with the F&N lawsuit,
an additional complaint was filed against the Company by Sabey Corporation
("Sabey"), the owner of the mall in which the Frederick and Nelson store was
located. The F&N and Sabey lawsuits were combined in May 1995. The Company is
continuing to defend these lawsuits vigorously. Management does not believe that
any additional costs that may be incurred in connection with the previously
described lawsuits, as combined, will be material to the operating results of
the Company.<PAGE>
GOTTSCHALKS INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
Following is management's discussion and analysis of significant factors which
have affected the Company's financial position and its results of operations for
the periods presented in the accompanying condensed consolidated financial
statements.
Thirteen Weeks Ended July 29, 1995 Compared To Thirteen Weeks Ended
July 30, 1994
Results of Operations
The Company recorded a net loss of $2.0 million in the second quarter of 1995 as
compared to $4.0 million in the second quarter of 1994. Prior to unusual items
and
income taxes, the operating loss was $3.2 million in the second quarter of 1995
as compared to $2.2 million in the second quarter of 1994. As described more
fully
below, the Company's results of operations in the second quarter of 1995 were
negatively impacted by lower than expected comparable store sales, pressures on
its gross margin and higher costs associated with the opening of two new stores
in the fourth quarter of 1994 and three new stores in the first quarter of 1995.
These factors were partially offset by increased service charge income and a
reduction of selling, general and administrative expenses and interest expense
as
a percent of net sales during the period.
The following table sets forth for the periods indicated certain items from the
Company's Consolidated Statements of Operations, expressed as a percent of net
sales:
<TABLE>
<CAPTION>
Second Quarter Second Quarter
1995 1994
<S> <C> <C>
Net sales 100.0% 100.0%
Service charges and other income 3.0 3.0
103.0 103.0
Costs and Expenses:
Cost of sales 70.1 69.0
Selling, general and
administrative expenses 31.5 32.2
Depreciation and amortization 2.1 1.7
Interest expense 2.7 2.8
Provision for unusual items 4.5
106.4 110.2
LOSS BEFORE INCOME TAX BENEFIT (3.4) (7.2)
Income tax benefit (1.3) (2.3)
NET LOSS (2.1)% (4.9)%
</TABLE>
Net Sales
Net sales increased $11.4 million to $91.9 million in the second quarter of 1995
as compared to $80.5 million the second quarter of 1994, a 14.2% increase.
Comparable store sales decreased (0.9%) in the second quarter of 1995 due to
sluggish spring and summer apparel sales and temporary pricing competition
initiated by two financially troubled retailers in certain of the Company's
market
areas. The increase in net sales in the second quarter of 1995 reflects
additional
sales volume generated from five new Gottschalks stores not open during the
prior
year's second quarter, including new stores in Oakhurst and Sacramento,
California, opened in October and November 1994, respectively, and new stores in
Auburn, California, Carson City, Nevada and San Bernardino, California, opened
in February, March and April 1995, respectively.
The Company opened one new Gottschalks store in Watsonville, California and one
new replacement store in Visalia, California in August 1995 and intends to open
one additional new Gottschalks store in Tracy, California in October 1995. (See
"Liquidity and Capital Resources.")
Service Charges and Other Income
Service charges and other income increased approximately $300,000 to $2.7
million
in the second quarter of 1995 as compared to $2.4 million the second quarter of
1994, an increase of 12.5%. As a percent of net sales, service charges and other
income remained unchanged at 3.0% in the second quarters of 1995 and 1994.
Service charges associated with the Company's customer credit cards increased
approximately $400,000 to $2.5 million in the second quarter of 1995 as compared
to $2.1 million the second quarter of 1994, an increase of 19.0%. This increase
is primarily attributable to an increase to the late charge fee assessed on
delinquent customer credit accounts, effective January 1995, which resulted in
increasing late charge fees by $361,000 in the second quarter of 1995 as
compared
to the second quarter of 1994. Credit sales as a percent of total sales have
also
continued to improve, increasing to 46.7% in the second quarter of 1995 as
compared to 43.1% in the second quarter of 1994, as a result of aggressive
credit
solicitation activities associated with new store openings.
Other income, which includes the amortization of deferred income and other
miscellaneous income and expense items, was approximately $200,000 in the second
quarter of 1995 as compared to approximately $300,000 in the second quarter of
1994, a decrease of $100,000. This decrease is primarily related to interest
income on certain amended income tax returns received during the second quarter
of 1994.
Cost of Sales
Cost of sales increased $8.8 million to $64.4 million in the second quarter of
1995 as compared to $55.6 million the second quarter of 1994, an increase of
15.8%. The Company's gross margin percent decreased to 29.9% in the second
quarter
of 1995 as compared to 31.0% in the second quarter of 1994.
This decrease in gross margin percent is primarily due to an increase in
markdowns
as a percent of net sales resulting from (i) heavy discounting of men's, womens'
and junior spring and summer apparel necessitated by the unusually cold and
rainy
weather conditions earlier in the spring season; (ii) temporary competitive
pressures in certain of the Company's market areas during the period due to
pricing policies of two financially troubled retailers; (iii) the accelerated
clearance of certain merchandise in connection with a modification of the
Company's merchandising strategy and increased focus on a "lifestyle" approach
from a "classification" approach in merchandising the Company's stores; and (iv)
promotional activity related to new store openings during the period.
The Company's interim gross margin percent may not be indicative of its gross
margin percent for a full year, due to the seasonal nature of the Company's
business and its LIFO inventory valuation adjustment ("LIFO adjustment"),
currently recorded only at the end of each fiscal year. Management believes the
Company's fiscal 1995 LIFO adjustment will not materially affect its fiscal 1995
results of operations. Although the Company realized a benefit from its fiscal
1994 LIFO adjustment, no such similar benefit can be realized in fiscal 1995
because the Company's LIFO reserve for financial reporting purposes was
eliminated as a result of its 1994 LIFO adjustment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.0 million to $29.0
million in the second quarter of 1995 as compared to $26.0 million in the second
quarter of 1994, an increase of 11.5%. As a percent of net sales, selling,
general
and administrative expenses decreased to 31.5% in the second quarter of 1995 as
compared to 32.2% in the second quarter of 1994. The Company has continued to
realize the benefit of spreading its overhead costs over an increasing selling
base as a result of the new store openings in fiscal 1994 and 1995.
The Company is continuing to implement new programs on an ongoing basis designed
to reduce or control expenses associated with each operating expense category of
the Company. Although the Company generally incurs higher payroll and
advertising
costs in connection with its new stores, management expects to continue to be
able
to leverage its other selling, general and administrative costs against higher
sales volume that is expected to be generated from the two new stores opened in
August 1995 and one additional planned store opening in October 1995.
Depreciation and Amortization
Depreciation and amortization expense, which includes the amortization of new
store pre-opening costs, increased approximately $500,000 to $1.9 million in the
second quarter of 1995 as compared to $1.4 million in the second quarter of
1994,
an increase of 35.7%. As a percent of net sales, depreciation and amortization
expense increased to 2.1% in the second quarter of 1995 as compared to 1.7% in
the
second quarter of 1994. The amortization of new store pre-opening costs
increased
by approximately $600,000 in the second quarter of 1995 as compared to the
second
quarter of 1994 as a result of completing and opening five new stores since the
same period of the prior year. This increase was partially offset by lower
depreciation expense resulting from the sale and leaseback of the Company's
department store in Capitola, California, in June 1995 and its mainframe
computer in September 1994.
Management expects depreciation expense and the amortization of store pre-
opening
costs as a percent of net sales to continue to increase during the remainder of
fiscal 1995 as a result of completing and opening two new stores in August 1995
and one additional planned store opening in October 1995. Store pre-opening
costs
represent certain costs associated with the opening of new stores. Such costs
are
deferred and amortized generally on a straight-line basis not to exceed a twelve
month period.
Interest Expense
Interest expense increased approximately $200,000 to $2.5 million in the second
quarter of 1995 as compared to $2.3 million in the second quarter of 1994, or
8.7%. Because of the increase in sales volume, interest expense as a percent of
net sales decreased to 2.7% in the second quarter of 1995 as compared to 2.8% in
the second quarter of 1994. The dollar increase in interest expense resulted
from
an increase in the weighted-average interest rate charged on outstanding
borrowings under the Company's various lines of credit, (8.7% in the second
quarter of 1995 as compared to 7.4% in the first quarter of 1994), increased
borrowings under those lines of credit to fund increased inventory requirements
and additional interest expense associated with a new long-term mortgage loan
entered into in fiscal 1994. These increaases were partially offset by lower
interest on long-term borrowings as a result of the application of proceeds from
the Capitola sale and leaseback arrangement. ("See Liquidity and Capital
Resources.")
Management does not expect interest expense to increase substantially as a
result
of the increase to the interest rate charged on outstanding borrowings under the
Shawmut line of credit, effective August 1995, and the finalization of the
Midland
financing arrangement, because of the refinancing of more costly long-term
borrowings and a reduction of outstanding line of credit borrowings through the
application of proceeds of such mortgage financing.
Provision for Unusual Items
The provision for unusual items, totalling $3.6 million in the second quarter of
1994, includes a provision of $3.5 million representing costs incurred in
connection with an agreement reached to settle the stockholder litigation
previously pending against the Company and related legal fees and other costs.
The
Company paid all amounts due in connection with the settlement agreement in
February 1995. No additional costs in excess of such amounts accrued have been
incurred by the Company.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". The interim
effective tax credit of (38.0%) for the second quarter of 1995 and (34.0%) for
the
second quarter of 1994 relates to net losses incurred during those periods and
represents the Company's best estimate of the annual effective tax rate for
those
fiscal years.
<PAGE>
Twenty-Six Weeks Ended July 29, 1995 Compared To Twenty-Six Weeks Ended
July 30, 1994
Results of Operations
The Company recorded a net loss of $5.1 million in the first half of 1995 as
compared to $6.3 million in the first half of 1994. Prior to unusual items and
income taxes, the operating loss was $8.3 million in the first half of 1995 as
compared to $5.8 million in the first half of 1994. As described more fully
below,
the Company's operating results in the first half of 1995 were negatively
impacted
by lower than expected comparable store sales, pressures on its gross margin and
higher costs associated with opening two new stores in the fourth quarter of
1994
and three new stores in the first half of 1995. These factors were partially
offset by increased service charge income and a reduction of selling, general
and
administrative expenses and interest expense as a percent of net sales during
the
period.
The following table sets forth for the periods indicated certain items from the
Company's Consolidated Statements of Operations, expressed as a percent of net
sales:
<TABLE>
<CAPTION>
First Half First Half
1995 1994
<S> <C> <C>
Net sales 100.0% 100.0%
Service charges and other income 3.4 3.1
103.4 103.1
Costs and expenses:
Cost of sales 70.5 68.7
Selling, general and
administrative expenses 32.5 33.1
Depreciation and amortization 2.3 1.8
Interest expense 3.0 3.3
Provision for unusual items 2.6
108.3 109.5
LOSS BEFORE INCOME TAX BENEFIT (4.9) (6.4)
Income tax benefit (1.9) (2.2)
NET LOSS (3.0)% (4.2)%
</TABLE>
Net Sales
Net sales increased $19.1 million to $169.8 million in the first half of 1995 as
compared to $150.7 million the first half of 1994, an increase of 12.7%.
Comparable store sales decreased by (2.1%) during the first half of 1995 due to
sluggish spring and summer apparel sales resulting from unusually cold and rainy
weather conditions earlier in the spring season and temporary pricing
competition
initiated by two financially troubled retailers in certain of the Company's
market
areas. The increase in net sales in the first half of 1995 reflects additional
sales volume generated from five new Gottschalks stores not open during the
prior
year's first half, including new stores opened in Oakhurst and Sacramento,
California in October and November 1994, respectively, and new stores opened in
Auburn, California, Carson City, Nevada and San Bernardino, California, in
February, March and April 1995, respectively.
Service Charges and Other Income
Service charges and other income increased $1.1 million to $5.8 million in the
first half of 1995 as compared to $4.7 million the first half of 1994, an
increase
of 23.4%. As a percent of net sales, service charges and other income increased
to 3.4% in the first half of 1995 as compared to 3.1% in the first half of 1994.
Service charges associated with the Company's customer credit cards increased
approximately $900,000 to $5.3 million in the first half of 1995 as compared to
$4.4 million the first half of 1994, an increase of 20.5%. This increase is
primarily attributable to an increase in the late charge fee assessed on
delinquent customer credit accounts, effective January 1995, which resulted in
increasing late charge fees by $671,000 in the first half of 1995 as compared to
the first half of 1994. Credit sales as a percent of total sales have also
continued to improve, increasing to 46.1% in the first half of 1995 as compared
to 41.8% in the first half of 1994, as a result of aggressive credit
solicitation
activities associated with new store openings.
Other income, which includes the amortization of deferred income and other
miscellaneous and expense items, was approximately $500,000 in the first half of
1995 as compared to approximately $300,000 in the first half of 1994, an
increase
of $200,000. This increase primarily relates to non-recurring loss of $200,000
recognized in connection with the receivables securitization program during the
first half of 1994. (See "Liquidity and Capital Resources").
Cost of Sales
Cost of sales increased $16.2 million to $119.8 million in the first half of
1995
as compared to $103.6 million the first half of 1994, an increase of 15.6%. The
Company's gross margin percent decreased to 29.5% in the first half of 1995 as
compared to 31.3% in the first half of 1994.
This decrease in gross margin percent relates primarily to an increase in
markdowns as a percent of net sales due to (i) heavy discounting of men's,
womens'
and junior spring and summer apparel necessitated by unusually cold and rainy
weather conditions earlier in the spring season; (ii) temporary competitive
pressures in certain of the Company's market areas during the period due to
pricing policies of two financially troubled retailers; (iii) the accelerated
clearance of certain merchandise in connection with a modification of the
Company's merchandising strategy and increased focus on a "lifestyle" approach
from a "classification" approach in merchandising its stores; and (iv)
promotional activity related to new store openings during the period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $5.3 million to $55.2
million in the first half of 1995 as compared to $49.9 million in the first half
of 1994, an increase of 10.6%. As a percent of net sales, selling, general and
administrative expenses decreased to 32.5% in the first half of 1995 as compared
to 33.1% in the first half of 1994. The Company has continued to realize the
benefit of spreading its overhead costs over an increasing selling base as a
result of the new store openings in 1994 and in the first half of 1995.
Depreciation and Amortization
Depreciation and amortization expense increased $1.0 million to $3.8 million in
the first half of 1995 as compared to $2.8 million in the first half of 1994, an
increase of 35.7%. As a percent of net sales, depreciation and amortization
expense increased to 2.3% in the first half of 1995 as compared to 1.8% in the
first half of 1994. The amortization of new store pre-opening costs increased by
approximately $1.1 million during the first half of 1995 as compared to the
first
half of 1994 as a result of completing and opening five new stores since the
same
period of the prior year. This increase was partially offset by lower
depreciation
expense resulting from the sale and leaseback of the Company's department store
in Capitola, California, in June 1995 and its mainframe computer in September
1994.
Interest Expense
Interest expense increased $200,000 to $5.1 million in the first half of 1995 as
compared to $4.9 million in the first half of 1994, an increase of 4.1%. Because
of the increase in sales volume, interest expense as a percent of net sales
decreased to 3.0% in the first half of 1995 as compared to 3.3% in the first
half
of 1994. The dollar increase in interest expense resulted from an increase in
the
weighted-average interest rate charged on outstanding borrowings under the
Company's various lines of credit, (8.7% in the first half of 1995 as compared
to
7.1% in the first half of 1994), increased borrowings under those lines of
credit
to fund increased inventory requirements and additional interest expense
associated with the Fixed Base Certificates (beginning March 1994) and a new
long-term mortgage loan entered into in fiscal 1994. These increases were
partially
offset by lower interest on long-term borrowings as a result of the application
of proceeds from the Capitola sale and leaseback arrangement. (See "Liquidity
and
Capital Resources.")
Provision for Unusual Items
The provision for unusual items, totalling $3.8 million in the first half of
1994
includes a provision of $3.5 million representing costs incurred in connection
with an agreement reached to settle the stockholder litigation previously
pending
against the Company and related legal fees and other costs. The Company paid all
amounts due in connection with the settlement agreement in February 1995. No
additional costs in excess of such amounts previously accrued have been incurred
by the Company.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". The interim
effective tax credit of (38.0%) for the first half of 1995 as compared to
(34.0%)
for the first half of 1994 relates to net losses incurred during those periods
and
represents the Company's best estimate of the annual effective tax rate for
those fiscal years.
Liquidity and Capital Resources
The Company's primary liquidity requirements are for working capital purposes
and
to fund costs associated with the opening of new stores, including construction,
tenant improvements, fixtures and equipment, inventory and store pre-opening
costs. As described more fully below, the Company's working capital financing is
provided for under a five-and-a-half year receivables securitization program and
with borrowings under its various long-term revolving lines of credit. The
Company's revolving lines of credit currently provide total borrowing capacity
of
up to $81.0 million through March 1997. Inventory purchases and new store
pre-opening costs are generally financed with borrowings under the Company's
lines of
credit. Capital expenditures associated with new stores are generally funded
with
proceeds from long-term borrowings. The Company seeks to minimize its capital
investment associated with its store expansion and remodeling program, whenever
possible, by negotiation for contributions for certain of the expenditures from
the mall owners or developers of the projects. The Company's liquidity position
has been enhanced as a result of revisions to its primary revolving line of
credit
agreement effective August 1995, the finalization of a sale and leaseback
arrangement in June 1995 and the signing of a letter of commitment for a new
mortgage financing arrangement expected to be finalized September 1995.
To finance increased inventory requirements associated with its new stores, the
Company received an increase to its primary revolving line of credit arrangement
with Shawmut Capital Corporation ("Shawmut") on August 9, 1995, resulting in a
total revolving line of credit availability with Shawmut of up to $66.0 million
through March 1997. In addition, the restrictive borrowing base under the line
of
credit was increased from 50% to 60% of eligible merchandise inventories during
the months of August 1995 through January 1995 and May 1996 through September
1996, for seasonal inventory purchases. The line of credit previously provided
for
borrowings of up to $50.0 million through March 1997, increasing to $60.0
million
during the months of November and December of each year for seasonal inventory
purchases, and such borrowings were limited to 50% of eligible inventory.
Interest
under the Shawmut line of credit is charged at a rate equal to LIBOR, as
determined by the bank, plus 2.8% through August 9, 1995 and LIBOR plus 3.4%
thereafter (8.88% at July 29, 1995). The maximum amount available for borrowings
under the line of credit was $41.6 million at July 29, 1995 and $34.6 million
was outstanding as of that date.
The Company's revolving line of credit with Bank Hapoalim provides for
borrowings
of up to $15.0 million, limited to a restrictive borrowing base, through March
1997. Interest on outstanding borrowings under the line of credit is charged at
a rate equal to LIBOR, as determined by the bank, plus 1.0%, (6.88% at July 29,
1995). At July 29, 1995, the maximum amount available for borrowings of $6.5
million was outstanding under the line of credit with Bank Hapoalim.
As described more fully in Note 2 of the Condensed Consolidated Financial
Statements, the Company entered into a five-and-a-half year receivables
securitization program in March 1994. Under the program, fractional undivided
ownership interests in certain of the receivables were sold in March 1994
through
the issuance of $40.0 million principal amount 7.35% Fixed Base Class A-1 Credit
Card Certificates ("Fixed Base Certificates") to third-party investors. Interest
is earned by the Fixed Base Certificateholders on a monthly basis and the
outstanding principal balance is to be repaid in equal monthly installments
commencing September 1998 through September 1999, through the application of
credit card principal collections during that period. In 1994, a Variable Base
Class A-2 Credit Card Certificate ("Variable Base Certificate") was also issued
in the principal amount of up to $15.0 million to Bank Hapoalim as collateral
for
the previously described revolving line of credit financing arrangement with
Bank
Hapoalim. Management intends to issue an additional Fixed Base Certificate under
the securitization program during the fourth quarter of fiscal 1995 in the
amount
of $10.0 million. Upon the issuance of the additional certificate, receivables
underlying the Variable Base Certificate will be reduced for a period of time,
thereby reducing amounts available for borrowings under the line of credit with
Bank Hapoalim during that period.
On June 27, 1995, the Company finalized the sale and leaseback of the land,
building and leasehold improvements comprising its department store located in
Capitola, California. Proceeds from the arrangement, totalling $11.6 million,
were
used to repay $8.0 million of the outstanding balance of the Wells Fargo long-
term
loan, with the remaining $3.6 million used to reduce outstanding borrowings
under
the Shawmut line of credit and pay certain costs associated with the
transaction.
On August 30, 1995, the Company signed a letter of commitment with Midland
Commercial Funding ("Midland") that will provide for a fifteen-year mortgage to
be collateralized by the land, buildings and leasehold improvements of four of
the
Company's department stores. Managements intends to use proceeds from the
arrangement, expected to be $20.0 million, to repay the outstanding balance of
the
Wells Fargo long-term loan and the Commercial Revenue Bonds, with the remainder
to be used to reduce outstanding borrowings under the Shawmut line of credit and
pay certain costs associated with the transaction. Monthly principal payments on
the mortgage loan are to be based on a twenty-five year amortization schedule
and
interest is expected to be charged at a rate of approximately 9.5%. Management
expects to finalize the financing and receive the proceeds in September 1995.
Finalization of this financing transaction is subject to the completion
of certain environmental impact studies.
Management does not expect the completion of such studies would prevent or
significantly delay the
finalization of this arrangement. Upon the finalization of this
arrangement, the Company will have no additional department stores available as
potential long-term financing sources to the Company.
The Company has long-term financing arrangements with Wells Fargo Bank, N.A.
("Wells Fargo") and Heller Financial, Inc. ("Heller"). The long-term loan with
Wells Fargo, extended to February 5, 1997, bears interest at a rate of 11.0% and
had an outstanding balance of $10.1 million at July 29, 1995. The Company repaid
$8.0 million of the Wells Fargo loan in June 1995 with proceeds from the
previously described Capitola sale and leaseback arrangement and expects to
repay
the remaining outstanding balance, prior to its maturity, upon receipt of the
proceeds from the previously described Midland financing arrangement. The long-
term mortgage loan with Heller, due January 1, 2002, bears interest at a rate of
10.45% and had an outstanding loan balance of $6.2 million at July 29, 1995. The
Company also has 8.55% Commercial Revenue Bonds, due December 1, 1995, with
outstanding balances totalling $2.8 million at July 29, 1995 ($2.7 million at
December 1, 1995). Management expects to repay the Commercial Revenue Bonds upon
their maturity with financings expected to be provided by the owner of the mall
in which the store is located. In the event such a financing is not completed,
the
bonds will be repaid with proceeds from the Midland financing arrangement.
During the first half of 1995, the Company received a total of $1.3 million in
connection with two of its fiscal 1995 store openings for the purpose of
financing
fixture and equipment expenditures at those locations. The $1.3 million is to be
repaid over ten-year maturity periods at interest rates ranging from 5.0% to
10.0%.
Net cash used in operating activities was $19.1 million in the first half of
1995
as compared to $3.6 million in the first half of 1994, an increase of $15.5
million. This increase is primarily attributable to increased inventory
requirements associated with new stores opened since the same period of last
year,
less $4.0 million received during the first quarter of 1995 as incentive to open
one of those new stores (see Note 5 to the Condensed Consolidated Financial
Statements), higher costs associated with the opening of those new stores and an
increase in amounts due from mall owners and developers in connection with new
store openings. These increases were partially offset by a decrease in customer
credit card receivables during the period. The decrease in credit card
receivables
is primarily seasonal in nature, in that receivables are typically at their
highest level following the Christmas selling season and decline thereafter as
customers repay their account balances. Net cash used in operating activities in
the first half of 1995 also includes the payment of $3.0 million into an
irrevocable trust in accordance with the terms of the settlement of the
previously described stockholder litigation.
Net cash used in investing activities was $6.3 million in the first half of 1995
as compared to $1.0 million in the first half of 1994, an increase of $5.3
million. Net cash used in investing activities in the first half of 1995
consisted
primarily of capital expenditures for tenant improvements, construction costs
and
furniture, fixtures and equipment associated with new and certain existing store
locations, less amounts received as reimbursement for certain of those
expenditures. Such amounts were provided for primarily by proceeds from the
previously described Capitola sale and leaseback arrangement and the Heller
financing entered into in the previous fiscal year. Net cash used in investing
activities in the first half of 1994 consisted primarily of expenditures for
information system improvements and additional enhancements to the Company's POS
and computer processing capabilities.
Net cash provided by financing activities was $13.0 million in the first half of
1995 as compared to $5.5 million in the first half of 1994, an increase of $7.5
million. Net cash provided by financing activities in the first half of 1995
consisted primarily of proceeds from the Company's revolving lines of credit,
net
of repayments made on its various credit facilities during the period. Net cash
provided by financing activities in the first half of 1994 included
borrowings on
the Company's lines of credit and was partially offset by the application of the
$40.0 million proceeds received through the issuance of the Fixed Base
Certificates, which was used to repay all outstanding borrowings under a pre-
existing line of credit and long-term borrowing arrangement and to pay certain
costs associated with the transaction.
Working capital increased $20.2 million to $58.1 million at July 29, 1995 as
compared to $37.9 million at January 28, 1995. The Company's current ratio
increased to 1.77:1 at July 29, 1995 as compared to 1.43:1 at January 28, 1995.
These increases relate to the reclassification of $20.0 million of outstanding
borrowings under the Company's line of credit arrangement with Shawmut to long-
term pursuant to changes in certain provisions of the arrangement.
The Company's 1995 expansion program included the opening of the following new
department stores: Auburn, California (40,000 square feet - February 1995);
Carson
City, Nevada (58,000 square feet - March 1995); San Bernardino, California
(204,000 square feet - April 1995); a replacement for an existing store in
Visalia, California (150,000 square feet - August 1995); and a new 75,000
square
foot department store in Watsonville, California. The Company also expects to
open
a new 113,000 square foot department store in Tracy, California in October 1995.
As of July 29, 1995, the estimated remaining cost to complete such projects, net
of amounts to be contributed by mall owners or developers of certain of the
projects, is $2.6 million. The Company continually investigates potential sites
for new stores, and capital expenditure plans may change as opportunities for
new
stores develop. The opening of new stores is subject to a variety of conditions
precedent and other factors. As a result, there can be no assurance that such
stores will in fact be opened or that their opening will not be delayed.
Management believes the previously described financing arrangements, combined
with
the contemplated financing arrangement, will provide the Company with adequate
funds for its needs. Management is continuing to evaluate additional alternative
financing sources on an ongoing basis.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 22, 1995, the Company held its 1995 Annual Meeting of Stockholders at
which the Company submitted to a vote of its stockholders the election of the
following nine nominees for director. Each of the nine nominees were elected.
The
following represents a tabulation of the votes cast for each of the nine
nominees:
<TABLE>
<CAPTION>
Nominee for Director Votes For Votes Against
<S> <C> <C>
Joseph W. Levy 8,353,585 67,057
Gerald H. Blum 8,353,885 66,757
Bret W. Levy 8,347,105 73,537
Sharon Levy 8,347,185 73,457
Joseph J. Penbera 8,353,785 66,857
Frederick R. Ruiz 8,348,285 72,357
O. James Woodward III 8,353,885 66,757
Max Gutmann 8,349,185 71,457
Stephen J. Furst 8,353,885 66,757
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed pursuant to the requirements of Item
601 of Regulation S-K:
Exhibit No. Description
27 Financial Data Schedule
10.42 Sixth Amendment to Loan and Security
Agreement dated July 31, 1995, by and between Gottschalks Inc.
and Shawmut Capital Corporation.
10.43 Seventh Amendment to Loan and Security Agreement dated
August 9, 1995, by and between Gottschalks Inc. and
Shawmut Capital Corporation.
10.44 Agreement of Sale dated June 27, 1995 by and between
Gottschalks Inc. and Jack Baskin relating to the sale and
leaseback of the Capitola, California property.
10.45 Lease and Agreement dated June 27, 1995 by and between
Jack Baskin and Gottschalks Inc. relating to the sale and
leaseback of the Capitola, California property.
99.1 Letter of Commitment dated August 30, 1995 by and between
Gottschalks Inc. and Midland Commercial Funding.
(b) The Company filed the following Current Reports on Form 8-K during the
thirteen week period ended July 29, 1995.
-- Current Report on Form 8-K dated June 14, 1995, describing, pursuant
to Item 5, Other Events, a judgement to expunge an action for lis
pendens on certain of the Company's properties.
-- Current Report on Form 8-K dated June 27, 1995, describing, pursuant
to Item 5, Other Events, (i) the settlement of a lawsuit filed against
the Company by UML Financial Corporation and M.J.M. and Associates,
Inc.; (ii) the finalization of the sale and leaseback of one of its
department store locations; and (iii) the revision of certain terms
of the Company's long-term note payable to Wells Fargo Bank.
SIGNATURES
Pursuant to the requirements 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.
Gottschalks Inc.
(Registrant)
September 12, 1995
s/Joseph W. Levy
(Joseph W. Levy, Chairman
and Chief Executive Officer)
September 12, 1995
s/Alan A. Weinstein
(Alan A. Weinstein, Senior Vice
President and Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Financial Data Schedule is being filed in accordance with Regulation S-T
and includes selected unaudited financial data from the Company's Quarterly
Report on Form 10Q for the second quarter ended July 29, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JUL-29-1995
<CASH> 3,404
<SECURITIES> 0
<RECEIVABLES> 23,422
<ALLOWANCES> 1,174
<INVENTORY> 91,156
<CURRENT-ASSETS> 133,324
<PP&E> 122,632
<DEPRECIATION> 37,487
<TOTAL-ASSETS> 230,409
<CURRENT-LIABILITIES> 75,198
<BONDS> 44,741
<COMMON> 104
0
0
<OTHER-SE> 78,346
<TOTAL-LIABILITY-AND-EQUITY> 230,409
<SALES> 169,818
<TOTAL-REVENUES> 175,585
<CGS> 119,775
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,806
<LOSS-PROVISION> 1,206
<INTEREST-EXPENSE> 5,083
<INCOME-PRETAX> (8,255)
<INCOME-TAX> (3,138)
<INCOME-CONTINUING> (5,117)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,117)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Sixth Amendment")
is entered into as of July 31, 1995 by an between Shawmut Capital
Corporation, a Connecticut corporation, as successor-in-interest to Barclays
Business Credit, Inc. ("Lender"), and Gottschalks Inc., a Delaware corporation
("Borrower"), with reference to the following facts:
RECITALS
A. Lender and Borrower entered into that certain Loan and Security
Agreement, dated as of March 30, 1994, as amended by (i) that certain First
Amendment to Loan and Security Agreement dated as of May 12, 1994, (ii) that
certain Second Amendment to Loan and Security Agreement dated as of October 12,
1994, (iii) that certain Third Amendment to Loan and Secutiy Agreement dated as
of December 30, 1994, and (iv) that certain Fourth Amendment to Loan and
Security Agreement dated as of March 22, 1995, and (v) that certain Fifth
Amendment to Loan and Security Agreement dated as of March 31, 1995, pursuant
to which Lender agreed to provide certain financial accommodations to Borrower
on the terms and conditions set forth therein (said Loan and Security
Agreement, as from time to time in effect, together with all exhibits and
schedules thereto, is hereinafter referred to as the "Loan Agreement").
B. Lender and Borrower desire to amend certain aspects of their
financing arrangements under the Loan Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the
agreements contained herein, Lender and Borrower hereby agree as follows:
1. Use of Terms Defined in the Loan Agreement. All capitalized terms
that are defined in the Loan Agreement and that are used without definition
herein shall have the respective meanings given to them in the Loan Agreement.
2. Amendments to the Loan Agreement. Section 8.3(D) of the Loan
Agreement is deleted in its entirety and the following is substituted therefor:
(D) Minimum Earnings.
(i) Maintain at all times not less than the following
Consolidated Adjusted Net Earnings from Operations for the
corresponding periods set forth below:
<TABLE>
<CAPTION>
Fiscal Period Amount
<S> <C>
March 1995 <$1,500,000>
Each Fiscal <$1,500,000>
Period thereafter
</TABLE>
(ii) Maintain at all times, on a fiscal quarter-to-date
basis, not less than the following Consolidated Adjusted
Net Earning from Operations during the corresponding
fiscal quarters set forth below:
<TABLE>
<CAPTION>
Fiscal Period Amount
<S> <C>
Second fiscal quarter <$3,250,000>
Of Fiscal Year ending
January 1996
Each fiscal quarter <$2,000,000>
thereafter
</TABLE>
(iii) Maintain at all times after January 28, 1995, not
less tan the following Consolidated Adjusted Net
Earnings from Operations for the period of twelve
(12) consecutive Fiscal Periods including and ending
with the corresponding Fiscal Periods set forth
below:
<TABLE>
<CAPTION>
Fiscal Period Amount
<S> <C>
February 1995 through <$2,600,000>
May 1995
June 1995 through <$1,500,000>
November 1995
Each Fiscal Period <$2,600,000>
thereafter
</TABLE>
3. Continuing Representations of Borrower. Borrower hereby represents
and warrants to lender that as of the date hereof all representations and
warranties contained in the Loan Agreement are true, complete and correct, and
no Default or Event of Default has occurred and is continuing.
4. Incorporation into the Loan Agreement. The terms and conditions of
this Sixth Amendment shall be incorporated by reference in the Loan Agreement
as though set forth in full therein. In the event of any inconsistency between
the provisions of
this Sixth Amendment and any other provision of the Loan Agreement, the terms
and provisions of this Sixth Amendment shall govern and control. Except to the
extent specifically amended or superseded by the terms of this Sixth Amendment,
all of the provisions of the Loan Agreement shall remain in full force
and effect to the extent in effect on the date hereof. Except to the
extent, if any, specifically dealt with herein, this Sixth Amendment
does not constitute an amendment or waiver by Lender of any provision of
the Loan Agreement, or of any Default, Event of Default, or other default
by Borrower thereunder. The Loan Agreement, as modified by this Sixth
Amendment, together with the other Loan Documents, constitutes
the complete agreement among the parties and supersedes any prior written or
oral agreements, writings, communications, or understandings of the
parties with respect to the subject matter thereof.
5. Section Headings.
The headings of the Sections hereof are for convenience only, are
without substantive meaning, and shall not be used in interpreting
any provision of this Sixth amendment or the Loan Agreement.
6. Counterparts.
This Sixth amendment may be executed in counterparts, each of which
shall be deemed to be an original but all of which shall be one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Sixth Amendment to Loan and Security Agreement as of the day
and year first written above.
("Lender")
SHAWMUT CAPITAL CORPORATION
By_s\Melvin L. Robbins__________
Melvin L. Robbins
Senior Vice President
("Borrower")
GOTTSCHALKS INC.
By s/Alan A. Weinstien
Alan A.Weinstein
Senior Vice President and
Chief Financial Officer
SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Seventh Amendment")
is entered into as of August 9, 1995 by an between Shawmut Capital Corporation,
a Connecticut corporation, as successor-in-interest to Barclays Business
Credit, Inc. ("Lender"), and Gottschalks Inc., a Delaware corporation
("Borrower"), with reference to the following facts:
RECITALS
A. Lender and Borrower entered into that certain Loan and Security
Agreement, dated as of March 30, 1994, as amended by (i) that certain First
Amendment to Loan and Security Agreement dated as of May 12, 1994, (ii) that
certain Second Amendment to Loan and Security Agreement dated as of October 12,
1994, (iii) that certain Third Amendment to Loan and Secutiy Agreement dated as
of December 30, 1994, and (iv) that certain Fourth Amendment to Loan and
Security Agreement dated as of March 22, 1995, and (v) that certain Fifth
Amendment to Loan and Security Agreement dated as of March 31, 1995, (vi) that
certain Sixth Amendment to Loan and Security Agreement dated as of July 31,
1995, pursuant to which Lender agreed to provide certain financial
accommodations to Borrower on the terms and conditions set forth therein (said
Loan and Security Agreement, as from time to time in effect, together with all
exhibits and schedules thereto, is hereinafter referred to as the "Loan
Agreement").
B. Lender and Borrower desire to amend certain aspects of their
financing arrangements under the Loan Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the
agreements contained herein, Lender and Borrower hereby agree as follows:
1. Use of Terms Defined in the Loan Agreement. All capitalized terms
that are defined in the Loan Agreement and that are used without definition
herein shall have the respective meanings given to them in the Loan Agreement.
2. Amendments to the Loan Agreement. The definition of "Borrowing
Base" set forth in Section 1.1 of the Loan Agreement is deleted in its entirety
and the following is substituted therefor:
Borrowing Base - as at any date of determination thereof, an
amount equal to:
(I) the lesser of:
(A) the Maximum Commitment minus the face amount of
any LC Guaranty or Letter of Credit issued by Lender or any of its
Affiliates outstanding at such date; or
(B) (I) at any time during the periods from August 1,
1995 through January 31, 1996, and from May 1, 1996 through September
30, 1996, and from May 1, 1996 through September 30, 1996, sixty
percent (60%) of the value of Eligible Inventory at such date,
calculated on a first-in, first-out basis (at the lower of cast or
market), minus the face amount of any LC Guaranty or Letter of
Credit issued by Lender or any of its Affiliates outstanding at such
date, and (II) at any other time, fifty percent(50% of the value
of Eligible Inventory at such date calculated on a first-in, first-out
basis (at the lower of cost or market), minus the face amount of any
LC Guaranty or Letter of Credit issued by Lender or any of its
Affiliates outstanding at such date;
MINUS
(ii) any amounts which lender may pay pursuant to any of the
Loan Documents for the account of Borrower which remain
outstanding.
2.2 The definition of "Maximum Commitment" set forth in Section
1.1 of the Loan Agreement is deleted in its entirety and the following is
substituted therefore:
Maximum Commitment - $66,000,000.
2.3 The Preamble to Article 2 of the Loan Agreement is deleted in
its entirety and the following is substituted therefor:
2. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon
the representations and warranties made in, this Agreement and the
other Loan Documents, Lender agrees to make a total credit facility
of up to SIXTY- SIX MILLION AND 00/100 DOLLARS ($66,000,000) available
upon Borrower's request therefor, as follows:
2.4 The first sentence of Section 3.1(A) of the Loan Agreement is
deleted in its entirety and the following is substituted therefor:
Interest shall accrue on the principal amount of the Revolving
Loans outstanding at the end of each day at a fluctuating rate per
annum equal to three and one-half percent (3.5%) above the LIBOR
Rate; provided, that to the extent a portion of the principal amount of
the Revolving
Loans outstanding is funded by Wells through a participation
with Lender, then interest shall accrue on such outstanding
portion at fluctuating rate per annum equal to three and one-quarter
percent (3.25%) above the LIBOR Rate.
2.5 Section 3.3(A) of the Loan Agreement is deleted in
its entirety and the following is substituted therefor:
(A) Upon at least ninety (90) days prior written
notice to Lender, Borrower may, at its option, terminate this
Agreement; provided, that no such termination shall be effective
until Borrower has paid all of the Obligations in immediately
available funds, and all Letters of Credit and LC Guaranties
issued by Lender or its Affiliates hereunder have expired.
At the effective date of such termination (the
"Prepayment Date"), Borrower shall pay to Lender, in
addition to all of the ten outstanding principal, accrued
interest and other charges owing under the terms of this
Agreement and any of the other Loan Documents, as liquidated damages
for the loss of the bargain and not as a penalty, the prepayment
premium for amounts outstanding on the Revolving Loans by paying to
Lender on the Prepayment Date the following amounts:
If Prepayment is Made Between the Following Dates,
Inclusive:
The Premium Shall Be:
(i) March 31, 1995 and one percent (1.0%)
March 30, 1996 of the Maximum Commitment
(ii) March 31, 1996 and one-quarter of
one Thereafter percent (0.25%) of the
Maximum Commitment
If termination occurs on the last day of
the Original Term or on the last day of any Renewal Term,
no prepayment premium shall be payable.
3. Seventh Amendment Closing Fee. In consideration
of Lender's entering into this Seventh Amendment, Borrower
shall pay be Lender on the effective date hereof a
closing fee of Seventy Five Thousand Dollars ($75,000)
(the "Seventh Amendment Closing Fee"), which shall be
fully earned and non-refundable. The payment
of the Seventh Amendment Closing Fee is an express
condition precedent to the effectiveness of this Seventh
Amendment.
4. Continuing
Representations of Borrower. Borrower hereby represents and warrants
to Lender that as of the date hereof all representations and
warranties contained in the Loan Agreement are true, complete and
correct, and no Default of Event of Default has occurred and
is continuing.
5. Incorporation into the Loan Agreement.
The terms and conditions of this Seventh Amendment shall be
incorporated by reference in the Loan Agreement as though set
forth in full therein. In the vent of any inconsistency
between the provision of this Seventh Amendment and any other
provision of the Loan Agreement, the terms and provisions of
this Seventh Amendment shall govern and control. Except to the
extent specifically amended or superseded by the terms of
this Seventh Amendment, all of the provisions of the Loan
Agreement shall remain in full force and effect to the extent in
effect on the date hereof. Except to the extent, if
any, specifically dealt with herein, this Seventh Amendment
does not constitute an amendment or waiver by Lender of any
provision of the Loan Agreement, or of any Default, Event of
Default, or other default by Borrower thereunder.
The Loan Agreement, as modified by this Seventh Amendment,
together with the other Loan Documents, constitutes the complete
agreement among the parties and supersedes any prior written or
oral agreements, writings, communications, or understandings of the
parties with respect to the subject matter thereof.
6. Section Headings.
The headings of the Sections hereof are for convenience
only, are without substantive meaning, and shall not be
used in interpreting any provision of the Seventh Amendment or
the Loan Agreement.
7. Counterparts.
This Seventh Amendment may be executed in counterparts,
each of which shall be deemed to be an original but all of
which shall be one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Seventh Amendment to Loan and Security Agreement as of the day
and year first written above.
("Lender")
SHAWMUT CAPITAL CORPORATION
By:s\Melvin L. Robbins
Melvin L. Robbins
Senior Vice President
("Borrower")
GOTTSCHALKS INC.
By:s\Alan A. Weinstien
Alan A. Weinstein
Senior Vice President and
Chief Financial Officer
AGREEMENT OF SALE AND DEPOSIT RECEIPT
This AGREEMENT OF SALE (hereinafter "Agreement"), dated, for reference purposes
only, March 2, 1995, by and between Gottschalks, Inc. (hereinafter "Seller") and
Jack Baskin and/or assignees (hereinafter "Purchaser").
Deposit
Purchaser's deposit shall be the sum of Fifty Thousand Dollars ($50,000.00) as
evidenced by check made payable to Old Republic Title Company to be held
uncashed
until full execution of this Agreement by both parties and to be applied toward
the Purchase Price of Eleven Million Six Hundred Thousand Dollars
($11,600,000.00)
for that certain property situated in the County of Santa Cruz, State of
California and described as a parcel of land of approximately +/- 114,127 square
feet and improvements consisting of a two story free-standing building of
approximately +/- 95,955 square feet plus an 11,293 square foot mezzanine, and a
two level parking structure of approximately +/- 156,346 square feet located at
1825 41st Avenue, Capitola, and legally described within Exhibit "A" attached to
herewith, hereinafter referred to as "Subject Property" (exact size and legal
description to be verified during escrow).
Seller hereby agrees to sell the Subject Property to Purchaser, and Purchase
agrees to purchase the Subject Property from the Seller, upon the terms and
conditions hereinafter set forth.
Terms of Sale
1. Financial Terms
The above-mentioned deposit check shall be delivered to Old Republic Title
Company, Capitola, California, upon mutual execution of this Agreement of Sale
and
Deposit Receipt and applied towards to the purchase price at close of escrow.
The
remainder of the purchase price shall be paid by Purchase as follows:
$ 50,000.00 Deposit as described above
$ 7,540,000.00 Proceeds from loan acquired by Purchaser
Purchaser to acquire first loan as described in Paragraph
10-A below
$ 4,010,000.00 Cash from Purchaser to be on deposit at close of escrow
$11,600,000.00 Total Consideration to be paid to Seller on close of escrow
2. Escrow Agent
Upon full execution of this contract, Seller, at Seller's expense, shall order a
Preliminary Report from Old Republic Title Company (Escrow Agent) and establish
escrow with same. The parties shall execute escrow instructions as requested by
the Escrow Holder in accordance with the provisions contained herein. The
instructions shall not modify or amend the provisions of this Agreement. Said
escrow shall provide for a closing date of April 14, 1995. All escrow and
closing
fees shall be split equally between Purchaser and Seller. Any City or County
transfer taxes, and the cost of any stamps to be attached to the deed, shall be
paid by the Seller. This Agreement shall be null and void if closing does not
occur on April 14, 1995.
3. Preliminary Report
Seller shall promptly provide Purchaser a current Preliminary Report issued by
the
Escrow Agent, which shall include the description of the Property and any
exceptions to title, of record, regarding the Property. Should Purchaser
disapprove of any exceptions or of the description of the Property, as set forth
in the Preliminary Report, Purchaser shall give written notice to Seller within
fifteen (15) days, specifying each matter disapproved by Purchaser, and Seller
shall have fifteen (15) additional days within which to give written notice to
Purchaser stating whether Seller will cause the removal of the disapproved
matter(s) prior to the close of Escrow. If Seller does not timely deliver
Seller's notice or Purchaser, or the notice states that Seller does not intend
to
remove the disapproved matter(s) prior to the date of close of Escrow, Purchaser
shall have an additional ten (10) days from the first to occur of the date of
Seller's notice or the expiration of the fifteen (15) day period allowed Seller,
within which to notify Seller in writing of his election to terminate this
Agreement.
The policy of Title Insurance shall be a CLTA policy with a liability not to
exceed the total purchase price. The cost of the title policy shall be split
evenly between Purchaser and Seller. Any concurrent ALTA policy that may be
required by the lender shall also be split evenly between the Purchaser and
Seller.
4. Delivery of Title
Title of said property shall be delivered to the Purchaser on the date of the
close of escrow by a grant deed executed by Seller, in favor of Purchaser or its
assignee.
5. Condition of Title at Delivery
Title to the Property shall be conveyed to Purchaser in fee simple, and subject
only to the standard printed exceptions contained in a CLTA Owner's policy of
title insurance, the approved or waived exceptions pursuant to Paragraph 3,
above,
and any lien to be created pursuant to this Agreement. Title shall also be
conveyed subject to all covenants, conditions and restrictions contained in the
underlying REA. See section 21E.
6. Prorations
Taxes, rents, fire insurance premiums acceptable to Purchaser, if any, shall be
prorated as of the date of the close of escrow. All prorations shall be made on
the basis of a thirty (30) day month. Subject to Purchaser's rights in Article
3 above, any bonds or assessments shall be paid current by Seller as of the
Close
of Escrow, and payments that are not yet due shall be assumed by Purchaser.
7. Assignments
Without being relieved of any liability under this Agreement, Purchaser reserves
the right to take title to the Subject Property in a name or assignee other than
that shown above.
8. Due Diligence Period
Within fifteen (15) days from the Effective Date, being the date the last party
executes this Agreement, Seller shall deliver to Purchaser to the extent such
documents are available to Seller, the following regarding the Property,
surveys,
all leases and service contracts, insurance policies, licenses and permits,
plans
and specifications regarding the improvements on the Property, soils tests and
reports, inspection reports, termite/pest reports, warranties and guaranties,
government reports, correspondence and notices, tax bills, construction
contracts,
appraisal reports, and agreements between owners of some or all of the parcels
comprising the Capitola Mall (collectively, the "Documents") that affect the
Property in any way.
Purchaser and his representatives (e.g., civil, structural, electrical and
mechanical engineers, architects, surveyors, and roofing, plumbing, electrical
and
general contractors) shall have the right to enter upon the Property, at
Purchaser's expense, for the purpose of inspecting the Property and carrying out
such investigations as reasonably required. Purchaser shall hold Seller and the
Property free and harmless from any and all claims, demands, liabilities, liens,
losses, obligations, causes of action, judgments, damages, costs and expenses
(including, without limitation, attorneys' fees incurred by Seller) arising out
of any such entry by Purchaser or its representatives.
Purchaser may terminate this Agreement, in his sole and absolute discretion,
should Purchaser not be satisfied with the results of such studies and
investigation, and upon giving written notice to Seller within fifteen (15) days
from receipt of all of the Documents from Seller, and with written certification
by Seller that it has delivered all of the Documents it has in its possession or
that it can obtain from third parties. Should Purchaser give such notice, this
Agreement shall terminate, escrow shall be cancelled, and all deposits and
documents shall be returned to the party depositing same into Escrow.
Should this Agreement be canceled, due to failure of a contingency, the parties
shall share equally in any Escrow fee and costs incurred to the date of
termination.
9. Default/Liquidated Damages
In the event of Purchaser's default hereunder, and so long as Seller is not in
default, Seller shall have the right to receive from escrow-holder, and retain
if
already holding same, all sums deposited by Buyer with escrow-holder and with
Seller under this Agreement Such amount, because it would be impractical or
extremely difficult to fix actual damages, is the amount of damage presumed that
Seller would sustain by reason of any such default, and retention of said amount
shall be the sole remedy, both in law and in equity, of Seller for Purchaser's
default.
Purchaser's Initials: _JB______ Seller's Initials: _AAW______
10. Purchaser's Contingencies
In addition to any other contingency in this Agreement, this offer shall be
contingent upon the following:
A. New Loan: Purchaser's obtaining a new first loan secured against Subject
Property in an amount not less than Six Million Dollars ($6,000,000.00)
with
terms acceptable to Purchaser including a loan term of not less than
twenty
(20) years, interest rate not in excess of ten and one-half percent
(10.5%)
per annum fixed rate, and loan acquisition fee of not more than two
percent
(2%). Depending upon the actual amount of loan acquired, cash funded at
close of escrow, as described in Article 1 above, shall be adjusted
accordingly to achieve a total consideration of Eleven Million Six Hundred
Thousand Dollars ($11,600,000.00).
B. New Lease Concurrent with Close: Purchaser's approval of a new lease to
be
executed between Purchaser (Lessor) and Seller (Lessee) which, at a
minimum,
shall contain the following terms and conditions:
Term: Twenty (20) years starting from c.o.e.
Lessee Options: Four (4)-Five (5) year option periods
Base Rent: One Hundred and Three Thousand Dollars ($103,000) per
month NNN
NNN Lease: Lease shall be absolutely triple net with Lessor. All
expenses associated to maintenance, repair, insuring,
and
management of the property shall be borne solely by
Lessee.
Additional Lease Terms and Conditions: See Exhibits "A" and "C" attached
hereto.
11. Possession
Possession, subject to the rights of the Lessee, shall be delivered to Purchaser
on close of escrow.
12. Exchange
Seller agrees to cooperate with Purchaser in completing an exchange qualifying
for
non-recognition of gain under Internal Revenue Code section 1031 and the
applicable provisions of the California Revenue and Taxation Code. Purchaser
reserves the right to convert this transaction to an exchange at any time before
the closing date, and, if Purchaser elects to complete an exchange, Seller shall
execute all escrow instructions, documents, agreements or instruments reasonably
requested by Purchaser to complete the exchange. Seller, however, shall incur
no
additional liabilities, expenses or costs as a result of or connected with the
exchange. Purchaser shall exercise due diligence in seeking to have a
concurrent
closing of this escrow and the escrow regarding the other property to be
involved
in the exchange.
13. Time
Time is of the essence of this Agreement and every provision thereof.
14. Termination
In the event this contract may be terminated as provided for herein, termination
may be effected only by the terminating party delivering written notice of
termination to the other party. In the event of termination this contract shall
be of no further force or effect and all funds, documents and instructions
delivered to Escrow Agent shall be promptly returned to the person who
previously
delivered the same to Escrow Agent unless otherwise expressly provided for
herein.
Escrow and all related fees to be split as specified in Article 2 of this
Agreement.
15. Brokerage
Neither Purchaser nor Seller has utilized the services of, or for any other
reason
owes compensation to, a licensed real estate broker (individual or corporate),
agent, or finder, or any other entity in connection with any act relating to the
Property including but not limited to inquiries, introductions, consultations
and
negotiations, leading to this Agreement. Purchaser and Seller each agree to
indemnify and hold harmless the other from and against any costs, expenses, or
liability for compensation claimed inconsistent with the warranty and
representation in this paragraph.
16. Authority
Any person or persons assigning this Agreement represent that such person has
full
power and authority to bind that person(s) principal and that the designated
Seller and Purchaser have the full authority to enter into and perform this
Agreement. Entering into this Agreement and the completion of the obligations
pursuant to this contract does not violate any Articles of Incorporation,
Bylaws,
Partnership Agreement or other document governing the activity of either Seller
or Purchaser.
17. Successors and Assigns
This Agreement shall be binding upon the inure to the benefit of Seller and
Purchaser and their respective successors and assigns except as otherwise
provided
herein.
18. Addendum
Any Addendum attached hereto which is initialed or signed by Purchaser and
Seller
shall be deemed a part of this Agreement.
19. Notice
All notices called for pursuant to this Agreement may be effected by personal
delivery to the agents or principals, in writing, by facsimile, or by United
States mail, postage prepaid, and shall be deemed communicated forty-eight (48)
hours after mailing.
Mailed notices shall be addressed or sent by facsimile as set forth below:
Purchaser: Jack Baskin
2-2610 East Cliff Drive
Santa Cruz, CA 95062
(408) 476-4643
(408) 476-8658 FAX
With a copy to: S.A.R. Enterprises
Attn: Robert Ridino
P.O. Box 2139
Aptos, CA 95001-2139
(408) 722-2222
(408) 722-1803 FAX
Seller: Gottschalks, Inc.
Attn: Alan A. Weinstein, CFO
7 River Park Place East
P.O. Box 28920
Fresno, CA 93729-8920 (P.O. Box only), 93720
(209) 434-8000
(209) 434-4804 FAX
20. Attorneys' Fees
Should any litigation be commenced between the parties hereto concerning this
Agreement of Sale, the party prevailing in such litigation shall be entitled, in
addition to such other relief as may be granted, to court costs and reasonable
attorney's fees as determined by the court,and any such amounts shall be in
addition to liquidated damages hereinabove provided for.
21. Seller Representations and Warranties
Seller warrants and represents to the best of its actual knowledge and
information:
A. No violation of any statute, ordinance, regulation or administrative or
judicial order or holding, whether or not in the public records, exists
with
respect to the Property or any improvements on the Property;
B. There is no litigation or governmental proceeding pending, threatened or
in
process with respect to the development, use, occupancy or operation of
the
Property;
C. There are no physical defects or conditions affecting the Property,
whether
latent or patent, which would materially affect the value of the Property;
D. No proceedings are pending, threatened or in process which would terminate
access to or parking for the benefit of the Property, or cause a taking of
all or any portion thereof in eminent domain or subject the Property to
any
assessments, special assessments, benefit assessments or joinder in a fee
benefit area;
E. There are no contracts, licenses, commitments or undertakings respecting
maintenance of the Property, or equipment on the Property, or the
performance of services ont he Property, by which Purchaser would become
obligated or liable to any person except as specifically acknowledged
herein. Purchaser acknowledges that the third and fourth amendments to
the
Restatement of Declaration of Establishment of Restrictions and Covenants
affecting land (REA) contain contracts and commitments that could
affect the
Purchaser or the terms contained in this Agreement. To the extent that
this
Agreement is different from the REA, the terms and conditions of the REA
shall control;
F. There are no claims or prescriptive rights or adverse possessory interests
or any easements, covenants, leases or licenses herein, and no exceptions,
except as set forth in the Preliminary Report;
G. The Property is not, as of the above date, in a "Flood Zone" as shown on a
Department of Housing and Urban Development "Special Flood Zone Area Map,"
or is in a "Special Studies Zone" (relating to geologic hazards) under
Section 2621, et seq., of the California Public Resources Code;
H. Seller is not a foreign individual as defined in the Internal Revenue
Code, and
I. There are no hazardous materials located upon or within the Property.
Hazardous materials shall include, but not be limited to, substances
defined
as "hazardous substances", "hazardous materials", or "toxic substances",
in
the Comprehensive Environmental Response, Compensation and Liability act
of
1980, as amended, 42 U.S.C. Section 9601, et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq.; the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.; and those
substances defined as "hazardous wastes" in Section 25117 of the
California
Health & Safety Code; and in the regulations adopted and publications
promulgated pursuant to said laws.
Each of the foregoing representations and warranties shall survive the close of
escrow. Notwithstanding the above, should Seller become aware, prior to close
of
escrow, of new information which would change any of the above representations
and
warranties of Seller, Seller shall immediately notify Purchaser of the new
information gained by Seller and its effect on any of the above representations
and warranties.
22. Entire Agreement
This contract contains the entire agreement of the parties. Any agreement of
the
parties and any agreement or representation respecting the property or the
duties
of the Purchaser and Seller in relation thereto expressly set forth herein is
null
and void.
Receipt of a copy hereof is acknowledged.
Purchaser:
s\Jack Baskin_____________________________ _March 7, 1995_______________
Jack Baskin Date
This Agreement constitutes an Agreement to purchase, which, if not signed and
delivered to Seller by 5:00 p.m. on March 6, 1995, shall be automatically
revoked
and of no further force or effect.
The undersigned Seller hereby approves and accepts the foregoing Agreement of
Sale, and hereby agrees to sell the above described property upon the terms and
conditions set forth herein.
Seller: GOTTSCHALKS INC.
s\Stephen J. Furst_____________________ _March 2, 1995_____________
By: Stephen J. Furst Date
President and Chief Operating Officer
ADDENDUM
This Addendum is to that Agreement of Sale and Deposit Receipt dated
March 2, 1995
("Agreement"), between Gottschalks Inc. ("Seller") and Jack Baskin and/or
assignees ("Purchaser"). The following terms and conditions are incorporated in
and made part of the Agreement.
1. Escrow shall close on or before April 14, 1995, unless the closing of the
escrow for the sale by Purchaser of the Elena Gardens Apartments, the property
that is the subject of Purchaser's intended exchange, is delayed by the Housing
and Urban Development processing, in which case the Closing Date will be
extended
a maximum of thirty (30) days. This Agreement shall be null and void if the
Closing Date does not occur on or before April 14, 1995, or thirty (30) days
thereafter if extended as provided above, unless due to default of Seller.
2. The Escrow Agent shall issue an ALTA Owner's policy of title insurance,
insuring Purchaser for the amount of the purchase price. The premium cost for
this policy, any concurrent ALTA policy that may be required by lender, and the
cost of an ALTA survey, shall be shared equally by Seller and Purchaser except
that Seller shall be obligated to pay nor more than $3,000.00 for its share of
the
ALTA survey.
3. Regarding the Due Diligence Period in Paragraph 8 of the Agreement,
Purchaser shall have twenty (20) days from receipt of all of the Documents from
Seller, and with written certification by Seller that it has delivered all of
the
Documents it has in its possession or that it can obtain from third parties, to
give written notice to Seller of his disapproval of the results of the studies
and
investigations performed by or on behalf of Purchaser, including with the notice
a punch list of corrective work which Purchaser considers necessary to be
performed. Within ten (10) days of receipt of such notice, Seller shall notify
Purchaser in writing of its election to either (i) perform the corrective work
designated by Purchaser, at Seller's sole cost and expense, and complete such
work
prior to the Closing Date, or (ii) not agree to perform such corrective work.
In
the event Seller elects to perform the corrective work, this condition shall be
deemed satisfied, provided Seller performs the corrective work to Purchaser
reasonable satisfaction prior to the Closing Date. If Seller elects or is
deemed
to have elected not to perform the corrective work, this Agreement shall
terminate
automatically at the end of five (5) days following the earlier of the end of
the
ten (10) day period or from receipt of Purchaser of Seller's notice, unless
Purchaser notifies Seller in writing within the five (5) day period of his
waiver
of the necessity of the satisfaction of this condition.
4. Any adjustment to the Base Rent during the term of the Lease shall be
established as part of the negotiations between the parties in entering into a
Lease.
5. Additional Lease Terms are set forth in Exhibits "B" and "C", attached to
the Agreement.
6. To the extent there is any conflict between the provisions contained in
the
Agreement and in this Addendum, the terms and conditions in this Addendum shall
control, it being the intent of the parties to modify certain provisions of the
Agreement by this Addendum.
IN WITNESS WHEREOF, the parties have executed this Addendum on the dates set
forth below.
SELLER:
GOTTSCHALKS INC.
s\Stephen J. Furst________________ __March 8, 1995_________
By: Stephen J. Furst Date
President and Chief Operating Officer
PURCHASER:
s\Jack Baskin__________________ ___March 7, 1995___________
Jack Baskin Date
EXHIBIT 'A'
LEGAL DESCRIPTION
PART V
GOTTSCHALKS TRACT
Parcel 1 as shown and designated on that certain Parcel Map recorded July 2,
1987
in Book 48 of Parcel Maps, Page 2, Santa Cruz County Records.
Excepting therefrom the following described parcel of land:
BEING a part of the lands conveyed to Samuel Leask & Sons, a California Limited
Partnership by Deed dated August 6, 1987 and recorded August 14, 1987 in Volume
4207 of Official Records at Page 479, Santa Cruz County Records, and as said
lands
are shown and delineated on the map entitled "RECORD OF SURVEY for SAMUEL LEASK
& SONS", the original of which is filed in Volume 79 of Maps at Page 22, Santa
Cruz County Records, and more particularly bounded and described as follows, to
wit:
BEGINNING at a lead plug and brass tag "LS 3666" in the southern boundary of
said
lands conveyed to Leask & Sons, and from which a lead plug and brass tag "LS
3666"
at the southeastern corner of said lands bears North 89 degrees 44' 46" East,
168.34 feet distant:
THENCE FROM SAID POINT OF BEGINNING, along the southern and western boundaries
of said lands, South 89 degrees 44' 46" West, 104.86 feet to the beginning of a
tangent curve; thence northerly curving to the right with a radius of 30.00
feet,
through a central angle of 90 degrees 00' 14" for a distance of 47.13 feet;
thence
North 00 degrees 15' 00" West, 130.0l feet to an angle in the boundary of said
last mentioned lands; thence continuing along said last mentioned boundary North
89 degrees 47' 55" East, 135.00 feet to a 1/2 inch iron pipe "LS 3666"; thence
leaving said last mentioned boundary South 00 degrees 12' 05" East, 159.89 feet
to the place of beginning.
Gottschalks Tract also includes the following described parcel of land:
BEING a part of Parcel 2 of the lands shown and delineated on the Parcel Map
dated February 1987 and recorded July 2, 1987 in Volume 48 of Parcel Maps at
Page
2, Santa Cruz Count Records, and more particularly bounded and described as
follows, to wit:
Page 1 of 2
BEGINNING at the northwestern corner of Parcel 1 of said Parcel Map as said
Parcel
1 is shown and delineated on the map entitled "RECORD OF SURVEY for SAMUEL LEASK
& SONS," the original of which is filed in Volume 79 of Maps at Page 22, Santa
Cruz County Records:
THENCE FROM SAID POINT OF BEGINNING, along the westerly prolongation of the
northern boundary of said Parcel 1, South 89 degrees 47' 55" West 39.49 feet to
a 1/2 inch iron pipe "LS 3666"; thence South 00 degrees 12' 05" East, 85.00 feet
to a 1/2 inch iron pipe "LS 3666"; thence North 89 degrees 47' 55" East, 25.00
feet to a 1/2 inch iron pipe "LS 3666" \; thence South 00 degrees 12' 05" East,
187.00 feet to a 1/2 inch iron pipe "LS 3666"; thence North 89 degrees 47' 55"
East, 40.28 feet to a 1/2 inch iron pipe "LS 3666"; thence South 00 degrees 12'
05" East, 139.07 feet to a 1/2 inch iron pipe "LS 3666" in the southern boundary
of said Parcel 1, thence along the boundaries of said Parcel 1, North 89
degrees,
47' 55" East, 10.00 feet to an angle therein; thence North 00 degrees 12' 05"
West, 181.07 feet to an angle therein; thence South 89 degrees 47' 55" West,
55.79
feet to an angle therein; thence North 00 degrees 12' 05" West 230.00 feet to
the
place of beginning.
<PAGE>
EXHIBIT "B"
HAZARDOUS WASTE PROVISIONS
Lessee will obtain Phase 1 environmental assessment reports prior to the
closing.
Such reports must be in form and substance satisfactory to the Lessor. (Lessee
has obtained Phase 1 environmental assessment reports, copies of which will be
provided upon request.)
The Lease will contain the following representations, warranties and covenants:
Representations Lessee will represent with respect to each Property that to the
best knowledge and belief, (1) the Property is in compliance, and that Lessee is
in compliance with respect to the Property, in all material respects, with all
hazardous waste laws, and that no liability under such laws is asserted or
threatened, and (2) that no hazardous waste or toxic substance has been disposed
of or otherwise released from or onto the Property in any material amount.
Lessee
will represent that, to its best knowledge and belief, with respect to its other
properties, Lessee's violation, if any, of hazardous waste laws is not such that
would cause a material adverse change in Lessee's financial condition.
Covenant Lessee will covenant with respect to each Property that, except in
accordance with applicable laws, no hazardous waste or toxic substance will be
generated, treated, stored, disposed of, or released onto the Property in
material
amounts.
Indemnity Lessee will indemnify the Lessor for liabilities arising out of
violations of hazardous waste laws with respect to the Property (except acts of
any person other than Lessee or an affiliate after termination of the Lease or
eviction of Lessee).
Required Hazardous Waste Audit Following Event of Default If an Event of
Default
has occurred and is continuing, Lessor shall have the right to require
Lessee, at
its expense, to engage a qualified engineer to conduct an investigation of the
Property of reasonable scope under the circumstances for the presence of
hazardous
wastes and toxic substances. Such investigation shall include the engineer's
estimate of the cost to cure any violation of Lessee's hazardous waste
covenants.
Such information shall be provided to the Lessor, provided that, except as may
be required by law, the existence, demand therefor, and results and content of
such investigation and report shall not be disclosed by the Lessor without the
prior written consent of Lessee.
Hazardous Waste Violations
A. Cure Provisions
If there is a violation of a hazardous waste law (whether disclosed by a
hazardous
waste audit or otherwise), Lessee shall promptly proceed to perform all remedial
actions to clean up, contain, or remove any hazardous waste or toxic substance
on
the Property in accordance with,and as required by, applicable laws at its sole
cost and expense. Such actions shall be completed within one hundred and twenty
(120) days following the date the nature and scope of the required action is
identified, provided that if such remedial action cannot be completed with
diligence within such one hundred and twenty (120) day period, the time within
which such remedial action may be completed shall be extended for such period as
may be necessary to complete such remedial action with diligence.
If, as a result of any such violation, a lien attaches to a Property, Lessee
shall
discharge or contest such lien and post a bond or deposit and irrevocable letter
of credit with the Lessor, in either event with a surety or obligor satisfactory
to the Lessor and in an amount sufficient to discharge such lien.
B. Permitted Election
In lieu of proceeding to cure or continuing to cure a hazardous waste violation,
or in lieu of conducting a hazardous waste audit, Lessee shall have the right to
offer to purchase the Property at a price not less than the Minimum purchase
Price. Such action should have of terminating the Lease, i.e., if Lessor
accepts
such offer, the Lease will terminate upon the purchase of the Property by
Lessee.
If Lessor rejects such offer, the Lease will terminate upon such rejection.
EXHIBIT "C"
The following provisions are taken from that Invitation to Bid dated 12/23/94
and
therein described as "Summary of Lease Terms", prepared by Gottschalks Inc. The
subject matter contained therein are provisions by Seller/Lessee that are to be
incorporated into a Lease for review and approval of the parties, along with
other
material provisions. Neither party is bound by any lease terms without there
being a written Lease signed by both Buyer/Lessor and Seller/Lessee. All
provisions as contained within the final executed Lease shall constitute the
agreement between the parties.
A. Lease Term and Rent
The basic term of the lease will commence June 1, 1995, and will have an initial
term of twenty (20) years. At its option, Lessee may extend the Lease for four
(4) renewal terms of five (5) years each. Basic Rent shall be as shown in
Article
11B above, with rent payable in twelve (12) equal monthly payments on the first
day of the calendar month, in arrears. Amounts paid by Lessee for application
to
the prepayment of Basic Rent would result in a corresponding reduction in Basic
Rent. Any other amounts due under the Lease, such as interest on overdue rent,
penalties, amounts due as liquidated damages, etc., shall constitute additional
rent ("Additional Rent").
Rents during Renewal Terms shall be based upon fair market, as established on
the
first day of each Renewal Term as determined pursuant to an appraisal process
satisfactory to the Lessor and Lessee.
B. Net Lease
The Lease will be completely net. Basic Rent and Additional Rent will be
payable
without offset or deduction and will be entirely available for application to
Lessor's debt service. In addition to rent, Lessee will pay all costs,
expenses,
and obligations of every kind and nature whatsoever relating to the Property,
including taxes (other than any income and franchise taxes of Lessor),
assessments, costs of maintenance and repairs, insurance, and other charges
relating to the ownership, use, and occupancy of the Properties.
C. Use
Lessee may use the Property for any lawful purpose in Gottschalks' primary
business operations. a proposed use outside of Gottschalks' primary business
operations will be subject to the approval of the Lessor. Lessor's approval
shall
not be unreasonably withheld provided such intended use: (a) is consistent with
the business uses of their properties located in the same general area of the
Property, and (2) such proposed use does not increase the potential for a
decline
in the value of the Property or increase the risk of loss to the Lessor, e.g.,
would not increase potential exposures with respect to hazardous waste issues.
D. Indemnification
Lessee will indemnify Lessor for costs arising in connection with the operation
of the Property.
E. Environmental Matters
The Lessee will make certain representations, covenants, and warranties to
Lessor
regarding hazardous waste matters. See Exhibit "B" marked Schedule I "Hazardous
Waste Provisions" attached.
F. Maintenance and Repairs, Additions
Lessee will be required to maintain the Property and make any required repairs
and
replacements at its cost and expense. Lessor will have no responsibility for
maintenance or repairs. Lessee may make additions or alternations to the
Property, provided its value would not thereby be materially lessened.
G. Granting of Easements
If no Event of Default has occurred and is continuing, Lessee may request in
writing that Lessor join with Lessee (at Lessee's cost and expense) in granting
of easements, party wall rights, minor land releases, etc., for or without
consideration. In connection with any such grant, an executive officer of
Lessee
will be required to certify to Lessor that such grant or release does not
materially interfere with and is not materially detrimental t the conduct of
business on the Property and does not impair the usefulness or the fair market
value of the Property. If the value (as certified by Lessee) of the property is
lessened thereby by an amount exceeding One Hundred Thousand Dollars ($100,000),
or if the consideration received for such grant exceeds One Hundred Thousand
Dollars ($100,000) Lessor may require Lessee to pay Lessor an amount equal to
such
diminution in value or such consideration for application to Lessor's financing
of the purchase ("Lessor's Financing"). Any such payment shall result in a
corresponding rent reduction.
H. Condemnation and Casualty
If a casualty, condemnation or other taking of the Property occurs, Lessee will
be required to restore the affected Property, unless it would be uneconomic to
restore the Property.
1. Restoration
Lessor will have no responsibility for re-building. Basic Rent and
Additional Rent shall not abate and Lessee shall be required to
continue to perform and fulfill all of its obligations, covenants and
agreements under the Lease notwithstanding such casualty or
condemnation. So long as no Event of Default shall have occurred and
be continuing, the net award or insurance proceeds shall be made
available to Lessee to restore the Property.
If excess proceeds or awards are remaining after the Lessee has
restored the Property, Lessor may require Lessee to pay such proceeds
to Lessor for application to Lessor's financing and rent would be
reduced correspondingly. As restored, the Property may be different
from and have a market value lower than the Property prior to such
event provided Lessee makes a payment to the Lessor (for application
to prepayment of Lessor's Financing) in an amount so that the ratio
of the then outstanding Minimum Purchase Allocable to the Property to
the fair market value of the Property is not greater than it was
prior to such casualty or condemnation. Any such prepayments would
result in a corresponding rent reduction.
2. Uneconomic Property Certification
Lessee will not be required to restore the Property if: (a) Lessee
certifies that it would be uneconomic to restore the Property for
continued use and occupancy in Lessee business; (b) Lessee
discontinues its use of the Property; and (c) Lessee offers to buy
the Property (including the related insurance proceeds or
condemnation awards) at a price at least equal to the Minimum
Purchase Price, in which event the Lease would terminate upon Lessee
purchasing the Property or Lessor rejecting such offer.
I. Insurance
Lessee will maintain, with respect to the Property, fire and extended coverage
insurance (all risk, replacement value), general liability insurance, worker's
compensation insurance and other insurance of a type customarily carried by
Lessee
with respect to similar properties. Notwithstanding the foregoing, Lessee may
self-insure for:
1. worker's compensation provided Lessee maintains a plan of self-insurance
in accordance with applicable state law; and
2. liability and casualty insurance provided: (a) Lessee maintains a
plan of self-insurance in accordance with sound accounting and
actuarial principles, and Lessee's unfunded reserves for self-insurance
do not exceed ten percent (10%) of Lessee's
shareholder's equity.
J. Financial Statements, Certificates
Lessee will send to Lessor: (1) within sixty (60) days following the end of the
first three (3) quarters of its fiscal year, its unaudited quarterly financial
statements, (2) within one hundred and twenty (120) days following the end of
its
fiscal year, its unaudited annual financial statements, together with an
officer's
(but not an auditor's) certificate with respect to the existence or absence of
an
Event of Default, (3) copies of materials sent to its stockholders and other
information generally made available to banks and other lenders, and (4) such
other information (such as reports on Form 10-K, Form 8-K, and Form 10-Q) as
Lessee is or may be required to submit to the Securities and Exchange
Commission.
K. Subletting, Assignment
Lessee may sublet the Property or any portion thereof, or assign the Lease,
provided that: (1) no Event of Default under the Lease has occurred and is
continuing on the date of such sublease or assignment, and (2) Lessee shall
deliver a certificate of an executive officer stating that the sublease or
assignment does not adversely affect the fair market value of the Property, and
93) the uses under the sublease or assignment are permitted under the Lease (see
Article C, "Use", above). Lessee will remain primarily liable under the Lease
notwithstanding any assignment of the Lease or subletting of the Property.
L. Events of Default Under the Lease
The events of default ("Event of Default") set forth in the Lease will be
limited
to the following:
1. Failure by Lessee to: (a) make payment of Basic Rent or other sum
required to be paid three 93) days after receipt of written notice
of (b) keep in full force and effect the casualty or general
liability insurance coverage required to be maintained by Lessee;
2. Failure of Lessee to perform any other Lease provision for thirty
(30) days after written notice from Lessor (or the Trustee),
provided that such period may be extended for a period not in
excess of one hundred and eighty (180) days if the default cannot
be cured with diligence within such thirty (30) day period and
Lessee is proceeding with diligence to cure;
3. Material misrepresentation by the Lessee;
4. If Lessee shall file a bankruptcy or reorganization petition, be
adjudicated as bankrupt or insolvent, make an assignment for the
benefit of creditors or admit in writing its inability to pay its
debts as they come due;
5. If a petition proposing Lessee's adjudication as a bankrupt or
reorganization shall be filed and (a) Lessee consents to the
filing thereof, or (b) such petition is not discharged within
sixty (60) days;
6. If a receiver, trustee, or liquidator shall be appointed for or
take possession or charge of Lessee, Lessee's estate or interest
in the Property and shall not be discharged within sixty (60)
days, or if Lessee consents to such appointment;
7. If the Property shall have been unattended, unsecured and without
maintenance for a period in excess of thirty (30) days; or
8. If a final money judgment against Lessee in excess of Five Million
Dollars ($5,000,000) either individually or in an aggregate amount, not
adequately covered by insurance is not paid, appealed or otherwise stayed
by appropriate
action, proceeding or agreement.
Late payments will bear interest at an annual rate of prime plus one hundred
(100), but not less than ten percent (10%).
M. Abandonment
If Lessee determines that the Property is no longer economic or suitable for
Lessee's continued use and occupancy, Lessee may abandon the Property provided
Lessee offers to purchase the property at the Minimum Purchase Price (the
unamortized balance of the Lessor's Financing of the Property) plus a make-whole
premium, calculated using a discount rate equal to the yield on U.S. Treasury
Securities (having the same average life to maturity as Lessor's Financing) plus
one hundred (100) basis points. If Lessor accepts such offer, the Lease will
terminate upon the purchase of the Property by Lessee. If Lessor rejects such
offer, the Lease will terminate upon such rejection.
N. Sale of Property - Right of First Refusal
Before accepting any purchase offer ("Purchase Offer") for the Property, Lessor
will be required to:
1. Notify Lessee as to the terms of such Purchase Offer; and
2. Sell such Property to Lessee if Lessee offers to buy the Property
from the Lessor provided: (a) the terms of Lessee's offer are not
less favorable than the terms of the Purchase Offer, and (b)
Lessee's offer is received by Lessor not less than five (5) days
prior to the expiration of the Purchase Offer.
LEASE AND AGREEMENT, dated as of June 27 , 1995 ("this Lease"),
between
JACK and ELENA BASKIN FAMILY TRUST UNDER DECLARATION OF TRUST DATED
JULY 26, 1993, (herein
called "Lessor"), and GOTTSCHALKS, INC., a Delaware corporation having an
address at 7 River
Park Place East, Fresno, California 93720 (herein, together with any
corporation succeeding
thereto by consolidation, merger or acquisition of it assets substantially as
an entirety,
called Lessee).
1. Lease of Premises; Title and Condition. In consideration of the rents
and
covenants herein stipulated to be paid and performed by Lessee and upon the
terms and
conditions herein specified, Lessor hereby leases to Lessee, and Lessee hereby
leases from
Lessor, the premises (the "Premises") consisting of the land described in
Schedule A, all
buildings, including the parking garage, and other improvements now or hereafter
located
thereon (the "Improvements"), and all easements, rights and appurtenances
relating thereto.
The Premises are leased to Lessee in their present condition without
representation or
warranty by Lessor and subject to the rights of parties in possession , to the
existing state
of title, and to all applicable legal requirements now or hereafter in effect.
Lessee has
examined the Premises and title thereto and has found the same satisfactory.
2. Use: Quiet Enjoyment. Lessee shall use the Premises only for uses
consistent
with the uses (i) allowed under the 'Declaration", as defined in Paragraph ___;
and (ii)
permitted by applicable permits and approvals of the City of Capitola. Lessee
shall not use
the Premises or suffer or permit anything to be done in or about the Premises
which will in
any way conflict with any law, statute, zoning restriction, ordinance or
governmental law,
rule, regulation or requirement of public authorities now in force or which may
hereafter be
in force, relating to or affecting the condition, use or occupancy of the
Premises,
including, but not limited to, laws or regulations relating to the
accessibility or
useability of the Premises by disabled persons. Lessee shall not commit any
public or
private nuisance, nor shall Lessee place any loads upon the floors, walls or
ceilings in
excess of the maximum designed load determined by Lessor or which endanger the
structure; nor
place harmful liquids in the drainage systems; nor dump or store waste materials
or refuse
or allow such to remain outside the building proper, except in the enclosed
trash areas
provided.
Lessor covenants that Lessee, upon performing the terms, conditions
and
covenants of this Lease, shall have quiet and peaceful possession of the
Premises as against
any person claiming the same by, through or under Lessor.
3. Terms. The Primary Term shall be for Twenty (20) years and the
commencement
and expiration dates of the Primary Term, and any Extended Terms are described
in Schedule
"B". Provided that Lessee is not in default hereunder, either at the time of
exercise or at
the time an Extended Term commences, Lessee shall have the right to extend the
primary Term
for four (4) consecutive periods of five (5) years each ("Extended Terms") on
the terms,
covenants and conditions provided herein, except that upon such renewal the
Basic Rent due
hereunder shall be determined pursuant to Schedule "B". Lessee shall exercise
its right to
extend by giving Lessor written notice at least one hundred eight (180) days but
not more
than two hundred ten (210) days prior to the expiration of the Primary Term of
this Lease.
4. Rent. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent
and other sums due hereunder will cause Lessor to incur costs not contemplated
by this Lease,
the exact amount of which will be extremely difficult or impracticable to
ascertain. Such
costs include, but are limited to, accounting and administrative processing,
legal and
clerical charges, as well as late charges which may be imposed upon Lessor by
the terms of
any mortgage or deed of trust ("Mortgage") covering the Premises. Accordingly,
in the event
any installment of rent or any other sum due from Lessee hereunder shall not be
received by
Lessor within seven (7) days after such amount may be due, Lessee shall pay to
Lessor as and
for a late payment the sum of six percent (6%) of the delinquent monthly rental
payment,
which shall be payable with the delinquent monthly rental payment. The parties
hereby agree
that said late charge represents a fair and reasonable estimate of costs Lessor
will incur
by reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall not
constitute a waiver of Lessee's default with respect to such overdue payment
nor prevent
Lessor from exercising any other rights or remedies provided for in this Lease
or by law.
Lessor__JB_____ Lessee__AAW____
5. Net Lease: Non-Terminability. (a) This Lease is a net lease and,
except as
otherwise expressly provided herein, any present or future law to the contrary
notwithstanding, shall not terminate, nor shall Lessee be entitled to any
abatement,
reduction, set-off, counterclaim, defense or deduction with respect to any
Basic Rent,
additional rent or other sum payable hereunder, nor shall the obligations of
Lessee hereunder
be affected, by reason of: any damage to or destruction of the Premises; any
taking of the
Premises or any part thereof by condemnation or otherwise; any prohibition,
limitation,
restriction or prevention of Lessee's use, occupancy or enjoyment or the
Premises, or any
interference with such use, occupancy or enjoyment by any person; any eviction
by paramount
title or otherwise; any default by Lessor here hereunder or under any other
agreement; the
impossibility or illegality of performance by Lessor, Lessee or both; any
action of any
governmental authority; or any other cause whether similar or dissimilar to the
foregoing.
The parties intend that the obligations of Lessee thereunder shall be separate
and
independent covenants and agreements and shall continue unaffected unless such
obligations
shall have been modified or terminated pursuant to an express provision of
this Lease.
(b) Lessee shall remain obligated under this Lease in accordance
with its
terms and shall not take any action to terminate, rescind or avoid this Lease,
notwithstanding any bankruptcy, insolvency, reorganization, liquidation,
dissolution or other
proceeding affecting Lessor or any assignee of Lessor or any action with
respect to this
Lease which may be taken by any trustee, receiver or liquidator or by any court.
Lessee
waives all rights to terminate or surrender this Lease, or to any abatement or
deferment of
Basic Rent, additional rent or other sums payable hereunder.
6. Taxes and Assessments: Compliance with Law. (a) Lessee shall pay:
(i) all
taxes, assessments, (including without limitation, all real property taxes and
assessments),
levies, fees, water and sewer rents and charges; environmental surcharges,
which shall mean
and include any and all expenses, taxes, charges or penalties imposed by the
Federal
Department of Energy, the Federal Environmental Protection Agency, the Federal
Clean Air Act,
or any regulations promulgated thereunder, or any other local, state or federal
governmental
agency or entity now or hereafter vested with the power to impose taxes,
assessments or other
types of surcharges as a means of controlling or abating environmental
pollution or the use
of energy; and all other governmental charges, general and special, ordinary and
extraordinary, foreseen and unforeseen, which are, at any time prior or
during the terms
hereof, imposed or levied upon or assessed against (A) the Premises, (B) any
Basic Rent,
additional rent or other sum payable hereunder or (C) this Lease or the
leasehold estate
hereby created, or which arise in respect of the operation, possession or
use of the
Premises; (ii) all sales, use and similar taxes at any time levied, assessed or
payable on
account of the acquisition, leasing or use of the Premises; (iv) all charges for
utilities
serving the Premises; and all charges and assessments required to be paid by
Lessor or Lessee
by the Declaration (herein collectively called "Taxes and Assessments"). Lessee
shall not
be required to pay any franchise, estate, inheritance, transfer, income or
similar tax of
Lessor (other than any tax referred to in clause (ii) above) unless such tax is
imposed,
levied or assessed in substitution for any other Taxes or Assessment which
Lessee is required
to pay pursuant to this paragraph 6(a). Lessee will furnish to Lessor, promptly
after demand
therefor, proof of payment of all items referred to above which are payable by
Lessee. If
any such Taxes or Assessments may legally be paid in installments, Lessee
may pay same in
installments. In such event, Lessee shall be liable only for installments
which become due
prior to or during the term hereof; except that if this Lease expires prior
to the
determination of the amount of such Taxes and Assessments for the last fiscal
year in which
the Lease expiration ocurs, Lessee shall nevertheless promptly pay such Taxes
and Assessments
following proper notice from Lessor appropriately prorated for the portion of
the Lease term
that falls within such last fiscal year.
(b) Lessee's use of the Premises shall comply with and Lessee shall
cause
the Premises to comply with (i) all legal requirements applicable to the
Premises or the use
thereof and (ii) all contracts (including, without limitation, all insurance
policies Lessee
is obligated to maintain under this Lease), agreements and restrictions
applicable to the
Premises or the ownership, occupancy or use thereof; including but not limited
to all such
legal requirements, contracts, agreements and restrictions (herein, together
with the
Hazardous Material Requirements described in paragraph 6(c), collectively called
the "Legal
Requirements") which require structural, unforeseen and/or extraordinary changes
to the
improvements; and including, without limitation, laws or regulations relating to
the
accessibility or useability of the Premises by disabled persons. Lessee
acknowledges that
Lessor makes no representation or warranty in this Lease that the Premises, or
any portion
thereof, is in compliance with any governmental statues, ordinance, rule or
regulation
relating to the accessibility or useability of the Premises, or any portion
thereof, by
disabled persons.
(c) In amplification and not in limitation of the foregoing
provisions,
Lessee shall (A) keep the Premises free of all Hazardous Substances (as defined
in paragraph
6(d)(ii)), except for Hazardous Substances stored, handled, utilized or
disposed
of in the
normal operation of the Premises as a retail department store in accordance
with all
Environmental Laws (as defined in paragraph 6(d)(i) and in full compliance with
requirements
of all insurance policies to be maintained by Lessee, (B)) comply with all
Environmental
Laws, (C) promptly provide Lessor with a copy of all notifications which Lessee
gives or
receives with respect to any past or present release on, at or from the
Premises or any
property adjacent to or within the immediate vicinity of the Premises, (D)
undertake and
complete all investigations, studies, sampling and testing for Hazardous
Substances required
by Lessor or Lessor's Mortgagee (as defined in paragraph 12(b)) and in
accordance with all
Environmental Laws, (E) remove and clean up all Hazardous Substances that are
determined to
be present at the Premises in violation of any Environmental Laws, and (F)
permit Lessor, and
Lessor's Mortgagee, to cure any violation of Environmental Laws with respect
to the Premises,
but with no obligation on the part of Lessor or Lessor's Mortgagee to cure
any such
violation.
(d) (i) The term "Environmental Laws" shall mean all federal, state
and
local laws, statutes, ordinances and codes relating to the use, storage,
treatment,
generation, transportation, processing, handling, production, utilization or
disposal of any
Hazardous Substance and the rules, regulations, policies, guidelines,
interpretations,
decisions, orders and directives with respect thereto.
(ii) The term "Hazardous Substance" shall mean, without
limitation,
any flammable explosive, radioactive material, asbestos, urea formaldehyde foam
insulation,
polychlorinated biphenyl, petroleum and petroleum based product, methane,
hazardous material,
hazardous waste, hazardous or toxic substance or related material, as
defined in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (42
U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act,
as amended (49
U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act,
as amended (42
U.S.C. Sections 6901 et seq., the Toxic Substances Control Act, as amended
(15 U.S.C.
Sections 2601, et seq., those substances defined as "hazardous wastes" in
25117 of the
California Health & Safety Code, or as "hazardous substances" in 25316 of the
California
Health & Safety Code; and in the regulations adopted and publications
promulgated pursuant
to said laws; and any other applicable Environmental Laws.
7. Liens. Lessee will promptly remove and discharge any charge, lien,
security
interest or encumbrance upon the Premises or any Basic Rent, additional rent or
other sum
payable hereunder which arises for any reason, including all liens which arise
out of the
use, occupancy, construction, repair or rebuilding of the Premises or by reason
of labor or
materials furnished or claimed to have been furnished to Lessee or for the
Premises, but not
including the liens and encumbrances set forth in Part II of Schedule A and any
mortgage,
charge, lien, security interest or encumbrance created by Lessor without the
consent of
Lessee.
8. Indemnification. Lessee shall pay, and shall protect, indemnify and
save
harmless Lessor from and against, all liabilities, losses, damages, costs,
expenses
(including reasonable attorneys' fees and expenses), causes of action, suits,
claims, demands
or judgments of any nature arising from (i) injury to or death of any person, or
damage to
or loss of property, on the Premises or on adjoining sidewalks, streets or ways,
or connected
with the use, condition or occupancy of any thereof, (ii) violation of this
Lease and (iii)
any contest referred to in paragraph 17.
9. Maintenance and Repair. Lessee, at its sole cost, shall maintain the
Premises
and appurtenances, and every part thereof in good order, condition and repair,
and will make
all structural and non-structural, foreseen and unforeseen, and ordinary and
extraordinary
changes, repairs and replacements which may be required to maintain the
Premises and
appurtenances and every part thereof in essentially the same condition as
existed as of the
commencement of the Primary Term of this Lease. Lessor shall not be required
to maintain,
repair, replace or rebuild any of the improvements or to maintain the Premises,
and Lessee
expressly waives the provisions of subsection 1 of Section 1932 and Sections
1941 and 1942
of the Civil Code of California, or any similar law hereinafter enacted, and all
rights to
make repairs at the expense of Lessor as provided in Section 1942 of said Civil
Code or any
similar law hereinafter enacted.
Notwithstanding the above, Lessee shall not commence any alterations,
substitutions, replacements or other construction (collectively, the "Work")
that will exceed
One Hundred Thousand Dollars ($100,000.00) in cost without the prior written
consent of
Lessor, which consent shall not be unreasonably withheld. At least Thirty (30)
days prior
to the intended date of commencement of the Work, Lessee shall submit complete
plans and
specifications to Lessor for its review and approval. Even when Lessor's
consent is not
required, prior to commencement of the Work Lessee shall deliver to Lessor a
copy of the
plans and specifications to retain as part of its records. Lessee shall give
Lessor written
notice Ten (10) days prior to commencement of Work or receipt of material for
such Work and
shall permit Lessor to post notice (s) of nonresponsibility in accordance
with applicable
California law. Notwithstanding the above, Lessor shall not withhold its
consent to any
Lessee requested alterations, additions or improvements required to be made by
Lessee to
enable Lessee to comply with any governmental statute, ordinance, rule or
regulations
relating to the accessibility or useability of the Premises by disabled persons.
10. Alterations. Lessee may, at its expense, make additions to and altera
tions of
the Improvements, construct additional Improvements and make substitutions and
replacements
for the Improvements, provided that (i) the market value of the Premises shall
not be
materially lessened thereby, (ii) such work shall be expeditiously completed in
a good and
workmanlike manner and in compliance with all applicable Legal Requirements and
the
requirements of any insurance policy required to be maintained by Lessee
hereunder, and (iii)
no Improvements shall be demolished unless Lessee shall have first furnished
Lessor with such
surety bonds or other security acceptable to Lessor as shall be necessary to
assure
rebuilding of such Improvements, substitutions and replacements shall be and
remain part of
the realty and the property of Lessor and shall be subject to this Lease.
Lessee may place
upon the Premises any inventory, trade fixtures, machinery or equipment
belonging to Lessee
or third parties and may remove the same at any time during the term of this
Lease. Lessee
shall repair any damage to the Premises caused by such removal.
11.A. Damage or Destruction. If the Premises are damaged or destroyed,
Lessee shall
promptly and diligently repair the same unless it has the right to terminate
this Lease as
provided herein and elects to so terminate.
Lessee shall have the right to terminate this Lease in the event (1)
any of the
Premises cannot, with reasonable diligence, be fully repaired by Lessee within
two hundred
ten (210) days after the date of the damage or destruction; or (ii) the Premises
cannot be
safely repaired because of the presence of hazardous factors, including, but not
limited to,
earthquake faults, radiation, chemical waste and other similar dangers not
caused by Lessee
or its agents, employees or invitees.
Should Lessee have the right to terminate this Lease under this
subparagraph,
it shall give its written notice of election to terminate within thirty (30)
days after such
damage or destruction, and this Lease shall terminate ninety (90) days
after receipt by
Lessor of Lessee's notice.
Should Lessee either not have the right to terminate this Lease under
this
subparagraph, or should it elect not to exercise its right to terminate, Lessee
shall
promptly, following the date of such damage or destruction, commence the
process
of obtaining
necessary permits and approval, and shall commence repair and replacement of the
Premises as
soon as practicable and thereafter prosecute the same diligently to completion,
in which
event this Lease will continue in full force and effect. All insurance
proceeds
from
insurance under Paragraph 12, excluding proceeds for Lessee's personal property
and loss of
rents, shall be disbursed and paid to Lessor, but to be applied to the costs of
repair and
replacement.
Rent shall be temporarily abated proportionately, but only to the
extent of any
proceeds received by Lessor from rental abatement insurance described in
Paragraph 12(a)
during any period when, by reason of such damage or destruction, there is
substantial
interference with Lessee's use of the Premises, having regard to the extent to
which Lessee
may be required to discontinue Lessee's use of the Premises. Such abatement
shall commence
upon such damage or destruction and end upon substantial completion by Lessee of
the repair
or reconstruction which Lessee is obligated or undertakes to do. Lessee shall
not be
entitled to any compensation or damages from Lessor for loss of the use of the
Premises,
damage to Lessee's personal property or any inconvenience occasioned by such
damage, repair
or restoration. Lessee hereby waives the provisions of Section 1932,
Subdivision 2, and
Section 1933, Subdivision 4, of the California Civil Code, and the provisions
of any similar
law hereinafter enacted.
B. Condemnation. If title to all of the Premises, or so much thereof is
taken for
any public or quasi-public use under any statute or by right of eminent domain
so that
reconstruction of the Premises will not, in Lessor's and Lessee's mutual
opinion, result in
the Premises being reasonably suitable for Lessee's continued occupancy for
the uses and
purposes permitted by the Lease, this Lease shall terminate as of the date that
possession
of the Premises or part thereof be taken. A sale by Lessor to any authority
having the power
of eminent domain, either under threat of condemnation or while condemnation
is pending,
shall be deemed a taking under the power of eminent domain for all purposes
of this
subparagraph.
If any part of the Premises is taken and the remaining part is
reasonably
suitable for Lessee's continued occupancy for the purposes and uses permitted by
this Lease,
this Lease shall, as to the part so taken, terminate as of the date that
possession of such
part of the Premises is taken. The Basic Rent and other sums payable
hereunder shall be
reduced in the proportion that Lessee's use and occupancy of the Premises is
reduced. Each
party hereby waives the provisions of Section 1265.130 of the California Code
of Civil
Procedure allowing either party to petition the Superior Court to terminate this
Lease in the
event of a partial taking of the Premises.
Lessee assigns to Lessor its interest in any award which may be made
in such
taking or condemnation, together with any and all rights of Lessee in or to the
same or any
part thereof, except for any portion of an award specifically attributable to
the taking of
Lessee's personal property, for the interruption of Lessee's business, or its
moving costs,
or for the loss of its good will. Otherwise, no award for any partial or entire
taking shall
be apportioned.
12. Insurance. Lessee agrees to maintain in full force and effect at all
times
during the Primary Term, and any extension thereof, at its own expense, for the
protection
of Lessee and Lessor, as their interests may appear, policies of insurance
issued by
responsible carrier or carriers acceptable to Lessor which afford the
following coverages:
A. Comprehensive general liability insurance in an amount not less than
two
million dollars ($2,000,000.00) combined single limit for both bodily injury
and
property
damage which includes blanket contractual liability broad form property damage,
personal
injury, completed operations, products liability, and fire damage, naming
Lessor
and its
agents as additional insureds.
B. "All Risk" property insurance (including without limitation,
vandalism,
malicious mischief, inflation endorsement, sprinkler leakage endorsement,
earthquake
endorsement and flood endorsement) on the Premises, excluding coverage of all
Lessee's
personal property located on or in the Premises, but including the Lessee
improvements,
alterations, substitutions and replacements, and shall be in the full
amount of the
replacement cost, as the same may from time to time increase as a result of
inflation. Such
insurance shall also include insurance against loss of rents on an "All Risk"
basis,
including earthquake and flood, in an amount equal to the Basic Rent and
additional rent, and
any other sums payable under the Lease, for a period of at least twelve (12)
months
commencing on the date of loss. Such insurance shall name Lessor and its
agents as named
insureds and include a lender's loss payable endorsement in favor of Lessor's
lender (Form
438 BFU Endorsement).
C. "All Risk" property insurance (including, without limitation,
vandalism,
malicious mischief, inflation endorsement, and sprinkler leakage endorsement)
on Lessee's
personal property located on or in the Premises. Such insurance shall be in
the full amount
of the replacement cost, as the same may from time to time increase as a result
of inflation
or otherwise, and shall be in a form providing coverage comparable to the
coverage provided
in the standard ISO All-Risk form. As long as this Lease is in effect, the
proceeds of such
policy shall be used for the repair and replacement of such items so insured.
Lessor shall
have no interest in the insurance proceeds on Lessee's personal property.
Upon demand, Lessee shall provide Lessor, at Lessee's expense, with
such
increased amount of existing insurance, and such other insurance as Lessor or
Lessor's lender
may reasonably require to afford Lessor and Lessor's lender adequate protection.
All insurance shall be in a form satisfactory to Lessor and shall be
carried
with companies that have a general policy holder's rating of not less than "
A" and a
financial rating of not less than Class "X" in the most current edition of
Best's Insurance
Reports; shall provide that such policies shall not be subject to material
alteration or
cancellation except after at least Thirty (30) days' prior written notice to
Lessor; and
shall be primary as to Lessor. The policy or policies, or duly executed
certificates for
them, together with satisfactory evidence of payment of the premium thereon
shall be
deposited with Lessor prior to the commencement of this Lease, and upon renewal
of such
policies, not less than Thirty (30) days prior to the expiration of the term of
such
coverage. If Lessee fails to procure and maintain the insurance required
hereunder, Lessor
may, but shall not be required to, order such insurance at Lessee's expense and
Lessee shall
reimburse Lessor. Such reimbursement shall include all costs incurred by
Lessor, including
Lessor's reasonable attorneys' fees and court costs.
Lessor and its agents shall not be liable for any loss or damage to
persons or
property, resulting from fire, explosion, falling plaster, glass, tile or
sheetrock, steam,
gas, electricity, water or rain which may leak from any part of the Premises, or
from the
pipes, appliances or plumbing works therein or from the roof, street or
subsurface or
whatsoever, unless caused by or due to the sole negligence or willful acts of
Lessor. Lessee
shall give prompt written notice to Lessor in case of a casualty, accident or
repair needed
in the Premises.
Lessee hereby waives all rights of recovery against Lessor on account
of loss
and damage occasioned to it for its property or the property of others under
its
control to
the extent that such loss or damage is insured against under any insurance
policies which may
be in force at the time of such loss or damage. Lessee shall, upon obtaining
policies of
insurance required hereunder, give notice to the insurance carrier(s) that the
foregoing
waiver of subrogation is contained in this Lease and Lessee shall cause each
insurance policy
obtained to provide that the insurance company waives all right of recovery by
way of
subrogation against Lessor in connection with any damage covered by such policy.
13. Assignment and Subletting. Except as provided below, Lessee shall
not, either
voluntarily or by operation of law, assign, sell, encumber, pledge or
otherwise transfer all
or any part of Lessee's leasehold estate hereunder, or permit the Premises to
be occupied by
anyone other than Lessee or Lessee's employees, or sublet the Premises or any
portion
thereof, without Landlord's prior written consent. This shall not apply to
Licensed
Departments within the Premises, pursuant to License Agreement between
Lessee and Licensee's
for sale of goods and merchandise in no more than 25% of the floor space
of the Premises,
including employees and agents of said Licensee. Landlord's consent shall
not be
unreasonably withheld provided:
A. The same quality of business, and financial soundness of ownership and
management, is maintained in a manner compatible with the high standards
contemplated by this
Lease;
B. That each and every covenant, condition or obligation imposed upon
Lessee by
this Lease, and each and every right, remedy or benefit afforded Lessor by this
Lease is not
thereby impaired or diminished;
C. Lessee remains liable for performance of each and every obligation
under this
Lease to be performed by Lessee;
D. Lessee reimburses Lessor for Lessor's reasonable costs and
professional fees
(legal and/or accounting) incurred in conjunction with the processing and
documentation of
any such requested assignment or subletting of this Lease by Lessee.
If Lessee desires at any time to assign this Lease, or sublet any portion
of the
Premises, Lessee shall first notify Lessor of its desire to do so and shall
submit in writing
to Lessor, at least thirty (30) days but not more than sixty (60) days before
the intended
date of assignment/subletting, the name of the proposed assignee/sublessee, the
nature of the
proposed assignee's/sublessee's business to be carried on in the Premises, the
terms and
provisions of the proposed assignment/subletting, and such reasonable
financial information
as Lessor may request, certified by the proposed assignee/sublessee as being
true and correct
as of the date of certification.
Notwithstanding anything to the contrary contained herein, Lessee shall
have the
right, without Lessor's prior written consent, to sublet up to a maximum of
thirty percent
(30%) of the Premises area (excluding the parking garage), provided Lessee gives
the name and
address of the sublessee to Lessor at least ten (10) days prior to commencement
of any
sublease, and within ten (10) days following termination of any sublease.
14. Permitted Contests. Lessee shall not be required, nor shall Lessor
have the
right, to pay, discharge or remove any tax, assessment, levy, fee, rent, charge,
lien or
encumbrance or to comply with any Legal Requirement applicable to the Premises
or the use
thereof, so long as Lessee shall contest the existence, amount or validity
thereof by
appropriate proceedings which shall prevent the collection of or other
realization upon or
enforcement of the tax, assessment, levy, fee, rent, charge, lien, encumbrance
or Legal
Requirement so contested, and the sale, forfeiture or loss of the Premises or
any Basis Rent
or any additional rent, to satisfy the same, and which shall not affect eh
payment of any
Basic Rent or any additional rent, provided that such contest shall not subject
Lessor or
Mortgagee to the risk of any criminal or civil liability. Lessee shall give
such reasonable
security as may be demanded by Lessor or the Mortgagee to insure payment of
such tax,
assessment, levy, fee, rent, charge, lien or encumbrance or compliance with such
Legal
Requirement and to prevent any sale or forfeiture of the Premises by reason
such
nonpayment or noncompliance.
The security shall be not less in amount, nor different in type, than
any
security required by applicable laws to quash any cloud upon the title to the
Premises that
relates to the particular tax, assessment, levy, fee, rent, charge, lien or
encumbrance being
contested by Lessee. Should Lessee not prevail in any such contest, it shall
promptly pay
the contested amount, along with any and all interest, late charges and
penalties; otherwise,
Lessor or the Mortgagee shall have the right to apply the security to pay same
Upon
payment, any remaining security shall be returned to Lessee.
15. Conditional Limitations: Default Provision. The occurrence of any
one or more
of the following events shall constitute a default and breach of this Lease by
Lessee:
A. The vacating or abandonment of the Premises by Lessee (which shall be
conclusively presumed if Lessee leaves the Premises closed or unoccupied
continuously for
thirty (30) days).
B. The failure by Lessee to make any payment of rent or any other payment
required
to be made by Lessee hereunder as and when due and after five (5) days written
notice to
Lessee by Lessor to pay same.
C. The filing or commencement of any proceeding by or against Lessee
under the
Federal Bankruptcy Code whether voluntary or involuntary, if not dismissed
within sixty (60)
days from the date of filing; and either the appointment of a receiver to take
possession of
all, or substantially all, of the assets of Lessee or garnishment of or levy or
writ of
execution on, all or substantially all of the assets of Lessee which remains in
effect for
more than sixty (60) days, or a general assignment by Lessee for the benefit of
creditors,
shall constitute a breach of this Lease by Lessee.
D. The failure by Lessee to observe or perform any of the covenants,
conditions
or provisions of this Lease to be observed or performed by Lessee, other than
described in
subparagraphs A, B and C above, where such failure shall continue for a period
of thirty (30)
days after written notice thereof from Lessor to Lessee, or if a cure of the
failure is not
reasonably capable of a cure within 30 days, but Lessee is pursuing its cure
with all
reasonable due diligence and continues to do so until such failure is cured.
In the event of any such default or breach by Lessee, Lessor may at any
time
thereafter, with or without notice or demand and without limiting Lessor in the
exercise of
any right or remedy which Lessor may have by reason of such default or breach:
a. Terminate Lessee's right to possession of the Premises by any
lawful
means, in which case this Lease shall terminate and Lessee shall immediately
surrender
possession of the Premises to Lessor. In such event, Lessor shall be entitled
to recover
from Lessee all damages incurred by Lessor by reason of Lessee's default,
including, but not
limited to expenses of reletting, reasonable attorney's fees, and any real
estate commission
actually paid; the worth at the time of award by a court having jurisdiction of
the unpaid
rent which had been earned after termination until the time of such award
exceeds the amount
of such rental loss that the Lessee proves could have been reasonably avoided;
the worth at
the time of such award of the amount by which the unpaid rent for the balance of
the term
after the time of such award exceeds the amount of such rental loss that the
Lessee proves
could be reasonably avoided; and the portion of any real estate commission
payable by Lessor
applicable to the unexpired term of this Lease. Unpaid installments of rent or
other sums
shall bear interest from the date due at the rate of ten percent (10%) per
annum. In the
event Lessee shall have abandoned the Premises, Lessor shall have the option of
(i) retaking
possession of the Premises and recovering from Lessee the amount specified
in this
subparagraph A, or (ii) proceeding under subparagraph B, below. For purposes of
subparagraph
A, the term "worth at the time of such award" shall have the meaning provided
in Section
1951.2(b) of the California Civil Code.
b. As provided in Section 1951.4 of the California Civil Code,
maintain
Lessee's right to possession, in which case this Lease shall continue in effect
whether or
not Lessee shall have abandoned the Premises. In such event, Lessor shall be
entitled to
enforce all of Lessor's rights and remedies under this Lease, including the
right to recover
rent as it becomes due hereunder.
c. Pursue any other remedy now or hereafter available to Lessor
under the
laws or judicial decisions of the State of California.
16. Additional Rights of Lessor. (a) No rights or remedy hereunder shall
be
exclusive of any other right or remedy, but shall be cumulative and in addition
to any other
right or remedy hereunder or now or hereafter existing. Failure to insist upon
the strict
performance of any provision hereof or to exercise any option, right, power
or remedy
contained herein shall not constitute a waiver or relinquishment thereof for the
future.
Receipt by Lessor of any Basic Rent, additional rent or other sums payable
hereunder with
knowledge of the breach of any provision hereof shall not constitute a waiver
of such breach,
and no waiver by Lessor of any provision hereof shall be deemed to have been
made unless made
in writing. Lessor shall be entitled to injunctive relief in case of the
violation, or
attempted or threatened violation, of any of the provisions hereof, a decree
compelling
performance of any of the provisions hereof, or to any other remedy allowed
to Lessor by law.
(b) Lessee hereby waives and surrenders for itself and all those
claiming
under it, including creditors of all kinds, (i) any right and privilege
which it or any of
them may have to redeem the Premises or to have a continuance of this Lease
after termination
of Lessee's right of occupancy by order or judgment of any court or by any
legal process or
writ, or under the terms of this Lease, or after the termination of the
term of this Lease
as herein provided, and (ii) the benefits of any law which exempts property
from liability
for debt or for distress for rent.
(c) If Lessee shall be in default in the performance of any of its
obligations hereunder, Lessee shall pay to Lessor, on demand, all expenses
incurred by Lessor
as a result thereof, including reasonable attorneys' fees and expenses. If
Lessor shall be
made a party to any litigation commenced against Lessee and Lessee, at its
expense, shall
fail to provide Lessor with counsel approved by Lessor, Lessee shall pay all
costs and
reasonable attorneys' fees incurred by Lessor in connection with such
litigation.
17. Notices, Demands and Other Instruments. All notices, demands,
designations,
certificates, requests, offers, consents, approvals and other instruments given
pursuant to
this Lease shall be in writing and shall be validly given when mailed by
prepaid registered
or certified mail, (a) if to Lessor, addressed to Lessor at its address set
forth above, and
(b) if to Lessee, addressed to Lessee at its address set forth above. Lessor
and Lessee each
may from time to time specify any address in the United States as its address
for purposes
of this Lease by giving 15 days' notice to the other party.
18. Estoppel Certificates. Lessee will, from time to time, upon 20 days'
prior
request by Lessor or any Mortgagee, execute, acknowledge and deliver to Lessor
or such
Mortgagee, as the case may be, a certificate of Lessee stating that this Lease
is unmodified
and in full effect (or, if there have been modifications, that this Lease is
in full effect
as modified, and setting forth such modifications) and the dates to which Basic
Rent,
additional rent and other sums payable hereunder have been paid, and either
stating that to
the knowledge of the signer of such certificate no default exists hereunder or
specifying
each default of which the signer has knowledge. Any such certificate may be
relied upon by
any Mortgagee or prospective mortgagee or purchaser of the Premises.
If Lessee fails to so deliver a requested estopped certificate within
the
prescribed time it shall be conclusively presumed that the Lease is unmodified
and in full
force and effect except as represented by Lessor.
Lessee shall deliver to Lessor, or to a mortgagee or prospective
mortgagee of
Lessor if requested by same, the current financial statements of Lessee, and
financial
statements of the two years prior to the current financial statements year,
prepared by a
Certified Public Accountant, including a balance sheet and profit and loss
statement for the
most recent prior year.
19. No Merger. There shall be no merger of this Lease or of the leasehold
estate
hereby created wit the fee estate in the Premises by reason of the fact that the
same person
acquires or holds, directly or indirectly, this Lease or the leasehold estate
hereby created
or any interest herein or in such leasehold estate as well as the fee estate in
the Premises
or any interest in such fee estate.
20. Surrender. Upon the expiration or termination of the term of this
Lease,
Lessee shall surrender the Premises to Lessor in the condition in which the
Premises were
originally received from Lessor, except as repaired, rebuilt, restored, altered
or added to
as permitted or required hereby. Lessee shall remove from the Premises on or
prior to such
expiration or termination all property situated thereon which is not owned by
Lessor, and
shall repair any damage caused by such removal. Property not so removed shall
become the
property of Lessor, and Lessor may cause such property to be removed from
the Premises and
disposed of, but the cost of any such removal and disposition and of
repairing any damage
caused by such removal shall be borne by Lessee.
21. Merger, Consolidation or Sale of Assets. It shall be a condition
precedent to
the merger of Lessee into another corporation, to the consolidation of Lessee
with one or
more other corporations and to the sale or other disposition of all or
substantially all the
assets of Lessee to one or more other entities that the surviving entity or
transferee of
assets, s the case may be, shall deliver to Lessor and to Mortgagee an
acknowledged
instrument in recordable form assuming all obligations, covenants and
responsibilities of
Lessee hereunder and under any instrument executed by Lessee consenting to the
assignment of
Lessor's interest in this Lease to Mortgagee as security for indebtedness.
Lessee covenants
that it will not merge or consolidate or sell or otherwise dispose of all
substantially all
of its assets unless such an instrument shall have been so delivered. Unless
Lessor consents
in writing, no such merger, consolidation or sale of assets shall occur unless
the entity
assuming all obligations, covenants and responsibilities of Lessee shall have a
credit rating
equal to or better than Lessee as of the commencement date of this Lease.
22. Separability; Binding Effect. Each provision hereof shall be separate
and
independent and the breach of any such provision by Lessor shall not discharge
or relieve
Lessee from its obligations to perform each and every covenant to be performed
by Lessee
hereunder. If any provision hereof or the application thereof to any person or
circumstance
shall to any extent be invalid or unenforceable, the remaining provisions
hereof, or the
application of such provision to persons or circumstances other than those as to
which it is
invalid or unenforceable, shall not be affected thereby, and each provision
hereof shall be
valid and shall be enforceable to the extent permitted by law. Subject to
restrictions on
assignment and subletting contained in this Lease, all provisions contained in
this Lease
shall be binding upon, inure to the benefit of, and be enforceable by, the
respective
successors and assigns of Lessor and Lessee to the same extent as if each such
successor and
assign were named as a party hereto. This Lease may not be changed, modified
or discharged
except by a writing signed by Lessor and Lessee.
23. Declaration. The Premises are part of a shopping center known as The
Capitola
Mall and, as such, are subject to certain Covenants, Conditions and Restrictions
contained
in the documents set forth in Schedule "C", attached hereto (collectively, the
"Declaration"). Lessee, at its sole cost, shall be responsible for, and
shall fully and
timely perform and comply with all of the covenants, conditions and restrictions
imposed upon
Lessor, as owner, and Lessee under the Declaration, and any future
amendments thereto.
24. Subordination. Lessee agrees that this Lease shall be subject to any
mortgage,
trust deed or like encumbrance (collectively, "Encumbrance") heretofore and
hereafter placed
upon the Premises by Lessor or its successors in interest to secure the
payments of monies
loaned, interest thereon and other obligations. Lessee hereby attorns and
agrees to attorn
to any entity purchasing or otherwise acquiring the Premises at any sale or
other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
Encumbrance.
25. Holding Over. If Lessee holds over after the term hereof, with the
express
or implied consent of Lessor, such tenancy shall be from month-to-month only,
and not a
renewal hereof, or an extension for any further term, and in such case rent
shall be payable
in an amount equal to the rent last payable under this Lease. Such
month-to-month tenancy
shall otherwise by subject to every other term, covenant, and condition
contained in this
Lease.
26. Authority. Each individual executing this Lease on behalf of Lessee
represents
and warrants that he is duly authorized to execute and deliver this Lease on
behalf of Lessee
in accordance with its corporate bylaws, and that this Lease is binding upon
Lessee in
accordance with its terms. Lessor, at its option, may require a copy of such
written
authorization to enter into this Lease.
27. Time. Time is of the essence for the performance of each term,
condition and
covenant of this Lease.
28. Severability. If any term, provision, covenant or condition of this
Lease is
held to be invalid or otherwise unenforceable, the rest of this Lease shall
remain in full
force and effect and shall in no way be affected, impaired or invalidated.
29. Counterparts. This Lease may be executed in two or more counterparts
and all
so executed shall constitute one agreement, binding on all of the parties
hereto,
notwithstanding that all of the parties are not signatory to the original
or the same
counterpart.
30. Captions. Paragraph titles or captions contained in this Lease are
inserted
only as a matter of convenience and for reference. Such titles and captions in
no way
define, limit, extend or describe the scope of this Lease, or the intent of any
provision
hereof.
31. Gender. Whenever required by the context hereof, the singular shall
include
the plural, and vice-versa; and the word "person" shall include a corporation,
partnership,
firm or other form of association.
32. Governing Law. This Lease and the rights and duties of the parties
hereunder
shall be governed by the laws of the State of California.
33. Construction of Agreement. The parties mutually acknowledge that each
has had
a full and fair opportunity to review and comment upon the terms of this Lease
and to obtain
the advice of legal counsel. This Lease shall not be construed against any
party by virtue
of the fact that such party, its counsel or any other party was responsible
for its
preparation.
34. Schedules. Schedules A, B and C are attached hereto and incorporated
herein
by this reference.<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed
and delivered and have caused their respective corporate seal to be hereunto
affixed and
attested all as of the date first above written.
LESSOR
Jack and Elena Baskin Family Trust
BY:__s\Jack Baskin______________________________
LESSEE
Gottschalks, Inc.
a Delaware corporation
BY:_s\Joseph W. Levy_____________________________
Chairman
BY:__s\Alan A. Weinstein_________________________
Secretary
(Acknowledgments)
SCHEDULE A
Part I - Description of the Premises
(legal description attached)
Part II - Liens and Encumbrances
1. Deleted (J.B. and A.A.W.)
2. All mortgages, charges, liens, securing interests and encumbrances
permitted
by the mortgagee referred to in item 1 of this Part II.
3. Mortgages, charges, liens, security interests and encumbrances being
contested pursuant to paragraph 14 of this Lease.
<PAGE>
SCHEDULE B
Terms and Basic Rent Payments
1. The Primary Term shall commence on __June 29, 1995__ and end at midnight
on June 28, 2015_____________________________.
2. The Extended Terms shall commence on _June 29, 2015_ and end at midnight
on __June 28, 2035__, with rents to be determined as provided in #3 below:
3. Lessee shall pay to Lessor, in lawful money of the United States, for each
calendar month of the Primary Term, Basic Rent in the amount of One Hundred
Three Thousand
Dollars ($103,000.00), and during any Extended Term in the amount determined as
set forth
below, payable, in advance, on the first day of each calendar month, without
abatement,
deduction, claim, offset, prior notice or demand. If the commencement date of
this Lease is
not the first day of a month, or if the termination date of this Lease is not
the last day
of a month, a prorated installment of Basic Rent based on a thirty (30) day
month shall be
paid for the fractional month which the Lease commences or terminates.
Upon receiving Lessee's notice to exercise its option for an Extended Term,
Lessor and
Lessee shall seek to agree on the Basic Rent during the Extended Term in
question. If the
parties reach an agreement as to the Basic Rent, they shall execute an
amendment to this
Lease reciting said rental sum.
Should the parties not agree on the Basic Rent within thirty (30) days from the
date
of the notice sent by Lessee to Lessor to extend the term of this Lease, each
party shall,
within ten (10) days after expiration of said thirty (30) day period,
appoint a real estate
appraiser with at least five (5) years commercial appraisal experience in the
market area in
which the Premises are located to appraise and set the Basic Rent for the
Extended Term in
question. If a party does not appoint an appraiser within ten (10) days
after the other
party has given notice of the name of its appraiser, the single appraiser
appointed shall be
the sole appraiser and shall set the Basic Rent for such Extended Term.
If the two
appraisers are appointed by the parties as stated in this paragraph, they
shall meet promptly
and attempt to set the Basic Rent for such Extended Term. If they are unable
to agree within
thirty (30) days after the second appraiser has been appointed, they shall
attempt to elect
a third appraiser meeting the qualifications stated in this paragraph within
ten (10) days
after the last day the two appraisers are given to set the Basic Rent. If they
are unable
to agree on the third appraiser, either of the parties to the Lease, by giving
ten (10) days'
notice to the other party, can apply to the presiding Judge of the Superior
Court of Santa
Cruz County for the selection of a third appraiser who meets the
qualifications stated in
this paragraph. Each of the parties shall bear one-half (1/2) of the cost of
appointing the
third appraiser and of paying the third appraiser's fee. The third
appraiser, however
selected, shall be a person who has not previously acted in any capacity for
either party.
Each party shall pay for the costs and fees of the appraiser it has chosen
initially.
In setting the Basic Rent, the appraiser(s) shall consider the uses permitted
under
this Lease, the quality, size, design and location of the Premises, and the
rent for
comparable buildings located in the market area.
Within twenty (20) days after the selection of the third appraiser, a majority
of the
appraisers shall set the Basic Rent for such Extended Term. If a majority of
the appraisers
are unable to set the Basic Rent within the stipulated period of time, the
three appraisals
shall be added together and their total divided by three; the resulting quotient
shall be the
Basic Rent. If, however, the low and/or the high appraisal are/is more than
15% lower and/or
higher than the middle appraisal, the low appraisal and/or the high appraisal
shall be
disregarded. If only one appraisal is disregarded, the remaining two
appraisals shall be
added together and their total divided by two; the resulting quotient shall
be the Basic
Rent. If both the low appraisal and the high appraisal are disregarded, the
middle appraisal
shall be the Basic Rent. In no event, however, shall the Basic Rent for
such Extended Term
be less than the Basic Rent last payable under this Lease.
After the Basic Rent has been set, the appraiser(s) shall immediately notify
the
parties, who shall execute an Amendment to this Lease, reciting the Basic Rent
established.<PAGE>
SCHEDULE C
THE DECLARATION
1. Declaration of Establishment of Restrictions and Covenants executed by
Sutter
Hill Associates, a limited partnership, recorded November 17, 1969 in Book
1987
of Official Records, Page 616.
2. First Amendment to Declaration of Establishment of Restrictions and
Covenants
executed by Sutter Hill Limited, a California corporation, recorded
December
31, 1974 in Book 2467 of Official Records, Page 544.
3. Second Amendment to Restriction and Covenants executed by Sutter Hill
Limited,
a California corporation, recorded December 31, 1974 in Book 2467 of
Official
Records, Page 544 and re-recorded March 14, 1977 in Book 2732 of Official
Records, Page 110.
4. Agreement Concerning Amendment of Declaration of Establishment of
Restrictions
and covenants executed by Sutter Hill Limited, a California corporation,
recorded December 27, 1977 in Book 2854, Page 295, Official Records.
5. Declaration of Covenants and Restrictions executed by Sutter Hill
Limited, a
California corporation, recorded February 28, 1970 in Book 2878, Page 619,
Official Records.
6. Declaration of Covenants and Restrictions executed by Sutter Hill Limited,
a
California corporation, recorded February 28, 1970 in Book 2878, Page 644,
Official Records.
7. Third Amendment to and Restatement of Declaration of Establishment of
Restrictions and Covenants, executed by Samuel Leask & Sons, a California
limited partnership, et al, recorded August 14, 1987 in Book 4207 of
Official
Records, Page 481.
8. Supplemental Declaration of Covenants and Restrictions executed by
Capitola
Mall Associates, a California limited partnership, recorded
August 25, 1987 in
Book 4212 of Official Records, Page 372.
9. Fourth Amendment to Declaration of Establishment of Restrictions and
Covenants
executed by Gottschalks, Inc., a Delaware corporation, recorded
July 12, 1991
in Book 4866 of Official Records, Page 195.
RIDER TO LOAN APPLICATION
Gottschalks, Inc.
Attention: Alan Weinstein
7 River Park Place East
Fresno, California 93729
Re: Application No. 940901670
Ladies and Gentlemen:
We are pleased to confirm by this Rider to Loan Application (the "Rider")
the approval of
Midland Commercial Funding, a division of Midland Loan Services, L.P., a
Missouri limited
partnership ("Lender") to provide a first mortgage loan to Gottschalks, Inc.
("Borrower"); subject to and conditioned upon the terms and conditions, and for
the purposes, set forth
herein, in the attached Standard Terms and Conditions (the "Standard Terms")
(which are made a part
hereof as if fully set forth herein) and in the letter loan application (the
"Application") dated June 29,
1995, from Borrower to Lender. This Rider and the Standard Terms are
hereinafter collectively called
the "Rider", and the Application and the Rider are herein collectively called
the "Commitment".
Capitalized terms employed in the Rider and not otherwise defined shall have
the same meanings
accorded such terms in the Application.
The Commitment shall expire and be null and void, without further notice
by either party, if
one fully executed original of this Rider and the required Commitment Fee are
not received by Lender
by the close of business on September 8, 1995.
The Commitment shall also expire and be null and void, without further
notice by either party,
if the Loan has not closed, on the terms and conditions stated herein, on or
before November 3, 1995
(the "Closing Date"); provided, however, Lender shall have the right (but no
obligation), in its sole
discretion, to extend the Closing Date.
Lender's obligation to fund the Loan is conditioned upon the satisfaction
of the requirements of
the Application, the Standard Terms and the following:
1. Special Earthquake Hazard Report. In the event that the
Premises is located in
a geographic area which is considered "high risk" by Lender for potential
earthquake damage,
a Special Earthquake Hazard Report prepared for Lender, at Borrower's cost, by
an
independent professional engineering firm (satisfactory to Lender) experienced
in seismic as
well as structural engineering, outlining the potential risks of earthquake
damage to the
Premises, and Lender's decision, in its sole discretion, that such risks are
acceptable or can be
adequately insured against.
2. Rate Lock. Subject and pursuant to the terms of Lender's
standard form of
Interest Rate Lock Agreement ("Rate Lock Agreement"), a copy of which is
attached to this
Rider as Exhibit J, Borrower shall have the option to "lock" or "fix" the
applicable interest
rate for the Loan.
3. Interest Rate. An interest rate per annum equal to Three
Hundred (300) basis
points in excess of the "Base Rate," as herein defined, which interest rate
shall be determined
by Lender at a mutually agreeable time no more than three (3) days prior to the
closing of the
Loan in no event on a Friday (the "Determination Date"). Interest on the
principal sum of the
Note shall be calculated on the basis of a three hundred sixty (360) day year
composed of
twelve (12) months of thirty (30) days each except that interest due and
payable for a period
less than a full month shall be calculated by multiplying the actual number of
days elapsed in
such period by a daily rate based on said 360 day year. "Base Rate" shall mean
a fixed rate of
interest equal to the investment yield on the United States Treasury's Note
10.75% due
August, 2005 as reported by BLOOMBERG Financial Markets on pages PX 1 through
10. If
BLOOMBERG Financial Markets no longer publishes such information, the rate
shall be the
yield on such Treasury Note as reported by another authoritative source
selected by Lender.
In the event that the yield is reported for a bid/ask price range, the yield
resulting from the
asking price shall be used.
4. Special Conditions.
(a) The loan amounts will be as follows:
MCF Loan Number
Gottschalks, Palmdale: $6,075,000 940902450
Gottschalks, Antioch: $5,100,000 940902451
Gottschalks, Eureka: $4,355,000 940902452
Gottschalks, Yuba City: $4,470,000 940902453
As per the Application, each loan will be cross
collateralized and cross-
defaulted with each of the other loans. The Lender shall
also have the
unilateral right to release one or more loans from the cross
default and cross
collateralization provision at any time.
(b) The Appraisal Report Requirement defined in Paragraph
19 of the
Application shall be no less than:
Gottschalks, Palmdale: $8,679,000
Gottschalks, Antioch: $7,286,000
Gottschalks, Eureka $6,700,000
Gottschalks, Yuba City $6,877,000
(c) The Borrower cannot, without the prior written approval
of Lender,
lease more than 20% of the space in any facility to an
unrelated entity
unless the lease is for a minimum 20 year term on a net, net,
net basis
to an investment grade tenant (defined as a Baa or better
rating by
Moody's or a BBB rating or better by Standard and Poors).
(d) The Lender's commitment is subject to its Counsel's
review and
approval of any Development Agreement or similar Easements,
Covenants and
Restrictions which affect each parcel contemplated as
security for each loan.
(e) If, for any reason, the company no longer files its
financial statements
with the SEC, then the Financial Statement Deposit and Escrow
of Insurance
Premiums will be reinstated.
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT
OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES
TO EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT YOU
(BORROWER) AND US (CREDITOR) FROM MISUNDERSTANDING OR
DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE
CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US EXCEPT AS WE MAY LATER AGREE
IN WRITING TO MODIFY IT. BY SIGNING BELOW, YOU AND WE AGREE THAT THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN US.
This Rider is issued by Lender on August 30, 1995 (the "Issue Date"). If
this Rider is
accepted by Borrower in accordance with the requirements hereof, the Commitment
shall be binding
and effective as of the date last executed by a party hereto (the "Effective
Date").
"LENDER"
Midland Commercial Funding
a Division of Midland Loan Services, L.P.
By:s\Clarence A. Krantz
Clarence A. Krantz
Executive Vice President
ACKNOWLEDGED AND AGREED TO THIS 30th DAY OF August, 1995.
"BORROWER"
s\Alan A. Weinstein
By: Gottschalks, Inc.
Printed Name: Alan A. Weinstein
Title: Senior Vice President/Chief Financial Officer
