<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-14577
------------------------
GANTOS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MICHIGAN 38-1414122
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
3260 PATTERSON, S.E., 49512
GRAND RAPIDS, MICHIGAN (Zip Code)
(Address of principal
executive offices)
</TABLE>
Registrant's telephone number, including area code: (616) 949-7000
------------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, par value $.01 per share
(Title of Class)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of April 25, 1997 calculated by reference to the closing sale
price as reported by Nasdaq on such date, was approximately $14,229,992.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _X_ No ____
The number of shares outstanding of the registrant's common shares, $.01 par
value per share, as of April 25, 1997 was 7,526,932.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy statement for the Annual Meeting of Shareholders
scheduled for June 19, 1997 are incorporated by reference in Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
Gantos is a specialty retailer of a full range of quality, fashionable
women's apparel and accessories at moderate to upper moderate prices. As of
April 25, 1997, Gantos operated 115 stores averaging 7,800 square feet, in 23
states, located primarily in suburban malls in the West, Midwest and Northeast.
On April 11, 1997, the Company opened a new store in Cherry Hill, New Jersey.
The Company plans to open a maximum of up to four additional stores during 1997.
The Company offers an edited selection of private label and name brand
sportswear, career dresses and suits, social occasion dresses, accessories,
outerwear, swimwear and, in selected stores, shoes. The Company's marketing
strategy emphasizes quality merchandise with assortments from which women can
build entire wardrobes, personal attention and customer service. It is targeted
to satisfying the apparel needs of active, educated, career-orientated, fashion-
conscious women, primarily from 30 to late 50 years of age. The Company's four
Bargain Boutiques located in Illinois and Michigan feature final clearance
merchandise, both from Gantos stores and purchased directly for the boutiques.
Gantos, Inc. is a Michigan corporation incorporated November 10, 1952 as a
successor to a business founded in 1932. Unless otherwise specified, "Gantos"
and "Company" refer to the Registrant and its predecessors, and 1996, 1995 and
1994 refer to the fiscal years ended February 1, 1997, February 3, 1996, and
January 28, 1995, respectively.
RECENT DEVELOPMENTS
FACILITIES CLOSINGS AND OTHER
On November 11, 1993, the Company's Board of Directors approved a plan to
realign the Company's operations in an effort to improve its long-term profit
potential. This realignment enabled the Company to concentrate its efforts on
those stores that management believed provided potential for ongoing
profitability. The Company closed 41, 5, and 2 stores in fiscal 1993, 1994 and
1995, respectively pursuant to this plan. In October 1994, the Company reopened
one of the stores closed in the prior year.
During 1994, the Company was unsuccessful in renegotiating its office and
distribution center lease with its former landlord and elected to reject its
office-distribution center lease in its bankruptcy
proceedings. As a result, the Company reallocated $7.8 million of the Provision
for Facilities Closings for the anticipated costs of rejecting the lease and
relocating the office-distribution center. See the description of the Company's
settlement and lease arrangements in Notes 4 and 8 of "Notes to Financial
Statements" in this report, which description is incorporated in this Item 1 by
reference.
On January 27, 1997, the Company announced plans to relocate its
distribution center, financial and support functions to another facility in
Grand Rapids, Michigan as well as establish a Merchandising office in Stamford,
Connecticut. The relocation of the merchandising office is expected to enhance
the Company's ability to do private label product development. At February 1,
1997, the remaining balance of the accrued reserve was approximately $1.6
million.
CHANGES TO CREDIT AGREEMENT
Effective April 25, 1996, the Company amended its revolving credit agreement
with Fleet Bank N.A. On March 18, 1997, the Company entered into Amendment No. 2
to the Credit Agreement (the "Second Amendment"). This amendment provides for
the commitment, borrowing rate and total credit available to remain the same,
except that the test for reducing the interest rate after May 1, 1998 was
loosened. The Second Amendment extends the agreement by two years, adds
termination fees if the commitments are reduced before September 18, 1998,
increases to $15 million the maximum available amounts in undrawn and
unreimbursed letters of credit, reduces the commitment fee on letters of credit
to 1.50%, eliminates the inventory turnover ratio and minimum net worth
covenants, adjusts the remaining financial covenants and permits the Company to
redeem notes issued under its indenture.
2
<PAGE>
MANAGEMENT CHANGES
In July 1996, Arlene H. Stern joined the Company as President and Chief
Operating Officer. In September 1996, Joseph Giudice, Hope Grey and Vicki
Boudreaux joined the Company as Senior Vice President, Merchandise Planning and
Operations, Vice President, Technical Product Management and Vice President,
Planning and Allocation, respectively. Also in September 1996, L. Douglas Gantos
stepped down as Chief Executive Officer and Arlene H. Stern assumed that role.
In October 1996, Jane Pahls resigned as Vice President, General Merchandise
Manager for Dresses and Accessories. Dennis Horstman was hired as Senior Vice
President, Merchandising and Marketing in December 1996. In January 1997, J.E.
Bunka, resigned as Senior Vice President, Finance, Chief Financial Officer and
Treasurer. In March 1997, David Rodgers was appointed Vice President, Management
Information Systems. In April 1997, Tony Barnett resigned as Vice President of
Store Operations, Gordon Tendler resigned as Vice President, General Merchandise
Manager for Sportswear, Coats and Suits and Neal Gottfried joined the Company as
Senior Vice President, Store Operations and Visual Merchandising.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company's business consists of a single industry segment.
MARKETING STRATEGY
The Company's marketing strategy emphasizes quality merchandise, with
assortments from which women can build entire wardrobes, personal attention and
customer service. It is targeted to satisfying the apparel needs of active,
educated, career-oriented, fashion-conscious women, primarily from 30 to late 50
years of age. This strategy is implemented by (i) offering a full range of
current, fashionable quality merchandise at moderate to upper moderate price
levels; (ii) training sales associates in the skills needed to provide a high
level of personal attention and customer service; and (iii) locating its stores
primarily in or near more affluent neighborhoods in regional malls which contain
at least one traditional upscale department store frequented by its target
customers.
Management's research indicates that the typical Gantos customer is a career
woman, residing in a two-income, upper-middle to higher income household, who
has attended college, has sophisticated fashion taste and has high expectations
regarding quality, value, and service.
MERCHANDISE
The Company's stores offer a full range of current, quality, fashionable
merchandise at moderate to upper moderate prices. Each store carries an edited
selection of both private label and name brand sportswear (both coordinated
groupings and separate tops and bottoms), career dresses and suits, social
occasion dresses, accessories, outerwear, swimwear and, in selected stores,
shoes. The Company attempts to stock all stores with the same basic merchandise
content; however, certain merchandise is varied among stores depending on
individual store or customer attributes.
During the last quarter of 1996, the Company began the process of
redirecting merchandising and marketing strategies to enhance the position of
Gantos as a fashion brand. The Company plans to achieve this through:
- Emphasis on product design and development to reinforce Gantos as a
fashion brand by offering unique product.
- Focus on consistent quality and fit through the addition of a technical
product management team.
- Development of direct sourcing capabilities to reduce costs and improve
quality.
- Improved quality and increased frequency of communications with the
customer through both charge statement inserts and direct mail catalogs.
3
<PAGE>
Each of the Company's stores is designed to be a well-organized and complete
shopping source for its target customers, providing merchandise to outfit them
in casual, work and evening wear, including accessories.
The following table shows the approximate percentage of net sales for major
merchandise classifications (other than shoes) for the past three years:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
PRODUCT CLASS 1996 1995 1994
- --------------------------------------------------------------------- ----- ----- -----
<S> <C> <C> <C>
Sportswear........................................................... 39% 38% 40%
Dresses.............................................................. 34 34 33
Accessories.......................................................... 15 15 14
Outerwear and Suits.................................................. 9 10 10
Swimwear............................................................. 3 3 3
--- --- ---
100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
The percentage of net sales accounted for by each merchandise group is
affected by pricing, consumer trends and the development and introduction of new
fashions. Historical net sales percentages may not be indicative of percentages
in future years.
PERSONAL ATTENTION AND CUSTOMER SERVICE
Personal attention is fundamental to the Company's marketing strategy.
Gantos sales and desk staff are trained to provide courteous and knowledgeable
service to each customer from the time the customer enters the store until the
sale is completed, including assisting customers in the coordination of
merchandise, advising customers about the latest fashion trends, and helping
customers make purchases efficiently. The Company motivates its sales associates
through incentives and periodic productivity awards based largely on multiple
item sales and sales volume.
SALES TERMS AND CONSUMER CREDIT
The Company accepts cash, checks, third party credit cards and the Gantos
credit card. Management believes that offering the Gantos credit card helps
convey Gantos' image as an upscale specialty retailer, enhances customer loyalty
and provides a large customer list available for targeted advertising promotions
on a monthly basis. In 1996, approximately 37% of the Company's sales were made
for cash, 32% by third party credit cards and 31% by the Gantos credit card.
During 1996, the Company offered its customers a 10% discount on purchases if
the customer opened a Gantos charge account as a means of encouraging usage of
the Gantos credit card.
A Gantos credit card is offered to customers who qualify for credit based on
the Company's established credit criteria. The minimum monthly payment is the
greater of $15 or 10% of the unpaid balance of its credit accounts. The Company
imposes finance charges at annual rates varying from 18% to 21%, depending upon
state laws. In April 1997, the Company increased the late fee charge to a
maximum of $10 per month. The allowance for doubtful accounts was 2.9% of
customer receivables at 1996 year-end compared with 2.5% at 1995 year-end and
2.4% at 1994 year-end. The Company's credit card program may be affected by
changes in federal and state consumer credit laws.
Gantos has a liberal return policy, offering merchandise exchanges or
refunds for cash or credit on returned merchandise at its stores within 90 days
from purchase.
4
<PAGE>
ADVERTISING AND PROMOTION
Gantos relies largely on mall traffic to generate customer traffic. In
addition, the Company utilizes direct mail advertising. Advertising, primarily
by direct mail, informs customers about fashion trends and emphasizes Gantos'
fashion image. Direct mail advertising varies in size and format, from postcards
and catalogs to inserts and coupons mailed to Gantos credit card customers with
their monthly statements.
Gross advertising expenditures in 1996 and 1995 approximated 0.9% and 0.8%
of net sales, respectively. A significant part of advertising costs are paid by
vendor contributions. Such vendor contributions are subject to change or
cancellation at each vendor's sole discretion from year to year.
STORES
The Company's stores are primarily located in enclosed regional malls which
contain at least one traditional upscale department store frequented by the
Company's target customers. A few stores are located in major urban
office-shopping centers which are typically located near at least one such
department store. Store interiors are designed to convey a warm feeling.
Merchandise is attractively arranged by department classifications, rather than
vendor, and is displayed in coordinated groups on fixtures designed to allow the
customer easy access to purchase complete outfits. The merchandise set and
visual display are centrally administered by Gantos management.
Gantos operates four clearance stores (Bargain Boutiques) which are located
in Illinois (Countryside) and Michigan (one each in Grand Rapids, Kalamazoo and
Livonia). The clearance stores feature marked-down merchandise, which either
comes from Gantos stores or is purchased directly for the boutiques.
The following table sets forth information concerning sales per store and
per square foot (sales include shoe sales and exclude license fees from shoe
departments) for stores open in the last three years:
<TABLE>
<CAPTION>
YEAR
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Average sales per store (in thousands):
All stores(1).................................................. $ 1,672 $ 1,752 $ 1,764
Stores open at least two years at end of year(2)............... $ 1,696 $ 1,772 $ 1,788
Average sales per square foot of selling space:
All stores(1).................................................. $ 237 $ 248 $ 248
Stores open at least two years at end of year(2)............... $ 237 $ 248 $ 250
</TABLE>
- ------------------------
(1) The number of stores and the selling space are adjusted to reflect the
number of months during the period that new stores and stores which closed
were open. These amounts are not adjusted to reflect the seasonal nature of
the Company's sales or the resulting impact of opening stores in different
periods during the year. See "Business--Seasonality". Sales include shoe
sales and do not include shoe license fees.
(2) The sales numbers are restated in prior years to reflect the number of
stores open at the end of fiscal 1996.
Store hours are generally determined by the mall in which the store is
located. Most stores are open seven days and six nights a week, except major
holidays.
LEASED DEPARTMENTS AND CATALOG OPERATIONS
At 29 midwestern stores, a portion of the selling space is licensed to an
unaffiliated party which operates a shoe department. Fees received by Gantos
from the shoe department licensee (included in net sales) were approximately
$874,000 in 1996, $789,000 in 1995 and $761,000 in 1994.
5
<PAGE>
NUMBER OF STORES AND LOCATION
The following table sets forth information with respect to store openings
and closures since fiscal 1984:
<TABLE>
<CAPTION>
NUMBER OF STORES
--------------------------------------------------------
OPEN AT
BEGINNING OF OPENED DURING CLOSED OPEN AT END
YEAR ENDED YEAR YEAR DURING YEAR OF YEAR
- --------------------------------------------------- ------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
February 2, 1985................................... 39 4 1 42
February 1, 1986................................... 42 10 2 50
January 31, 1987................................... 50 15 0 65
January 30, 1988................................... 65 20 1 84
January 28, 1989................................... 84 25 1 108
February 3, 1990................................... 108 32 1 139
February 2, 1991................................... 139 31 6 164
February 1, 1992................................... 164 0 6 158
January 30, 1993................................... 158 1 0 159
January 29, 1994................................... 159 2 43 118
January 28, 1995................................... 118 1 5 114
February 3, 1996................................... 114 1 2 113
February 1, 1997................................... 113 1 0 114
</TABLE>
In 1996, the Company opened one new store in Pennsylvania. The Company has
already opened one new store in 1997 which is located in New Jersey. The Company
plans to open up to four additional new stores in 1997.
The following table shows the geographic distribution of the Company's
stores by state for the 115 stores open as of April 25, 1997.
<TABLE>
<S> <C> <C> <C>
California..................... 4 New Hampshire.................. 2
Colorado....................... 4 New Jersey..................... 5
Connecticut.................... 2 New York....................... 6
Illinois....................... 11 North Carolina................. 2
Indiana........................ 5 Ohio........................... 11
Kansas......................... 1 Oregon......................... 1
Kentucky....................... 2 Pennsylvania................... 10
Maryland....................... 5 Rhode Island................... 1
Massachusetts.................. 3 Tennessee...................... 4
Michigan....................... 20 Virginia....................... 4
Minnesota...................... 3 Wisconsin...................... 5
Missouri....................... 4
</TABLE>
Capital expenditures for 1996 were incurred primarily to remodel and
refixture 13 existing stores and to open one new store. The Company expects that
approximately $6 million will be required for capital expenditures in 1997,
principally for remodeling and refixturing one to five existing stores, for
opening one to five new stores, and for various computer enhancements. The
Company also plans to relocate the corporate office and distribution center.
6
<PAGE>
DISTRIBUTION, SUPPLIERS AND PURCHASING
The majority of the merchandise purchased by the Company from vendors is
delivered by the vendors to the Company's East coast or West coast
"consolidator". Each consolidator stages the merchandise it receives for
shipment and arranges for delivery to the Company's distribution center in Grand
Rapids, Michigan. Merchandise not shipped through a consolidator is delivered
directly to the distribution center. Merchandise is then inspected, allocated
and shipped to the Company's various stores. The Company generally does not
warehouse merchandise, but distributes it promptly to stores. The Company does
warehouse damaged items awaiting return to vendors and a portion of selected
merchandise for later allocation to stores in which such items are selling more
rapidly than in other stores. Shipments are made to the stores via common
carrier.
All of the products sold by Gantos are purchased directly from
manufacturers. The Company's purchasing strategy is to buy, where possible,
substantial quantities of quality merchandise from selected manufacturers to
whom the Company is an important customer. All purchasing decisions are made
centrally based on detailed merchandising plans. No manufacturer accounted for
more than 10% of the Company's purchases during any of the last three fiscal
years. The Company does not maintain any long-term or exclusive commitments or
arrangements to purchase from any manufacturer. The Company supplements some of
its merchandise lines with private label merchandise.
Management believes that the Company is one of the larger customers (based
on purchase volume) of a number of its suppliers. Gantos works closely with its
suppliers, keeping them informed of selling trends and helping them develop
merchandise lines and production schedules. The Company will require continued
planning and development of close working relationships with suppliers to
continue obtaining adequate supplies of quality merchandise on favorable terms.
To diminish the risk of not obtaining satisfactory additional supplies of
merchandise, the Company is continually exploring possible additional resources
for merchandise supply, including other recognized domestic labels, private
label merchandise (manufactured domestically and overseas) and foreign
manufacturers. There is no assurance that the Company will be able to continue
to purchase merchandise from preferred vendors in the quantities and on the
terms its desires.
INFORMATION AND CONTROL SYSTEMS
The Company's integrated computer information system, which has been
installed and operational since May 1995, provides the Company with financial,
merchandise, inventory, personnel, credit, analytical and other information
concerning its business. This system includes several point-of-sale registers in
each store, which are connected on-line with the Company's corporate computers
via satellite. This network, which allows for in-house processing of most of the
Company's data processing needs, is used to communicate with the stores and
capture all sales transactions, Gantos credit card authorizations, data
collections by corporate computers and third party bankcard authorizations.
The system provides Gantos buyers with timely selling information by vendor,
style, color and size and assists in the distribution to each store of required
merchandise. Buyers use this information to plan and budget inventory monthly by
department and analyze the profitability and turnover of merchandise as well as
local consumer tastes. The system monitors the selling rate of merchandise by
classification. It also calculates markdowns at specified intervals based upon
standards established for each merchandise classification, which are then
reviewed by management.
The system maintains over 1,000,000 customer charge accounts (approximately
350,000 of which are active) and generates monthly customer statements and
financial reporting. The system also provides information to help management
schedule, compensate and evaluate employees.
7
<PAGE>
The Company maintains a comprehensive system of internal controls, one of
which is the taking of a complete physical inventory at least two times per year
to determine actual cost of merchandise sold. Inventory shrinkage, at cost, as a
percentage of net sales was 1.5% in 1996, 1995 and 1994.
TRADEMARKS AND SERVICE MARKS
The Company has registered the names "Gantos," "Bargain Boutique," "Your
Most Fashionable Shopping Address" and "Sale For All Seasons" as service marks
and its logo as a trademark with the United States Patent and Trademark Office.
Registration of these service marks is renewable indefinitely. The Company is
not aware of any adverse claims concerning its names or marks.
EMPLOYEES
As of February 1, 1997, the Company had 2,259 employees. This total consists
of 742 full-time employees and 1,517 part-time employees. The full-time
employees consist of 424 salaried employees and 318 hourly employees. Of the
full-time, hourly employees, 170 were salespersons who receive incentives in
addition to their hourly wages. Gantos employs additional part-time personnel as
needed throughout the year.
Management believes that its employees are paid competitively compared to
industry standards. All employees receive discounts on Gantos merchandise, and
most full-time employees are entitled to life insurance, medical, dental and
disability coverage and are eligible to participate in a 401(k) plan and an
Employee Stock Purchase Plan. All Gantos employees are non-union. The Company
considers its relationship with its employees to be good.
COMPETITION
The women's retail apparel business is highly competitive, with quality,
price, service and fashion being the principal competitive factors. The
Company's principal competitors include women's apparel specialty stores,
department stores and off-price apparel stores. Many competitors are national or
regional chains which are considerably larger than the Company and have
substantially greater financial and other resources.
SEASONALITY
The Company's business is seasonal, with its highest and second highest
sales volumes and net income levels historically being in the Christmas and
spring seasons, respectively. The following tables set forth the Company's net
sales and net income (loss) per fiscal quarter for 1996 and 1995, on an
unaudited basis and including the results of store closings and new store
openings:
<TABLE>
<CAPTION>
NET SALES
------------------------------------------
FIRST SECOND THIRD FOURTH
YEARS ENDED QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
February 1, 1997.................................. $ 50,365 $ 41,809 $ 41,716 $ 50,476
February 3, 1996.................................. 49,086 45,579 42,068 56,057(1)
</TABLE>
<TABLE>
<CAPTION>
NET INCOME (LOSS)
------------------------------------------
FIRST SECOND THIRD FOURTH
YEARS ENDED QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
February 1, 1997.................................. $2,548 $(1,592) $(275) $1,656
February 3, 1996.................................. 745 (295) 127 3,142(2)
</TABLE>
- ------------------------
(1) Net sales for the fourth quarter of 1995 include 14 weeks compared to 13
weeks in 1996.
8
<PAGE>
(2) Net income in the fourth quarter of 1995 includes a credit to the provision
for facilities closing and other of $944, a charge to SG&A of $687 as a
result of the adoption of SFAS No. 121 and a credit to SG&A of $592 as a
result of settling the remaining liabilities subject to compromise for less
than had been accrued at January 28, 1995.
Because of the importance of the Christmas season, sales and operating
results for any quarter are not necessarily indicative of results for the year.
The Company's working capital and cash demands are seasonal, increasing in the
fall when inventories are being increased for the Thanksgiving/Christmas
seasons.
ITEM 2. PROPERTIES
The Company's stores are located primarily in the West, Midwest and
Northeast portions of the United States. Gantos' regular priced merchandise
stores range in size from 5,000 to 13,000 square feet, with most stores within
the chain ranging from 5,000 to 11,000 square feet. Boutiques range in size from
10,000 to 18,000 square feet. The average size of the Company's stores is
approximately 7,800 square feet, with approximately 91% of this area
representing selling space.
The Company leases all of its stores. Most store leases contain fixed rental
provisions and generally leases contain rental payment provisions based on a
percentage of sales. Most leases also require payment of insurance, real estate
taxes and other charges (such as advertising, maintenance and merchants'
association charges) which are subject to escalation clauses. During 1996, total
store rent under these leases was approximately $16 million, of which $80,000
was percentage rent. The Company owns substantially all of the equipment in its
stores.
The following table shows the years in which leases on stores in operation
at April 25, 1997 expire:
<TABLE>
<CAPTION>
NUMBER OF
LEASES
FISCAL YEARS EXPIRING
- ----------------------------------------------------------------------------------- -------------
<S> <C>
1997-1998.......................................................................... 3
1999-2000.......................................................................... 28(1)(2)
2001-2002.......................................................................... 51
2003-2004.......................................................................... 25(1)
2005-2006.......................................................................... 3
2007-2008.......................................................................... 3
2009-2010.......................................................................... 2
Total............................................................................ 115
</TABLE>
- ------------------------
(1) One of these leases contains an option to renew for five years.
(2) One of these leases contains an option to renew for nine years.
The Company leases approximately 50,000 square feet of a 150,000 square foot
office center and approximately 126,000 square feet of an adjacent 154,000
square foot distribution center in Grand Rapids, Michigan from VRB Corp., an
affiliate of Comerica Bank. The lease expires on July 31, 1997.
Beginning May 12, 1997, the Corporation plans to relocate the merchandising
portion of its corporate offices to a 23,000 square foot facility located in
Stamford, Connecticut.
Subsequently, the Company also intends to relocate its distribution center
and remaining corporate departments, including financial and support functions,
beginning July 5, 1997 to a new location in Grand Rapids, Michigan with 20,000
square feet of office space and 100,000 square feet of distribution space. The
Company believes that combined, the new facilities better serve its needs and
also allow it to further expand to accommodate planned future business volume.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a number of pending lawsuits and claims which are
ordinary, routine suits and claims incidental to its business. In the opinion of
management, the disposition of these actions will not have a material adverse
effect upon the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
See Item 10 of this Annual Report on Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The common shares of Gantos, Inc. are traded over-the-counter and are quoted
on The Nasdaq National Market under the symbol GTOS.
The table below sets forth the high and low closing sale prices for the
Company's common shares as reported by Nasdaq for 1996 and 1995, as adjusted to
give effect to the issuance of one new common share for every two common shares
outstanding before March 31, 1995, pursuant to the Company's Plan of
Reorganization.
<TABLE>
<CAPTION>
CLOSING SALE PRICE
--------------------
PERIOD HIGH LOW
- --------------------------------------------------------------------------- --------- ---
<S> <C> <C>
1996
1st Quarter................................................................ 3 13/16 2
2nd Quarter................................................................ 7 1/8 3 9/16
3rd Quarter................................................................ 4 5/8 2 7/8
4th Quarter................................................................ 3 15/16 2 1/16
1995
1st Quarter................................................................ 4 1/8 2 5/8
2nd Quarter................................................................ 4 1/16 2 1/8
3rd Quarter................................................................ 3 1/8 1 5/8
4th Quarter................................................................ 2 13/16 1 3/4
</TABLE>
The number of shareholders of record of the Company's common shares as of
April 25, 1997 was 740.
The Company has never paid cash dividends on its common shares. The Company
expects that for the foreseeable future it will follow a policy of retaining
earnings to finance the development of its business, including for working
capital and to fund capital expenditures. For a description of financial
covenants in the Company's loan agreement that may restrict dividend payments,
see Note 6 of "Notes to Financial Statements".
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
5-YEAR SUMMARY AND SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995* 1994** 1993 1992
--------- --------- --------- --------- ---------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales................................................ $ 184,366 $ 192,790 $ 197,288 $ 229,422 $ 265,918
Cost of sales............................................ (147,022) (151,912) (160,434) (205,899) (211,643)
Selling, general and administrative expense.............. (37,407) (40,018) (40,114) (47,004) (52,440)
Finance charge and other revenue......................... 4,732 4,472 5,020 6,660 7,954
(Provision) credit for facilities closings and other..... -- 944 1,085 (29,254) 419
Operating income (loss)................................ 4,669 6,276 2,845 (46,075) 10,208
Interest expense......................................... (2,332) (2,278) (122) (1,785) (2,900)
Reorganization items..................................... -- (279) (1,764) (831) --
Income (loss) before income taxes extraordinary item and
cumulative effect of change in accounting method....... 2,337 3,719 959 (48,691) 7,308
Net income (loss) before extraordinary item and
cumulative effect of change in accounting method....... 2,337 3,719 959 (44,241) 4,912
Extraordinary item....................................... -- -- 1,628 -- --
Net income (loss) before cumulative effect of change in
accounting method...................................... 2,337 3,719 2,587 (44,241) 4,912
Net income (loss)........................................ $ 2,337 $ 3,719 $ 2,587 $ (43,064) $ 4,912
PER SHARE DATA***
Net income (loss) per share before extraordinary item and
cumulative effect of change in accounting method....... $ 0.31 $ 0.55 $ 0.36 $ (16.58) $ 1.80
Extraordinary item....................................... -- -- 0.61 -- --
Net income (loss) per share.............................. $ 0.31 $ 0.55 $ 0.97 $ (16.14) $ 1.80
BALANCE SHEET DATA
Total assets............................................. $ 65,858 $ 68,410 $ 95,983 $ 125,611 $ 113,575
Working capital.......................................... $ 29,240 $ 23,626 $ 53,780 $ 82,706 $ 44,802
Long-term obligations.................................... $ 11,940 $ 12,395 $ 66,981 $ 104,715 $ 33,989
Shareholders' equity..................................... $ 31,295 $ 28,763 $ 5,181 $ 2,594 $ 45,641
FINANCIAL RATIOS AND OTHER DATA
Current ratio............................................ 2.3 1.9 3.3 5.5 2.4
Return (loss) on average assets.......................... 3.5% 4.5% 2.3% (36.0)% 4.1%
Return (loss) on average shareholders' equity............ 7.8% 21.9% 66.5% (178.6)% 11.5%
Book value per share at year end......................... $ 4.14 $ 3.80 $ 1.94 $ 0.98 $ 17.08
Number of stores at year end............................. 114 113 114 118 159
Weighted Shares Outstanding***........................... 7,574 6,759 2,665 2,669 2,715
</TABLE>
- ------------------------------
* Data for 1995 include the results of operations for 53 weeks.
** The Company closed 46 stores between the fourth quarter of 1993 and the
second quarter of 1994, and emerged from its chapter 11 bankruptcy
proceedings (filed on November 12, 1993) on March 31, 1995.
*** As part of the Company's Plan of Reorganization, each shareholder of record
on March 31, 1995 was entitled to receive one common share for every two
common shares previously held. All stock-related data in the table above
reflect this stock distribution for all periods presented.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following
tables indicate the percentage relationships to net sales of various revenue and
expense items included in the Statements of Income for 1996, 1995 and 1994
(fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995,
respectively) and the percentage changes in the dollar amounts of those items
for such years.
<TABLE>
<CAPTION>
PERCENT CHANGE IN DOLLAR
AMOUNTS
AS A PERCENT OF NET SALES --------------------------
------------------------------------- 1995- 1994-
1996 1995 1994 1996 1995
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales.............................................. 100.0% 100.0% 100.0% (4)% (2)%
Cost of sales (including buying, distribution and
occupancy costs)..................................... (79.7) (78.8) (81.3) (3) (5)
Gross income......................................... 20.3 21.2 18.7 (9) 11
Selling, general and administrative expense............ (20.3) (20.7) (20.3) (7) --
Finance charge and other revenue....................... 2.6 2.3 2.5 6 (11)
Credit for facilities closings and other............... -- 0.5 0.5 (100) (13)
Operating income..................................... 2.6 3.3 1.4 (26) 121
Interest expense....................................... (1.3) (1.2) -- 2 1,767
Income before reorganization items, income taxes and
extraordinary item................................... 1.3 2.1 1.4 (42) 47
Reorganization items:
Professional fees.................................... -- (0.3) (1.7) (100) (84)
Interest earned on accumulating cash from Chapter 11
proceedings........................................ -- 0.1 0.8 (100) (84)
-- (0.2) (0.9) (100) (84)
Income before income taxes and extraordinary item...... 1.3 1.9 0.5 (37) 288
Income Taxes........................................... -- -- -- -- --
Income before extraordinary item....................... 1.3 1.9 0.5 (37) 288
Extraordinary Item..................................... -- -- 0.8 -- (100)
Net income............................................. 1.3% 1.9% 1.3% (37)% 44%
</TABLE>
1996 COMPARED TO 1995
Net sales decreased approximately 4%, or approximately $8.4 million, from
1995 to 1996. The decrease was due primarily to a decrease in net sales for
stores in operation throughout both periods of approximately $6.3 million and a
decrease of approximately $2.6 million resulting from an additional week of
sales reported in fiscal 1995 as a result of the fifty-three week retail
calendar, partially offset by a net increase of $0.5 million due to one new
store opened in both 1995 and 1996 and two store closings in 1995. The 3.6%
decrease in comparable store sales (excluding the 53rd week of 1995) was
comprised of a 4.3% decrease in average sales dollars per unit due primarily to
a change in the mix of merchandise sold partially offset by a 0.7% increase in
unit sales. The Company plans to open one to five new stores in 1997. Management
expects the negative comparable store sales trends to continue into the first
quarter of 1997.
Cost of sales decreased approximately $4.9 million from 1995 to 1996. The
decrease is due primarily to reduced sales. As a percent of net sales, cost of
sales increased to 79.7% in 1996 from 78.8% in 1995. The increase was primarily
due to higher net markdowns taken and increased shrinkage expense, partially
offset by an increase in vendor allowances received, higher markups and lower
net merchandise costs incurred in 1996 compared to 1995.
12
<PAGE>
Selling, general and administrative (SG&A) expense decreased approximately
$2.6 million from 1995 to 1996. The decrease was primarily due to a decrease in
payroll as a result of fewer bonuses paid out in 1996 compared to 1995,
reductions in store payroll due to improved controls at the store level,
decreases in special services and supplies as a result of the elimination of
computer outsourcing fees and increased general cost control measures and lower
depreciation and insurance expense in 1996 compared to 1995. The decrease in
SG&A was partially offset by an increased rent expense in 1996 compared to 1995
due to the expiration of certain rent restructure deals and increased bad debt
expenses, due to the rise in personal bankruptcies in 1996 compared to 1995. The
majority of these savings occurred as a result of plans implemented in the third
quarter of 1995 and are not expected to continue to generate savings in 1997
compared to 1996. SG&A expense, as a percent of net sales, decreased from 20.7%
to 20.3% in 1996 as a result of the decreases described above, partially offset
by lower retail sales.
Finance charge and other revenue, as a percent of sales, increased to 2.6%
this year compared to 2.3% last year. The increase was primarily due to an
increase in late charge fees from a policy that took effect in October 1995,
partially offset by a decrease in average outstanding credit card receivables
during 1996 compared to 1995. The decrease in receivable balances is primarily
the result of faster payment by customers, a decrease in Gantos charge card
sales as a percentage of net sales from 31.1% in 1995 to 30.7% in 1996 and a
decrease in sales.
Interest expense increased approximately $54,000 in 1996 compared to 1995.
The increase is the result of borrowings accruing interest for twelve months in
1996 compared to only ten months in 1995, partially offset by lower average
amounts outstanding during 1996.
The effective income tax rate varies from the statutory rate of 35% due to
the effect of the graduated tax rate and the reversal of valuation allowances
during the year.
These factors resulted in net income of $2.3 million, or $0.31 per share, in
1996 compared to net income of $3.7 million, or $0.55 per share, in 1995. The
net income for 1995 includes a credit of $0.9 million to Facilities Closing and
Other, and a charge of approximately $0.7 million as a result of the early
adoption of SFAS no. 121. As part of the Company's Plan of Reorganization, each
shareholder of record on March 31, 1995 was entitled to receive one common share
for every two common shares previously held. All stock-related data above
reflect this stock distribution for all periods presented.
1995 COMPARED TO 1994
Net sales decreased approximately 2%, or approximately $4.5 million, from
1994 to 1995. The decrease was due primarily to a decrease in net sales for
stores in operation throughout both periods of approximately $4.6 million,
partially offset by an increase of $2.6 million resulting from an additional
week of sales experienced during 1995 as a result of the fifty-three week retail
calendar. Net sales also decreased approximately $3.2 million as a result of
closing two stores during 1995 and five stores during 1994, partially offset by
approximately $0.7 million in additional sales as a result of one new store
opening during 1995 and one new store opening during the fourth quarter of 1994.
The 2.4% decrease in comparable store sales (excluding the 53rd week of 1995)
was comprised of a 5.4% decrease in average sales dollars per unit, a 0.1%
decrease due to a change in merchandise mix, and a 3.1% increase in unit sales.
The increase in unit sales and decrease in average sales dollars was primarily
the result of the Company's increased unit sales in moderate price
classifications, partially offset by lower markdown expenses as a percentage of
sales.
Cost of sales, as a percent of net sales, decreased to 78.8% in 1995 from
81.3% in 1994. The decrease was primarily due to lower net markdowns taken in
1995 compared to 1994, lower net merchandise costs incurred and a substantial
decrease in distribution and store occupancy costs (primarily lower store rent
expense and maintenance and dues expense), as a result of favorable lease
negotiations with store landlords.
13
<PAGE>
Selling, general and administrative (SG&A) expense decreased approximately
$0.1 million from 1994 to 1995. The decrease was primarily due to reductions in
computer outsourcing fees, depreciation and corporate rent and a $0.6 million
credit for the settlement of the remaining liabilities subject to compromise for
less than the amounts accrued, partially offset by higher payroll and bad debt
expenses during 1995 compared to 1994 and a $0.7 million loss as a result of
adoption of Statement of Financial Accounting Standards (SFAS) No. 121. SG&A
expense, as a percent of net sales, increased from 20.3% to 20.7% during 1995 as
a result of lower retail sales. During the fourth quarter of 1995, the Company
adopted SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". As a result, an impairment loss of $0.7
million (0.4% of sales) was recorded under SG&A expense. See the description of
SFAS No. 121 in Note 5 of "Notes to Financial Statements" in this Report, which
description is incorporated in this Item 7 by reference.
Finance charge and other revenue, as a percent of sales, decreased to 2.3%
in 1995 compared to 2.5% in 1994. Finance charge income decreased due to a
decrease in average outstanding credit card receivables during 1995 compared to
1994, partially offset by increased late charge fees in 1995. The decrease in
the receivable balances was primarily the result of faster payment by customers
and lower credit card sales.
During 1995, the Company recorded a credit for Facilities Closings and Other
of $0.9 million. During 1995, the Company settled the remaining disputes with
its landlords for less than the amounts accrued. For a description and
discussion of the Provision for Facilities Closings and Other, see Note 4 of
"Notes to Financial Statements" in this Report, which description is
incorporated in this Item 7 by reference.
Interest expense increased approximately $2.2 million in 1995 compared to
1994. The increase is the result of the Company's emergence from Chapter 11
effective March 31, 1995. As part of the Plan of Reorganization, the Company
entered into a new revolving credit agreement with Fleet Bank (formerly NatWest
Bank) and issued $12.4 million in notes under an indenture agreement. For a
description of the Fleet Facility and of the notes issued under the indenture,
see Note 6 of "Notes to Financial Statements" in this Report, which description
is incorporated in this Item 7 by reference. Both the revolving credit agreement
and notes accrued interest for ten months during 1995. In the prior year, during
the Chapter 11 proceedings, the Company was not required to pay interest on its
unsecured or undersecured pre-petition debts.
Interest income and professional fees, shown separately under
"Reorganization Items" in the Statements of Income, decreased in 1995 compared
to 1994 as a result of the Company's emergence from Chapter 11 during the year
and payments made to creditors under the plan.
The effective income tax rate varies from the statutory rate of 35% due to
the effect of the graduated tax rate and the reversal of valuation allowances
during the year.
These factors resulted in net income of $3.7 million, or $0.55 per share, in
1995 compared to net income of $2.6 million, or $0.97 per share, in 1994. The
net income for 1995 includes a credit of $0.9 million to Facilities Closing and
Other, and a charge of approximately $0.7 million as a result of the early
adoption of SFAS no. 121. The net income for 1994 includes a net credit of $1.1
million to Facilities Closing and Other and an extraordinary item-gain on
extinguishment of debt in the amount of $1.6 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal needs for liquidity are to finance the purchase of
merchandise inventories, support its accounts receivable and fund its capital
expenditure and debt payment obligations, costs related to relocating the
corporate facilities and operations for existing and new stores. Merchandise
purchases vary on a seasonal basis, peaking in the fall. Accounts receivable
also vary on a seasonal basis, peaking during the holiday season.
Total capital expenditures during 1996, 1995 and 1994 were $2.7, $6.1 and
$3.9 million, respectively. Capital expenditures for 1996 were incurred
primarily to open one new store and remodel and refixture 13 existing stores.
Capital expenditures for 1997 are estimated to be $6.0 million. These amounts
are
14
<PAGE>
expected to be used primarily to remodel and refixture approximately one to five
existing stores, build out the new Grand Rapids facilities, open one to five new
stores in 1997 and make various computer enhancements. The actual amount of the
Company's capital expenditures will depend in part on the number of stores
opened and remodeled, and on the amount of construction allowances the Company
receives from the landlords of the new facilities. Capital expenditures for 1997
are expected to be financed primarily from funds generated from operations.
Net cash provided by operating activities before reorganization items
totaled $5.6 million in 1996 compared to $14.4 million in 1995. The decrease is
the result of lower net income (net of non-cash items), a smaller decrease in
accounts receivable, decreases in accounts payable and accrued expenses in 1996
compared to increases in 1995, partially offset by a decrease in merchandise
inventories in 1996 compared to an increase in 1995 and less cash used for
facilities closings and other in 1996. For 1996, the decrease in merchandise
inventories was due to the Company's tighter control of inventory levels, and
the decreases in accounts payable and accrued expenses were due to inventory
levels and the timing of payments, respectively.
Net cash used by reorganization items during 1995 was approximately $33.1
million. In addition to the reorganization items discussed in "Results of
Operations", the Company used approximately $31.6 million of cash to pay the
remaining liabilities subject to compromise, including secured, unsecured and
administrative claims, and approximately $1.4 million in cash to pay accrued
bankruptcy expenses. Pursuant to the Company's Plan of Reorganization, during
1995, the Company used $31,868,000 of its cash, issued approximately $12,395,000
in original principal amount of six-year notes payable, bearing interest at
12.75% a year, and issued or committed to issue approximately 4,735,000 Common
Shares (valued for this purpose at $4.16 a share), in payment of approximately
$58,255,000 of its liabilities subject to compromise, $5,192,000 in long-term
debt and $514,000 of accrued expenses, including the settlement costs of the
purported class action lawsuit.
Net cash used by financing activities in 1996 was approximately $502,000
compared to net cash used of approximately $736,000 in 1995. The cash used in
1996 is primarily an excess cash flow payment on 12.75% subordinated debt (see
note 6 of the financial statements, which is incorporated in this Item 7 by
reference, for a description of the terms of such notes). The Company expects to
make payments on the notes of approximately $4.0 million in 1997. The use of
cash in 1995 is primarily the payment of the loan fees.
As part of the Company's Plan of Reorganization, the Company entered into a
borrowing agreement with Fleet Bank N.A. (formerly NatWest Bank N.A.) and
LaSalle National Bank expiring March 31, 2000 (the "Fleet Facility"). The Fleet
Facility provides the Company revolving credit loans and letters of credit up to
$40 million, subject to a borrowing base formula and lender reserves (as defined
in the agreement). Undrawn and unreimbursed letters of credit under the facility
may not exceed $15 million in face amount. The Fleet Facility is expected to be
used to provide for the Company's working capital requirements.
The Company has entered into two amendments to the Fleet Facility. For a
description of the amendments, see Recent Developments in Item 1 of this Report,
which information is incorporated in this Item 7 by reference. For a description
of the terms of the Fleet Facility and the covenants under that facility, see
note 6 of the financial statements, which is incorporated in this Item 7 by
reference. As of April 25, 1997, the Company had no borrowings and $757,000 in
letters of credit outstanding under the facility, and approximately $30.2
million was available for borrowing under the facility. During 1996, the
weighted average interest rate under this facility was 9.5%.
The Company expects its cash on hand, cash flow from operations and
borrowings under the Fleet Facility to be sufficient to meet its capital
expenditure and working capital requirements and its other needs for liquidity
during 1997.
15
<PAGE>
INFLATION
The Company does not believe that inflation has had a material effect on the
results of operations during the past three years.
Each of the above statements regarding future revenues, expenses or business
plans (including statements regarding the sufficiency of the Company's cash
resources to meet future liquidity needs) may be a "forward looking statement"
within the meaning of the Securities Exchange Act of 1934. Such statements are
subject to important factors and uncertainties that could cause actual results
to differ materially from those in the forward-looking statement, including the
continued support of the Company's trade creditors and factors, general trends
in retail clothing apparel purchasing, especially during the Christmas season,
and the factors set forth in this Management's Discussion and Analysis of
Financial Condition and Results of Operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and other information required by this Item are set
forth in the "Index to Financial Statements" on page 24 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company will be set forth under
the caption "VOTING SECURITIES AND PRINCIPAL HOLDERS" and under the caption
"ELECTION OF DIRECTORS" in the Company's Proxy Statement in connection with the
1997 Annual Meeting of Shareholders scheduled to be held June 19, 1997, and is
incorporated herein by reference. Information concerning compliance with Section
16(a) of the Securities Exchange Act of 1934 will be set forth under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement in connection with the 1997 Annual Meeting of Shareholders scheduled
to be held June 19, 1997, and is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information as of April 25, 1997, regarding
the Company's executive officers:
<TABLE>
<CAPTION>
EXECUTIVE
NAME AGE POSITIONS WITH THE COMPANY OFFICER SINCE
- ------------------------------------ ----------- ------------------------------------------------------- ---------------
<S> <C> <C> <C>
Arlene H. Stern..................... 46 President, Chief Executive Officer and a Director 1996
Joseph Giudice...................... 47 Senior Vice President, Merchandise Planning and 1996
Operations
Dennis Horstman..................... 51 Senior Vice President, Merchandising and Marketing 1996
Neal Gottfried...................... 54 Senior Vice President, Store Operations and Visual 1997
Merchandising
Kenneth Green....................... 43 Vice President, General Counsel and Secretary 1993
Vicki Boudreaux..................... 40 Vice President, Planning & Allocation 1996
Hope Grey........................... 40 Vice President, Technical Product Management 1996
David Rodgers....................... 35 Vice President, Management Information Systems 1997
</TABLE>
16
<PAGE>
Arlene H. Stern has been the Company's President and Chief Executive Officer
since September 8, 1996. From July 8, 1996 to September 8, 1996, Ms. Stern was
the President and Chief Operating Officer for the Company. Ms. Stern served as
Executive Vice President and Chief Operating Officer of Women's Specialty
Retailing Group, Inc., a retail apparel specialty store chain and a division of
U.S. Shoe Corporation, from July 1993 to August 1995. From February 1985 to July
1993, Ms. Stern was the Executive Vice President for Human Resources and
Distribution with P.A. Bergner & Company, a department store chain. Pursuant to
a letter agreement, dated July 8, 1996, Ms. Stern is to be employed as the
Company's President and Chief Executive Officer until July 7, 1999, unless her
employment is terminated earlier pursuant to the letter agreement.
Joseph Giudice has been the Company's Senior Vice President, Merchandise
Planning and Operations since September 16, 1996. From January 1994 to September
1996, Mr. Giudice was Executive Vice President of Operations/Management
Information Systems for Casual Corner Group, Inc., a retail apparel specialty
store chain. Prior to that position, Mr. Giudice was Vice President of
Operations of Foley's Department Store, a division of the May Company, from
March 1990 to January 1994. Pursuant to a letter agreement, dated September 25,
1996, Mr. Giudice is to be employed at will as the Company's Senior Vice
President, Merchandise Planning and Operations.
Dennis Horstman has been the Company's Senior Vice President, Merchandising
and Marketing since December 2, 1996. Prior to joining Gantos, Mr. Horstman was
Senior Vice President/General Merchandise Manager for Petrie Retail, Inc., a
retail apparel specialty store chain, from July 1995 to December 1996. Petrie
Retail, Inc. filed a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code on October 13, 1995. Mr. Horstman was an executive
officer of Petrie Retail, Inc. at the time of the filing. Prior to Petrie, Mr.
Horstman was President of the Petite Sophisticate Division of Women's Specialty
Group, a retail apparel specialty store chain and a division of U.S. Shoe
Corporation, from November 1994 to July 1995. From May 1994 to November 1994,
Mr. Horstman was General Merchandise Manager for the Capezio Sportswear Division
of Women's Specialty Group. From 1991 to 1994, Mr. Horstman was Vice
President/General Merchandise Manager for the Wilsons Leather Division of
Mellville Corporation, a retail apparel specialty store. Pursuant to a letter
agreement, dated November 11, 1996, Mr. Horstman is to be employed at will as
the Company's Senior Vice President, Merchandising and Marketing.
Neal Gottfried has been the Company's Senior Vice President, Store
Operations and Visual Merchandising since April 14, 1997. From January 1994
until April 1997, Mr. Gottfried was the Vice President of Operations for the
Southern Zone of Casual Corner Group, Inc., a retail apparel specialty store
chain and a division of U.S. Shoe Corporation. From September 1992 until January
1994, Mr. Gottfried was the Executive Vice President for Caren Charles, a retail
apparel specialty store chain and a division of U.S. Shoe Corporation. From May
1987 until September 1992, Mr. Gottfried was the Executive Vice President for
Casual Corner Group, Inc., a retail apparel specialty store chain and a division
of U.S. Shoe Corporation. Pursuant to a letter agreement, dated April 23, 1997,
Mr. Gottfried is to be employed at will as the Company's Senior Vice President,
Store Operations and Visual Merchandising.
Kenneth Green has been the Company's Vice President, General Counsel and
Secretary since December 1993. From July 1992 to December 1993, Mr. Green served
as Director of Legal Services and Secretary for the Company. From November 1989
until July 1992, Mr. Green was Director of Legal Services for the Company.
Vicki Boudreaux has been the Company's Vice President, Planning and
Allocation since September 16, 1996. From April 1996 to September 1996, Ms.
Boudreaux was Vice President--Organizational Management at Casual Corner Group,
Inc., a retail apparel specialty store chain and a division of U.S. Shoe
Corporation, and from April 1995 to April 1996, was Vice President--Quick
Response at Casual Corner Group, Inc. From December 1991 to April 1995, Ms.
Boudreaux was the Director and subsequently Senior Director--Quick Response for
Casual Corner Group, Inc. Pursuant to a letter agreement,
17
<PAGE>
dated September 3, 1996, Ms. Boudreaux is to be employed at will as the
Company's Vice President, Planning and Allocation.
Hope Grey has been the Company's Vice President, Technical Product
Management since September 30, 1996. Prior to joining Gantos, Ms. Grey was Vice
President--Quality Assurance for Casual Corner Group, Inc., a retail apparel
specialty store chain and a division of U.S. Shoe Corporation, from November
1990 to May 1996. Pursuant to a letter agreement, dated September 25, 1996, Ms.
Grey is to be employed at will as the Company's Vice President, Technical
Product Management.
David Rodgers has been the Vice President, Management Information Systems
since March 18, 1997. From June 1991 to March 1997, Mr. Rodgers was the Director
of Management Information Systems for the Company.
Executive officers are elected annually by the Board of Directors and serve
at the pleasure of the Board.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth under the
caption "EXECUTIVE COMPENSATION" in the Company's Proxy Statement in connection
with the 1997 Annual Meeting of Shareholders scheduled to be held June 19, 1997,
and, except for the information under the caption "BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION" or "PERFORMANCE GRAPH", is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial owners
and management will be set forth under the caption "VOTING SECURITIES AND
PRINCIPAL HOLDERS" and "ELECTION OF DIRECTORS" in the Company's Proxy Statement
in connection with the 1997 Annual Meeting of Shareholders scheduled to be held
June 19, 1997, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions will be
set forth under the caption "CERTAIN TRANSACTIONS" or "EXECUTIVE
COMPENSATION--COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in
the Company's Proxy Statement in connection with the 1997 Annual Meeting of
Shareholders scheduled to be held June 19, 1997, and is incorporated herein by
reference.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(A)(1) FINANCIAL STATEMENTS
The list of the report, financial statements and notes required by this Item
14(a)(1) is set forth in the "Index to Financial Statements" on page 24 of
this Report.
14(A)(2) FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedule required by this Item 14(a)(2) is set forth
in the "Index to Financial Statements" on page 24 of this Report.
14(A)(3) EXHIBITS
The list of exhibits required by this Item 14(a)(3) is set forth in the
"Index to Exhibits" on pages 41 to 43 of this Report.
14(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
ended February 1, 1997.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 25, 1997
GANTOS, INC.
(Registrant)
By /s/ ARLENE H. STERN
-----------------------------------------
Arlene H. Stern
Its: PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President and Chief
/s/ ARLENE H. STERN Executive Officer
- ------------------------------ (Principal Executive & April 25, 1997
Arlene H. Stern Principal Financial
Officer)
/s/ JEFFREY C. TUORI
- ------------------------------ Controller (Principal April 25, 1997
Jeffrey C. Tuori Accounting Officer)
/s/ L. DOUGLAS GANTOS
- ------------------------------ Chairperson of the Board April 25, 1997
L. Douglas Gantos
/s/ ELIZABETH M. EVEILLARD
- ------------------------------ Director April 25, 1997
Elizabeth M. Eveillard
/s/ FRED K. SCHOMER
- ------------------------------ Director April 25, 1997
Fred K. Schomer
/s/ HANNAH H. STRASSER
- ------------------------------ Director April 25, 1997
Hannah H. Strasser
/s/ MARY ELIZABETH BURTON
- ------------------------------ Director April 25, 1997
Mary Elizabeth Burton
/s/ ERWIN A. MARKS
- ------------------------------ Director April 25, 1997
Erwin A. Marks
/s/ S. AMANDA PUTNAM
- ------------------------------ Director April 25, 1997
S. Amanda Putnam
20
<PAGE>
GANTOS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants, Price Waterhouse LLP................................................... 25
Financial Statements
Statements of Income for the three years ended February 1, 1997......................................... 26
Balance Sheets as of February 1, 1997 and February 3, 1996.............................................. 27
Statements of Cash Flows for the three years ended February 1, 1997..................................... 28
Statements of Changes in Shareholders' Equity for the three years ended February 1, 1997................ 29
Notes to Financial Statements........................................................................... 30-38
Quarterly Financial Information (unaudited)............................................................... 39
Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts............................................................ 40
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Gantos, Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Gantos, Inc.
at February 1, 1997 and February 3, 1996, and the results of its operations and
cash flows for each of the three years in the period ended February 1, 1997 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 5 to the Financial Statements, the Company changed its
method of accounting for long-lived assets to conform with Statement of
Financial Accounting Standards No. 121 in fiscal 1995.
PRICE WATERHOUSE LLP
Battle Creek, Michigan
February 28, 1997,
except as to the last paragraph of
Note 6 which is as of March 18, 1997
22
<PAGE>
GANTOS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales.................................................................. $ 184,366 $ 192,790 $ 197,288
Cost of sales (including buying, distribution and occupancy costs)......... (147,022) (151,912) (160,434)
Gross income............................................................... 37,344 40,878 36,854
Selling, general and administrative expense................................ (37,407) (40,018) (40,114)
Finance charge and other revenue........................................... 4,732 4,472 5,020
Credit for facilities closings and other................................... -- 944 1,085
Operating income........................................................... 4,669 6,276 2,845
Interest expense (contractual interest of $2,585 and $3,707 for 1995 and
1994).................................................................... (2,332) (2,278) (122)
Income before reorganization items, income taxes and extraordinary item.... 2,337 3,998 2,723
Reorganization items:
Professional fees........................................................ -- (530) (3,336)
Interest earned on accumulating cash from Chapter 11 proceedings......... -- 251 1,572
-- (279) (1,764)
Income before income taxes and extraordinary item.......................... 2,337 3,719 959
(Provision) benefit for income taxes....................................... -- -- --
Net income before extraordinary item....................................... 2,337 3,719 959
Extraordinary item......................................................... -- -- 1,628
Net income................................................................. $ 2,337 $ 3,719 $ 2,587
Net income per share before extraordinary item............................. $ 0.31 $ 0.55 $ 0.36
Extraordinary item......................................................... -- -- 0.61
Net income per share....................................................... $ 0.31 $ 0.55 $ 0.97
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
23
<PAGE>
GANTOS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
--------------- ---------------
(THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 4,346 $ 1,453
Accounts receivable, less allowance for doubtful accounts of $636 and $572 at
February 1, 1997 and February 3, 1996, respectively........................ 21,973 22,619
Merchandise inventories...................................................... 22,373 23,955
Prepaid expenses and other................................................... 3,171 2,851
--------------- ---------------
Total current assets....................................................... 51,863 50,878
--------------- ---------------
Property and equipment, at cost:
Leasehold improvements....................................................... 30,168 28,375
Furniture and fixtures....................................................... 32,159 32,243
Other........................................................................ 52 418
--------------- ---------------
Total property and equipment............................................... 62,379 61,036
Less--Accumulated depreciation and amortization................................ (48,384) (43,504)
--------------- ---------------
Net property and equipment................................................. 13,995 17,532
--------------- ---------------
Total Assets................................................................... $ 65,858 $ 68,410
--------------- ---------------
--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 10,749 $ 12,119
Accrued expenses and other................................................... 10,307 12,716
Reserve for facilities closings.............................................. 1,567 2,417
--------------- ---------------
Total current liabilities.................................................. 22,623 27,252
--------------- ---------------
Long-term debt................................................................. 11,940 12,395
--------------- ---------------
Shareholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized; none issued....
Common stock, $.01 par value, 20,000,000 shares authorized; 7,563,000 issued
and outstanding at February 1, 1997 and 7,577,000 issued and outstanding at
February 3, 1996........................................................... 76 76
Additional paid-in capital................................................... 40,798 40,603
Accumulated deficit.......................................................... (9,579) (11,916)
--------------- ---------------
Total shareholders' equity............................................... 31,295 28,763
--------------- ---------------
Commitments (Note 8)........................................................... -- --
--------------- ---------------
Total Liabilities and Shareholders' Equity..................................... $ 65,858 $ 68,410
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
24
<PAGE>
GANTOS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 2,337 $ 3,719 $ 2,587
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Reorganization items........................................................ -- 279 1,764
Extraordinary item.......................................................... -- -- (1,628)
Credit for facilities closing and other..................................... -- (944) (1,085)
Cash used for facilities closing and other.................................. (9) (571) (93)
Depreciation and amortization............................................... 5,493 6,241 6,343
Loss on disposals of property and equipment................................. -- -- 29
Restricted stock compensation expense....................................... 142 161 --
Changes in assets and liabilities:
Accounts receivable....................................................... 646 2,676 4,442
Merchandise inventories................................................... 1,582 (1,411) 533
Prepaid expenses and other................................................ (320) (265) 526
Accounts payable.......................................................... (1,370) 3,645 3,972
Accrued expenses and other................................................ (2,410) 1,281 1,770
Income tax receivable..................................................... -- -- 1,647
Total adjustments....................................................... 3,754 11,092 18,220
Net cash provided by operating activities before reorganization items........... 6,091 14,811 20,807
Net change to liabilities subject to compromise................................. -- (64,941) (37,598)
Net non-cash change to liabilities subject to compromise........................ -- 33,374 3,339
Net cash payments on liabilities subject to compromise.......................... -- (31,567) (34,259)
Reorganization items............................................................ -- (279) (1,764)
Change in accrued interest receivable........................................... -- 88 (61)
Change in accrued bankruptcy expenses........................................... -- (1,352) 197
Net cash used by reorganization items........................................... -- (33,110) (35,887)
Net cash provided (used) by operating activities................................ 6,091 (18,299) (15,080)
Cash flows from investing activities:
Capital expenditures.......................................................... (2,696) (6,057) (3,866)
Sale of capital assets........................................................ -- -- 206
Net cash used by investing activities........................................... (2,696) (6,057) (3,660)
Cash flows from financing activities:
Principal payments under capital lease obligations and other
long-term debt.............................................................. (455) (25) (148)
Issuance of Common Stock...................................................... 54 -- --
Other......................................................................... (101) (711) (563)
Net cash used by financing activities........................................... (502) (736) (711)
Net increase (decrease) in cash................................................. 2,893 (25,092) (19,451)
Cash and cash equivalents at beginning of year.................................. 1,453 26,545 45,996
Cash and cash equivalents at end of year........................................ $ 4,346 $ 1,453 $ 26,545
Cash paid during the year:
Interest...................................................................... $ 1,818 $ 2,136 $ 126
Income taxes.................................................................. $ 54 $ 48 $ 42
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
25
<PAGE>
GANTOS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ----------- ----------- ------------ -------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance January 29, 1994.............................. 5,329 $ 53 $ 20,763 $ (18,222) $ 2,594
Net income for the year............................... -- -- -- 2,587 2,587
One-for-two stock split............................... (2,664) (26) 26 -- --
Balance January 28, 1995.............................. 2,665 $ 27 $ 20,789 $ (15,635) $ 5,181
Issuance of restricted stock.......................... 177 2 (2) -- --
Restricted stock compensation expense................. -- -- 162 -- 162
Stock issued in conjunction with Plan of
Reorganization....................................... 4,735 47 19,654 -- 19,701
Net income for the year............................... -- -- -- 3,719 3,719
Balance February 3, 1996.............................. 7,577 $ 76 $ 40,603 $ (11,916) $ 28,763
Restricted stock compensation expense................. -- -- 142 -- 142
Cancellation of restricted stock...................... (34) -- -- -- --
Exercise of stock options............................. 2 -- 8 -- 8
Shares issued under employee stock purchase plan...... 18 -- 45 -- 45
Net income for the year............................... -- -- -- 2,337 2,337
Balance February 1, 1997.............................. 7,563 $ 76 $ 40,798 $ (9,579) $ 31,295
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
financial statements.
26
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS
1. CHAPTER 11 REORGANIZATION AND BASIS OF PRESENTATION:
On November 12, 1993 (the "Petition Date"), Gantos, Inc. and Gantos Stores,
Inc. (collectively referred to as "Debtor" or "Company") filed petitions under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Western District of Michigan (the "Bankruptcy Court"). The Company managed its
affairs and operated its business under Chapter 11 as a debtor-in-possession
while a plan of reorganization was formulated.
Through a reorganization under Chapter 11, management restructured the
operations and capitalization of the Company in order to strengthen the
Company's financial position and operating performance.
On January 19, 1995, the Company filed the Second Amended Joint Plan of
Reorganization of Gantos, Inc. and Gantos Stores, Inc. (as amended March 7,
1995, the "POR"). On March 7, 1995, the Bankruptcy Court confirmed the POR which
became effective March 31, 1995.
Pursuant to the POR, the former Gantos, Inc. merged into Gantos Stores, Inc.
which changed its name to Gantos, Inc.
As provided for in the POR, all holders of secured and priority claims
received cash equal to the allowed amount of such claims, and unsecured
creditors generally received 50% of the allowed amount of each claim in cash and
50% of the allowed amount of each claim in new common shares valued at $4.16 per
share. Certain unsecured creditors received approximately $12.4 million in
original principal amount of 6-year notes bearing interest at 12.75%.
The Company issued 4,735,000 common shares, and paid approximately
$31,567,000 in cash along with the notes as settlement for these claims. All
holders of old common shares were entitled to receive one new common share for
every two old common shares outstanding prior to March 31, 1995.
Prior to the March 31, 1995 effective date of the POR, the Company followed
the American Institute of Certified Public Accountants (AICPA) Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code". After the March 31, 1995 effective date, the Company's assets
and liabilities continued to be recorded at their historical basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Industry Information--The Company operates 115 women's apparel specialty
stores in 23 states located primarily in the Western, Midwestern and
Northeastern United States. The following is a summary of significant accounting
policies:
The Company's fiscal year ends on the Saturday closest to the end of
January. Fiscal year 1996 consisted of fifty-two weeks and ended on February 1,
1997; fiscal year 1995 consisted of fifty-three weeks and ended on February 3,
1996; and fiscal year 1994 consisted of fifty-two weeks and ended on January 28,
1995.
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid investment instruments purchased with a maturity of three months
or less to be cash equivalents.
Non-cash financing charges in connection with the Company's POR, including
the issuance of long-term debt and additional common stock, are described in
Note 1 above.
27
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Accounts receivable consists principally of Gantos credit card customer
receivables. Finance charges are imposed on the unpaid balance at annual rates
varying from 18% to 21% depending upon state laws. Minimum monthly payments of
$15 or 10% of the unpaid balance, whichever is greater, are required.
Merchandise inventories are valued at the lower of cost or market, using the
cost method, on the First-in, First-out (FIFO) basis. Approximately $1.3 and
$1.2 million of merchandise development, procurement, storage and distribution
costs are included in inventory at year end 1996 and 1995, respectively.
Commissions earned on leased shoe sales are included in net sales and
totaled $874,000 in 1996, $789,000 in 1995 and $761,000 in 1994. Third party
leased shoe sales totaled $6.5, $6.3 and $6.1 million in 1996, 1995 and 1994,
respectively.
Cost of sales includes the net cost of merchandise, buying, distribution and
occupancy expenses.
Depreciation and amortization are computed using the straight-line method.
Furniture and fixtures are depreciated over their estimated useful lives,
generally five to ten years. Leasehold improvements are amortized over the terms
of the respective leases or their estimated useful lives, whichever is shorter,
generally seven to ten years.
The Company expenses preopening costs of new stores in the year in which the
store is opened.
Advertising costs are expensed the first time the advertising takes place.
Net advertising expense approximated $1.2 million, $1.0 million and $0.9 million
in 1996, 1995 and 1994, respectively.
As part of the Company's POR, each shareholder of record on the effective
date, was entitled to receive one new common share for every two common shares
previously held. All share and per share data in the financial statements and
notes reflect this stock distribution for all periods presented. As part of the
POR, the Company issued 4,567,000 common shares as partial settlement for
certain claims, 143,000 restricted common shares to management (net of 34,000
and 23,000 restricted common shares forfeited during 1996 and 1995,
respectively) and 168,000 common shares as partial settlement of a shareholder
lawsuit.
Net income per share is computed using the weighted average number of common
shares and common share equivalents outstanding during the year. The weighted
average number of common shares and common share equivalents outstanding was
7,574,000 in 1996, 6,759,000 in 1995, and 2,665,000 in 1994.
The Company follows Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," in accounting for its employee stock
options and other stock-based compensation. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of the grant, no compensation expense is
recognized. As permitted, the Company has elected to adopt the disclosure
provisions only of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation."
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
28
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Certain amounts from the prior year have been reclassified to conform with
the presentation used in the current year.
3. CLASS ACTION LAWSUIT:
On March 16, 1994, a shareholder of the Company (the Plaintiff) filed a
purported class action lawsuit in the United States District Court for the
Western District of Michigan, against certain current and former Officers and
Directors of the Company (the Defendants). The lawsuit claimed that the
Defendants caused the Company to issue statements containing material
misstatements and omissions. In addition, a proof of claim which mirrored the
lawsuit, was filed in the Bankruptcy Court on behalf of the Plaintiff class.
In January 1995, the Company, Defendants and the Plaintiff entered into a
settlement of the lawsuit. The settlement provided for the Company's insurance
company to pay $550,000 and the Company to issue $700,000 worth of new common
stock on the POR effective date. The $700,000 worth of new common stock, 168,000
shares, was issued effective March 31, 1995 as part of the Company's emergence
from the Chapter 11 proceedings. The Company's expense was included in the
Credit for Facilities Closing and Other.
4. RESERVE FOR FACILITIES CLOSINGS:
On November 11, 1993, the Board of Directors approved a plan to realign the
Company's operations in an effort to improve the long-term profit potential of
the Company. This realignment enabled the Company to concentrate its efforts on
those stores that management believed provided potential for ongoing
profitability. Pursuant to this plan, the Company closed 41, 5 and 2 stores in
fiscal years 1993, 1994 and 1995, respectively. In October 1994, the Company
opened one of the stores closed in the prior year.
The provision of $29.3 million recorded for the anticipated costs of the
realignment consisted primarily of the expected costs of future lease
obligations and rejection claims, losses on disposal of property and equipment,
expenses and losses associated with the disposal of merchandise inventory in the
closed stores and other expenses and losses directly related to the closure of
the stores.
During 1994, the Company was unsuccessful in renegotiating its office and
distribution center lease with its former landlord (See Note 8) and elected to
reject the lease in its bankruptcy proceedings. As a result, the Company
reallocated $7.8 million of the remaining reserve to cover for the anticipated
costs of rejecting the lease and relocating the corporate office and
distribution center.
During 1995, the Company settled the remaining disputes with its landlords
for less than the amounts accrued and reversed the reserve by $0.9 million,
which is recorded as a credit for facilities closing and other. During 1994, the
Company negotiated favorable lease terms with its landlords on many of the
remaining underperforming stores. As a result, the reserve was reduced by $1.8
million, which was recorded as a credit for facilities closing and other. As of
February 1, 1997, the remaining reserve balance represents costs expected to be
incurred in 1997 to complete the relocation of the Corporate office and
distribution center.
In addition, during 1994, the Company entered into settlement agreements
with certain of its creditors whereby early cash payments for approximately 25%
of their legally allowed claim were made as full settlement of the Company's
obligation, which resulted in a $1.6 million reduction in the reserve for
29
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. RESERVE FOR FACILITIES CLOSINGS: (CONTINUED)
facilities closing and other. This amount, which is treated as forgiveness of
debt, has been included as an extraordinary gain in the Company's Statements of
Income.
The following table sets forth the facilities closing provision established
in 1993 and the related subsequent activity:
FACILITIES CLOSING PROVISION
<TABLE>
<CAPTION>
NON-CASH
COSTS AND RESERVE AT
PROVISION CASH COSTS ASSET JAN. 28,
RECORDED INCURRED WRITE-OFFS OTHER 1995
----------- ----------- ----------- --------- ------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Lease rejection costs................................ $ 14,590 $ (483) $ -- $ (3,728) $ 10,379
Asset write-offs..................................... 10,420 -- (9,468) 1,088 2,040
Inventory disposition costs.......................... 3,514 (1,980) (19) (1,515) --
Other................................................ 730 (699) 1,766 813 2,610
$ 29,254 $ (3,162) $ (7,721) $ (3,342) $ 15,029
</TABLE>
<TABLE>
<CAPTION>
NON-CASH
RESERVE AT COSTS AND RESERVE AT
JAN. 28, CASH COSTS ASSET FEB. 3,
1995 INCURRED WRITE-OFFS OTHER 1996
------------ ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Lease rejection costs................................ $ 10,379 $ (4,109) $ (5,914) $ (356) $ --
Asset write-offs..................................... 2,040 -- (235) (925) 880
Inventory disposition costs.......................... -- -- -- --
Other................................................ 2,610 (571) (839) 337 1,537
$ 15,029 $ (4,680) $ (6,988) $ (944) $ 2,417
</TABLE>
<TABLE>
<CAPTION>
NON-CASH
RESERVE AT COSTS AND RESERVE AT
FEB. 3, CASH COSTS ASSET FEB. 1,
1996 INCURRED WRITE-OFFS OTHER 1997
----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Lease rejection costs................................. $ -- $ -- $ -- $ -- $ --
Asset write-offs...................................... 880 -- (841) (39) --
Inventory disposition costs........................... -- -- -- -- --
Other................................................. 1,537 (9) -- 39 1,567
$ 2,417 $ (9) $ (841) $ -- $ 1,567
</TABLE>
Non-cash costs represent the write-off of assets at the Company's current
corporate office and distribution center that will be abandoned as part of the
relocations.
5. ASSET IMPAIRMENT CHARGE:
During the fourth quarter of 1995, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The Statement
requires companies to record impairments of long-lived assets,
30
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. ASSET IMPAIRMENT CHARGE: (CONTINUED)
certain identifiable intangibles and goodwill when there is evidence that events
or changes in circumstances have made recovery of asset carrying values
unlikely. Asset impairment is determined to exist if estimated future cash
flows, undiscounted and without interest charges, are less than the carrying
amount. The Company identified assets in certain retail stores that were
impaired because of a history of and projected future cash flow losses in these
specific stores. Upon adoption, an impairment loss of $687,000 was recorded for
these retail store assets and is recorded in selling, general and administrative
expense in the Statement of Income.
6. LONG TERM DEBT:
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
(THOUSANDS)
<S> <C> <C>
Revolving Credit Agreement due March 31, 2000, bearing interest at
variable rates................................................... $ -- $ --
Notes issued pursuant to an Indenture Agreement due in sixteen
quarterly installments of $775,000 beginning July 1, 1997,
bearing interest at 12.75%....................................... 11,940 12,395
$ 11,940 $ 12,395
</TABLE>
On March 10, 1995, the Company entered into a three-year borrowing agreement
with Fleet Bank N.A. (formerly NatWest Bank N.A.) and LaSalle National Bank
expiring March 31, 1998 (the "Fleet Facility"). The Fleet Facility provides the
Company with revolving credit loans and letters of credit up to $40 million,
subject to a borrowing base formula and lender reserves (as defined in the
agreement). Undrawn and unreimbursed letters of credit under the facility may
not exceed $4 million in face amount. During 1996, the maximum amount
outstanding on the Revolving Credit Agreement was $4.0 million, while the
average amount outstanding during the year was $0.4 million.
Loans under the Fleet Facility bear interest at Fleet's prime rate plus
1 1/4%, or, at the Company's option, the reserve adjusted LIBOR rate plus
2 1/2%. The interest is payable in arrears on the last business day of each
month for prime rate loans and on the last day of the applicable one, two, three
or six-month interest period or at the end of three months, whichever is sooner,
for the reserve adjusted LIBOR rate loans. As of February 1, 1997, the Fleet
prime rate is 8.25%.
As part of the Fleet Facility, the Company entered into a two year Interest
Rate Cap Agreement which provides for an 8.50% interest cap on 3 month LIBOR
borrowings of up to $10 million until March 31, 1997.
The Fleet Facility carries commitment fees of .5% of the difference between
$40 million and the average amount outstanding under the facility (including the
face amount of letters of credit) and 1.75% of the face amount of outstanding
letters of credit. This facility is secured by substantially all of the
Company's assets.
The Fleet Facility contains, among other things, covenants with respect to
(i) additional indebtedness, (ii) investments, (iii) capital expenditures, (iv)
minimum net worth, (v) fixed charge coverage ratios, (vi) earnings before
interest, taxes, depreciation and amortization, (vii) interest coverage ratios,
(viii) inventory turnover ratios and (ix) prohibitions on paying cash dividends.
31
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS
6. LONG TERM DEBT, CONTINUED:
On April 25, 1996, the Company amended the Fleet Facility. The commitment,
term, borrowing rate and total credit available under the agreement remain the
same but the Amendment allows the Company to reduce the committed amount or
terminate the agreement without any reduction fees after March 26, 1996. The
other changes include adjustments to the fixed charge ratio and earnings before
interest, taxes, depreciation and amortization covenants.
As described in Note 1, the Company issued to some unsecured creditors
approximately $12.4 million in original principal amount of six-year notes
bearing interest payable quarterly at 12.75%. The Notes were issued pursuant to
an Indenture, dated as of March 1, 1995, between the Company and Fleet Bank N.A.
(formerly Shawmut Bank Connecticut, National Association). The Notes are payable
in 16 quarterly installments of approximately $775,000 beginning July 1, 1997
and ending April 1, 2001. The Notes are also subject to prepayment within 50
days after the end of each fiscal year of the Company in an amount equal to the
Company's "Excess Cash Flow". Excess Cash Flow is 50% of the Company's "Free
Cash Flow" in excess of $1.4 million in 1995, $3.5 million in 1996, $3.4 million
in 1997, $2.4 million in 1998, and $4.3 million in 1999. Free Cash Flow is the
Company's net income before extraordinary items, plus depreciation expense,
minus specified capital expenditures and principal payments made with respect to
indebtedness for borrowed money (other than the quarterly payments with respect
to the Notes and payments under the Fleet Facility). The amounts due within one
year have been classified as long term debt as the Company has both the intent
and ability, through the Fleet Facility, to refinance these amounts on a long
term basis. The Company must also prepay the Notes with the proceeds of
specified asset and securities sales. If Excess Cash Flows are not at least
$2.25 million by March 31, 1997, the Company must pay the shortfall. In fiscal
1996, the Company made an Excess Cash Flow Payment for fiscal 1995 of $455,000.
During fiscal 1996, the Company did not have Excess Cash Flow and, accordingly,
is required to make a payment of $1.8 million for the shortfall during fiscal
1997.
The Notes are secured by a $5,000,000 life insurance policy on the life of a
certain director of the Company until the Notes are transferred to a third
party. The Notes secured by the policy must be prepaid with any proceeds from
the life insurance policy. The indenture contains, among other things, covenants
with respect to (i) additional indebtedness, (ii) capital expenditures, (iii)
minimum net worth, (iv) earnings before interest, taxes, depreciation and
amortization, (v) interest coverage ratios, and (vi) prohibitions on paying
dividends.
On March 18, 1997, the Company entered into Amendment No. 2 to the Fleet
Facility (the Second Amendment). Under the Second Amendment, the total
commitment, rate and total credit available under the agreement remains the
same. The Second Amendment also extends the agreement by two years, provides for
a 1% reduction fee if the agreement is terminated within the first 12 months and
a 0.5% reduction fee if the agreement is terminated within months thirteen to
eighteen, adjusts the maximum available amounts in undrawn and unreimbursed
letters of credit to $15 million, reduces the commitment fee on letters of
credit to 1.75%, eliminates the inventory turn and minimum net worth covenants
and adjusts the remaining financial covenants.
7. INCOME TAXES:
For each of the years presented, the effective income tax rate varies from
the statutory rate of 35% due to the effect of the graduated tax rate and the
reversal of valuation allowance during the year.
32
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, requires that deferred income taxes be recorded for "temporary
differences" between the basis of assets and liabilities for financial reporting
purposes and such amounts as determined by tax regulations. This method requires
that deferred taxes be recorded based upon currently enacted tax rates.
Based on the Company's current financial status, realization of the
Company's deferred tax assets does not meet the "more likely than not" criteria
under SFAS No. 109 and accordingly a valuation allowance for the entire net
deferred tax asset amount has been recorded.
The components of the net deferred tax asset (liability) and the related
valuation allowance are as follows:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
--------------- ---------------
(THOUSANDS)
<S> <C> <C>
NOL carryforward........................................... $ 5,870 $ 7,600
Reserve for facility closings.............................. 530 820
Tax credit carryforward.................................... 3,520 3,520
Other accrued expenses..................................... 1,750 1,760
Property and Equipment..................................... 740 --
Other...................................................... 280 260
--------------- ---------------
Deferred tax assets...................................... 12,690 13,960
--------------- ---------------
Depreciation............................................... -- (1,280)
Inventory.................................................. (1,470) (1,300)
Prepaid expenses........................................... (630) (400)
Property taxes............................................. (530) (530)
--------------- ---------------
Deferred tax liabilities................................. (2,630) (3,510)
--------------- ---------------
Subtotal................................................... 10,060 10,450
Valuation allowance........................................ (10,060) (10,450)
--------------- ---------------
Net deferred tax assets (liabilities)...................... $ -- $ --
--------------- ---------------
--------------- ---------------
</TABLE>
At February 1, 1997, the Company had net operating loss carryforwards
available to offset future income for federal income tax reporting purposes of
approximately $17.3 million, expiring in 2007-2010.
The Company's POR resulted in an ownership change under Section 382 of the
Internal Revenue Code. Section 382 contains rules that limit the ability of a
company to offset pre-ownership change net operating losses and credit
carryovers against post-ownership change taxable income. Section 382(1)(5)
allows certain companies to avoid the Section 382 limitation. However, under
Section 382(1)(5) the net operating loss carryover as of the reorganization date
is reduced by the interest expense deductible in the year of reorganization and
three prior years on debt that is converted to stock and by 50% of the excess of
the amount of debt converted to stock under the plan of reorganization over the
fair market value of the stock.
The Company elected Section 382(1)(5) treatment effective as of March 31,
1995. This election was made on the 1995 corporate tax return and reduced the
net operating loss carryforward, by approximately $1.1 million.
33
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
Following the Company's election of Section 382(1)(5), any other Section 382
ownership change within a two year period following March 31, 1995, will result
in the Company's inability to use its pre-March 31, 1995, net operating loss and
credit carryforward to offset taxable income generated after March 31, 1995.
8. LEASES:
The Company leases store locations, the corporate distribution center and
office building and certain equipment from third parties. The remaining terms of
these leases range from one to twelve years. Generally, the store leases contain
provisions for additional rentals based on a percentage of sales. Total rent
expense under these leases was approximately $15.9, $15.4 and $16.7 million in
1996, 1995 and 1994, respectively, which includes percentage of sales rentals of
$0.1, $0.1 and $0.4 million, respectively. Accrued rent expense of $4.1 million
at February 1, 1997 and February 3, 1996 is included in accrued expenses.
Pursuant to the POR, the Company rejected the lease for the distribution
center and office building as of March 31, 1995. As settlement for the
rejection, the Company paid the owner of the distribution center and office
building, a director of the Company, $1.75 million in cash and $1.75 million in
shares of new common stock. Also on the effective date, the owner of the
distribution center and office building deeded in lieu of foreclosure, ownership
of the property to the mortgage holder. The Company then entered into a 10 month
lease that was subsequently extended three times for 6 months each with the
mortgage holder, the last of which will expire July 31, 1997, with base annual
rent of $1,030,000 (including real estate taxes).
The Company has entered into new lease agreements for an office/distribution
center in Grand Rapids, Michigan and a new merchandising office in Stamford,
Connecticut. Total annual rental expense on these facilities is approximately
$775,000 (excluding real estate taxes).
Estimated future minimum rental payments are as follows:
<TABLE>
<CAPTION>
YEAR
- ----------------------------------------------------------------------- LEASES
-----------
(THOUSANDS)
<S> <C>
1997................................................................... $ 16,349
1998................................................................... 16,475
1999................................................................... 15,082
2000................................................................... 13,144
2001................................................................... 9,077
Thereafter............................................................. 11,459
Total minimum lease payments........................................... $ 81,586
</TABLE>
9. STOCK OPTION PLANS:
The Company has two stock option plans which provide for the granting of
stock options, restricted stock and stock appreciation rights to officers and
key management employees.
The Gantos, Inc. 1996 Stock Option Plan (the "1996 Plan") was approved by
shareholders on June 20, 1996. The 1996 Plan reserved 1,000,000 common shares
for issuance upon exercise of options or stock appreciation rights or for
restricted stock awards to key employees. The 1996 Plan provides for the
issuance of both incentive options and non-qualified options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended. The incentive
options must have an exercise price generally
34
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS: (CONTINUED)
not less than the fair market value of the shares on the date on which such
option is granted. The non-qualified options must have an exercise price not
less than the par value of the shares on the date on which such option is
granted. Stock options and stock appreciation rights may be exercised only
within ten years of the date of grant.
During 1996, the Company issued options to purchase 440,000 shares under the
1996 Plan at exercise prices ranging from $3.25 to $4.6875. These options become
exercisable over a three to five year period. The number of shares available for
grant under the 1996 Plan as of February 1, 1997 is 560,000.
The Gantos, Inc. Stock Option Plan (the "1986 Plan") expired March 19, 1996.
During 1996, prior to the expiration date, the Company issued options to
purchase 165,500 shares under the 1986 Plan at an exercise price of $3.375.
These options vest over a five year period. During 1995, as part of the POR, the
Company issued 200,000 restricted shares to key management employees which vest
in one-third annual installments beginning March 31, 1996 and are subject to
certain restrictions of forfeiture. The compensation expense related to the
awarding of restricted stock is recognized ratably over the restriction period.
The total number of options that remain outstanding under the 1986 Plan
(including unvested restricted stock) are 710,665 and will be exercisable in
future years in accordance with terms of such options.
In addition, on June 18, 1992, the Company's shareholders approved the
Gantos, Inc. Director Stock Option Plan (the "Director Plan") which provides for
automatic granting of up to an aggregate of 100,000 shares of non-qualified
options to certain directors of the Company who are not officers or employees of
the Company. Options granted under the Director Plan become 100% exercisable on
the grant date and expire ten years after the grant date, or, if earlier, three
months after resignation, with certain exceptions.
During 1996, options to purchase 6,000 shares were granted under the
Director Plan at an exercise price equal to the market value of Company's common
shares at the grant date. The number of shares available for grant under the
Director Plan at February 1, 1997 was 52,000.
35
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS: (CONTINUED)
A summary of activity for the three years ended February 1, 1997 is as
follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF TOTAL RANGE OF
NON-QUALIFIED RESTRICTED NUMBER OF PRICES PER
SHARES SHARES SHARES SHARE
--------------- ----------- ----------- -------------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Outstanding January 29, 1994............ 197 -- 197 $ 8.25-53.50
Granted................................. 2 -- 2 $ 8.00
Exercised............................... -- -- -- --
Canceled................................ (49) -- (49) $ 8.00-40.00
Outstanding January 28, 1995............ 150 -- 150 $ 8.00-53.50
Granted................................. 634 200 834 $ 3.25-4.16
Exercised............................... -- -- -- --
Canceled................................ (225) (23) (248) $ 4.16-53.50
Outstanding February 3, 1996............ 559 177 736 $ 3.25-4.16
Granted................................. 612 -- 612 $ 3.00-4.69
Exercised............................... (2) (59) (61) $ 4.16
Canceled................................ (113) (34) (147) $ 4.16
Outstanding February 1, 1997............ 1,056 84 1,140 $ 3.25-4.69
Exercisable............................. 190 -- 190 $ 4.16
</TABLE>
The Company has adopted the disclosure provisions of SFAS No. 123
"Accounting for Stock Based Compensation". The standard requires pro forma
disclosure of net earnings and earnings per share as if the Company has
accounted for its employee stock options using a fair value method. The fair
value of these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Risk free interest rate............................................. 7% 7%
Volatility.......................................................... 83.9% 83.9%
Average expected term............................................... 5 Years 5 Years
</TABLE>
36
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS
9. STOCK OPTION PLANS, CONTINUED:
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma results, including the impact of employee stock options after January
28, 1995, are estimated to be:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Compensation expense recognized for stock options.......................... $ 660 $ 546
Net income................................................................. $ 1,677 $ 3,173
Net income per share....................................................... $ 0.22 $ 0.47
</TABLE>
Employee stock options outstanding and exercisable under these plans as of
February 1, 1997, were:
<TABLE>
<CAPTION>
OUTSTANDING
----------------------------------------- EXERCISABLE
WEIGHTED ------------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
RANGE OF PRICES SHARES PRICE LIFE SHARES PRICE
- ---------------- ----------- ----------- --------------- ----------- -----------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
$3.00-3.99...... 234 $ 3.41 9.3 8 $ 3.06
$4.00-4.49...... 472 $ 4.16 8.2 182 $ 4.16
$4.50-4.69...... 350 $ 4.69 9.4 -- $ --
1,056 190
</TABLE>
10. EMPLOYEE STOCK PURCHASE PLAN
On June 20, 1996, the shareholders approved the Gantos, Inc. Employee Stock
Purchase Plan ("ESPP"). The ESPP, as amended August 15, 1996, grants eligible
employees the right to purchase common shares on a quarterly basis at the lower
of 85% of the market price at the beginning or the end of each three month
purchase period. These shares may be authorized but unissued shares, reacquired
shares or shares bought on the open market. The discount is treated as
equivalent to the cost of issuing stock for financial reporting purposes. During
1996, 17,711 shares were issued under the ESPP for $45,592. As of February 1,
1997, there are 182,289 shares reserved for future issuance under the ESPP.
37
<PAGE>
GANTOS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
FISCAL QUARTER FIRST SECOND THIRD FOURTH
- -------------------------------------------------- --------- --------- --------- ---------
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1996
Net Sales....................................... $ 50,365 $ 41,809 $ 41,716 $ 50,476
Gross Income.................................... 11,753 6,751 8,214 10,626
Net Income (Loss)............................... 2,548 (1,592) (275) 1,656
Net Income (Loss) per share..................... 0.34 (0.21) (0.04) 0.22
1995
Net Sales....................................... $ 49,086 $ 45,579 $ 42,068 $ 56,057
Gross Income.................................... 10,649 8,644 8,620 12,965
Net Income (Loss)............................... 745 (295) 127 3,142
Net Income (Loss) per share..................... .17 (.04) .02 .40
</TABLE>
The fourth quarter of 1995 includes 14 weeks of operations, compared to 13
weeks in 1996. In addition, net income and net income per share for the fourth
quarter of 1995 include (i) a credit to the provision for facilities closing and
other of $944, (ii) a charge to selling, general and administrative expenses of
$687 as a result of the adoption of SFAS No. 121 (see note 5 of "Notes to
Financial Statements"), and (iii) a credit to selling, general and
administrative expenses of $592 as a result of settling the remaining
liabilities subject to compromise for less than had been accrued at January 28,
1995.
GANTOS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED
BEGINNING OF COSTS AND TO OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- -------------------------------------------------- ------------- ------------- --------- ----------- -------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1996............................................ $ 572 $ 1,226 $ -- $ 1,162 $ 636
----------- -----
----------- -----
1995............................................ $ 600 $ 884 $ -- $ 912 $ 572
----------- -----
----------- -----
1994............................................ $ 993 $ 534 $ -- $ 927 $ 600
----------- -----
----------- -----
</TABLE>
38
<PAGE>
EXHIBIT INDEX
DOCUMENT NUMBER AND DESCRIPTION
Each Management contract or compensatory plan or arrangement filed as an
exhibit to this Report is identified in the following list with an asterisk
before the exhibit number.
<TABLE>
<C> <S>
2.1 Second Amended Joint Plan of Reorganization of Gantos, Inc. and Gantos Stores Inc.,
incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form
8-K, dated March 7, 1995 and filed with the Securities and Exchange Commission on
March 22, 1995. A list of the omitted exhibits is contained on page vii of the
Plan. Gantos, Inc. will supplementally furnish a copy of any omitted exhibit to the
Securities and Exchange Commission upon request.
2.2 Modifications to the Debtors' Second Amended Joint Plan of Reorganization,
incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form
8-K, dated March 7, 1995 and filed with the Securities and Exchange Commission on
March 22, 1995.
2.3 Agreement of Merger, dated as of March 15, 1995, between Gantos Stores, Inc. and
Gantos, Inc., incorporated by reference to Exhibit 2.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 28, 1995.
3(i) Restated Articles of Incorporation, incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K, dated March 7, 1995 and filed with the
Securities and Exchange Commission on March 22, 1995. p
3(ii) Bylaws, as amended March 16, 1993, incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended January 30, 1993.
4.1 Long-term debt documents, see Exhibits 10.16 through 10.19 of this Form 10-K.
4.2 Form of Indenture between Gantos, Inc. and Shawmut Bank Connecticut, National
Association, as Trustee, including forms of notes attached as exhibits, a
reasonable itemized table of contents and a cross-reference sheet showing the
location in the Indenture of the provision inserted pursuant to Section 310 through
318(a) inclusive of the Trust Indenture Act of 1939, incorporated by reference to
Exhibit T3C to the Company's Application for Qualification of Indenture under the
Trust Indenture Act of 1939 on Form T-3.
10.1 Lease Agreement, dated effective April 1, 1995, between Gantos, Inc. and VRB Corp.,
concerning office-distribution center, incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter ended April 29, 1995.
10.2 Amendment to Lease Agreement between Gantos, Inc. and VRB Corp., dated as of April
28, 1995, incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report onForm 10-Q for the quarter ended April 29, 1995.
10.3 Notice of Option to Renew Lease Agreement between Gantos, Inc. and VRB Corp., dated
October 30, 1995, incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 28, 1995.
10.4 Amendment to Lease Agreement between Gantos, Inc. and VRB Corp., dated as of
September 13, 1996, incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 3, 1996.
10.5 Lease Agreement between Gantos, Inc. and First Industrial Financing Partnership,
L.P., dated as of January 28, 1997.
10.6 Lease Agreement between Gantos, Inc. and Soundview Plaza Associates, dated as of
January 23, 1997.
10.7 Lease Modification Agreement between Gantos, Inc. and Soundview Plaza Associates,
dated as of February 10, 1997.
</TABLE>
39
<PAGE>
<TABLE>
<C> <S>
10.8 Form of Gantos, Inc. credit card application and agreement.
10.9 License Agreement, dated as of October 15, 1982, as amended by amendments one
through four, between Gantos, Inc. and Sherman and Sons, Inc., incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year
ended January 30, 1988.
10.10 Fifth Amendment, dated as of May 31, 1989, to the License Agreement dated as of
October 15, 1982, as amended, between Gantos, Inc. and Sherman and Sons, Inc.,
incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form
10-K for the year ended February 3, 1990.
10.11 Sixth Amendment, dated as of June 30, 1992, to the License Agreement dated as of
October 15, 1992, as amended, between Gantos Stores, Inc. and Sherman and Sons,
Inc., incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended August 1, 1992.
*10.12 Gantos, Inc. Amended and Restated Stock Option Plan, adopted March 20, 1986, as
amended and restated March 31, 1995,incorporated by reference to Exhibit 1 to L.
Douglas Gantos' Schedule 13D, dated March 31, 1995 and filed with the Securities
and Exchange Commission on April 10, 1995.
*10.13 Gantos, Inc. 1996 Stock Option Plan, adopted March 19, 1996, incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended February 3, 1996.
*10.14 Gantos, Inc. Amended and Restated Director Stock Option Plan, adopted March 17,
1992, as amended and restated March 31, 1995, incorporated by reference to Exhibit
10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended January
28, 1995.
*10.15 1996 Gantos, Inc. Executive Bonus Plan, adopted March 19, 1996, incorporated by
reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
fiscal year ended February 3, 1996.
*10.16 Gantos, Inc. Master Severance Plan and Key Employee Retention Bonus Program adopted
January 11, 1994 as amended March 15, 1994, incorporated by reference to Exhibit
10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended January
29, 1994.
10.17 Revolving Credit Agreement, dated as of March 10, 1995, among Gantos, Inc., NatWest
Bank, N.A., LaSalle National Bank and NatWest Bank, N.A., as agent, incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995.
10.18 Forms of note, Security Agreement, Security Agreement and Mortgage--Patents and
Trademarks, and Assignment of Life Insurance Policy as Collateral Security, all in
connection with the Revolving Credit Agreement, dated as of March 10, 1995, among
Gantos, Inc., NatWest Bank, N.A., LaSalle National Bank and NatWest Bank, N.A., as
agent, incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended April 29, 1995.
10.19 Amendment No. 1, dated April 25, 1996, to the Revolving Credit Agreement dated March
10, 1995, among Gantos, Inc., NatWest Bank, N.A. (now known as Fleet Bank, N.A.),
LaSalle National Bank and NatWest Bank, N.A., as agent, incorporated by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended May 4, 1996.
10.20 Amendment No. 2 to Credit Agreement, dated March 18, 1997, among Gantos, Inc., Fleet
Bank, N.A. (formerly known as NatWest Bank, N.A.), LaSalle National Bank and Fleet
Bank, N.A. (formerly known as NatWest Bank, N.A.), as agent.
</TABLE>
40
<PAGE>
<TABLE>
<C> <S>
*10.21 Letter of Employment, dated June 20, 1996, between Gantos, Inc. and Arlene H. Stern,
incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended August 3, 1996.
*10.22 Letter of Employment, dated September 25, 1996, between Gantos, Inc. and Mr. Joseph
Giudice, incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 2, 1996.
*10.23 Letter of Employment, dated November 1, 1996, between Gantos, Inc. and Mr. Dennis
Horstman, incorporated by reference to Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 2, 1996.
*10.24 Letter of Employment, dated September 3, 1996, between Gantos, Inc. and Ms. Vicki
Boudreaux, incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 2, 1996.
*10.25 Letter of Employment, dated September 25, 1996, between Gantos, Inc. and Ms. Hope
Grey, incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended November 2, 1996.
*10.26 Letter of Employment, dated April 23, 1997, between Gantos, Inc. and Mr. Neal
Gottfried.
*10.27 Letter of Employment, dated March 27, 1995, between Gantos,Inc. and Mr. L. Douglas
Gantos, Chairperson of the Board, incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the fiscal year ended January 28, 1995.
*10.28 Amendment to Letter of Employment, dated as of March 19, 1996, between Gantos, Inc.
and L. Douglas Gantos, incorporated by reference to Exhibit 10.27 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 3, 1996.
*10.29 Severance Agreement, dated as of March 18, 1997, between Gantos, Inc. and Mr.
Kenneth Green.
23.1 Consent of independent accountants.
27.1 Financial Data Schedule
</TABLE>
41
<PAGE>
Page 1
FIRST INDUSTRIAL FINANCING PARTNERSHIP, L.P.
STANDARD FORM
INDUSTRIAL BUILDING LEASE
(MULTI TENANT)
SECTION 1: BASIC TERMS
This Section 1 contains the Basic Terms of this Lease between Landlord and
Tenant, named below. Other Sections of the Lease referred to in this Section 1
explain and define the Basic Terms and are to be read in conjunction with the
Basic Terms.
1.1 Date of Lease: January ____, 1997
1.2 Landlord: First Industrial Financing Partnership, L.P., a Delaware
limited partnership
1.3 Tenant: Gantos, Inc., a Michigan corporation
1.4 Premises and Property: See Exhibit "A"
1.5 Lease Term: Five (5) years Four (4) months ("Term"), commencing
April 1, 1997 ("Commencement Date") and ending July 31, 2002
("Expiration Date").
1.6 Permitted Uses: (See Section 4) Storage and distribution of women's
apparel and accessories and related office activities
1.7 Tenant's Guarantor: (if none, so state) None.
1.8 Brokers: (See Section 23; if none, so state)
(A) Tenant's Broker: None.
(B) Landlord's Broker: Draft & Gantos Properties, LLC
1.9 Security Deposit: (See Section 4) None.
1.10 Vehicle Parking Allocated Tenant: Tenant shall have access to at
least one hundred sixty (160) parking spaces at the Property; of
those spaces, Tenant will have exclusive access only to those
parking spaces in front and on the perimeter of the Premises as
specified on attachment #1 to Exhibit A, and the balance will be
nonexclusive as to Tenant. Landlord is not responsible for policing
Tenant's reserved parking spaces nor will Landlord have liability
for non-Tenant use of Tenant's reserved parking area. Any signage
or enforcement policy proposed by Tenant as to its reserved parking
area is subject to Landlord's prior written consent, which will not
be unreasonably withheld.
1.11 Rent Payable by Tenant: See Exhibit "B" and Section III
1.12 Tenant's Proportionate Share: Fifty-Five percent (55%)
1.13 Riders to Lease: The following riders are attached to and made a
part of this Lease. (If none, so state) See attached Rider No. 1.
SECTION 2: LEASE OF PREMISES; RENT
2.1 LEASE OF PREMISES FOR LEASE TERM. (a) Landlord hereby leases the
Premises to Tenant, and Tenant hereby rents the Premises from Landlord, for the
Term and subject to the conditions of this Lease. Provided that no unwaived
default of Tenant has occurred under this Lease, Tenant shall have two (2)
consecutive options to renew the term of this Lease for a period of five (5)
years each. In order to exercise any such five (5) year renewal option, Tenant
must give Landlord written notice of such exercise at lease six (6) months and
not more than nine (9) months prior to the otherwise effective expiration date
of the Lease term. All of the provisions of this Lease shall apply and remain
effective during any renewal term, except that Base Rent shall be in the amounts
set forth in attached Exhibit B.
(b) Notwithstanding any other provision of this Lease to the
contrary, Tenant shall be permitted to take possession of only 50,000 square
feet of the Premises, as designated on attachment #2 to Exhibit A (the "Initial
Occupancy Area"), as of the Commencement Date; Tenant shall be permitted to take
possession of the balance of
<PAGE>
Page 2
the Premises on May 1, 1997.
2.2 TYPES OF RENTAL PAYMENTS. Tenant shall pay rents of (a) net base
rent payable in monthly installments as set forth in EXHIBIT "B" attached
hereto, in advance, on the first day of each and every calendar month during the
term of this Lease (the "Base Rent"); and (b) the Additional Rent (as
hereinafter defined) in accordance with Section 3 below and other applicable
provisions of this Lease; and (c) in the event any monthly installment or other
required payment of Base Rent or Additional Rent, or both, is not paid within
ten (10) days of the date when due, a late charge in an amount equal to five
percent (5%) of the then-delinquent installment or payment of Base Rent and/or
Additional Rent (the "Late Charge"; the Late Charge, Base Rent and Additional
Rent shall collectively be referred to as "Rent"), to Landlord, c/o First
Industrial Management Corporation, P.O. Box 75460, Chicago, Illinois 60675-5460
(or such other entity designated as Landlord's management agent, if any, and if
Landlord so appoints such a management agent, the "Agent"), or pursuant to such
other directions as Landlord shall designate in this Lease or otherwise.
2.3 COVENANTS CONCERNING RENTAL PAYMENTS. Tenant shall pay the Rent
promptly when due, without notice or demand, and without any abatement,
deduction or setoff, except as may otherwise be expressly and specifically
provided in this Lease. No payment by Tenant, or receipt or acceptance by Agent
or Landlord, of a lesser amount than the correct Rent shall be deemed to be
other than a payment on account, nor shall any endorsement or statement on any
check or letter accompanying any payment be deemed an accord or satisfaction,
and Agent or Landlord may accept such payment without prejudice to its right to
recover the balance due or to pursue any other remedy available to Landlord. If
the Commencement Date occurs on a day other than the first day of a calendar
month, the Rent due for the partial calendar months occurring at the
commencement and the expiration of the Term shall be prorated on a per diem
basis.
SECTION 3: ADDITIONAL RENT
3.1 DEFINITIONAL TERMS RELATING TO ADDITIONAL RENT. For purposes of
this Section and other relevant provisions of the Lease:
(a) OPERATING EXPENSES. The term "Operating Expenses" shall mean all
costs and expenses paid or incurred with respect to the repair, replacement,
restoration, maintenance and operation of the Property, including, without
limitation, the following: (i) all costs, wages and benefits of employees or
other agents of Landlord or Agent engaged in the operation, maintenance or
rendition of other services to or for the Property; (ii) to the extent not
separately metered, billed, or furnished, all charges for utilities and services
furnished to the Property (including, without limitation, the Common Areas [as
hereinafter defined]), together with any taxes on such utilities; (iii) all
premiums for casualty, workers' compensation, dram shop, liability, boiler,
flood and all other types of insurance provided by Landlord and relating to the
Property; (iv) the cost of all supplies, tools, materials and equipment utilized
in the ownership and/or operation of the Property, and sales and other taxes
thereon; (v) amounts charged by contractors for services, materials and supplies
furnished in connection with the operation, replacement, repair and/or
maintenance of any part of the Property, including, without limitation, the
Common Areas; (vi) management fees to Agent or other persons or management
entities actually involved in the management and/or operation of the Property
(which persons or management entities may be affiliates of Landlord); (vii)
legal, accounting and other professional fees incurred in connection with the
operation, management and/or maintenance of the Property; (viii) Taxes, as
hereinafter defined; and (ix) all of the charges properly allocable to the
operation, maintenance or repair, replacement or restoration of the Property,
all in accordance with generally accepted accounting principles. The costs of
the following items shall be excluded from Tenant's share of the cost of
Operating Expenses:
1. Repairs or other work occasioned by (i) fire, windstorm or other
casualty of the type which Landlord has insured or is required under
this Lease to insure (excluding deductibles), or (ii) the exercise of
the right of eminent domain;
2. Leasing commissions, attorneys' fees, costs, disbursements and other
expenses incurred in connection with negotiations or disputes with
tenants, other occupants or, prospective tenants or other occupants,
or legal fees incurred in connection with this Lease;
3. Expenses incurred in tenant build-out, renovating or otherwise
improving or decorating, painting or redecorating space for tenants or
other occupants of vacant space (other than Common Areas);
4. Costs incurred by Landlord for alterations which are considered
capital improvements and replacements under generally accepted
accounting principles consistently applied;
5. All other costs of a capital nature including, but not limited to,
capital improvements, capital repairs, capital equipment and capital
tools all in conformity with generally accepted accounting principles
<PAGE>
Page 3
consistently applied;
6. Costs incurred by Landlord due to violation by Landlord or any tenant
(other than Tenant) of the terms and conditions of any lease or other
rental arrangement covering space in the Property or Building;
7. Payment of principal and/or interest on debt or amortization payments
of any mortgage executed by Landlord covering the Property or Building
(or any portion thereof), rental concessions or negative cash flow
guaranties, and rental payments under any ground or underlying lease
or leases;
8. Advertising and promotional expenditures;
9. Any costs, fines or penalties incurred due to violations by Landlord
of any federal, state or local law, statute or ordinance, or any rule,
regulation, judgment or decree of any governmental rule or authority,
to the extent only that compliance therewith is the obligation of
Landlord under this Lease;
10. Any cost or expense associated with the removal or cleanup of any
hazardous or toxic waste, materials or substances from the Property or
Building caused by Landlord's or another Building tenant's acts; and
11. Amounts paid by Tenant as Additional Rent under clauses (ii) and (iii)
of the first sentence of Section 3.2 below.
(b) TAXES. The term "Taxes" as referred to in clause (ix) above
shall mean (i) all governmental taxes, assessments, fees, penalties and charges
of every kind or nature (other than Landlord's income taxes and Michigan Single
Business Tax), whether general, special, ordinary or extraordinary, due or
payable at any time or from time to time, during the Term and any extensions
thereof, in connection with the ownership, leasing, or operation of the
Property, or of the personal property and equipment located therein or used in
connection therewith; and (ii) any expenses incurred by Landlord in contesting
such taxes or assessments and/or the assessed value of the Property. For
purposes hereof, Taxes for any Operating Year shall be Taxes that are first due
for payment or paid in that Operating Year rather than Taxes that are assessed,
become a lien, or accrue during such Operating Year.
(c) OPERATING YEAR. The term "Operating Year" shall mean the
calendar year commencing January 1st of each year (including the calendar year
within which the Commencement Date occurs) during the Term.
3.2 OBLIGATION OF ADDITIONAL RENT. Tenant shall pay as additional
rent ("Additional Rent") (i) Tenant's Proportionate Share of the Operating
Expenses, (ii) one hundred percent (100%) of all costs and expenses incurred by
Landlord with respect to the repair, replacement, restoration and maintenance of
the "Improvements" (as that term is defined in Rider No. 1), including capital
improvements, capital repairs, and other costs considered to be capital in
nature (the "Improvements Maintenance Costs"), and (iii) one hundred percent
(100%) of the amount of all Taxes attributable or allocable to the
"Improvements" (the "Improvements Taxes"), all as set forth in Section 3.3. The
Additional Rent commences to accrue upon the Commencement Date; provided,
however, that for the period from April 1, 1997 through April 30, 1997, Tenant's
Proportionate Share shall be 20%, and for the period from May 1, 1997 through
the EARLIER of (a) July 31, 1997 or (b) the date a certificate of occupancy for
Tenant's newly constructed office area is issued, Tenant's Proportionate Share
shall be 50%. The Additional Rent payable hereunder for the Operating Years in
which the Term begins and ends shall be prorated to correspond to that portion
of the Operating Years occurring within the Term. For the first Operating Year
and the Operating Year in which this Lease terminates, Tenant's liability for
Additional Rent shall be subject to a pro rata adjustment based upon the number
of days of such Operating Year during which the Term is in effect. Additional
Rent and any other sums due and payable under this Lease shall be adjusted upon
receipt of the actual bills therefor and the obligations of this Section 3 shall
survive the termination or expiration of the Lease.
3.3 PAYMENT OF ADDITIONAL RENT. Landlord shall have the right to
reasonably estimate the Additional Rent for each Operating Year. Upon
Landlord's or Agent's notice to Tenant of such estimated amount, Tenant shall
pay, on the first day of each month during that Operating Year, an amount (the
"Estimated Additional Rent") equal to the estimate of the Additional Rent
divided by the number of months in the applicable Operating Year or the
fractional portion thereof remaining at the time Landlord delivers its notice of
estimated Additional Rent due from Tenant. If the aggregate amount of Estimated
Additional Rent actually paid by Tenant during any Operating Year is less than
Tenant's actual ultimate liability for Additional Rent for that particular
Operating Year, as determined pursuant to Section 3.2, Tenant shall pay the
deficiency within thirty (30) days of the delivery to Tenant of a statement
showing in reasonable detail the Operating Expenses, the Improvements
Maintenance Costs and the Improvements Taxes for such Operating Year together
with copies of applicable tax bills (the "Annual Additional Rent Statement").
Landlord shall make all reasonable effort to deliver the Annual Additional Rent
Statement to Tenant within 120 days after the end of each Operating Year during
the Term. If the aggregate amount of Estimated Additional Rent actually paid by
<PAGE>
Page 4
Tenant during a given Operating Year exceeds Tenant's actual liability for such
Operating Year, the excess shall be credited against the Estimated Additional
Rent due from Tenant during the immediately subsequent Operating Year, except
that in the event that such excess is paid by Tenant during the final Lease
Year, then upon the expiration of the Term, Landlord or Agent shall promptly pay
Tenant the then-applicable excess after determination thereof. No interest
shall be payable to Tenant on account of such payments of Estimated Additional
Rent and such payments may be commingled. Upon reasonable prior written notice
to Landlord, Tenant shall, at Tenant's sole expense, have the right to examine
Landlord's books and records pertaining to Operating Expenses, Improvements
Maintenance Costs and Improvements Taxes for the sole purpose of determining
whether Landlord has properly invoiced Tenant for Additional Rent under this
Lease.
3.4 INITIAL OPERATING EXPENSE ESTIMATE. Landlord hereby notifies
Tenant that Landlord's initial estimate of Additional Rent for the first
Operating Year is $75,900.00; therefore, during the first Operating Year,
$6,325.00 shall be due monthly as initial Estimated Additional Rent.
SECTION 4: USE OF PREMISES AND COMMON AREAS; SECURITY DEPOSIT
4.1 USE OF PREMISES. The Premises shall be used for the purpose(s)
set forth in Section 1.6 above and for no other purpose whatsoever. Tenant
shall not, at any time, use or occupy, or suffer or permit anyone to use or
occupy, the Premises, or do or permit anything to be done in the Premises, in
any manner that may (a) violate any Certificate of Occupancy for the Premises or
the Property; (b) cause, or be liable to cause, injury to the Property or any
equipment, facilities or systems therein; (c) constitute a violation of the laws
and requirements of any public authority or the requirements of insurance bodies
or the rules and regulations of the Property; (d) impair or tend to impair the
character, reputation or appearance of the Property as a first-class property;
(e) impair or tend to impair the proper and economic maintenance, operation, and
repair of the Property and/or its equipment, facilities or systems; or (f)
unreasonably annoy, inconvenience or disrupt the operations or tenancies of
other tenants or users of the Property, if any, or conflict with other tenants'
leases. Landlord represents to Tenant that, to the best of Landlord's
knowledge, the permitted uses specified in Section 1.6 do not violate the
existing Certificate of Occupancy for the Premises.
4.2 USE OF COMMON AREAS. As used herein, "Common Areas" shall mean
all areas within the Property that are available for the common use of tenants
of the Property and that are not leased or held for the exclusive use of Tenant
or other tenants, including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping and planted
areas. Tenant shall have the nonexclusive right (in common with other tenants
and all others to whom Landlord has granted or may grant such rights) to use the
Common Areas for the purposes intended, subject to such reasonable and
nondiscriminatory rules and regulations as Landlord may establish from time to
time. Tenant shall not interfere with the rights of Landlord, other tenants or
any other person entitled to use the Common Areas. Landlord, from time to
time, may change any or all of the size, location, nature and use of any of the
Common Areas although such changes may result in inconvenience to Tenant, so
long as such changes do not materially and adversely affect Tenant's use of the
Property. In addition to the foregoing, Landlord may, at any time, temporarily
close or suspend access to any Common Areas to perform any acts in the Common
Areas as, in Landlord's reasonable judgment, are desirable to improve or
maintain the Premises or Property or are required in order to satisfy Landlord's
obligations under either or both of Sections 13.2 and 18, provided such does not
permanently deny Tenant ingress to or egress from the Premises or result in
Tenant having access to less than 160 parking spaces on the Property.
4.3 SIGNAGE. Tenant shall not affix any sign of any size or
character to any portion of the Property, without prior written approval of
Landlord, which approval shall not be unreasonably withheld or delayed. Tenant
shall remove all signs of Tenant upon the expiration or earlier termination of
this Lease and immediately repair any damage to the Property caused by, or
resulting from, such removal.
4.4 SECURITY DEPOSIT. Intentionally deleted.
SECTION 5: CONDITION AND DELIVERY OF PREMISES
5.1 CONDITION OF PREMISES. Tenant agrees that Tenant is familiar
with the condition of the Premises and the Property and (except only for
completion by Landlord of the Work Items) Tenant hereby accepts the foregoing on
an "AS-IS," "WHERE-IS" basis. Tenant acknowledges that neither Landlord nor
Agent nor any representative of Landlord has made any representation as to the
condition of the foregoing or (except as may be specifically provided in this
Lease) the suitability of the foregoing for Tenant's intended use. Tenant
represents and warrants that Tenant has made its own inspection of the
foregoing, and is not relying on any representation of Landlord with respect
thereto. Neither Landlord nor Agent shall be obligated to make any repairs,
replacements or improvements (whether structural or otherwise) of any kind or
nature to the foregoing in connection with, or in
<PAGE>
Page 5
consideration of, this Lease, except (a) as set forth in Sections 13.2 and 18,
and (b) with respect to any repairs and improvements expressly and specifically
described in EXHIBIT "C" attached hereto ("Work Items"). Landlord agrees to
enforce, or cause Agent to enforce, upon Tenant's request, all manufacturer's or
contractor's warranties, if any, given in connection with the Work Items.
Tenant shall have thirty (30) days after completion of the Work Items to object
in writing to Landlord's completion of same; if objection is not timely made,
Tenant shall be deemed to have accepted the Work Items on an "as-is", "where-is"
basis.
5.2 DELAY IN COMMENCEMENT. If possession of the Premises as
specified in Section 2.1(b) is not delivered to Tenant on a timely basis, Tenant
shall (as its sole remedy therefor) have the right to terminate this Lease by
giving written notice thereof to Landlord within fifteen (15) days after
possession was due. If not so terminated, the Commencement Date shall be
delayed until Landlord delivers possession of the Premises to Tenant, and the
Lease Term shall be extended by a period equal to the number of days of delay in
delivery of possession of the Premises to Tenant, plus the number of days
necessary to end the Lease Term on the last day of a month.
SECTION 6: SUBORDINATION; NOTICES TO SUPERIOR LESSORS AND MORTGAGEES;
ATTORNMENT
6.1 SUBORDINATION OF LEASE. This Lease, and all rights of Tenant
hereunder, are subject and subordinate to all ground leases of the Property now
or hereafter existing and to all mortgages or trust deeds or deeds of trust (all
of which are hereafter referred to collectively as "Mortgages"), that may now or
hereafter affect or encumber all or any portion of Landlord's interest in the
Property. This subordination shall apply to each and every advance made, or to
be made, under such Mortgages; to all renewals, modifications, replacements and
extensions of such Mortgages; and to "spreaders" and consolidations of such
Mortgages. This Section 6.1 shall be self-operative and no further instrument
of subordination shall be required; however, in confirmation of such
subordination, Tenant shall from time to time execute, acknowledge and deliver
any instrument that Landlord may from time to time reasonably require in order
to evidence or confirm such subordination. If Tenant fails to execute,
acknowledge or deliver any such instrument within twenty (20) days after request
therefor, Tenant will be in default under this Lease. Tenant acknowledges that
this Lease may have been (and, in the future, may be) assigned by Landlord to a
Superior Mortgagee (defined below) as additional collateral security for the
loans secured by the Superior Mortgage (defined below) held by such Superior
Mortgagee. Any ground lease to which this Lease is subject and subordinate is
hereinafter referred to as a "Superior Lease", the lessor under a Superior Lease
is hereinafter referred to as a "Superior Lessor," and the lessee thereunder, a
"Superior Lessee"; and any Mortgage to which this Lease is subject and
subordinate is hereinafter referred to as a "Superior Mortgage," and the holder
of a Superior Mortgage is hereinafter referred to as a "Superior Mortgagee."
Notwithstanding the foregoing, this Lease may be made senior to the lien of any
Superior Mortgage, if and only if the Superior Mortgagee thereunder so requests.
Notwithstanding the foregoing to the contrary, (i) Landlord will use
commercially reasonable efforts to obtain a non-disturbance agreement in favor
of Tenant from Landlord's existing mortgagee of the Property, and (ii) as a
condition to Tenant subordinating its interest under this Lease to any future
mortgage, Landlord shall obtain a non-disturbance agreement in favor of Tenant,
the substance of which shall be subject to Tenant's reasonable approval.
6.2 NOTICE IN THE EVENT OF DEFAULT. In the event that Landlord
breaches or otherwise fails to timely perform any of its obligations under this
Lease, Tenant shall give written notice of such alleged breach or default to
Landlord and to each Superior Mortgagee and Superior Lessor whose name and
address shall previously have been furnished, in writing, to Tenant, whereupon
any or all of Landlord, a Superior Mortgagee or Superior Lessor may remedy or
cure such breach or default within thirty (30) days following the giving of such
notice; provided, however, that such thirty (30)-day cure period shall be
automatically extended in the event that the breach or default cannot, by its
nature, be cured within thirty (30) days and one or more of Landlord, the
Superior Mortgagee or the Superior Lessor is diligently proceeding to cure such
default.
6.3 SUCCESSOR LANDLORD. If any Superior Lessor or Superior Mortgagee
shall succeed to the rights of Landlord hereunder, then, at the request of such
party (hereinafter referred to as "Successor Landlord"), Tenant shall attorn to
and recognize each Successor Landlord as Tenant's landlord under this Lease and
shall promptly execute and deliver any instrument such Successor Landlord may
reasonably request to further evidence such attornment, provided that the
Successor Landlord agrees in writing to recognize this Lease and not to disturb
Tenant's possession of the Premises so long as Tenant is not in default under
this Lease. Tenant hereby acknowledges that in the event of such succession,
then from and after the date on which the Successor Landlord acquires Landlord's
rights and interest under this Lease (the "Succession Date"), the rights and
remedies available to Tenant under this Lease with respect to any obligations of
any Successor Landlord shall be limited to the equity interest of the Successor
Landlord in the Property; and the Successor Landlord shall not (a) be liable for
any act, omission or default of Landlord or other prior lessor under this Lease
if and to the extent that such act, omission or default occurs prior to the
Succession Date; (b) except as required under Sections 13.2 and 18 of this
Lease, be required to make or complete any tenant improvements or capital
improvements, or to repair, restore, rebuild or replace the Premises or any part
thereof in the event of damage, casualty or condemnation; or (c) be required to
pay any amounts to
<PAGE>
Page 6
Tenant that are due and payable, under the express terms of this Lease, prior to
the Succession Date. Additionally, from and after the Succession Date, Tenant's
obligation to pay Rent (as provided in Sections 2 and 3 hereof) shall not be
subject to any abatement, deduction, set-off or counterclaim against the
Successor Landlord that arises as a result of, or due to, a default of Landlord
or any other lessor that occurs prior to the Succession Date. Moreover, no
Successor Landlord shall be bound by any advance payments of Rent made prior to
the calendar month in which the Succession Date occurs, nor by any Security that
is not actually delivered to, and received by, the Successor Landlord.
Notwithstanding the foregoing provisions of this Section 6.3 to the contrary, a
Successor Landlord shall have liability for completion of the Work Items in
accordance with Section 5.1 and the payment to Tenant of the Construction
Allowance in accordance with Rider No. 1, to the extent Landlord has not done so
prior to the Succession Date.
SECTION 7: QUIET ENJOYMENT
Subject to the provisions of this Lease, so long as Tenant duly pays all of
the Rent and duly performs all of its other obligations hereunder, Tenant shall
not be disturbed in its possession of the Premises by Landlord, Agent or any
other person lawfully claiming through or under Landlord. This covenant shall
be construed as a covenant running with the Property and is not a personal
covenant of Landlord.
SECTION 8: ASSIGNMENT, SUBLETTING AND MORTGAGING
8.1 PROHIBITION. Tenant acknowledges that this Lease and the Rent
due under this Lease have been agreed to by Landlord in reliance upon Tenant's
reputation and creditworthiness and upon the continued operation of the Premises
by Tenant for the particular use set forth in Section 4 above; therefore, Tenant
shall not, whether voluntarily, or by operation of law, or otherwise: (a) assign
or otherwise transfer this Lease; (b) sublet the Premises or any part thereof,
or allow the same to be used or occupied by anyone other than Tenant; or (c)
mortgage, pledge, encumber, or otherwise hypothecate this Lease or the Premises,
or any part thereof, in any manner whatsoever, without in each instance
obtaining the prior written consent of Landlord, which consent as to (a) and (b)
shall not be unreasonably withheld and as to (c) may be given or withheld in
Landlord's sole and absolute discretion. Any purported assignment, mortgage,
transfer, pledge or sublease made without the prior written consent of Landlord
shall be absolutely null and void and of no legal force and effect. No
assignment of this Lease shall be effective and valid unless and until the
assignee executes and delivers to Landlord any and all documentation reasonably
required by Landlord in order to evidence assignee's assumption of all
obligations of Tenant hereunder. Any consent by Landlord to a particular
assignment, sublease or mortgage shall not constitute consent or approval of any
subsequent assignment, sublease or mortgage, and Landlord's written approval
shall be required in all such instances. Any consent by Landlord to any
assignment or sublease shall not be deemed to release Tenant from its
obligations hereunder and Tenant shall remain fully liable for performance of
all obligations under this Lease. In the event that Landlord elects to reject
any proposed sublease or assignment, the Tenant's sole and exclusive remedy
shall be to seek a declaratory judgment against Landlord so as to enable Tenant
to avoid a termination of this Lease. Any violation of the provisions of this
Section 8.1 shall constitute a default under this Lease.
8.2 RIGHTS OF LANDLORD. If this Lease is assigned, or if the
Premises (or any part thereof) are sublet or used or occupied by anyone other
than Tenant, whether or not in violation of this Lease, Landlord or Agent may
(without prejudice to, or waiver of its rights and without being deemed to have
consented thereto), collect Rent from the assignee, subtenant or occupant.
Landlord or Agent may apply the net amount collected to the Rent herein
reserved, but no such assignment, subletting, occupancy or collection shall be
deemed a waiver of any of the provisions of this Section 8. With respect to the
allocable portion of the Premises sublet, in the event that the total rent and
any other considerations (whether cash or non-cash) received under any sublease
by Tenant is greater than the total Base Rent and Additional Rent required to be
paid, from time to time, under this Lease, Tenant shall pay to Landlord fifty
percent (50%) of such excess as received from any subtenant and such amount
shall be deemed a component of the Additional Rent under this Lease.
8.3 PERMITTED TRANSFERS. The provisions of Section 8.1(a) shall
apply to a transfer of a majority of the voting stock of Tenant or to any other
change in voting control of Tenant (if Tenant is a corporation), or to a
transfer of a majority of the general partnership interests in Tenant or
managerial control of Tenant (if Tenant is a partnership), or to any comparable
transaction involving any other form of business entity, whether effectuated in
one (1) or more transactions, as if such transfer were an assignment of this
Lease; but such provisions shall not apply to a transfer to a corporation into
or with which Tenant is merged or consolidated, or to which substantially all of
Tenant's assets are transferred, or to any corporation that controls or is
controlled by Tenant, or is under common control with Tenant, provided in any of
such events (a) the successor to Tenant has a net worth (computed in accordance
with generally accepted accounting principles), at least equal to the greater of
(i) the net worth of Tenant immediately prior to such merger, consolidation or
transfer or (ii) the net worth of Tenant on the date of this Lease AND (b) proof
satisfactory to Landlord of such net worth shall have been delivered to Landlord
at least ten (10) days prior to the effective date of any such transaction. Any
such permitted transferee shall execute and deliver to
<PAGE>
Page 7
Landlord any and all documentation reasonably required by Landlord in order to
evidence assignee's assumption of all obligations of Tenant hereunder.
Notwithstanding the foregoing to the contrary, any sale, transfer or issuance of
voting capital stock of Tenant not in connection with a merger, consolidation or
asset transfer shall not be deemed an assignment of this Lease.
SECTION 9: COMPLIANCE WITH LAWS
If any license or permit is required for the conduct of Tenant's business
in the Premises, Tenant, at its expense, shall procure such license prior to the
Commencement Date, and shall maintain in good standing and renew such license or
permit. Tenant shall give prompt notice to Landlord of any notice it receives
of the violation of any law or requirement of any governmental or administrative
authority with respect to the Premises or the use or occupation thereof. Tenant
shall, at Tenant's expense, comply with all laws and requirements of any
governmental or administrative authorities that impose any duty on Landlord,
Agent or Tenant arising from Tenant's actions regarding its business operations
or use of the Premises, and Tenant shall pay all expenses, fines and damages
that are imposed upon any or all of Landlord, Agent, any Superior Lessee,
Superior Lessor or Superior Mortgagee, by reason or arising out of Tenant's
failure to fully and promptly comply with and observe the provisions of this
Section.
SECTION 10: INSURANCE
10.1 TENANT ACTIVITIES. Tenant shall not violate, or permit the
violation of, any condition imposed by any insurance policy issued in respect of
any or all of the Property, and shall not do, or permit anything to be done, or
keep or permit anything to be kept in the Premises, that would: (a) subject any
or all of Landlord, Agent, any Superior Lessor, any Superior Lessee or any
Superior Mortgagee to any liability or responsibility for personal injury or
death or property damage; (b) result in insurance companies of good standing
refusing to insure (or imposing special conditions on insuring) any or all of
the Property and the property therein, in amounts reasonably satisfactory to
Landlord; or (c) result in the cancellation of (or the assertion of any defense
by the insurer, in whole or in part, to claims under) any policy of insurance
with respect to any or all of the Property and the property therein.
10.2 INSURANCE TO BE MAINTAINED BY TENANT. Tenant shall, at its sole
cost and expense, at all times during the Term and any extensions thereof (plus
any period beyond the Expiration Date of the Lease term that Tenant remains in
possession of the Premises), obtain and pay for and maintain in full force and
effect the insurance policy or policies described in EXHIBIT D attached hereto.
Certified copies of all insurance policies required pursuant to this Lease (or
certificates thereof, in form and substance acceptable to Landlord), shall be
delivered to Landlord not less than ten (10) days prior to the Commencement
Date. If Tenant fails to submit such policies or certificates to Landlord
within the specified time, or otherwise fails to obtain and maintain insurance
coverages in accordance with this Section 10.2, then Landlord, at Landlord's
sole option, may, but shall not be obligated to, procure such insurance on
behalf of, and at the expense of, Tenant. Tenant shall reimburse Landlord for
such amounts upon demand, it being understood that any such sums for which
Tenant is required to reimburse Landlord shall constitute Additional Rent.
10.3 INSURANCE TO BE MAINTAINED BY LANDLORD. Landlord shall maintain
(a) "All-risk" property insurance covering the Property (at its replacement
cost), but excluding Tenant's Property, and (b) commercial general public
liability insurance covering Landlord for claims arising out of liability for
bodily injury, death, personal injury, advertising injury and property damage
occurring in and about the Property and otherwise resulting from any acts and
operations of Landlord, its agents and employees, each of the above with limits
that are required by any lender(s) of Landlord, or as are otherwise reasonably
determined by Landlord (collectively, "Landlord's Policies").
10.4 MUTUAL WAIVER OF SUBROGATION. None of Landlord, Agent or Tenant
shall be liable to one another or to any insurance company by way of subrogation
or otherwise insuring any such party for any loss or damage to the Building, the
Premises, the Property, the structure of the Building, other tangible property
located on the Property or in the Building, or any resulting loss of income,
despite the fact that such loss or damage might have been occasioned by the
negligence or misconduct of such party, its agents or employees, provided and to
the extent that any such loss or damage would be covered by insurance that the
party suffering the loss is required to maintain pursuant to the terms of this
Lease. Each of Landlord, Agent and Tenant shall secure an appropriate clause
in, or an endorsement upon, each insurance policy obtained by it and covering or
applicable to the Property, the Building, the Premises and the personal
property, fixtures, and equipment located therein or thereon, pursuant to which
the insurance company consents to such waiver or right of recovery. The waiver
of right of recover set forth above in this Section 10.4 shall extend to
Landlord, Agent, Tenant, and their respective agents and employees.
SECTION 11: ALTERATIONS
11.1 PROCEDURAL REQUIREMENTS. Tenant may, from time to time, at its
expense, make alterations or improvements in and to the Premises (hereinafter
collectively referred to as "Alterations"), provided that Tenant first obtains
the written consent of Landlord in each instance, except that no written consent
will be required for
<PAGE>
Page 8
nonstructural alterations not requiring any roof or wall penetrations the cost
for which does not exceed $25,000 in any one instance, and up to a maximum cost
of $75,000 in any one calendar year. Landlord's consent to Alterations shall
not be unreasonably withheld, provided that: (a) the Alterations are non-
structural and the structural integrity of the Property shall not be affected;
(b) the Alterations are to the interior of the Premises; (c) the proper
functioning of the mechanical, electrical, heating, ventilating, air-
conditioning ("HVAC"), sanitary and other service systems of the Property shall
not be affected and the usage of such systems by Tenant shall not be increased;
(d) the Alterations have no effect on other leased premises in the Property; (e)
Tenant shall have appropriate insurance coverage reasonably satisfactory to
Landlord regarding the performance and installation of the Alterations; (f) the
Alterations shall conform with all other requirements of this Lease; and (g)
Tenant shall have provided Landlord with detailed plans (the "Plans") for such
Alterations in advance of requesting Landlord's consent. Additionally, after
obtaining Landlord's preliminary consent to the Plans, but before proceeding
with any Alterations, Tenant shall, at its expense, obtain all necessary
governmental permits and certificates for the commencement and prosecution of
Alterations and shall submit to Agent, for Landlord's written approval, working
drawings, plans and specifications and all permits for the work to be done and
Tenant shall not proceed with such Alterations until it has received said
approval. Tenant shall give Landlord at least twenty (20) days' prior written
notice of the commencement of any Alterations at the Premises, and Landlord may
elect to record and post notices of non-responsibility at the Premises.
11.2 PERFORMANCE OF ALTERATIONS. Tenant shall cause the Alterations
to be performed in compliance with all applicable permits, laws and requirements
of public authorities, and with Landlord's reasonable and nondiscriminatory
rules and regulations or any other restrictions that Landlord or Agent may
impose on the Alterations. Tenant shall cause the Alterations to be diligently
performed in a good and workmanlike manner, using new materials and equipment at
least equal in quality and class to the standards for the Property established
by Landlord or Agent. Tenant's agents, contractors, workmen, mechanics,
suppliers and invitees shall work in harmony, and not interfere with, Landlord
and its agents and contractors (if any) or with any other tenants or occupants
of the Property. Tenant shall obtain all necessary permits and certificates for
final governmental approval of the Alterations and shall provide Landlord with
"as built" plans, copies of all construction contracts, governmental permits and
certificates and proof of payment for all labor and materials, including,
without limitation, copies of paid invoices and final lien waivers. Upon
completion of any Alterations, Tenant shall provide Landlord with a schematic
drawing incorporating the Alterations into the Premises and, if required, a new
or amended certificate of occupancy for the Premises.
11.3 LIEN PROHIBITION. Tenant shall pay when due all claims for labor
and material furnished to the Premises in connection with the Alterations.
Tenant shall not permit any mechanics or materialmen's liens to attach to the
Premises, the Property, or Tenant's leasehold estate. Tenant, at its expense,
shall procure the satisfaction or discharge of record (or shall bond over such
liens pursuant to statute) of all such liens and encumbrances within thirty (30)
days after the filing thereof. In the event Tenant has not so performed,
Landlord may, at its option, pay and discharge such liens and Tenant shall be
responsible to reimburse Landlord, on demand, for all costs and expenses
incurred in connection therewith, together with interest thereon at the rate set
forth in Section 22.3 below, which expenses shall include reasonable fees of
attorneys of Landlord's choosing, and any costs in posting bond to effect
discharge or release of the lien as an encumbrance against the Premises or the
Property. Any sums due from Tenant pursuant to the preceding sentence shall
constitute Additional Rent under this Lease.
SECTION 12: LANDLORD'S AND TENANT'S PROPERTY
12.1 LANDLORD'S PROPERTY. Subject to Section 12.2 below, all
fixtures, machinery, equipment, improvements and appurtenances attached to, or
built into, the Premises at the commencement of, or during the Term, whether or
not placed there by or at the expense of Tenant, shall become and remain a part
of the Premises; shall be deemed the property of Landlord (the "Landlord's
Property"), without compensation or credit to Tenant; and shall not be removed
by Tenant unless Landlord requests their removal. Further, any personal
property in the Premises on the Commencement Date, movable or otherwise, unless
installed and paid for by Tenant, shall be and shall remain the property of
Landlord and shall not be removed by Tenant. In no event shall Tenant remove
any of the following materials or equipment without Landlord's prior written
consent: any power wiring or power panels (other than Tenant's backup
generators), lighting or lighting fixtures, wall or window coverings, carpets or
other floor coverings, heaters, air conditioners or any other heating or air
conditioning equipment, fencing or security gates, or other similar building
operating equipment and decorations.
12.2 TENANT'S PROPERTY. All movable non-structural partitions,
business and trade fixtures, machinery and equipment, including Tenant's
distribution equipment, satellite dish, backup generators, communications
equipment and office equipment, whether or not attached to, or built into, the
Premises, which are installed in the Premises by, or for the account of, Tenant
without expense to Landlord and that can be removed without structural damage to
the Property, and all furniture, furnishings and other articles of movable
personal property owned by Tenant and located in the Premises (collectively, the
"Tenant's Property") shall be and shall remain the property of
<PAGE>
Page 9
Tenant and may be removed by Tenant at any time during the Term, provided Tenant
repairs or pays the cost of repairing any damage to the Premises or to the
Property resulting from the installation and/or removal thereof.
12.3 REMOVAL OF TENANT'S PROPERTY. At or before the Expiration Date,
or the date of any earlier termination, Tenant, at its expense, shall remove
from the Premises all of Tenant's Property (except such items thereof as
Landlord shall have expressly permitted, in writing, to remain, which property
shall become the property of Landlord), and Tenant shall repair any damage to
the Premises or the Property resulting from any installation and/or removal of
Tenant's Property (reasonable and normal wear and tear excepted). Any other
items of Tenant's Property that shall remain in the Premises after the
Expiration Date, or following an earlier termination date, may, at the option of
Landlord, be deemed to have been abandoned, and in such case, such items may be
retained by Landlord as its property or be disposed of by Landlord, in
Landlord's sole and absolute discretion and without accountability, at Tenant's
expense.
SECTION 13: REPAIRS AND MAINTENANCE
13.1 TENANT REPAIRS AND MAINTENANCE. Except only for repairs required
as a result of the negligent acts or omissions of Landlord or its agents,
employees or contractors while on the Property, Tenant shall, at its expense,
throughout the Term, maintain and preserve, in first-class condition, the
Premises and the fixtures and appurtenances therein (including, but not limited
to, the Premises' plumbing and HVAC systems, and excluding, however, those
components of the Premises for which Landlord is expressly responsible under
Section 13.2). Tenant shall enter into a preventative maintenance and service
contract with a reputable service provider for maintenance of the HVAC systems
of the Premises. Tenant shall also be responsible for all repairs and
replacements (whether structural or non-structural; interior or exterior; and
ordinary or extraordinary), in and to the Premises and the Property and the
facilities and systems thereof, if and to the extent that the need for such
repairs or replacements arises directly or indirectly from (a) the performance
or existence of any Alterations, (b) the installation, use or operation of
Tenant's Property in the Premises, (c) the moving of Tenant's Property in or out
of the Premises and/or the Property, or (d) any act, omission, misuse, or
neglect of Tenant or any of its subtenants or its or their respective employees,
agents, contractors, invitees, or others entering into the Premises by act or
omission of Tenant or any subtenant. Without limiting the generality of the
foregoing, except only for reasonable and normal wear and tear and repairs
required as a result of the negligent acts or omissions of Landlord or its
agents, employees or contractors while on the Property, Tenant, at its expense,
shall promptly replace or repair all scratched, damaged, or broken doors and
glass in and about the Premises and floor coverings in the Premises and repair
and maintain all sanitary and electrical fixtures therein. Any repairs or
replacements required to be made by Tenant to the mechanical, electrical,
sanitary, HVAC, or other systems of the Premises shall be performed by
appropriately licensed contractors. All such repairs or replacements shall be
subject to the supervision and control of Landlord or Agent, and all repairs and
replacements shall be made with materials of equal or better quality than the
items being repaired or replaced.
13.2 LANDLORD REPAIRS. Notwithstanding anything contained herein to
the contrary, Landlord (and not Tenant) shall be responsible for the repair,
replacement and restoration of the foundation, exterior and interior load-
bearing walls, roof structure and roof covering and tuckpointing of the Property
(the cost for which shall be an Operating Expense under this Lease provided it
is a noncapital expenditure); provided, however, that in the event that any such
repair, replacement or restoration is necessitated by any or all of the matters
set forth in Clauses 13.1(a), (b), (c) or (d) [collectively, "Tenant
Necessitated Repairs"], and provided further that Tenant fails to commence or
complete such repairs, replacements or restorations within 30 days after notice
from Landlord or if Tenant fails to diligently pursue the completion of such
repairs, replacements or restoration, then Tenant shall be required to reimburse
Landlord for all costs and expenses that Landlord incurs in order to perform
such Tenant Necessitated Repairs, and such reimbursement shall be paid, in full,
within ten (10) days after Landlord's delivery of demand therefor. Landlord
agrees to commence the repairs, replacements or restoration described in this
Section 13.2 within a reasonable period of time after receiving from Tenant
written notice of the need for such repairs.
13.3 TENANT EQUIPMENT. Tenant shall not place a load upon any floor
of the Premises that exceeds either the load per square foot that such floor was
designed to carry or that which is allowed by law. Business machines and
mechanical equipment belonging to Tenant that cause noise or vibrations that may
be transmitted to the structure of the Property or to the Premises to such a
degree as to be objectionable or of concern to Landlord shall, at Tenant's
expense, be placed and maintained by Tenant in settings or cork, rubber or
spring-type vibration eliminators sufficient to eliminate such noise or
vibration.
SECTION 14: UTILITIES
14.1 PURCHASING UTILITIES. Tenant shall purchase all utility services
from the utility or municipality providing such service; shall provide for
scavenger, cleaning and extermination services; and shall pay for such services
when payments are due. Unless expressly provided to the contrary in this Lease,
Tenant shall be solely
<PAGE>
Page 10
responsible for the installation, repair, maintenance and replacement of any
meters necessary in connection with such services. Tenant shall pay when due
all charges for utility services billed or metered directly to the Premises;
provided, however, for the month of April, 1997, Tenant shall be directly
responsible for paying that percentage of the gas and electric utility charges
directly metered to the 100,000 square foot suite in which the Initial Occupancy
Area is located as is determined by the following formula: (50,000 SF minus new
mezzanine office area SF) divided by 100,000 SF; and provided, further, however,
that from May 1, 1997 until the date the Premises are separately metered as a
single unit for gas and electric utility service, Tenant shall be directly
responsible for paying all gas and electric utility charges directly metered to
the 100,000 square foot suite in which the Initial Occupancy Area is located.
14.2 USE OF ELECTRICAL ENERGY BY TENANT. Tenant's use of electrical
energy in the Premises shall not, at any time, exceed the capacity of either or
both of (i) any of the electrical conductors and equipment in or otherwise
servicing the Premises; and (ii) the Property's HVAC systems.
SECTION 15: INVOLUNTARY CESSATION OF SERVICES
Landlord reserves the right, without any liability to Tenant and without
affecting Tenant's covenants and obligations hereunder, to stop service of the
HVAC, electric, sanitary, elevator (if any), or other systems serving the
Premises, or to stop any other services required by Landlord under this Lease,
whenever and for so long as may be necessary by reason of (i) accidents,
emergencies, strikes, or the making of repairs or changes which Landlord or
Agent in good faith deems necessary or (ii) any other cause beyond Landlord's
reasonable control. Further, it is also understood and agreed that Landlord or
Agent shall have no liability or responsibility for a cessation of services to
the Premises or to the Property that occurs as a result of causes beyond
Landlord's or Agent's reasonable control. No such interruption of service shall
be deemed an eviction or disturbance of Tenant's use and possession of the
Premises or any part thereof, or render Landlord or Agent liable to Tenant for
damages, or relieve Tenant from performance of Tenant's obligations under this
Lease, including, but not limited to, the obligation to pay Rent.
SECTION 16: LANDLORD'S RIGHTS
16.1 LANDLORD'S RIGHTS OF ACCESS. Landlord, Agent and their
respective agents, employees and representatives shall have the right to enter
and/or pass through the Premises at any time or times during business hours and
upon twenty four (24) hours notice to Tenant (except that no notice will be
required in the case of an emergency) (a) to examine and inspect the Premises
and to show them to actual and prospective Superior Parties or prospective
purchasers or mortgagees of the Property or providers of capital to Landlord and
its affiliates and all consultants and advisors relating thereto; and (b) to
make such repairs, alterations, additions and improvements in or to the Premises
and/or the Property or its facilities and equipment as Landlord is required or
desires to make. Landlord and Agent shall be allowed to take all materials into
and upon the Premises that may be required in connection with any repairs,
alterations, additions or improvements, without any liability to Tenant and
without any reduction or modification of Tenant's covenants and obligations
hereunder. During the period of six (6) months prior to the Expiration Date (or
at any time, if Tenant has vacated or abandoned the Premises or is otherwise in
default under this Lease), Landlord and its agents may exhibit the Premises to
prospective tenants. In the exercise of each of the foregoing rights, Landlord
shall give Tenant reasonable prior notice of its entry, except in the case of
emergency. Nothing set forth above implies obligations of improvement beyond
the Work Items per EXHIBIT C.
16.2 OTHER LANDLORD RIGHTS. Landlord and Agent shall have the
following rights exercisable, without notice and without liability to Tenant,
for damage or injury to persons, property or business and without being deemed
an eviction or disturbance of Tenant's use or possession of the Premises or
giving rise to any claim for setoff or abatement of rent: (i) to designate
and/or approve, prior to installation, all types of signs; (ii) to sell or
otherwise transfer or dispose of the Property, and assign and pass through all
of Landlord's obligations hereunder to the new owner; (iii) to have pass keys,
access cards, or both, to the Premises; and (iv) to decorate, remodel, repair,
alter or otherwise prepare the Premises for reoccupancy at any time after Tenant
vacates or abandons the Premises for more than thirty (30) days or with no
intention of reoccupying the Premises. Notwithstanding any provision to the
contrary in this Section 16, if the work performed or actions taken by Landlord
under this Section 16 render the Premises untenantable, then Base Rent and
Additional Rent will be abated until such time as the Premises are again made
tenantable.
SECTION 17: NON-LIABILITY AND INDEMNIFICATION
17.1 NON-LIABILITY. Except as provided in this Lease, none of
Landlord, Agent, any other managing agent, Superior Parties, or their respective
affiliates, owners, partners, directors, officers, agents and employees
(collectively, "Landlord Affiliates") shall be liable to Tenant for any loss,
injury, or damage, to Tenant or to any other person, or to its or their
property, irrespective of the cause of such injury, damage or loss. Further,
none of Landlord, Agent, any other managing agent, Superior Parties, or their
respective partners, directors, officers, agents and
<PAGE>
Page 11
employees shall be liable (a) for any such damage caused by other tenants or
persons in, upon or about the Property, or caused by operations in construction
of any private, public or quasi-public work; or (b) with respect to matters for
which Landlord is liable, for consequential or indirect damages purportedly
arising out of any loss of use of the Premises or any equipment or facilities
therein by Tenant or any person claiming through or under Tenant; provided,
however, that in any event for which insurance coverage is available through the
insurance policies that Landlord is required to maintain pursuant to Section
10.3 ("Landlord's Policies"), Landlord hereby covenants and agrees that it shall
file an insurance claim and pursue the processing of that claim and the payment
of the applicable insurance proceeds with due diligence and in good faith.
17.2 TENANT INDEMNIFICATION. (a) Except only for the negligent acts
or omissions of Landlord or its agents, employees or contractors while on the
Property, Tenant hereby indemnifies, defends, and holds Landlord and all
Landlord Affiliates harmless from and against any and all claims, causes of
action, liabilities, damages, costs, losses and expenses (including, but not
limited to reasonable legal, engineering and consulting fees of engineers,
attorneys and consultants selected by Landlord) arising from or in connection
with (a) the conduct or management of the Premises or any business therein, or
any work or Alterations done, or any condition created (other than by Landlord)
in or about the Premises during the Term or during the period of time, if any,
prior to the Commencement Date that Tenant may have been given access to the
Premises, including any and all mechanics and other liens and encumbrances
(except only for work performed by Landlord); (b) any act, omission or
negligence of Tenant or any of its subtenants or licensees or their partners,
directors, officers, agents, employees, invitees or contractors; (c) any
accident, injury or damage whatsoever (unless caused by Landlord's negligence)
occurring in, at or upon the Premises; (d) any breach or default by Tenant in
the full and prompt payment and performance of Tenant's obligations under this
Lease; (e) any breach by Tenant of any of its warranties and representations
under this Lease; and (f) any actions necessary to protect Landlord's interest
under this Lease in a bankruptcy proceeding or other proceeding under the
Bankruptcy Code (collectively, "Tenant's Indemnified Matters"). In case any
action or proceeding is brought against Landlord or any Landlord Affiliate by
reason of any such claim, Tenant, upon notice from any or all of Landlord, Agent
or any Superior Party, shall resist and defend such action or proceeding by
counsel reasonably satisfactory to, or selected by, Landlord or such Superior
Lessor or Superior Mortgagee.
(b) Landlord agrees to indemnify, defend and hold Tenant harmless
from and against all claims, demands and suits at law and in equity (excluding
consequential and exemplary damages, but including reasonable attorneys' fees
and court costs), resulting from the negligent acts or omissions of Landlord or
its agents, employees or contractors while on the Property.
17.3 FORCE MAJEURE. The obligations of Tenant hereunder shall not be
affected, impaired or excused, and Landlord shall have no liability whatsoever
to Tenant, with respect to any act, event or circumstance arising out of (a)
Landlord's failure to fulfill, or delay in fulfilling any of its obligations
under this Lease by reason of labor dispute, governmental preemption of property
in connection with a public emergency or shortages of fuel, supplies, or labor,
or any other cause, whether similar or dissimilar, beyond Landlord's reasonable
control; or (b) any failure or defect in the supply, quantity or character of
utilities furnished to the Premises, or by reason of any requirement, act or
omission of any public utility or others serving the Property, beyond Landlord's
reasonable control. Unless caused by the negligent acts or omissions of
Landlord or its agents, employees or contractors while on the Property, Tenant
shall not hold Landlord or Agent liable for any latent defect in the Premises or
the Property, nor shall Landlord be liable for injury or damage to person or
property caused by fire, or theft, or resulting from the operation of heating or
air conditioning or lighting apparatus, or from falling plaster, or from steam,
gas, electricity, water, rain, snow, ice, or dampness, that may leak or flow
from any part of the Property, or from the pipes, appliances or plumbing work of
the same, nor shall Landlord or Agent be liable to Tenant or any third party for
any loss of, destruction of, damage to or shortage of any property; including,
but not limited to, Tenant's Property.
17.4 LIMITATION OF LIABILITY. Notwithstanding anything to the
contrary contained in this Lease, the liability of Landlord (and of any
Successor Landlord hereunder) to Tenant shall be limited to the interest of
Landlord in the Property, and Tenant agrees to look solely to Landlord's
interest in the Property for the recovery of any judgment or award against
Landlord, it being intended that Landlord shall not be personally liable for any
judgment or deficiency. In addition, Tenant acknowledges that Agent is acting
solely in its capacity as agent for Landlord and, shall not be liable for any
obligations, liabilities, losses or damages arising out of or in connection with
this Lease, all of which are expressly waived by Tenant.
SECTION 18: DAMAGE OR DESTRUCTION
18.1 NOTIFICATION. Tenant shall give prompt notice to Landlord and
Agent of (a) any occurrence in or about the Premises or the Property for which
Landlord or Agent might be liable, (b) any fire or other casualty to the
Premises or the Property, (c) any damage to, or defect in, the Premises or the
Property, for the repair of which Landlord or Agent might be responsible, and
(d) any damage to or defect in any part or appurtenance of the Property's
sanitary, electrical, HVAC, elevator or other systems located in or passing
through the Premises or any
<PAGE>
Page 12
part thereof.
18.2 REPAIR PROVISIONS. Subject to the provisions of Section 18.4
below, if the Property or the Premises are damaged by fire or other insured
casualty, Landlord shall repair or cause Agent to repair the damage and restore
and rebuild the Property and/or the Premises (except for Tenant's Property) with
reasonable dispatch after (a) notice to it of the damage or destruction and (b)
the collection of the insurance proceeds attributable to such damage, and Tenant
shall repair the damage to and restore and repair Tenant's Property, with
reasonable dispatch after such damage or destruction. Such work by Tenant shall
be deemed Alterations for the purposes of this Lease.
18.3 RENTAL ABATEMENT. If (a) the Property is damaged by fire or
other casualty thereby causing the Premises to be inaccessible or (b) the
Premises are partially damaged by fire or other casualty, the Base Rent and the
Additional Rent shall be abated in the amount of any rent loss insurance
proceeds actually collected by Landlord on account of such damage.
18.4 TOTAL DESTRUCTION. If the Property or the Premises shall be
totally destroyed by fire or other casualty, or if the Property shall be so
damaged by fire or other casualty that (in the opinion of a reputable contractor
or architect designated by Landlord) (i) its repair or restoration requires more
than one hundred eighty (180) days or (ii) such repair or restoration requires
the expenditure of more than fifty percent (50%) of the full insurable value of
the Property immediately prior to the casualty or (iii) the damage is less than
the amount stated in (ii) above and materially and adversely affects Tenant's
operations at the Premises but occurs during the last year of Lease Term,
Landlord and Tenant shall each have the option to terminate this Lease within
five (5) days after the contractor or architect delivers written notice of its
opinion to Landlord and Tenant, but in all events prior to the commencement of
any restoration of the Premises or the Property by Landlord. In such event, the
termination shall be effective as of the 180th date after the date on which the
casualty occurs. For purposes of this Section 18.4 only, "full insurable
value" shall mean replacement cost, less the cost of footings, foundations and
other structures below grade.
18.5 REPAIR OR RESTORATION. Subject to the provisions of Section 18.4
above, Tenant shall not be entitled to terminate this Lease and no damages,
compensation or claim shall be payable by Landlord for purported inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Premises or of the Property pursuant to this Section. Landlord
or Agent shall use its diligent, good faith efforts to make such repair or
restoration promptly and in such manner as not to unreasonably interfere with
Tenant's use and occupancy of the Premises, but Landlord or Agent shall not be
required to do such repair or restoration work except during normal business
hours of business days.
18.6 LIABILITY OF TENANT. Notwithstanding any of the foregoing
provisions of this Section, if by reason of any act or omission on the part of
Tenant or any of its subtenants or its or their partners, directors, officers,
servants, employees, agents, or contractors, Landlord, any Superior Party, or
other appropriate party shall be unable to collect all of the insurance proceeds
(including, without limitation, rent insurance proceeds) applicable to damage or
destruction of the Premises or the Property by fire or other casualty (the
"Insurance Proceeds"), then, without prejudice to any other remedies that may be
available against Tenant, there shall be no abatement or reduction of the Base
Rent or Additional Rent notwithstanding lack of usability. Further, if and to
the extent that, as a result of or due to or because of any act or omission by
any or all of Tenant, its agents, employees, invitees and representatives,
Landlord, any Superior Party or any other appropriate party is unable to collect
all of the Insurance Proceeds, then Tenant shall be liable to Landlord for the
payment of an amount equal to that portion of the Insurance Proceeds that
Landlord, any Superior Party or any other appropriate party is unable to
collect.
SECTION 19: EMINENT DOMAIN
19.1 TOTAL CONDEMNATION. If, in Landlord's reasonable opinion, the
whole of the Property or the Premises, or if any part of the Property that
materially affects Tenant's use and occupancy of the Premises, shall be taken by
condemnation or in any other manner for any public or quasi-public use or
purpose, this Lease and the term and estate hereby granted shall terminate as of
the date of vesting of title on such taking (herein called "Date of the
Taking"), and the Base Rent and Additional Rent shall be prorated and adjusted
as of such date.
19.2 AWARD. Landlord shall be entitled to receive the entire award or
payment in connection with any taking; provided, however, Tenant shall have the
right to separately pursue, against the condemning authority, an award in
respect of the loss, if any, to leasehold improvements or other interest of
Tenant in the Premises paid for by Tenant, without any credit or allowance from
Landlord and further provided that such separate award does not diminish or
interfere with Landlord's pursuit of its own award.
19.3 COMPENSATION TO TENANT FOR TEMPORARY USE. If the temporary use
or occupancy of all or any part of the Premises shall be taken by condemnation
or in any other manner for any public or quasi-public use or purpose during the
Term, Tenant shall be entitled, except as hereinafter set forth, to receive that
portion of the award or
<PAGE>
Page 13
payment for such taking which represents compensation for the use and occupancy
of the Premises, for the taking of Tenant's Property and for moving expenses,
and Landlord shall be entitled to receive that portion that represents
reimbursement for the cost of restoration of the Premises. This Lease shall be
and remain unaffected by such taking, and Tenant shall continue to be
responsible for all of its obligations hereunder insofar as such obligations are
not affected by such taking and shall continue to pay, in full, the Base Rent
and Additional Rent when due. If the period of temporary use or occupancy shall
extend beyond the Expiration Date, that part of the award that represents
compensation for the use and occupancy of the Premises (or a part thereof) shall
be prorated between Landlord and Tenant so that Tenant shall receive so much
thereof as represents the period up to and including such Expiration Date and
Landlord shall receive so much thereof as represents the period after such
Expiration Date. All monies paid as, or as part of, an award for temporary use
and occupancy for a period beyond the date to which the Base Rent and Additional
Rent have been paid shall be received, held and applied by Landlord as a trust
fund for payment of the Base Rent and Additional Rent becoming due.
Notwithstanding the foregoing provisions of this Section 19.3 to the contrary,
if the temporary use is in excess of 90 days, then Tenant will within 30 days
thereafter have the option to terminate this Lease upon at least 30 days'
advance written notice to Landlord.
19.4 PARTIAL OR TEMPORARY TAKING. Subject to the rights of any
Superior Mortgagee or Superior Lessor, and other parties having rights to
condemnation proceeds, in the event of any taking of less than the whole of the
Property, which taking does not result in termination of this Lease, or in the
event of a taking for a temporary use or occupancy of all or any part of the
Premises, or other partial taking of the Premises, that does not result in a
termination of this Lease: (a) Landlord, at its expense, and provided that a
condemnation award or awards shall be sufficient for the purpose, shall proceed
with reasonable diligence to repair the remaining parts of the Property and the
Premises (other than those parts of the Premises that are Tenant's Property) to
substantially their former condition, to the extent that the same is feasible
(subject to those changes which Landlord reasonably deems desirable, and to
building and other governmental codes and regulations) and so as to constitute a
complete and tenantable Property and Premises, and (b) Tenant, at its expense,
and whether or not any award or awards shall be sufficient for the purpose,
shall proceed with reasonable diligence to repair Tenant's Property, to
substantially its former condition, to the extent feasible, subject to such
reasonable changes as Landlord and Tenant shall agree upon, in writing. Such
work by Tenant shall be deemed Alterations. Furthermore, in the event of a
partial taking of the Premises that does not result in a termination of this
Lease, the Base Rent and Additional Rent due hereunder shall be reduced in a
proportionate amount, based upon the proportion that the area that has been
taken bears to the total area of the Premises. Such reduction shall be
effective from the date on which the partial taking occurs until the date, if
any, on which the partial taking terminates and the Premises have been restored
in accordance with the terms of this Lease.
SECTION 20: SURRENDER AND HOLDOVER
On the last day of the Term, or upon any earlier termination of this Lease,
or upon any re-entry by Landlord upon the Premises, (a) Tenant shall quit and
surrender the Premises to Landlord "broom-clean" and in good order, condition
and repair, except for ordinary wear and tear and such damage or destruction as
Landlord is required to repair or restore under this Lease, and (b) Tenant shall
remove all of Tenant's Property therefrom, except as otherwise expressly
provided in this Lease. The obligations imposed under the preceding sentence
shall survive the termination or expiration of this Lease. If Tenant remains in
possession after the Expiration Date hereof or after any earlier termination
date of this Lease or of Tenant's right to possession: (a) Tenant shall be
deemed a tenant-at-will; (b) Tenant shall pay one hundred fifty percent (150%)
of the aggregate of the Base Rent and Additional Rent last prevailing hereunder,
and also shall pay all direct damages sustained by Landlord, by reason of such
remaining in possession after the expiration or termination of this Lease; (c)
there shall be no renewal or extension of this Lease by operation of law; and
(d) the tenancy-at-will may be immediately (or any longer period specified by
Landlord in the notice) terminated by written notice from Landlord. The
provisions of this Section 20 shall not constitute a waiver by Landlord of any
re-entry rights of Landlord provided hereunder or by law.
SECTION 21: EVENTS OF DEFAULT
21.1 BANKRUPTCY OF TENANT. It shall be a default by Tenant under this
Lease if Tenant makes an assignment for the benefit of creditors, or files a
voluntary petition under any state or federal bankruptcy or insolvency law, or
an involuntary petition is filed against Tenant under any state or federal
bankruptcy or insolvency law and is not discharged within 60 days after filing,
or whenever a petition shall be filed by Tenant under the arrangement provisions
of the United States Bankruptcy Code or similar law, or whenever a receiver of
Tenant, or of, or for, the property of Tenant shall be appointed, or Tenant
admits it is insolvent or is not able to pay its debts as they mature.
21.2 DEFAULT PROVISIONS. Each of the following shall constitute a
default by Tenant under this Lease: (a) if Tenant fails to pay Rent or any other
payment within seven (7) days of the date when due hereunder (provided, however,
that for the first occurrence within any period of twelve (12) consecutive
months of a failure by Tenant to pay Rent or another payment under this Lease on
or before the due date therefor as specified in this Lease, Tenant
<PAGE>
Page 14
will not be in default under this Lease unless Tenant's failure to pay such Rent
or other payment continues for more than seven (7) days after written notice of
the failure is given to Tenant); or (b) if Tenant fails, whether by action or
inaction, to timely comply with, or satisfy, any or all of the obligations
imposed on Tenant under this Lease for a period of thirty (30) days after
Landlord's delivery to Tenant of written notice of such default under this
subsection 21.2(b); provided, however, that if the default cannot, by its
nature, be cured within such thirty (30) day period, but Tenant commences and
diligently pursues a cure of such default promptly within the initial thirty
(30) day cure period, then Landlord shall not exercise its remedies under
Section 22 unless such default remains uncured for more than sixty (60) days
after Landlord's initial delivery to Tenant of notice of such default.
SECTION 22: RIGHTS AND REMEDIES
22.1 LANDLORD'S CURE RIGHTS UPON DEFAULT OF TENANT. If Tenant
defaults in the performance of any of its obligations under this Lease,
Landlord, without thereby waiving such default, may (but shall not be obligated
to) perform the same for the account, and at the expense of, Tenant upon
compliance with any notice requirements and cure periods set forth in Subsection
21.2.
22.2 LANDLORD'S REMEDIES. In the event of any default by Tenant under
this Lease, Landlord, at its option, and after the proper notice and cure
period, if any, as provided in Section 21.2 has expired, without further notice
or demand to Tenant, may, in addition to all other rights and remedies provided
in this Lease, or otherwise at law or in equity: (a) terminate this Lease and
Tenant's right of possession of the Premises, and recover all damages to which
Landlord is entitled under law, specifically including, without limitation,
accelerated Base Rent and Additional Rent attributable to the balance of the
Term (discounted to present value if recovered and paid in a single lump sum),
and all Landlord's expenses of reletting the Premises (including repairs,
alterations, improvements, additions, decorations, legal fees and brokerage
commissions), or (b) terminate Tenant's right of possession of the Premises
without terminating this Lease; provided, however, that Landlord shall use its
reasonable efforts, whether Landlord elects to proceed under Subsections (a) or
(b) above, to relet the Premises, or any part thereof for the account of Tenant,
for such rent and term and upon such terms and conditions as are acceptable to
Landlord. If Landlord shall elect to pursue its rights and remedies under
Subsection (b), then Landlord shall at any time have the further right and
remedy to rescind such election and pursue its rights and remedies under
Subsection (a), including but not limited to such time as Landlord has obtained
a tenant to relet the Premises, which, in Landlord's reasonable judgment, is a
suitable tenant. For purposes of such reletting, Landlord is authorized to
decorate, repair, alter and improve the Premises to the extent deemed necessary
by Landlord, in its sole and absolute discretion. If Landlord fails to relet
the Premises or if the Premises are relet and a sufficient sum is not realized
therefrom, after payment of all Landlord's expenses of reletting (including
repairs, alterations, improvements, additions, decorations, legal fees and
brokerage commissions), to satisfy the payment, when due, of Base Rent and
Additional Rent reserved under this Lease for any monthly period, then Tenant
shall pay to Landlord a sum equal to the accelerated amount of Base Rent and
Additional Rent due under this Lease attributable to the balance of the Term
(discounted to present value if recovered and paid in a single lump sum), or if
the Premises have been relet, Tenant shall pay any such deficiency monthly.
Tenant agrees that Landlord may file suit to recover any sums due to Landlord
hereunder from time to time and that such suit or recovery of any amount due
Landlord hereunder shall not be any defense to any subsequent action brought for
any amount not theretofore reduced to judgment in favor of Landlord. In the
event Landlord elects, pursuant to Subsection (b) of this Section 22.2, to
terminate Tenant's right of possession only, without terminating this Lease,
Landlord may, at Landlord's option, enter into the Premises, remove Tenant's
Property, Tenant's signs and other evidences of tenancy, and take and hold
possession thereof, as provided in Section 20 hereof; provided, however, that
such entry and possession shall not terminate this Lease or release Tenant, in
whole or in part, from Tenant's obligation to pay the Base Rent and Additional
Rent reserved hereunder for the full Term, or from any other obligation of
Tenant under this Lease. Any and all property that may be removed from the
Premises by Landlord pursuant to the authority of the Lease or of law, to which
Tenant is or may be entitled, may be handled, removed or stored by Landlord at
the risk, cost and expense of Tenant, and in no event or circumstance shall
Landlord be responsible for the value, preservation or safekeeping thereof.
Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such
removal and all storage charges against such property so long as the same shall
be in Landlord's possession or under Landlord's control. Any such property of
Tenant not retaken from storage by Tenant within thirty (30) days after the end
of the Term, however terminated, shall at Landlord's option be conclusively
presumed to have been conveyed by Tenant to Landlord under this Lease as in a
bill of sale. If Landlord elects such option, then Landlord agrees to use
commercially reasonable efforts to sell such property of Tenant (either by
public or private sale), and the net proceeds realized from the sale (after
deducting Landlord's costs and expenses of storage and of organizing,
advertising and completing the sale) shall be applied against the sums owing by
Tenant to Landlord under this Lease. Tenant agrees to sign such instruments of
conveyance as may be necessary to complete any such sale(s), notwithstanding
that all of Tenant's rights to and interests in such property will conclusively
<PAGE>
Page 15
be deemed to have been conveyed to Landlord by the express terms of this Lease.
22.3 ADDITIONAL RIGHTS OF LANDLORD. Any and all costs, expenses
and disbursements, of any kind or nature, incurred by Landlord or Agent in
connection with the enforcement of any and all of the terms and provisions of
this Lease, including reasonable attorneys' fees (through all appellate
proceedings), shall be due and payable (as Additional Rent) upon Landlord's
submission of an invoice therefor. All sums advanced by Landlord or Agent on
account of Tenant under this Section, or pursuant to any other provision of this
Lease, and all Base Rent and Additional Rent, if delinquent or not paid by
Tenant and received by Landlord within seven (7) days of the date when due
hereunder, shall bear interest at the rate of three percent (3%) per annum above
the "prime" or "reference" or "base" rate of interest publicly announced as
such, from time to time, by The First National Bank of Chicago, from the due
date thereof until paid, and such interest shall be and constitute Additional
Rent and be due and payable upon Landlord's or Agent's submission of an invoice
therefor. Suit or suits for the recovery of such damages, or any installments
thereof, may be brought by Landlord from time to time at its election, and
nothing contained herein shall be deemed to require Landlord to postpone suit
until the Expiration Date, nor limit or preclude recovery by Landlord against
Tenant of any sums or damages to which, in addition to the damages particularly
provided above, Landlord may lawfully be entitled by reason of any default
hereunder by Tenant. The various rights, remedies and elections of Landlord
reserved, expressed or contained herein are cumulative and no one of them shall
be deemed to be exclusive of the others or of such other rights, remedies,
options or elections as are now or may hereafter be conferred upon Landlord by
law.
22.4 EVENT OF BANKRUPTCY. In addition to, and in no way limiting the
other remedies set forth herein, Landlord and Tenant agree that if Tenant ever
becomes the subject of a voluntary or involuntary bankruptcy, reorganization,
composition, or other similar type proceeding under the federal bankruptcy laws,
as now enacted or hereinafter amended, then:
(a) "Adequate assurance of future performance" by Tenant and/or any
assignee of Tenant pursuant to Bankruptcy Code Section 365 will include
(but not be limited to) payment of an additional/new security deposit in
the amount of three (3) times the then-current Base Rent payable hereunder.
(b) Any person or entity to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code, shall be deemed, without further act
or deed, to have assumed all of the obligations of Tenant arising under
this Lease on and after the effective date of such assignment. Any such
assignee shall, upon demand by Landlord, execute and deliver to Landlord an
instrument confirming such assumption of liability.
(c) Notwithstanding anything in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of Landlord under this Lease, whether or
not expressly denominated as "Rent", shall constitute "rent" for the
purposes of Section 502(b)(6) of the Bankruptcy Code.
(d) If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other
considerations payable or otherwise to be delivered to Landlord or Agent
(including Base Rent, Additional Rent and other amounts hereunder), shall
be and remain the exclusive property of Landlord and shall not constitute
property of Tenant or of the bankruptcy estate of Tenant. Any and all
monies or other considerations constituting Landlord's property under the
preceding sentence not paid or delivered to Landlord or Agent shall be held
in trust by Tenant or Tenant's bankruptcy estate for the benefit of
Landlord and shall be promptly paid to or turned over to Landlord.
SECTION 23: BROKER
Tenant covenants, warrants and represents that the broker set forth in
Section 1.8(A) was the only broker to represent Tenant in the negotiation of
this Lease ("Tenant's Broker"). Landlord covenants, warrants and represents
that the broker set forth in Section 1.8(B) was the only broker to represent
Landlord in the negotiation of this Lease ("Landlord's Broker"). Landlord shall
be solely responsible for paying the commissions of Landlord's Broker. Each
party agrees to and hereby does defend, indemnify and hold the other harmless
against and from any brokerage commissions or finder's fees or claims therefor
by a party (other than Tenant's Broker and Landlord's Broker) claiming to have
dealt with the indemnifying party and all costs, expenses and liabilities in
connection therewith,
<PAGE>
Page 16
including, without limitation, reasonable attorneys' fees and expenses, for any
breach of the foregoing. The foregoing indemnification shall survive the
termination of this Lease for any reason.
SECTION 24: ESTOPPEL CERTIFICATES
Tenant shall, from time to time and within twenty (20) days after any
request by Landlord, execute and deliver to Landlord (and to any existing or
prospective mortgage lender, ground lessor, or purchaser designated by
Landlord), a statement: (i) certifying that this Lease is unmodified and in
full force and effect (or if there have been modifications, that the same is in
full force and effect as modified and stating the modifications); (ii)
certifying the dates to which the Base Rent and Additional Rent have been paid;
(iii) stating whether Landlord is in default in performance of any of its
obligations under this Lease, and, if so, specifying each such default; (iv)
stating whether any event has occurred which, with the giving of notice or
passage of time, or both, would constitute such a default, and, if so,
specifying each such event; and (v) stating whether any rights of Tenant (E.G.,
options) have been waived. Any such statement delivered pursuant hereto shall
be deemed a representation and warranty to be relied upon by the party
requesting the certificate and by others with whom Landlord may be dealing,
regardless of independent investigation. Tenant also shall include in any such
statements such other information concerning this Lease as Landlord or Agent may
reasonably request including, but not limited to, the amount of Base Rent and
Additional Rent under this Lease, and whether Landlord has completed all (if
any) improvements to the Premises required under this Lease.
SECTION 25: HAZARDOUS SUBSTANCES
25.1 DEFINITIONS. For purposes of this Section 25, "hazardous
substance" means any matter regulated under the Resources Conservation Recovery
Act ("RCRA"), 42 U.S.C. Section 6901 ET SEQ., the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 52 U.S.C. Section 9601 ET
SEQ., applicable state or local law, or any substance or matter giving rise to
liability under any common law theory based on nuisance or strict liability (the
foregoing laws being referred to herein as "Environmental Laws"). For purposes
of this Article 25, "Landlord's Environmental Liability" means: any and all
losses, liabilities, obligations, penalties, claims, fines, lost profits,
demands, litigation, defenses, costs, judgments, suits, proceedings, damages
(including consequential, punitive and exemplary damages), disbursements or
expenses of any kind or nature whatsoever (including attorneys' fees at trial
and appellate levels and experts' fees and disbursements and expenses incurred
in investigating, defending against, settling or prosecuting any suit,
litigation, claim or proceeding) which may at any time be either directly or
indirectly imposed upon, incurred by or asserted or awarded against Landlord or
any of Landlord's parent and subsidiary corporations and their affiliates,
shareholders, directors, officers, employees, and agents in connection with or
arising from: (i) any hazardous substance used, exposed, emitted, released,
discharged, generated, manufactured, sold, transported, handled, stored,
treated, reused, presented, disposed of or recycled on, in or under all or any
portion of the Property, or any surrounding areas; (ii) any misrepresentation,
inaccuracy or breach of any warranty, covenant or agreement contained or
referred to in this Section 25; (iii) any violation, liability or claim of
violation or liability under any Environmental Laws; or (iv) the imposition of
any lien for damages caused by, or the recovery of any costs incurred for the
cleanup of, any release or threatened release of hazardous substance.
25.2 PROHIBITION. Tenant shall not conduct or authorize the
generation, transportation, storage, use, treatment or disposal on or in the
Property or any portion of the Property, of any hazardous substance without
prior written authorization by Landlord (and then only to the extent
specifically authorized by Landlord), which authorization may be given or
withheld in Landlord's sole and absolute discretion, and Tenant's failure to
comply with the provisions of this Section 25.2 shall constitute a default under
this Lease. Notwithstanding the preceding sentence, Landlord hereby authorizes
Tenant to use and store reasonable quantities of the following in the Property,
in accordance with all applicable laws and regulations: paints; oils; material
utilized in printing operations; and materials utilized in the normal course of
Tenant's repair and maintenance of the Property. No such purported
authorization shall be binding on Landlord unless signed by Landlord and not
solely by Agent.
25.3 PERMITTED ACTIVITIES. If Landlord expressly authorizes Tenant,
in writing, to generate, transport, store, treat or dispose of any hazardous
substance on the Property, or on or in any portion of the Property: (i) Tenant
shall, at its own cost, comply with all laws (federal, state or local) relating
to hazardous substance, including, but not limited to, RCRA and CERCLA; (ii)
Tenant shall promptly provide Agent copies of all communications, permits or
agreements with any governmental authority or agency (federal, state or local)
or any private entity relating in any way to the presence, release, threat of
release, placement on or in the Property or any portion of the Property, or the
generation, transportation, storage, use, treatment, or disposal at the
Premises, of any hazardous substance; (iii) Landlord, Agent and their
respective agents and employees shall have the right to enter the Premises
and/or conduct appropriate tests for the purposes of ascertaining Tenant
compliance with all applicable laws, rules or permits relating in any way to the
presence of hazardous substances on the Property or any portion thereof; and
(iv) Upon written request by Landlord or Agent, Tenant shall provide Landlord
with the results of appropriate tests of air,
<PAGE>
Page 17
water or soil to demonstrate that Tenant complies with all applicable laws,
rules or permits relating in any way to the presence of hazardous substances on
the Property or any portion thereof.
25.4 REMEDIAL ACTION. If the presence, release, threat of release,
placement on or in the Property or any portion thereof, or the generation,
transportation, storage, use, treatment, or disposal at the Property or any
portion thereof of any hazardous substance by (or under the direction,
supervision or control of) Tenant or any parent, subsidiary, affiliate, agent,
employee, representative, customer, supplier, invitee, licensee, contractor,
subcontractor, assignee or subtenant of Tenant: (i) gives rise to liability
(including, but not limited to, a response action, remedial action, or removal
action) under RCRA, CERCLA, any state or local law, rule or statute, or any
common law theory based on nuisance or strict liability, (ii) causes an adverse
public health effect, or (iii) pollutes, or threatens to pollute, the
environment, Tenant, at its sole cost and expense, shall promptly take any and
all remedial and removal action necessary to clean up the Property or any
portion thereof, and mitigate exposure to liability arising from the hazardous
substance, regardless of whether required by law.
25.5 INDEMNITY AND RELEASE. Tenant shall and does hereby protect,
indemnify, defend (at trial and appellate levels and with counsel, experts and
consultants acceptable to Landlord and at Tenant's sole cost) and hold Landlord
and its Affiliates free and harmless from and against any loss, cost or expense
incurred by Landlord and resulting wholly or in part from Tenant's breach of its
obligations under this Section 25 (collectively, "Tenant's Indemnification
Obligations"). Tenant's Indemnification Obligations shall survive in perpetuity
with respect to any Landlord's Environmental Liability. The foregoing indemnity
and Tenant's other obligations under this Section 25 shall survive the
expiration or termination of this Lease for any reason.
25.6 LANDLORD'S INDEMNITY. Landlord shall and hereby does defend,
indemnify, and hold Tenant harmless from and against any and all expenses,
losses and liabilities incurred by Tenant (with the exception of consequential
and exemplary damages and those expenses, losses, and liabilities arising from
Tenant's own acts or omissions or the acts or omissions of any parent,
subsidiary, affiliate, customer, licensee, invitee, agent, employee,
representative, supplier, contractor, subcontractor, assignee or subtenant of
Tenant or anyone acting under their direction, supervision or control), by
reason of Landlord's storage, generation, handling, treatment, transportation,
disposal, or arrangement for transportation or disposal of any hazardous
substance (whether accidental, intentional, or negligent) at or from the
Premises. Tenant shall promptly notify Landlord of any action or investigation
under which the foregoing indemnity may arise and shall consult and cooperate
with Landlord during the pendency of any proceeding, investigation or
remediation related thereto. Landlord shall assume the defense of any such
discretion with regard to selection of counsel and all aspects of the action,
investigation, proceeding and remediation. The indemnity contained in this
Section 25.6 shall survive the termination or expiration of this Lease.
SECTION 26: MISCELLANEOUS
26.1 MERGER. All prior understandings and agreements between the
parties are merged in this Lease, which alone fully and completely expresses the
agreement of the parties. No agreement shall be effective to modify this Lease,
in whole or in part, unless such agreement is in writing, and is signed by the
party against whom enforcement of said change or modification is sought.
26.2 NOTICES. Any notice required to be given by either party
pursuant to this Lease, shall be in writing and shall be deemed to have been
properly given, rendered or made only if personally delivered, or if sent by
Federal Express or other comparable commercial overnight delivery service,
addressed to the other party at the addresses set forth below (or to such other
address as Landlord or Tenant may designate to each other from time to time by
written notice), and shall be deemed to have been given, rendered or made on the
day so delivered or on the first business day after having been deposited with
the courier service:
If to Landlord: First Industrial Financing Partnership, L.P.
150 North Wacker Drive, Suite 150
Chicago, Illinois 60606
Attn: Michael W. Brennan
With a copy to: Barack, Ferrazzano, Kirschbaum & Perlman
333 West Wacker Drive
Suite 2700
Chicago, Illinois 60606
Attn: Howard Nagelberg and Suzanne Bessette-Smith
If to Tenant: On and after August 1, 1997 Prior to August 1, 1997
--------------------------- -----------------------
Gantos, Inc. Gantos, Inc.
3366 Kraft Avenue, S.E. 3260 Patterson, S.E.
Grand Rapids, Michigan 49512 Grand Rapids, Michigan 49512
Attn: Kenneth Green Attn: Kenneth Green
<PAGE>
Page 18
26.3 NON-WAIVER. The failure of either party to insist, in any one or
more instances, upon the strict performance of any one or more of the
obligations of this Lease, or to exercise any election herein contained, shall
not be construed as a waiver or relinquishment for the future of the performance
of such one or more obligations of this Lease or of the right to exercise such
election, but the Lease shall continue and remain in full force and effect with
respect to any subsequent breach, act or omission. The receipt and acceptance
by Landlord or Agent of Base Rent or Additional Rent with knowledge of breach by
Tenant of any obligation of this Lease shall not be deemed a waiver of such
breach.
26.4 LEGAL COSTS. Any party in breach or default under this Lease
(the "Defaulting Party") shall reimburse the other party (the "Nondefaulting
Party") upon demand for any costs or expenses that the Nondefaulting Party
incurs in connection with the breach or default, regardless whether suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, in the event of litigation, the court in such action
shall award to the party in whose favor a judgment is entered, a reasonable sum
as attorneys' fees and costs, which sum shall be paid by the losing party.
26.5 PARTIES BOUND. Except as otherwise expressly provided for in
this Lease, this Lease shall be binding upon, and inure to the benefit of, the
successors and assignees of the parties hereto. Tenant hereby releases Landlord
named herein from any obligations of Landlord for any period subsequent to the
conveyance and transfer of Landlord's ownership interest in the Property. In
the event of such conveyance and transfer, Landlord's obligations shall
thereafter be binding upon each transferee (whether Successor Landlord or
otherwise). No obligation of Landlord shall arise under this Lease until the
instrument is signed by, and delivered to, both Landlord and Tenant.
26.6 RECORDATION OF LEASE. Tenant shall not record or file this Lease
(or any memorandum hereof) in the public records of any county or state.
26.7 SURVIVAL OF OBLIGATIONS. Upon the expiration or other
termination of this Lease, neither party shall have any further obligation or
liability to the other except as otherwise expressly provided in this Lease and
except for such obligations as, by their nature or under the circumstances, can
only be, or by the provisions of this Lease, may be performed after such
expiration or other termination. The provisions of Sections 3, 12, 17, 20, 23
and 25 shall survive any termination of this Lease.
26.8 GOVERNING LAW; CONSTRUCTION. This Lease shall be governed by and
construed in accordance with the laws of the state in which the Property is
located. If any provision of this Lease shall be invalid or unenforceable, the
remainder of this Lease shall not be affected but shall be enforced to the
extent permitted by law. The captions, headings and titles in this Lease are
solely for convenience of reference and shall not affect its interpretation.
This Lease shall be construed without regard to any presumption or other rule
requiring construction against the party causing this Lease to be drafted. Each
covenant, agreement, obligation, or other provision of this Lease to be
performed by Tenant, shall be construed as a separate and independent covenant
of Tenant, not dependent on any other provision of this Lease. All terms and
words used in this Lease, regardless of the number or gender in which they are
used, shall be deemed to include any other number and any other gender as the
context may require.
26.9 TIME. Time is of the essence of this Lease. If the time for
performance hereunder falls on a Saturday, Sunday or a day that is recognized as
a holiday in the state in which the Property is located, then such time shall be
deemed extended to the next day that is not a Saturday, Sunday or holiday in
said state.
26.10 AUTHORITY OF TENANT. If Tenant is a corporation, partnership,
association or any other entity, it shall deliver to Landlord, concurrently with
the delivery to Landlord of an executed Lease, certified resolutions of Tenant's
directors or other governing person or body (i) authorizing execution and
delivery of this Lease and the performance by Tenant of its obligations
hereunder and (ii) certifying the authority of the party executing the Lease as
having been duly authorized to do so.
26.11 JOINT AND SEVERAL LIABILITY. All parties signing this Lease as
Tenant shall be jointly and severally liable for all obligations of Tenant
hereunder.
26.12 COUNTERPART EXECUTION. This Lease may be executed in counterpart
and, when all counterpart documents are executed, the counterparts shall
constitute a single binding instrument.
26.13 RIDERS. All Riders and Exhibits attached hereto and executed (or
initialed) both by Landlord
<PAGE>
Page 19
and Tenant shall be deemed to be a part hereof and hereby incorporated herein.
26.14 SATELLITE DISH/BACKUP GENERATOR. Tenant shall be permitted at
its sole cost and expense to (i) place on the Building roof a satellite dish or
antenna for Tenant's business communication and data processing requirements,
and (ii) place on the Property a backup generator, provided that (w) Landlord
shall have the right to dictate the placement of both the satellite dish (or
antenna) and the generator, (x) Tenant shall at its sole expense comply with all
laws, rules, regulations and ordinances relating to the ownership, existence,
use and operation thereof, (y) Tenant shall first provide to Landlord
information as to the weight and method of installation of the satellite dish
(or antenna), which are subject to Landlord's prior approval (such approval not
to be unreasonably withheld), and (z) such items shall be deemed to be "Tenant's
Property" under this Lease.
26.15 WAIVER OF TRIAL BY JURY. THE LANDLORD AND THE TENANT, TO THE
FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY COURT ACTION, BROUGHT
TO ANY PARTY TO THIS LEASE WITH RESPECT TO THIS LEASE, THE PREMISES, OR ANY
OTHER MATTER RELATED TO THIS LEASE OR THE PREMISES.
<PAGE>
Page 20
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of
the day and year first above written.
LANDLORD:
FIRST INDUSTRIAL FINANCING PARTNERSHIP, L.P.,
a Delaware limited partnership
By: First Industrial Management Corporation,
a Maryland corporation
By:
------------------------------------------
David P. Draft, Signing Officer
TENANT:
GANTOS, INC., a Michigan corporation
By:
------------------------------------------
Its:
------------------------------------------
<PAGE>
Page 21
LEASE EXHIBIT A
Premises: Approximately 110,000 rentable square feet in the building
commonly known as 3366 Kraft Avenue, S.E., Grand Rapids,
Michigan.
Property: See legal description attached hereto.
<PAGE>
Page 22
LEASE EXHIBIT B
BASE RENT PAYMENTS
1. Total Base Rent during the initial Term equal to $1,925,016 shall be due
and payable in monthly installments as follows:
Period Monthly Installment
------ -------------------
4/1/97 - 7/31/97 $ 0.00
8/1/97 - 7/31/98 $30,250
8/1/98 - 7/31/00 $31,625
8/1/00 - 7/31/02 $33,459
2. Total Base Rent equal to $2,172,510 shall be due for the first five (5)
year renewal Term, payable in monthly installments as follows:
Period Monthly Installment
------ -------------------
8/1/02 - 1/31/05 $35,292
2/1/05 - 7/31/07 $37,125
3. Total Base Rent equal to $2,392,530 shall be due for the second five (5)
year renewal Term, payable in monthly installments as follows:
Period Monthly Installment
------ -------------------
8/1/07 - 1/31/10 $38,959
2/1/10 - 7/31/12 $40,792
<PAGE>
Page 23
LEASE EXHIBIT C
LANDLORD'S REPAIRS AND IMPROVEMENTS
1. Replace all twelve (12) dock seals.
2. Separately meter gas and electric utility service to the Premises.
3. Construct a drywall wall separating the Premises from other portions of the
Building.
4. Remove the existing wall separating the front 50,000 SF of the Premises
from the back 60,000 SF of the Premises.
Items 1-3 to be completed by July 31, 1997.
Item 4 to be completed by May 15, 1997.
<PAGE>
Page 24
LEASE EXHIBIT D
REQUIRED INSURANCE
(a) "ALL-RISK" PROPERTY AND LOSS OF INCOME COVERAGE FOR TENANT'S
PROPERTY. "All Risk" (i) property insurance on a replacement cost basis,
covering all of Tenant's Property (as defined in Section 12.2 of this Lease),
all merchandise and trade fixtures and furnishings and equipment and all other
personal property of Tenant and all leasehold improvements installed in the
Premises by, or on behalf of, Tenant all in an amount not less than the full
replacement cost of all such property and (ii) loss-of-income insurance in an
amount sufficient to assure that Landlord shall recover the loss of any rental
income due and owing to Landlord from Tenant under the terms of this Lease,
which coverage shall provide such protection to Landlord for a period of not
less than twelve (12) consecutive months. The total amount of the deductible
required under each policy providing such coverage shall be no more than
$50,000.00 per loss. Landlord, Agent and any other parties designated by
Landlord (including, but not limited to, its beneficiary, its general and
limited partners, and Superior Parties) shall be included as loss payee(s) (as
to the coverage in clause (ii) only) or additional insured(s), as appropriate.
(b) LIABILITY COVERAGE. Commercial general public liability and
comprehensive automobile liability (and, if necessary to comply with any
conditions of this Lease, umbrella liability insurance) covering Tenant against
any claims arising out of liability for bodily injury and death and personal
injury and advertising injury and property damage occurring in and about the
Premises, and/or the Property and otherwise resulting from any acts and
operations of Tenant, its agents and employees, with limits of not less than
total limits of $2,000,000.00 per occurrence and $5,000,000.00 annual general
aggregate, per location. The total amount of a deductible or otherwise self-
insured retention with respect to such coverage shall be not more than
$10,000.00 per occurrence. Such insurance shall include, inter alia: (i)
"occurrence" rather than "claims made" policy forms unless such "occurrence"
policy forms are not available; (ii) any and all liability assumed by Tenant
under the terms of this Lease, to the extent such insurance is available; (iii)
premises medical-operations expenses in an amount not less than $5,000.00 per
person, per accident; (iv) Landlord, Agent and any other parties designated by
Landlord or Agent (including, but not limited to, its beneficiary, its general
and limited partners, and Superior Mortgagees) shall be designated as Additional
Insured(s) with respect to (x) the Premises, and (y) all operations of Tenant,
and (z) any property and areas and facilities of Landlord used by Tenant, its
employees, invitees, customers or guests; and (v) severability of insured
parties and cross-liability so that the protection of such insurance shall be
afforded to Landlord in the same manner as if separate policies had been issued
to each of the insured parties.
(c) WORKERS' COMPENSATION COVERAGE. Workers' compensation and
employer's liability insurance in the state in which the Premises and any other
operations of Tenant are located and any other state in which Tenant or its
contractors or subcontractors may be subject to any statutory or other liability
arising in any manner whatsoever out of the actual or alleged employment of
others. The total limits of the employer's liability coverage shall be not less
than applicable statutory limits. Tenant shall have the right to self-insure
for workers' compensation claims if permitted by the State of Michigan and other
governmental agencies and authorities having jurisdiction.
(d) OTHER COVERAGE. Such other policy or policies as are either:
(i) reasonably required of Landlord by any Superior Mortgagee or any other party
having any interest in the Property; or (ii) required by insurers by reasons of
a change in Tenant's use of, or activities at, the Premises.
All insurance policies required under this lease exhibit shall: (i) be issued
by companies licensed to do business in the State in which the Property is
located and having an A.M. Best Co. rating of A+ or better; (ii) not be subject
to cancellation or material change or non-renewal without at least thirty (30)
days' prior written notice to Landlord and any other parties designated by
Landlord (A) to be loss payee(s) or additional insured(s) under the insurance
policies required from Tenant, or (B) to receive such notices; and (iii) be
deemed to be primary insurance in relation to any other insurance maintained by
Landlord or Agent.
<PAGE>
Page 25
RIDER NO. 1
[Lease dated January _____, 1997 between
First Industrial Financing Partnership, L.P.and Gantos, Inc.]
Landlord consents to (but does not require) Tenant's improvement of the Premises
as follows (the "Improvements"):
1. Construct a maximum of 25,000 square feet of mezzanined office area, that
will include a minimum of 10,000 square feet of finished office area on the
ground level.
2. Modify the existing Premises lighting and electrical systems to accommodate
800-1,000 amp service and increase the lighting level to 50 ft candles 3'
AFF upon initial occupancy.
3. Install (if necessary) two (2) openings and any concrete pads in the space
for trash compactors in north wall.
4. Construct or modify restrooms to accommodate 90 employees.
5. At Tenant's election, provide additional paved parking area on the Property
to accommodate Tenant's need for approximately 160 paved parking spaces.
All Improvements shall be constructed and coordinated solely by Tenant on a lien
free basis using new materials, and in accordance with plans, specifications and
standards approved by Landlord. All plans and specifications, as well as the
Improvements, shall comply with applicable building and construction codes,
zoning ordinances, ADA requirements, and other applicable laws, statutes, codes
and regulations. If any are started, all Improvements must be completed by
Tenant no later than July 31, 1997 (increased by any delay in the delivery of
possession to Tenant under Section 2.1(b)). Tenant shall be solely responsible
for obtaining a certificate of occupancy for the Improvements, and shall observe
and comply with all applicable provisions of the Michigan Construction Lien Act.
Landlord agrees to pay to Tenant a Construction Allowance to offset the total
hard and soft costs incurred to design and construct the Improvements; Tenant is
solely liable and responsible for directly paying all costs (whether hard or
soft) incurred in connection with the design and construction of the
Improvements. For purposes of this Lease, the Improvements shall be treated as
"Alterations". Tenant shall furnish to Landlord such information and evidence
as Landlord may reasonably request from time to time to enable Landlord to
monitor construction of the Improvements and determine Tenant's compliance with
the provisions of this Rider. Within 20 days after Landlord's receipt of (i)
full and unconditional final lien waivers, (ii) a final contractor's sworn
statement, (iii) a certificate of completion for the Improvements signed by
Tenant's architect, and (iv) a certificate of occupancy for the Improvements,
Landlord shall pay the $250,000 Construction Allowance to Tenant.
<PAGE>
Page 1
AGREEMENT OF LEASE
AGREEMENT OF LEASE made as of this 23rd day of January, 1997 between
SOUNDVIEW PLAZA ASSOCIATES, a Connecticut partnership with an office c/o W&M
Properties of Connecticut, Inc., One Station Place, Stamford, Connecticut 06902
or such other place or places as the General Partners may hereafter determine
(hereinafter called "Landlord") and GANTOS, INC., a Michigan corporation, having
an office at 3260 Patterson Southeast, P.O. Box 875, Grand Rapids, MI 49588
(hereinafter called "Tenant").
W I T N E S S E T H :
Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, space on the fifth (5th) floor in the building known as Soundview
Plaza, 1266 East Main Street, Stamford, Connecticut 06902 (which building is
hereinafter called "the Building") located on land in the City of Stamford,
State of Connecticut as more particularly described in Exhibit A-1 annexed
hereto and made a part hereof (which land and building are hereinafter called
"the building project"), and which space is approximately as shown on the floor
plan(s) annexed hereto as Exhibit A-2 and made a part hereof, or initialed by
the parties and incorporated hereby by reference (which space is hereinafter
called the "demised premises"); for the term of years, to begin on the
commencement date set forth in Article 3 hereof, and to end on the last day of
the seventh lease year (as hereinafter defined in Section 1.06 of this Lease),
or until such term shall sooner cease and terminate as hereinafter provided.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant and agree as follows:
ARTICLE 1
RENT, ETC.
1.01 Tenant shall pay to Landlord a fixed annual rent (excluding
electricity) at the followings rates:
A. $340,687.50 per annum for the first (1st) lease year;
B. $355,500.00 per annum for the second (2nd) lease year;
C. $370,312.50 per annum for the third (3rd) lease year;
D. $385,125.00 per annum for the fourth (4th) lease year;
<PAGE>
Page 2
E. $399,937.50 per annum for the fifth (5th) lease year;
F. $414,750.00 per annum for the sixth (6th) lease year; and
G. $429,562.50 per annum for the seventh (7th) lease year.
1.02 Tenant agrees to pay the fixed annual rent as aforesaid in equal
monthly installments in advance on the first day of each calendar month during
the term of this Lease.
1.03 Tenant agrees to pay said fixed annual rent in lawful money of
the United States, at the office of Landlord or such other place in the United
States of America as Landlord may designate, without any setoff or deduction
whatsoever, except such deduction as may be occasioned by the occurrence of any
event permitting or requiring a deduction from or abatement of rent, as
specifically set forth herein. Should the commencement date occur on any day
other than on the first day of a month, then the fixed annual rent for the
unexpired portion of such month shall be adjusted and prorated on a per diem
basis. In no event shall the fixed annual rent set forth in Section 1.01 be
reduced because real estate taxes or Building expenses are reduced or are less
than the amounts set forth in Sections 5.01(a)(i) or 6.01(a)(i) hereof.
1.04 Intentionally Deleted.
1.05 The parties acknowledge and agree that the rentable square foot
area of the originally demised premises shall be deemed to be 19,750 square
feet.
1.06 The term "lease year" when used in this Lease shall mean the
twelve months commencing on the first day of the month following the month in
which occurs the commencement date (as defined in Section 3.01) and each
subsequent period of twelve months; provided, however, that if the commencement
date occurs on the first day of a month, then the first lease year shall mean
the twelve months commencing on said commencement date. The first lease year
shall include the period, if any, from the commencement date to the end of the
month in which the commencement date occurs.
ARTICLE 2
OCCUPANCY, ETC.
2.01 Tenant may not use or occupy the demised premises as a savings
bank, state or Federal savings and loan association, commercial bank or trust
company or for any use prohibited by Rule O (of Exhibit B hereof). Tenant shall
use and occupy the demised premises solely as executive, merchandising and
general offices of Tenant, and for no other purpose.
<PAGE>
Page 3
ARTICLE 3
COMMENCEMENT OF TERM
3.01 The term of this Lease shall commence on whichever of the
following dates shall first occur (the "commencement date"): (a) the date when
the demised premises are substantially ready for occupancy, (b) the date when
the demised premises are substantially ready for occupancy less the total number
of days' delay, if any, by Tenant in complying with any of the provisions of
Article 33 of this Lease or (c) the date when Tenant shall take possession and
occupy the demised premises or any portion thereof, for its business purposes.
3.02 The demised premises shall be deemed substantially ready for
Tenant's occupancy when the demised premises are substantially complete except
for minor details which would not materially interfere with Tenant's ability to
conduct its business and minor "punchlist" items. Landlord agrees to promptly
complete any such remaining work.
Landlord agrees that it will use all reasonable diligence to make the
demised premises substantially ready for occupancy within ninety (90) days after
the date Tenant has provided Landlord with all of the information set forth in
items A through Q of Subdivision I of the attached Work Letter. Landlord will
seek to provide Tenant with an opportunity to move its furniture and other
personal property into the demised premises, prior to the commencement date,
provided that such early entry does not interfere in any way with any of
Landlord's work in and to the demised premises, in accordance with Article 33 of
this Lease and the attached Work Letter.
The term shall be deemed to have commenced on the date when the
demised premises reasonably would have been substantially ready for occupancy
except for Tenant's delay in (or failure of) compliance with the provisions of
Article 33, even if because of Tenant's failure to comply with the provisions of
Article 33 or failure to reasonably cooperate in a timely manner with Landlord
in connection with approving plans or revisions thereto or Landlord's work has
not been completed.
3.03 Landlord and Tenant shall, in accordance with the foregoing, fix
the commencement date of the term of this Lease and shall notify Tenant of the
date so fixed. When the commencement date of the term of this Lease has so been
determined, the parties hereto shall within thirty (30) days thereafter, at
Landlord's request, execute a written agreement confirming such date as the date
of the commencement of the term of this Lease. Any failure of the parties to
execute such written agreement shall not affect the validity of the commencement
date as fixed and determined by Landlord, as aforesaid.
3.04 The demised premises shall not be deemed to be unready for
Tenant's occupancy or incomplete if only minor or insubstantial details of
construction, decoration or mechanical adjustment remain to be done in the
demised premises or any part thereof. Tenant by entering into occupancy of the
demised premises shall be
<PAGE>
Page 4
conclusively deemed to have agreed that Landlord up to the time of such
occupancy had performed all of its obligations hereunder and that the demised
premises were in satisfactory condition as of the date of such occupancy, unless
within twenty (20) days after such date Tenant shall give written notice
(hereinafter called the "Punchlist Notice") to Landlord specifying the respects
in which the same were not in satisfactory condition, in which event, the
demised premises shall be conclusively deemed to be in satisfactory condition
except for the items set forth in the Punchlist Notice and except for latent
defects. The giving of the Punchlist Notice shall have no effect whatsoever
upon the commencement date. If Landlord fails to complete any of the items on
such Punchlist Notice within thirty (30) days after the rendition of such notice
then Tenant shall have the right to give Landlord a second notice detailing any
such incomplete items. If such items are not completed within fifteen (15) days
thereafter (except for reasons beyond Landlord's control), then Tenant may
complete any such incomplete items and deduct the actual reasonable cost thereof
from the next accruing rent payments due hereunder.
ARTICLE 4
COMMON AREAS
4.01 Landlord, at Landlord's expense, shall provide and shall make
available from time to time within the boundaries of the building project such
parking facilities, driveways, entrances and exits thereto, landscape and
planted areas, and other improvements and facilities, whether similar or
dissimilar, as Landlord shall at any time and from time to time deem appropriate
(all the foregoing being collectively referred to in this Lease as "Common
Areas"). Tenant and its officers, employees, agents, customers and invitees
shall have a nonexclusive right, in common with Landlord and all others to whom
Landlord has granted or may hereafter grant rights, to use the Common Areas.
The Common Areas shall at all times be subject to the exclusive control and
management of Landlord, and Landlord shall have the right from time to time to
establish, modify and enforce reasonable and nondiscriminatory rules and
regulations with respect to the Common Areas, and Tenant agrees, after notice
thereof, to abide by such rules and regulations and to cause its officers,
employees, agents, customers and invitees to conform thereto. Landlord, at
Landlord's expense, shall construct, operate, manage, equip, repair, landscape,
and maintain the Common Areas, for their intended purposes, in such manner as
Landlord shall, in Landlord's sole discretion, from time to time determine.
Landlord's rights respecting the Common Areas shall include (but shall not be
limited to) the following:
a. to maintain and operate lighting facilities serving the
Common Areas;
b. to supervise the Common Areas;
c. from time to time to change the area, level, location and
<PAGE>
Page 5
arrangement of parking areas, parking spaces and other Common Area facilities,
to make installations therein and to move or remove such installations, and to
change the location of, or permanently diminish or discontinue the use of any
portion of the Common Areas;
d. to restrict parking by tenants, their officers, agents,
employees, customers and invitees, to designated areas and to specific parking
spaces;
e. to discontinue, or restrict the use of, any portion of the
Common Areas to such extent, and for such period of time, as may in the opinion
of Landlord's counsel be necessary to prevent a dedication thereof or the
accrual of any rights to any person or the public therein;
f. to temporarily suspend the use of all, or any portion of,
the Common Areas; and
g. to take any other action with respect to the Common Areas,
as Landlord, in its sole discretion, shall determine to be advisable.
4.02 Tenant's right to use the Common Areas or any specified portion
thereof shall be deemed to be a revocable license, and Landlord shall not be
subject to any liability, nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, by reason of Landlord's exercise of any right
or rights respecting Common Areas reserved pursuant to Section 4.01 hereof, nor
shall the exercise of any such right be deemed a constructive or actual
eviction, provided that there shall be no unreasonable obstruction of Tenant's
access to the demised premises or unreasonable interference with Tenant's use
and enjoyment of the demised premises.
4.03 So long as Tenant is not in default beyond any grace period
under any of the terms, covenants and conditions of this Lease, Landlord will
provide Tenant ten (10) assigned parking spaces and with access to the parking
area for the parking of up to fifty (50) additional automobiles, at no charge.
4.04 With respect to the parking of vehicles at the building project:
(i) If Landlord elects to designate a specific parking zone
for Tenant's use, Tenant shall require its personnel and visitors to park their
vehicles only in parking zone designated by Landlord for Tenant's use for its
personnel and visitors on a "first come, first served" basis. Landlord reserves
the right at all times to redesignate such parking zones. Tenant, its personnel
and visitors shall not at any time park any trucks or delivery vehicles in any
of the parking areas.
(ii) All use of parking spaces and any other parking areas by
Tenant, its personnel and visitors will be at their own risk, and Landlord shall
not be
<PAGE>
Page 6
liable for any injury to person or property, or for loss or damage to any
vehicle or its contents, resulting from theft, collision, vandalism or any other
cause whatsoever, unless same is due to the negligence or willful misconduct of
Landlord, its agents or employees.
(iii) There shall be no overnight parking (unless approved in
advance by Landlord), and Tenant shall cause its personnel and visitors to
remove their vehicles from the parking area at the end of the working day. If
any vehicles owned by Tenant or by its personnel or visitors remains in the
parking area overnight and the same interferes with the cleaning or maintenance
of said area, any costs or liabilities incurred by Landlord in removing said
vehicle to effectuate cleaning or maintenance, or any damages resulting to said
vehicle or to Landlord's equipment or equipment owned by others, by reason of
the presence of or removal of said vehicle during such cleaning or maintenance
shall be paid by Tenant to Landlord, as additional rent on the rent payment date
next following the rendition of a bill therefor.
ARTICLE 5
TAX ESCALATION; TAXES ON LEASE OR RENTS
5.01 TAX ESCALATION. Tenant shall pay to Landlord, as additional
rent, tax escalation in accordance with this Article:
(a) Definitions: For the purpose of this Article, the
following definitions shall apply:
(i) The term "Tax Base Factor" shall mean the real
estate taxes for the period beginning on July 1, 1996 and ending on June 30,
1997.
(ii) The term "The Percentage", for purposes of
computing tax escalation, shall be deemed to mean 11.11 percent (11.11%).
(iii) The term "the building project" shall mean all of
the land more particularly described in Exhibit A-1 and the Building and
improvements located thereon, known as Soundview Plaza, Stamford, Connecticut.
(iv) The term "comparative year" shall mean the fiscal
(tax) year commencing July 1, 1997 and ending June 30, 1998, and each
subsequent period of twelve months, or such other period of twelve (12) months
as hereafter may be adopted by the governmental authority as the fiscal (tax)
year for real estate tax purposes.
(v) The term "real estate taxes" shall mean the total
of all taxes and special or other assessments, including any payment required in
lieu of or
<PAGE>
Page 7
relating to parking with respect to the building project, levied, assessed or
imposed at any time by any governmental authority upon or against the building
project, and also any tax or assessment levied, assessed or imposed at any time
by any governmental authority in connection with the receipt of income or rents
from said building project to the extent that same shall be in lieu of all or a
portion of any of the aforesaid taxes or assessments, or additions or increases
thereof, upon or against said building project. If, due to a future change in
the method of taxation or in the taxing authority, or for any other reason, a
franchise, income, transit, profit or other tax or governmental imposition,
however designated, shall be levied against Landlord in substitution in whole or
in part for the real estate taxes, or in lieu of additions to or increases of
said real estate taxes, then such franchise, income, transit, profit or other
tax or governmental imposition shall be deemed to be included within the
definition of "real estate taxes" for the purposes hereof. Notwithstanding the
foregoing, the term "real estate taxes" shall not include any taxes,
assessments, levies, fees or charges which are payable by Tenant or other
tenants in the Building under Section 5.02 hereof, or any taxes based upon
Landlord's income, except as otherwise set forth herein. As to special
assessments which are payable over a period of time extending beyond the term of
this Lease, only a pro rata portion thereof, covering the portion of the term of
this Lease unexpired at the time of the imposition of such assessment, shall be
included in "real estate taxes". If, by law, any assessment may be paid in
installments, then, for the purposes hereof (a) such assessment shall be deemed
to have been payable in the maximum number of installments permitted by law and
(b) there shall be included in real estate taxes, for each comparative year in
which such installments may be paid, the installments of such assessment so
becoming payable during such comparative year, together with interest payable
during such comparative year.
(1) In the event that the real estate taxes payable for any
comparative year shall exceed the Tax Base Factor, Tenant shall pay to Landlord,
as additional rent for such comparative year, an amount equal to The Percentage
of the excess. Upon Tenant's written request, Landlord shall provide Tenant
with copies of all pertinent tax bills. Before or after the start of each
comparative year, Landlord shall furnish to Tenant a statement of the real
estate taxes payable for such comparative year. If the real estate taxes
payable for such comparative year exceed t he Tax Base Factor, additional rent
for such comparative year, in an amount equal to The Percentage of the excess,
shall be due from Tenant to Landlord, and shall be payable by Tenant to
Landlord, within thirty (30) days after Landlord's furnishing the aforesaid
statement to Tenant, but not sooner than thirty (30) days prior to the date that
any corresponding payment(s) of real estate taxes are due to the taxing
authority.
(2) If, after Tenant shall have made a payment of
additional rent under this Article, Landlord shall receive a refund of any
portion of the real estate taxes payable for any comparative year on which such
payment of additional rent shall have been based, as a result of a reduction of
such real estate taxes by final determination of legal proceedings, settlement
or otherwise, Landlord shall promptly after receiving the refund pay to Tenant
The Percentage of the refund less The
<PAGE>
Page 8
Percentage of expenses (including attorneys' and appraisers' fees) incurred by
Landlord in connection with any such application or proceeding. If, prior to the
payment of taxes for any comparative year, Landlord shall have obtained a
reduction of that comparative year's assessed valuation of the building project,
and therefore of said taxes, then the term "real estate taxes" for that
comparative year shall be deemed to include the amount of Landlord's expenses in
obtaining such reduction in assessed valuation, including attorneys' and
appraisers' fees.
(3) If the real estate taxes payable for the period(s) upon
which the Tax Base Factor is based are reduced, the additional rent theretofore
paid or payable hereunder for all comparative years shall be recomputed on the
basis of such reduction, and Tenant shall pay to Landlord as additional rent,
within ten (10) days after being billed therefor, any deficiency between the
amount of such additional rent as theretofore computed and the amount thereof
due as the result of such recomputations. Should the real estate taxes payable
for such year be increased by final determination of legal proceedings,
settlement or otherwise, then appropriate recomputation and adjustment also
shall be made.
(4) The statements of the real estate taxes to be furnished
by Landlord as provided above shall constitute a final determination as between
Landlord and Tenant of the real estate taxes for the periods represented
thereby, unless Tenant within ninety (90) days after they are furnished shall in
writing challenge their accuracy or their appropriateness. If Tenant shall
dispute said statements, then, pending the resolution of such dispute, Tenant
shall pay the additional rent to Landlord in accordance with the statements
furnished by Landlord.
(5) In no event shall the fixed annual rent under this
Lease (exclusive of the additional rents under this Article) be reduced by
virtue of this Article.
(6) If the commencement date of this Lease occurs on a day
which is not the first day of a comparative year, then the additional rent due
hereunder for such comparative year shall be a proportionate share of said
additional rent for the entire comparative year, said proportionate share to be
based upon the length of time that the term of this Lease will be in existence
during such comparative year. Upon the date of any expiration or termination of
this Lease (except termination because of Tenant's default) whether the same be
the date hereinbefore set forth for the expiration of the term or any prior or
subsequent date, a proportionate share of said additional rent for the
comparative year during which such expiration or termination occurs shall
immediately become due and payable by Tenant to Landlord, if it was not
theretofore already billed and paid. The said proportionate share shall be based
upon the length of time that this Lease shall have been in existence during such
comparative year. Landlord shall promptly cause statements of said additional
rent for that comparative year to be prepared and furnished to Tenant. Landlord
and Tenant shall thereupon make appropriate adjustments of amounts then owing,
and Landlord shall
<PAGE>
Page 9
promptly refund to Tenant any amounts due and owning to Tenant.
(7) Landlord's and Tenant's obligations to make the
adjustments referred to in this Article above shall survive any expiration or
termination of this Lease.
(8) Any delay or failure of Landlord in billing any tax
escalation hereinabove provided shall not constitute a waiver of or in any way
impair the continuing obligation of Tenant to pay such tax escalation hereunder.
5.02 TAXES ON LEASE AND RENTS. Tenant shall pay, or cause to be
paid, before any fine, penalty, interest or cost may be added for nonpayment:
all taxes, assessments, levies, fees, and other governmental charges, general
and special, ordinary and extraordinary, foreseen and unforeseen, which may now
or hereafter during the term of this Lease, be imposed or levied upon or
assessed against Landlord or which may become Landlord's obligation if Tenant
shall fail to pay same, on account or by virtue of this Lease, any rent payable
hereunder or the use of the demised premises by Tenant. Nothing in this Section
5.02 shall require Tenant to pay or reimburse Landlord for the payment of any
franchise, corporate, estate or inheritance tax of Landlord or any income,
revenue or profits tax of Landlord based on its general income or revenues,
except to the extent such tax is specifically stated in the legislation or
otherwise clearly demonstrated by the legislative history to be imposed, levied
or assessed in substitution for, or in substitution for any increase to, any
other tax, assessment, charge or levy which Tenant is required to pay or to
reimburse Landlord for the payment thereof pursuant to the preceding sentence of
this Section 5.02. Nothing in this Section 5.02 shall require Tenant to pay or
reimburse Landlord for the payment of any tax if Tenant's payment of such tax or
reimbursement of Landlord for the payment of such tax would violate any
applicable law.
ARTICLE 6
EXPENSE ESCALATION
6.01 Tenant shall pay to Landlord, as additional rent, expense
escalation in accordance with this Article:
(a) Definitions: For the purpose of this Article, the following
definitions shall apply:
(i) The term "Expense Base Factor" shall mean Expenses for
the calendar year 1997.
(ii) The term "the building project" shall be as defined in
Paragraph 5.01(a)(iii) hereof.
<PAGE>
Page 10
(iii) The term "The Percentage", for purposes of computing
expense escalation, shall be deemed to mean 11.11 percent (11.11%).
(iv) The term "comparative year" shall mean the calendar
year 1998 and each subsequent period of twelve months.
(v) The term "Expenses" shall mean the total of all the
costs and expenses incurred or borne by Landlord with respect to the operation
and maintenance of the building project and the services provided tenants
therein including, but not limited to, the costs and expenses incurred for and
with respect to: steam and any other fuel; Building electric current(1); water
rates and sewer rents; air conditioning, ventilation and heating; metal,
elevator cab, lobby and plazas maintenance and cleaning; elevators; escalators;
protection and security; lobby decoration and interior and exterior landscape
maintenance; repair, maintenance, cleaning, lighting and striping of parking
areas and removal of snow therefrom; repairs, replacements and improvements
which are appropriate for the continued operation of the Building as a
first-class building; maintenance; cleaning, by contract or otherwise; window
washing (interior and exterior); painting of non-tenant areas; fire, extended
coverage, boiler and machinery, sprinkler, apparatus, public liability and
property damage, rental and plate glass insurance and any insurance required by
a mortgagee; supplies; wages, salaries, disability benefits, pensions,
hospitalization, retirement plans and group insurance respecting employees of
the Landlord up to and including the building manager (including a pro rata
share only of such wages and benefits of employees, including Landlord's
engineer, who are employed at more than one building; such pro rata share shall
be determined by Landlord and shall be based upon Landlord's estimate of the
percentage of time spent by such employees at the building project); uniforms
and working clothes for such employees and the cleaning thereof; expenses
imposed on the Landlord pursuant to law or to any collective bargaining
agreement with respect to such employees; workmen's compensation insurance,
payroll, social security, unemployment and other similar taxes with respect to
such employees; management fees, not to exceed such fees customary for similar
buildings in the Fairfield County area; professional and consulting fees.
Provided, however, that the foregoing costs and expenses shall exclude
or have deducted from them, as the case may be and as shall be appropriate:
(a) leasing commissions;
(b) executives' salaries above the grade of building manager;
(c) expenditures for capital improvements except those which
under generally applied real estate practice are expensed or regarded as
deferred expenses and except for capital expenditures required by law, in either
of which cases the cost thereof shall be included in Expenses for the lease year
in which the costs are incurred and subsequent lease years, on a straight line
basis, to the extent that such items are
- ---------------
(1) The cost of Building electric current shall be deemed to mean the cost of
all electricity purchased for use in the Building other than that which is
redistributed to tenants in the Building; the parties agree that thirty
five percent (35%) of the Building's payment to the public utility for the
purchase of electricity shall be deemed to be payment for Building electric
current.
<PAGE>
Page 11
amortized over an appropriate period, but not more than ten years, with an
interest factor equal to the prime rate of the Chemical Bank of New York at the
time of Landlord's having incurred said expenditure.
(d) amounts received by Landlord through proceeds of insurance
to the extent the proceeds are compensation for expenses which were previously
included in Expenses hereunder;
(e) cost of repairs or replacements incurred by reason of fire
or other casualty, or caused by the exercise of the right of eminent domain;
(f) advertising and promotional expenditures;
(g) legal fees for disputes with tenants and legal and auditing
fees, other than legal and auditing fees reasonably incurred in connection with
the maintenance and operation of the Building or in connection with the
preparation of statements required pursuant to additional rent or lease
escalation provisions;
(h) costs incurred in performing work or furnishing services for
individual tenants (including this Tenant) at such tenant's expense to the
extent that such work or service is in excess of any work or service Landlord at
its expense is obligated to furnish to this Tenant; costs of performing work or
furnishing services for tenants other than this Tenant at Landlord's expense to
the extent that such work or service is in excess of any work or service
Landlord is obligated to furnish to this Tenant at Landlord's expense; if any
work or service is performed or furnished by Landlord to or for any tenant other
than this Tenant at such tenant's expense, then, but only to the extent that
Landlord is obligated to perform such work or furnish such service to or for
this Tenant at Landlord's expense, such work or service shall be deemed to have
been performed or furnished to such other tenant at Landlord's expense and shall
therefore be included in Expenses;
(i) expenses incurred in tenant build-out, renovating or
otherwise improving or decorating, painting or redecorating space for tenants or
other occupants of vacant space (other than Common Areas);
(j) costs incurred due to violation by Landlord or any tenant or
other occupant of the terms and conditions of any lease or other rental
arrangement covering space in the Building;
(k) overhead and profit increments paid to subsidiaries or other
affiliates of Landlord for services on or to the Building (or any portion
thereof), to the extent only that the costs of such services exceed competitive
costs of such services were they not so rendered by a subsidiary or other
affiliate of Landlord;
(l) payment of principal and/or interest on debt or amortization
<PAGE>
Page 12
payments of any mortgage or mortgages executed by Landlord covering the Building
(or any portion thereof), rental concessions or negative cash flow guaranties,
and rental payments under any ground or underlying lease or leases;
(m) any compensation paid to clerks, attendants or other persons
in commercial concessions operated by Landlord;
(n) all items and services for which Tenant or any other tenant
reimburses Landlord or for which Landlord pays third persons; and
(o) any costs, fines or penalties incurred due to violations by
Landlord of any federal, state or local law, statute or ordinance.
If Landlord shall purchase any item of capital equipment or make any
capital expenditure designed to result in savings or reductions in Expenses,
then the costs for same shall be included in Expenses. The costs of capital
equipment or capital expenditures are so to be included in Expenses for the
comparative year in which the costs are incurred and subsequent comparative
years, on a straight line basis, to the extent that such items are amortized
over such period of time as reasonably can be estimated as the time in which
such savings or reductions in Expenses are expected to equal Landlord's costs
for such capital equipment or capital expenditure, with an interest factor equal
to the prime rate of the Chemical Bank of New York (or successor thereto) at the
time of Landlord's having incurred said costs. If Landlord shall lease any such
item of capital equipment designed to result in savings or reductions in
Expenses, then the rentals and other costs paid pursuant to such leasing shall
be included in Expenses for the comparative year in which they were incurred.
If during all or part of the calendar year 1997 (i.e., the period on
which the Expense Base Factor is based) or of any comparative year, Landlord
shall not furnish any particular item(s) of work or service (which would
constitute an Expense hereunder) to portions of the Building, due to the fact
that such portions are not occupied or leased, or because such item of work or
service is not required or desired by the tenant of such portion, or such tenant
is itself obtaining and providing such item of work or service, or for other
reasons, then, for the purposes of computing the additional rent payable
hereunder, the amount of the expenses for such item for such period shall be
increased by an amount equal to the additional operating and maintenance
expenses which would reasonably have been incurred during such period by
Landlord if it had at its own expense furnished such item of work or service to
such portion of the Building.
(b) 1. If the Expenses for any comparative year shall be greater
than the Expense Base Factor, Tenant shall pay to Landlord, as additional rent
for such comparative year, in the manner hereinafter provided, an amount equal
to The Percentage of the excess of the Expenses for such comparative year over
the Expense Base Factor (such amount being hereinafter called the "Expense
Payment").
<PAGE>
Page 13
Following the expiration of each comparative year and after receipt
thereof from Landlord's certified public accountant, Landlord shall submit to
Tenant a statement, certified by Landlord, setting forth the Expenses for the
preceding comparative year and the Expense Payment, if any, due to Landlord from
Tenant for such comparative year. The rendition of such statement to Tenant
shall constitute prima facie proof of the accuracy thereof and, if such
statement shows an Expense Payment due from Tenant to Landlord with respect to
the preceding comparative year then (i) Tenant shall make payment of any unpaid
portion thereof within thirty (30) days after receipt of such statement; and
(ii) Tenant shall also pay to Landlord, as additional rent, within thirty (30)
days after receipt of such statement, an amount equal to the product obtained by
multiplying the total Expense Payment for the preceding comparative year by a
fraction, the denominator of which shall be 12 and the numerator of which shall
be the number of months of the current comparative year which shall have elapsed
prior to the first day of the month immediately following the rendition of such
statement; and (iii) Tenant shall also pay to Landlord, as additional rent,
commencing as of the first day of the month immediately following the rendition
of such statement and on the first day of each month thereafter until a new
statement is rendered, 1/12th of the total Expense Payment for the preceding
comparative year.
The aforesaid monthly payments based on the total Expense Payment for
the preceding comparative year shall be adjusted to reflect, if Landlord can
reasonably so estimate, known increases in rates, for the current comparative
year, applicable to the categories involved in computing Expenses, whenever such
increases become known prior to or during such current comparative year. The
payments required to be made under (ii) and (iii) above shall be credited toward
the Expense Payment due from Tenant for the then current comparative year,
subject to adjustment as and when the statement for such current comparative
year is rendered by Landlord. Landlord shall promptly refund to Tenant the
amount of any overpayment determined to have been made by Tenant.
2. The statements of the Expenses to be furnished by Landlord
as provided above shall be certified by Landlord, and shall be prepared in
reasonable detail for the Landlord by a certified public accountant (who may be
the certified public accountant now or then employed by Landlord for the audit
of its accounts); said certified public accountant may rely on Landlord's
allocations and estimates wherever operating cost allocations or estimates are
needed for this Article. The statements thus furnished to Tenant shall
constitute a final determination as between Landlord and Tenant of the Expenses
for the periods represented thereby, unless Tenant within ninety (90) days after
they are furnished shall give a notice to Landlord that it disputes their
accuracy or their appropriateness, which notice shall specify the particular
respects in which the statement is inaccurate or inappropriate. Pending the
resolution of such dispute, Tenant shall pay the additional rent to Landlord in
accordance with the statements furnished by Landlord. After payment of said
additional rent, Tenant shall have the right, during regular business hours and
upon not less than thirty (30) days' prior written notice to Landlord, to
examine Landlord's relevant books and records with
<PAGE>
Page 14
respect to the foregoing, provided such examination is commenced within ninety
(90) days after the giving of such written notice by Tenant and concluded within
thirty (30) days thereafter. Tenant agrees that it will not employ any auditor,
accountant or other professional, on a contingency basis, with respect to any
such audit and dispute. Any such dispute shall be resolved by arbitration in
accordance with the provisions of Article 36 of this Lease. Tenant agrees to
keep such audit and arbitration in strict confidence (except if disclosure is
required by law or pursuant to legal proceedings), and will indemnify, defend
and hold Landlord harmless from and against any liability, loss, claim, cost,
damage or expense (including attorneys' fees and disbursements) arising out of
or relating to Tenant's breach of such obligation.
3. In no event shall the fixed annual rent under this Lease be
reduced by virtue of this Article.
4. If the commencement date of this Lease occurs on a day which
is not the first day of a comparative year, then the additional rent due
hereunder for such comparative year shall be a proportionate share of said
additional rent for the entire comparative year, said proportionate share to be
based upon the length of time that the term of this Lease will be in existence
during such comparative year. Upon the date of any expiration or termination of
this Lease (except termination because of Tenant's default) whether the same be
the date hereinabove set forth for the expiration of the term or any prior or
subsequent date, a proportionate share of said additional rent for the
comparative year during which such expiration or termination occurs shall
immediately become due and payable by Tenant to Landlord, if it was not
theretofore already billed and paid.
The said proportionate share shall be based upon the length of time
that this Lease shall have been in existence during such comparative year.
Landlord shall, as soon as reasonably practicable, cause statements of the
Expenses for that comparative year to be prepared and furnished to Tenant.
Landlord and Tenant shall thereupon make appropriate adjustments of amounts then
owing (and any overpayment by Tenant pursuant to Subdivision (b)1 above shall be
promptly refunded to Tenant).
5. Landlord's and Tenant's obligation to make the adjustments
referred to in this Article shall survive any expiration or termination of this
Lease.
6. Any delay or failure of Landlord in billing any expense
escalation hereinabove provided shall not constitute a waiver of or in any way
impair the continuing obligation of Tenant to pay such expense escalation
hereunder.
ARTICLE 7
ELECTRICITY
7.01 Landlord shall furnish to Tenant the electric energy which
Tenant
<PAGE>
Page 15
requires in the demised premises on a "rent inclusion" basis, through the
presently installed electrical facilities for Tenant's reasonable use in the
demised premises for ordinary lighting, light office equipment and the operation
of the usual small business machines, including Xerox or other copying machines
and personal computers, but excluding main frame computers (such lighting,
equipment and machines and personal computers being hereinafter called "Ordinary
Equipment"). Subject to the following provisions of this Article, there shall
be no charge to Tenant therefor by way of measuring the same on any meter or
otherwise, electric current being included as an additional service in the fixed
annual rent payable hereunder. Landlord shall not in any way be liable or
responsible to Tenant for any loss or damage or expense which Tenant may sustain
or incur if either the quantity or character of electric service is changed or
is no longer available or suitable for Tenant's requirements.
7.02 Tenant acknowledges and agrees (i) that the fixed annual rent
hereinabove set forth in this Lease does not yet, but is to include an
electricity rent inclusion factor ("ERIF"), as herein defined, to compensate
Landlord for the electrical wiring and other installations necessary for, and
for its obtaining and making available to Tenant the redistribution of, electric
current as an additional service; and (ii) that said ERIF, which shall be
subject to periodic adjustments as herein provided, has been partially based
upon an estimate of Tenant's connected electrical load deemed to be demand (KW),
and hours of use thereof, deemed to be energy (KWH), for Ordinary Equipment,
during ordinary business hours, which shall be deemed to mean 45 hours per
week, with Landlord providing an average connected load of 4 watts of
electricity for all purposes per rentable square foot. Any installation and use
of Equipment other than Ordinary Equipment and for any connected load and for
any energy usage by Tenant in excess of the foregoing shall result in adjustment
of the ERIF as hereinafter provided. For purposes of this Lease, the rentable
square foot area of the presently demised premises shall be deemed to be 19,750
square feet. The ERIF shall mean the amount determined by applying the
estimated connected electrical load and usage thereof in the demised premises
(as determined by the electrical consultant as hereinafter provided) to the rate
charged for such load and usage in the service classification hereinafter
referred to in this Section 7.02. In no event shall the ERIF be less than the
cost per square foot of supplying electrical energy to the Building. If the
cost to Landlord of electricity shall have been, or shall be, increased or
decreased (whether such change occurs prior to or during the term of this
lease), by change in Landlord's electric rates or service classifications, or by
any increase, subsequent to the last such electric rate or service
classification change, in fuel adjustments or charges of any kind, or by taxes,
imposed on Landlord's electricity purchases or electricity redistribution, or
for any other such reason, then the ERIF, which is a portion of the fixed annual
rent, shall be changed in the same percentage as any such change in cost due to
changes in electric rates or service classifications, and, also, Tenant's
payment obligation, for electricity redistribution, shall change from time to
time so as to reflect any such increase in fuel adjustments or charges, and
taxes.
Any such percentage change in Landlord's cost shall be computed by the
<PAGE>
Page 16
application of the average consumption (energy and demand) of electricity for
the entire Building for the twelve (12) full months immediately prior to the
rate change, other change in cost, or any changed methods of or rules on billing
for same, on a consistent basis to the new rate and/or service classifications
and to the immediately prior existing rate and/or service classifications. If
the average consumption of electricity for the entire Building for said prior
twelve (12) full months cannot reasonably be applied and used with respect to
changed methods of or rules on billing, then the percentage increase shall be
computed by the use of the average consumption (energy and demand) for the
entire Building for the first three (3) months under such changed methods of or
rules on billing, projected to a full twelve (12) months; and that same
consumption, so projected, shall be applied to the rate and/or service
classifications which existed immediately prior to the change. The parties
acknowledge that they understand that it is anticipated that existing electric
rates, charges, etc., may be changed by virtue of time-of-day rates or other
methods of billing, and that the foregoing reference to changes in methods of or
rules on billing is intended to include any such change. The parties agree that
a reputable, independent electrical engineer or consultant, selected by
Landlord ("Landlord's consultant") shall determine the percentage for the
changes in the ERIF due to Landlord's changed costs.
The parties agree that the fixed annual rental rate shall be increased
by an ERIF of $1.84 per rentable sq. ft. of the demised premises, subject to the
terms of this Article and periodic adjustments as herein provided.
The parties agree that Landlord's consultant may at any time and from
time to time make surveys in the demised premises covering the electrical
equipment and fixtures and use of current therein, and the ERIF, effective as of
the date of the survey, shall be redetermined by Landlord's consultant in
accordance with such survey. The fixed annual rent shall be appropriately
adjusted effective as of the date of any such change in connected load and
usage, as disclosed by said survey. Notwithstanding anything to the contrary
elsewhere provided in this Article 7, in no event is the originally specified
$1.84 per square foot ERIF portion of the fixed annual rent (plus any net
increase thereof, but not decrease, by virtue of all electricity rate or service
classification changes of Landlord subsequent to the commencement date) to be
reduced. Anything herein contained to the contrary notwithstanding, at no time
shall the ERIF be less than the cost to Landlord to supply electrical energy to
Tenant at the demised premises, including, without limitation, payments made to
Landlord's consultant.
In the event any survey by Landlord's consultant shall reflect a
connected load in the demised premises in excess of 4 watts of electricity for
all purposes per rentable square foot and/or electrical energy usage in excess
of ordinary business hours (each such excess is hereinafter called "excess
electricity"), then the connected load and/or the hours of use portion(s) of the
then existing ERIF shall each be increased by an amount which is equal to a
fraction of the then existing ERIF, the numerator of which is the excess
electricity (i.e. excess connected load and/or excess usage) and the denominator
of which is the connected load and/or the energy usage which was the
<PAGE>
Page 17
basis for the computation of the then existing ERIF. Such fractions shall be
determined by Landlord's electrical consultant. The fixed annual rent shall
then be appropriately adjusted, effective as of the date of any such change in
connected load and/or usage, as disclosed by said survey. If such survey shall
disclose installation and use of other than Ordinary Equipment, then effective
as of the date of said survey, there shall be added to the ERIF portion of the
fixed annual rent (computed and fixed as hereinbefore described) an additional
amount equal to what would be paid under Connecticut Light & Power Company's
Rate Service Classification NO. 30 in effect on August 1, 1994 for such load and
usage of electricity, with the connected electrical load deemed to be demand
(KW) and the hours of use thereof deemed to be the energy (KWH), as
hereinbefore provided, (which addition to the ERIF shall be increased or
decreased, by all electricity cost changes of Landlord, as hereinabove provided,
from August 1, 1994 through the date of the billing.)
The determination of change in the ERIF by Landlord's consultant shall
be binding and conclusive on Landlord and on Tenant from and after the delivery
of copies of such determination to Landlord and Tenant, unless within ninety
(90) days after the delivery of such copies, Tenant disputes such determination
by written notice to Landlord specifying, to the extent then practicable, the
respect in which Tenant disputes such determination, the reason therefor, and
the amount claimed by Tenant to be the proper ERIF. If Tenant disputes the
determination, it shall, at its own expense and within thirty (30) days from
Tenant's written notice to Landlord as aforesaid, obtain from a reputable,
independent electrical engineer or consultant its own survey of Tenant's
electrical lighting and power load and hours of use thereof, and a determination
of such change in the ERIF in accordance with the provisions of this Article.
Tenant's consultant and Landlord's consultant then shall seek to agree on a
finding of such determination of such change in the ERIF. If they cannot agree,
they shall choose a third reputable independent electrical engineer or
consultant whose cost shall be shared equally by Landlord and Tenant, to make a
similar survey, and the determination of such ERIF change by such third
consultant shall be controlling. (If they cannot agree on such third consultant,
within thirty (30) days, then either party may apply to the Superior Court in
the Judicial District of Stamford/Norwalk at Stamford, County of Fairfield, for
the appointment of such third consultant.) However, pending such determination,
Tenant shall pay to Landlord the amount of ERIF as determined by Landlord's
consultant, provided, however, if the amount of ERIF determined as aforesaid is
different from that determined by Landlord's consultant, then Landlord and
Tenant shall make adjustment for any deficiency owed by Tenant or overage paid
by Tenant pursuant to the decision of Landlord's consultant.
7.03 Landlord reserves the right to discontinue furnishing electric
energy to Tenant, provided it does so, also, as to all other rent inclusion
tenants on the same riser as Tenant, at any time upon sixty (60) days' written
notice to Tenant, and from and after the effective date of such termination,
Landlord shall no longer be obligated to furnish Tenant with electric energy,
provided, however, that such termination date may be extended for a time
reasonably necessary for Tenant to make arrangements to
<PAGE>
Page 18
obtain electric service directly from the public utility company servicing the
Building. If Landlord exercises such right of termination, this Lease shall
remain unaffected thereby and shall continue in full force and effect; and
thereafter Tenant shall diligently arrange to obtain electric service directly
from the public utility company servicing the Building, and may utilize the
then existing electric feeders, risers and wiring serving the demised premises
to the extent available and safely capable of being used for such purpose and
only to the extent of Tenant's then authorized connected load. Landlord shall
be obligated to pay no part of any cost required for Tenant's direct electric
service including, but not limited to, the cost of any electric meter or the
installation thereof. Commencing with the date when Tenant receives such direct
service, and as long as Tenant shall continue to receive such service, the fixed
annual rental rate payable under this Lease shall be reduced by the amount of
the ERIF.
7.04 Tenant covenants and agrees that at all times its use of
electric current shall never exceed the capacity of existing feeders to the
building or the risers or wiring installation. Tenant agrees not to connect any
additional electrical equipment of any type to the Building electric
distribution system, other than lamps, typewriters, personal computers, normal
office fax and copy machines and other small office machines which consume
comparable amounts of electricity, without the Landlord's prior written consent,
which consent shall not be unreasonably withheld. Landlord agrees that, at or
prior to the commencement of the Lease term, the risers, feeders and wiring
installed in the Building by Landlord will be sufficient to supply Tenant's
electrical requirements in accordance with Tenant's plans for initial occupancy
and use. Any additional risers, feeders, or other equipment proper or necessary
to supply Tenant's electrical requirements, upon written request of Tenant, will
be installed by Landlord, at the sole cost and expense of Tenant, if, in
Landlord's sole judgment, reasonably exercised, the same are necessary and will
not cause damage or injury to the Building or the demised premises, or cause or
create a dangerous or hazardous condition or entail excessive or unreasonable
alterations, repair or expense or interfere with or disturb other tenants or
occupants.
7.05 At Tenant's option, Tenant may purchase from Landlord all
lighting tubes, lamps, bulbs and ballasts used in the demised premises and
Tenant shall pay Landlord's reasonable charges for providing and installing
same, on demand, as additional rent.
ARTICLE 8
ALTERATIONS AND INSTALLATIONS
8.01 Tenant shall make no alterations, installations, additions or
improvements in or to the demised premises without Landlord's prior written
consent. All such work shall be effected only by contractors or mechanics first
approved by Landlord, which approval shall not be unreasonably withheld or
delayed with respect to written requests for contractors or mechanics
performing nonstructural interior
<PAGE>
Page 19
alteration work which does not affect utility services or plumbing and
electrical lines or other systems of the Building. All such work, alterations,
installations, additions and improvements shall be done at Tenant's sole expense
and at such times and in such manner as Landlord may from time to time
reasonably designate. Upon completion of such work, Tenant shall obtain and
deliver to Landlord written, unconditional waivers of mechanic's or other liens
on the real property in which the demised premises are located, signed by (i)
all contractors, subcontractors, materialmen and laborers and (ii) all
architects, engineers and designers to become involved in such work.
Tenant's work to complete the demised premises and any future work in
the demised premises shall be effected solely in accordance with plans and
specifications first approved in writing by Landlord. Landlord will not
unreasonably withhold or delay its consent to written requests for nonstructural
interior alterations, additions and improvements, provided that such
alterations, etc., do not adversely affect utility services or plumbing and
electrical lines or other systems of the Building.
Any such approved alterations and improvements shall be performed in
accordance with the foregoing and the following provisions of this Article:
1. All work shall be done in a good and workmanlike manner.
2. (a) In the event Tenant shall employ any contractor to do in the
demised premises any work permitted by this Lease, such
contractor and any subcontractor shall agree to employ only such
labor as will not result in jurisdictional disputes or strikes.
Landlord agrees that such contractor or subcontractor shall have
reasonable use of the Building facilities, at the same charges
therefor, if any, paid by Landlord's contractors. Tenant will
inform Landlord in writing of the names of any contractor or
subcontractor Tenant proposes to use in the demised premises at
least ten (10) days prior to the beginning of work by such
contractor or subcontractor.
(b) Tenant covenants and agrees to pay to each contractor, as
the work progresses, the entire cost of supplying the materials
and performing the work shown on Tenant's approved plans and
specifications.
3. All such alterations shall be effected in compliance with all
applicable laws, ordinances, rules and regulations of
governmental bodies having or asserting jurisdiction over the
demised premises including, without limitation, the Americans
with Disabilities Act of 1990 and similar present and future laws
and regulations issued pursuant thereto.
4. Tenant shall keep the Building and the demised premises free and
<PAGE>
Page 20
clear of all liens for any work or material claimed to have been
furnished to Tenant or to the demised premises on Tenant's
behalf, and all work to be performed by Tenant shall be done in a
manner which will not unreasonably interfere with or disturb
other tenants or occupants of the Building.
5. During the progress of the work to be done by Tenant, said work
shall be subject to inspection by representatives of Landlord who
shall be permitted access and the opportunity to inspect, at all
reasonable times.
6. Prior to commencement of any work, Tenant shall furnish to
Landlord certificates evidencing the existence of
(i) worker's compensation insurance covering all persons
employed for such work; and
(ii) comprehensive general liability and property damage
insurance naming Landlord, its managing agent and its
designees, and Tenant as insureds, with coverage of at least
$2,000,000 combined single limit.
7. Tenant agrees that it will pay Landlord, as additional rent under
this Lease, a supervisory fee of three percent (3%) of the cost
of the work with respect to any Alterations effected by or for
Tenant after Tenant commences to conduct its business in the
demised premises, unless such work is performed by Landlord or
any affiliate of Landlord.
8. Notwithstanding anything to the contrary contained in this
Article, Landlord's prior written approval will not be required
with respect to nonstructural interior alterations costing
$10,000 or less, or decorative work such as painting or wall
covering, provided that such alterations or decorative work do
not affect utility services or plumbing or electrical lines or
other systems of the Building; and provided, further, that all
such alterations and decorative work shall be performed in
accordance with the provisions of this Article 8 and all other
applicable provisions of this Lease (except the requirement of
Landlord's approval of plans and specifications for such work;
Tenant, nevertheless, shall be required to provide Landlord with
a copy of any existing plans and specifications for such work, or
a good written description, as the case may be, at least ten (10)
days prior to the start of the alteration or decorative work in
question).
Notice is hereby given that Landlord shall not be liable for any labor
or
<PAGE>
Page 21
materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for any such labor or materials shall attach to or
affect the reversion or other estate or interest of Landlord in and to the
demised premises.
8.02 Except for work performed by Landlord, any mechanic's lien,
filed against the demised premises or the Building for work claimed to have been
done for or materials claimed to have been furnished to Tenant shall be
discharged by Tenant at its expense within thirty (30) days, by payment, filing
of the bond required by law or otherwise.
8.03 All alterations, installations, additions and improvements made
by Landlord or at Landlord' expense shall remain upon and be surrendered with
the demised premises as a part thereof at the end of the term of this Lease.
8.04 All alterations, installations, additions and improvements made
and installed by Tenant, or at Tenant's expense, upon or in the demised premises
which are of a permanent nature and which cannot be removed without damage to
the demised premises or Building (reasonable wear and tear excepted) shall, upon
the expiration or sooner termination of the term of this Lease, become and be
the property of Landlord, and shall remain upon and be surrendered with the
demised premises as a part thereof at the end of the term of this Lease, except
that Landlord shall have the right and privilege at any time prior to the
expiration of the term of this Lease, or within three months after any early
termination of the term of this Lease, to serve notice upon Tenant that any of
such alterations, installations, additions and improvements which are not
standard for office installations (e.g., high density filing, internal
stairways, reinforced flooring, etc.) shall be removed and, in the event of
service of such notice, Tenant will, at Tenant's own cost and expense, remove
the same in accordance with such request, and repair and restore the demised
premises to its original condition, ordinary wear and tear excepted; it being
understood and agreed, however, that Landlord shall be required to give such
notice to Tenant at the time it approves such alterations, installations,
additions or improvements, provided that Tenant's request for approval reminds
Landlord in writing of the need to give such notice. The provisions of this
Section 8.04 shall survive the expiration or sooner termination of the term of
this Lease.
8.05 Where furnished by or at the expense of Tenant all furniture,
furnishings and trade fixtures, including without limitation, murals, business
machines and equipment, counters, screens, grille work, special panelled doors,
cages, partitions, metal railings, closets, panelling, lighting fixtures and
equipment, drinking fountains, refrigeration and air handling equipment, and any
other movable property shall remain the property of Tenant, which may at its
option remove all or any part thereof at any time prior to the expiration of the
term of this Lease. In case Tenant shall decide not to remove any part of such
property, Tenant shall notify Landlord in writing not less than three (3) months
prior to the expiration of the term of this Lease, specifying the items of
property which it has decided not to remove. If, within thirty (30) days after
the service of such notice, Landlord shall request Tenant to remove any of the
said property,
<PAGE>
Page 22
Tenant shall at its expense remove the same in accordance with such request. As
to such property which Landlord does not request Tenant to remove, the same
shall be, if left by Tenant, deemed abandoned by Tenant and thereupon the same
shall become the property of the Landlord.
8.06 If any alterations, installations, additions, improvements or
other property which Tenant shall have the right to remove or be requested by
Landlord to remove as provided in Section 8.05 of this Lease (herein in this
Section 8.06 called the "property") are not removed on or prior to the
expiration of the term of this Lease, Landlord shall have the right to remove
said property and to dispose of the same without accountability to Tenant and at
the sole cost and expense of Tenant. In case of any damage to the demised
premises or the Building resulting from the removal of the property Tenant shall
repair such damage or, in default thereof, shall reimburse Landlord for
Landlord's cost in repairing such damage. This obligation shall survive the
expiration or termination of this Lease.
8.07 Tenant shall keep records of Tenant's alterations,
installations, additions and improvements costing in excess of $5,000, and of
the cost thereof. Tenant shall, within 45 days after demand by Landlord,
furnish to Landlord copies of such records and cost if Landlord shall require
same in connection with any proceeding to reduce the assessed valuation of the
Building, or in connection with any proceeding instituted pursuant to Article 14
hereof.
ARTICLE 9
REPAIRS
9.01 Tenant shall, at its sole cost and expense, make such repairs to
the demised premises and the fixtures and appurtenances therein as are
necessitated by the act, omission, occupancy or negligence of Tenant (and except
for fire or other casualty caused by Tenant's negligence, if the fire or other
casualty insurance policies insuring Landlord are not invalidated by this
provision) or by the use of the demised premises in a manner contrary to the
purposes for which same are leased to Tenant, as and when needed to preserve
them in good working order and condition; provided, however, that Tenant shall
not be required to make any such repairs which are the obligation of Landlord
hereunder or which are necessitated by the act, omission or negligence of
Landlord, its agents or employees. All damage or injury to the demised premises
and to its fixtures, appurtenances and equipment caused by Tenant moving
property in or out of the Building or by installation or removal of furniture,
fixtures or other property, and for which Landlord has not been and will not be
reimbursed by insurance, shall be repaired, restored or replaced promptly by
Tenant at its sole cost and expense, which repairs, restorations and
replacements shall be in quality and class equal to the original work or
installations. If Tenant fails to make such repairs, restorations or
replacements, same may be made by Landlord at the expense of Tenant and such
expense shall be collectible as additional rent and shall be paid by Tenant
<PAGE>
Page 23
within thirty (30) days after rendition of a bill therefor.
Landlord, at its expense, shall effect all necessary maintenance and
repairs to the roofs, foundations and structural portions of the demised
premises, and all utilities serving the demised premises (including the
sprinkler and HVAC systems), except if same is necessitated by the act, omission
or negligence or Tenant, its agents or employees.
The exterior walls of the Building, the portions of any window sills
outside the windows and the windows are not part of the premises demised by this
Lease and Landlord reserves all rights to such parts of the Building.
9.02 Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which such floor was
designed to carry and which is allowed by law. Landlord certifies that the floor
of the demised premises will carry 100 pounds live load per square foot of floor
space and 20 pounds for partitions per square foot of floor space. If Tenant
shall desire a floor load in excess of that set forth above, Landlord agrees
(provided Landlord's architects, in their sole discretion, find that the work
necessary to increase such floor load does not adversely affect the structure of
the Building, and further provided that such work will not interfere with the
amount or availability of any space adjoining alongside, above or below the
demised premises, or interfere with the occupancy of other tenants in the
Building), to strengthen and reinforce the same so as to give the live load
desired, provided Tenant shall submit to Landlord the plans showing the
locations of and the desired floor live load for the areas in question and
provided further that Tenant shall agree to pay for or reimburse Landlord on
demand for the cost of such strengthening and reinforcement as well as any other
costs to and expenses of Landlord occasioned by or resulting from such
strengthening or reinforcement.
9.03 Business machines and mechanical equipment used by Tenant which
cause vibration, noise, cold or heat that may be transmitted to the Building
structure or to any leased space to such a degree as to be objectionable to
Landlord or to any other tenant in the Building shall be placed and maintained
by tenant at its expense in settings of cork, rubber or spring type vibration
eliminators sufficient to absorb and prevent such vibration or noise, or prevent
transmission of such cold or heat. The parties hereto recognize that the
operation of elevators, air conditioning and heating equipment will cause some
vibration, noise, heat or cold which may be transmitted to other parts of the
Building and demised premises. Landlord shall be under no obligation to
endeavor to reduce such vibration, noise, heat or cold beyond what is customary
in current good building practice for buildings of the same type as the
Building.
9.04 Except as otherwise provided in this Lease, there shall be no
allowance to Tenant for a diminution of rental value and no liability on the
part of Landlord by reason of inconvenience, annoyance or injury to business
arising from the
<PAGE>
Page 24
making of any repairs, alterations, additions or improvements in or to any
portion of the Building or the demised premises or in or to fixtures,
appurtenances or equipment thereof. Landlord shall exercise reasonable
diligence so as to minimize any interference with Tenant's business operations.
ARTICLE 10
REQUIREMENTS OF LAW; FIRE INSURANCE
10.01 Tenant shall comply with all laws, orders and regulations of
Federal, State, County and Municipal authorities, and with any direction of any
public officer or officers, pursuant to the law, which shall impose any
violation, order or duty upon Landlord or Tenant with respect to the demised
premises, or the use or occupation thereof.
10.02 Tenant shall not do or permit to be done any act or thing upon
the demised premises, which will invalidate or be in conflict with standard
fire insurance policies covering the Building, and fixtures and property
therein, or which would increase the rate of fire insurance applicable to the
Building to an amount higher than it otherwise would be; and Tenant shall
neither do nor permit to be done any act or thing upon the demised premises
which shall or might subject Landlord to any liability or responsibility for
injury to any person or persons or to property by reason of any business or
operation being carried on upon the demised premises; but nothing in this
Section 10.02 shall prevent Tenant's use of the demised premises for the
purposes stated in Article 2 hereof.
10.03 If, as a result of the negligence or willful misconduct of
Tenant, its agents or employees, or the violation of this Lease by Tenant, or
Tenant's particular manner of use of the demised premises (as distinguished from
office use thereof), the rate of fire insurance applicable to the Building shall
be increased to an amount higher than it otherwise would be, Tenant shall
reimburse Landlord for all increases of Landlord's fire insurance premiums so
caused; such reimbursement to be additional rent payable upon the first day of
the month following any outlay by Landlord for such increased fire insurance
premiums. In any action or proceeding wherein Landlord and Tenant are parties,
a schedule or "make up" of rates for the Building or demised premises issued by
the body making fire insurance rates for the demised premises, shall be
presumptive evidence of the facts therein stated and of the several items and
charges in the fire insurance rate then applicable to the demised premises.
ARTICLE 11
SUBORDINATION
11.01 This Lease is and shall be subject and subordinate to all
ground or underlying leases which may now or hereafter affect the real property
of which the
<PAGE>
Page 25
demised premises form a part and to all mortgages which may now or hereafter
affect such leases or such real property, and to all renewals, modifications,
replacements and extensions thereof.
11.02 In the event of a termination of any ground or underlying
lease, or if the interests of Landlord under this Lease are transferred by
reason of, or assigned in lieu of, foreclosure or other proceedings for
enforcement of any mortgage, or if the holder of any mortgage acquires a lease
in substitution therefor, then the Tenant under this Lease will, at the option
to be exercised in writing by the lessor under such ground lease or such
mortgagee or purchaser, assignee or lessee, as the case may be, either (i)
attorn to it and will perform for its benefit all the terms, covenants and
conditions of this Lease on the Tenant's part to be performed with the same
force and effect as if said lessor, such mortgagee or purchaser, assignee or
lessee, were the landlord originally named in this Lease, or (ii) enter into a
new lease with said lessor or such mortgagee or purchaser, assignee or lessee,
as landlord, for the remaining term of this Lease and otherwise on the same
terms and conditions and with the same options, if any, then remaining.
11.03 Under no circumstances shall the aforedescribed lessor under
the ground lease or mortgagee or purchaser, assignee or lessee, as the case may
be, whether or not it shall have succeeded to the interests of the landlord
under this Lease, be
(a) obligated to do or complete any work in the demised
premises; or
(b) liable for any act, omission or default of any prior
landlord; or
(c) subject to any offsets, claims or defenses which the
Tenant might have against any prior landlord; or
(d) bound by any rent or additional rent which Tenant might
have paid to any prior landlord for more than one month in advance or for more
than three months in advance where such rent payments are payable at intervals
of more than one month; or
(e) bound by any modification, amendment or abridgment of the
Lease, or any cancellation or surrender of the same, made without its prior
written approval.
11.04 If, in connection with the financing of the Building, the
holder of any mortgage shall request reasonable modifications in this Lease as a
condition of approval thereof, Tenant will not unreasonably withhold, delay or
defer making such modifications, provided that they do not increase the
obligations of Tenant hereunder or materially and adversely affect the leasehold
interest created by this Lease.
<PAGE>
Page 26
11.05 Landlord shall use best efforts to obtain from the ground
lessor under any underlying lease and/or the holder of any superior mortgage, on
behalf of Tenant, a non-disturbance agreement, in the form then customarily used
by such ground lessor or mortgagee, providing in substance that so long as
Tenant is not in default under this Lease beyond any grace period, the grantor
of such non-disturbance agreement will not terminate this Lease or take any
action to recover possession of the demised premises, notwithstanding any
foreclosure of the mortgage or any default under, or termination of, such
underlying lease. Landlord shall diligently pursue such request; provided,
however, that Landlord shall not be liable to Tenant, nor shall this Lease be
impaired, if for any reason said ground lessor or mortgagee fails or refuses to
enter into such agreement with Tenant. Any fees or costs imposed by the
grantor of the non-disturbance agreement or its attorneys for the granting of
such non-disturbance agreement, shall be paid by Tenant, on demand, as
additional rent under this Lease.
ARTICLE 12
LOSS, DAMAGE, REIMBURSEMENT, LIABILITY, ETC.
12.01 Landlord or its agents shall not be liable for any injury or
damage to persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water, rain or snow or leaks from any part of the
Building, or from the pipes, appliances or plumbing works or from the roof,
street or subsurface or from any other place or by dampness or by any other
cause of whatsoever nature, unless any of the foregoing shall be caused by or
due to the negligence of Landlord, its agents, servants or employees.
12.02 Tenant shall reimburse Landlord for all expense, damages or
fines incurred or suffered by Landlord, and for which Landlord has not been and
will not be reimbursed by insurance, by reason of any breach, violation or
nonperformance by Tenant, or its agents, servants or employees, of any covenant
or provision of this Lease, or by reason of damage to persons or property caused
by moving property of or for Tenant in or out of the Building, or by the
installation or removal of furniture or other property of or for Tenant except
as provided in Section 8.05 of this Lease, or by reason of or arising out of the
carelessness, negligence or improper conduct of Tenant, or its agents, servants
or employees, in the use or occupancy of the demised premises. Subject to the
provisions of Section 19.04 where applicable, Tenant shall have the right, at
Tenant's own cost and expense, to participate in the defense of any action or
proceeding brought against Landlord, and in negotiations for settlement thereof
if, pursuant to this Section 12.02, Tenant would be obligated to reimburse
Landlord for expenses, damages or fines incurred or suffered by Landlord.
12.03 Tenant shall give Landlord notice in case of fire or accidents
in the demised premises promptly after Tenant is aware of such event.
<PAGE>
Page 27
12.04 Tenant agrees to look solely to Landlord's estate and interest
in the land and Building, or the lease of the Building, or of the land and
Building, and the demised premises, for the satisfaction of any right or remedy
of Tenant for the collection of a judgment (or other judicial process) requiring
the payment of money by Landlord, in the event of any liability by Landlord, and
no other property or assets of Landlord shall be subject to levy, execution,
attachment, or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Lease, the relationship of Landlord and
Tenant hereunder, or Tenant's use and occupancy of the demised premises, or any
other liability of Landlord to Tenant.
12.05 (a) Landlord agrees that, if obtainable at no additional cost,
it will include in its fire insurance policies appropriate clauses pursuant to
which the insurance companies (i) waive all right of subrogation against Tenant
with respect to losses payable under such policies and/or (ii) agree that such
policies shall not be invalidated should the insured waive in writing prior to a
loss any or all right of recovery against any party for losses covered by such
policies. But should any additional premiums be exacted for any such clause or
clauses, Landlord shall be released from the obligation hereby imposed unless
Tenant shall agree to pay such additional premium.
(b) Tenant agrees to include, if obtainable at no additional
cost, in its fire insurance policy or policies on its furniture, furnishings,
fixtures and other property removable by Tenant under the provisions of its
lease of space in the Building appropriate clauses pursuant to which the
insurance company or companies (i) waive the right of subrogation against
Landlord and/or any tenant of space in the Building with respect to losses
payable under such policy or policies and/or (ii) agree that such policy or
policies shall not be invalidated should the insured waive in writing prior to a
loss any or all right of recovery against any party for losses covered by such
policy or policies. But should any additional premium be exacted for any such
clause or clauses, Tenant shall be released from the obligation hereby imposed
unless Landlord or the other tenants shall agree to pay such additional premium.
(c) Provided that Landlord's right of full recovery under its
policy or policies aforesaid is not adversely affected or prejudiced thereby,
Landlord hereby waives any and all right of recovery which it might otherwise
have against Tenant, its servants, agents and employees, for loss or damage
occurring to the Building and the fixtures, appurtenances and equipment therein,
to the extent the same is covered by Landlord's insurance, notwithstanding that
such loss or damage may result from the negligence or fault of Tenant, its
servants, agents or employees. Provided that Tenant's right of full recovery
under its aforesaid policy or policies is not adversely affected or prejudiced
thereby, Tenant hereby waives any and all right of recovery which it might
otherwise have against Landlord, its servants, and employees, and against every
other tenant in the Building who shall have executed a similar waiver as set
forth in this Section 12.05(c) for loss or damage to, Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions hereof to the extent that same is covered by Tenant's insurance,
notwithstanding that such loss or damage may result
<PAGE>
Page 28
from the negligence or fault of Landlord, its servants, agents or employees, or
such other tenant and the servants, agents or employees thereof.
(d) Landlord and Tenant hereby agree to advise the other
promptly if the clauses to be included in their respective insurance policies
pursuant to subparagraphs (a) and (b) above cannot be obtained. Landlord and
Tenant hereby also agree to notify the other promptly of any cancellation or
change of the terms of any such policy which would affect such clauses.
12.06 Landlord or its agents shall not be liable for any damage which
Tenant may sustain, if at any time any window of the demised premises is broken,
or temporarily or permanently closed, darkened or bricked up for any reason
whatsoever, except only the Landlord's arbitrary acts if the result is
permanent, and Tenant shall not be entitled to any compensation therefor or
abatement of rent or to any release from any Tenant's obligations under this
Lease, nor shall the same constitute an eviction.
ARTICLE 13
DESTRUCTION -- FIRE OR OTHER CASUALTY
13.01 If the Building shall be partially damaged or destroyed or if
the demised premises shall be partially or totally damaged or destroyed by fire,
casualty or other such cause, then, whether or not the damage or destruction
shall have resulted from the fault or neglect of Tenant, or its servants,
employees, agents, visitors or licensees (and if this Lease shall not have been
canceled as in this Article hereinafter provided), Landlord will repair the
damage, and restore, replace, and rebuild the Building and the demised premises
at its expense, with reasonable dispatch and continuity after notice to it of
the damage or destruction; provided, however, that Landlord shall not be
required to repair or replace any property of Tenant or any installation or
leasehold improvement made by or for Tenant at the expense of Tenant. If the
demised premises shall be partially damaged or partially destroyed, the rent and
additional rent payable hereunder shall be abated to the extent that the demised
premises shall have been rendered untenantable or unfit for Tenant's use and
Tenant does not occupy such damaged or destroyed part of the premises on other
than an emergency basis for the period from the date of such damage or
destruction to the date that the damage shall be repaired or restored. If the
demised premises or a major part thereof shall be totally, or substantially
totally, damaged or destroyed or rendered completely or substantially
completely, untenantable on account of fire, casualty or other such cause, the
rent and additional rent shall completely abate as of the date of the damage or
destruction and until Landlord shall repair, restore, replace and rebuild the
demised premises; provided, however, that should Tenant reoccupy a portion of
the demised premises for the purpose of conducting business during the period
the restoration work is taking place and prior to the date that the same is made
completely tenantable, rent and additional rent shall be apportioned and payable
by Tenant in proportion to the part of the demised premises occupied by it.
Nevertheless, in case of
<PAGE>
Page 29
any substantial damage or destruction to the demised premises, Tenant, in
addition to and without waiver of any other rights or remedies available to it,
may cancel this Lease by written notice to Landlord, if (i) within 60 days from
the date of the damage or destruction, Landlord does not file a proof of loss
with its insurer; (ii) within 90 days of the date of damage or destruction
Landlord does not let a contract or contracts which shall provide for the
complete restoration of the demised premises within a period of one year from
the date of the damage or destruction; (iii) work under such contract or
contracts has not commenced within 120 days of the date of said damage or
destruction; or (iv) said work is not prosecuted with reasonable diligence to
its completion; provided that Tenant shall not be entitled to cancel this Lease
pursuant to this sentence more than thirty (30) days after Landlord shall have
given written notice to Tenant that the state of facts specified in clause (i),
(ii) or (iii) of this sentence, as the case may be, has occurred. The period
for the completion of the required repairs and restoration work shall be
extended by the number of days lost (not to exceed, however, one year) in the
event such loss results from strike, act of God, war, governmental action,
national or state or municipal emergency, or any cause beyond the reasonable
control of Landlord.
13.02 In case the Building or the demised premises shall be
substantially damaged or destroyed by fire or other cause at any time during the
last year of the term of this Lease, then either Landlord or Tenant may cancel
this Lease upon written notice to the other party hereto given within sixty (60)
days after such damage or destruction.
13.03 If the Building shall be so damaged that Landlord shall decide
to demolish it or to rebuild it, then in either of such events, Landlord may,
within sixty (60) days after such fire or other casualty, give Tenant a notice
in writing of such decision, and thereupon the term of this Lease shall expire
by lapse of time upon the thirtieth day after such notice is given, and Tenant
shall vacate the demised premises and surrender the same to Landlord.
13.04 In the event of the termination of this Lease pursuant to the
provisions of this Article, this Lease shall expire as fully and completely on
the date fixed in such notice of termination as if that were the date definitely
fixed for the expiration of this Lease, but the rent and additional rent shall
be apportioned and shall be paid up to and including the date of such damage or
destruction, and any excess prepaid rent or excess prepaid additional rent shall
be refunded to Tenant.
13.05 No damages, compensation or claim shall be payable by Landlord
for inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the demised premises or of the Building. Landlord
shall use its best efforts to effect such repair or restoration promptly and in
such manner as not unreasonably to interfere with Tenant's occupancy.
13.06 The provisions of this Article shall be considered an express
agreement governing any case of damage or destruction of the Building or the
demised
<PAGE>
Page 30
premises by fire or other casualty and any law now or hereafter in force with
respect to such contingency, to the extent permitted, shall have no application.
ARTICLE 14
EMINENT DOMAIN
14.01 In the event that the whole of the demised premises shall be
lawfully condemned or taken in any manner for any public or quasi-public use or
purpose, this Lease and the term and estate hereby granted shall forthwith cease
and terminate as of the date of vesting of title (hereinafter referred to as the
"date of taking"), and Tenant shall have no claim against Landlord for, or make
any claim for the value of any unexpired term of this Lease, and the rent and
additional rent shall be apportioned as of such date.
14.02 In the event that any part of the demised premises shall be so
condemned or taken, then this Lease shall be and remain unaffected by such
condemnation or taking, except that the rent and additional rent allocable to
the part so taken shall be apportioned as of the date of taking; provided,
however, that Tenant may elect to cancel this Lease in the event that more than
twenty-five (25%) percent of the demised premises should be so condemned or
taken, provided such notice of election is given by Tenant to Landlord not later
than thirty (30) days after the date when title shall vest in the condemning
authority. Upon the giving of such notice, this Lease shall terminate on the
thirtieth day following the date of such notice and the rent and additional rent
shall be apportioned as of such termination date. Upon such partial taking and
this Lease continuing in force as to any part of the demised premises, the rent
and additional rent shall be diminished by an amount representing the part of
said rent and additional rent properly applicable to the portion or portions of
the demised premises which may be so condemned or taken. If as a result of the
partial taking (and this Lease continuing in force as to the part of the demised
premises not so taken), any part of the demised premises not taken is damaged,
Landlord agrees to restore the damaged portion to the condition existing
immediately prior to the taking, and prosecute the same with reasonable
diligence to its completion. In the event Landlord and Tenant are unable to
agree as to the amount by which the rent and additional rent shall be
diminished, the matter shall be determined by arbitration in accordance with the
provisions of Article 34 of this Lease. Pending such determination, Tenant
shall pay to Landlord the rent as fixed by Landlord, subject to adjustment in
accordance with the arbitration.
14.03 Tenant shall be entitled to no part of any condemnation award
or private purchase price. Tenant hereby expressly assigns to Landlord all of
its rights in or to every such award and agrees to execute any and all further
documents required to facilitate collection thereof by Landlord. Nothing herein
provided shall preclude Tenant from appearing, claiming, proving and receiving
in the condemnation proceeding, Tenant's moving expenses, and the value of
Tenant's fixtures, or Tenant's alterations,
<PAGE>
Page 31
installations and improvements which do not become part of the Building, or
property of Landlord upon expiration of the term of this Lease or prior thereto,
provided Landlord's award shall not thereby be diminished.
14.04 In the event that more than twenty-five (25%) percent of the
demised premises shall be so taken and Tenant shall not have elected to cancel
this Lease as above provided, the entire award for a partial taking shall be
paid to Landlord, and Landlord, at Landlord's own expense, shall to the extent
of the net proceeds (after deducting reasonable expenses including attorneys'
and appraisers' fees) of the award restore the unaffected part of the Building
to substantially the same condition and tenantability as existed prior to the
taking.
Until such unaffected portion is restored, Tenant shall be entitled to
a proportionate abatement of rent for that portion of the demised premises which
is being restored and is not usable until the completion of the restoration or
until the said portion of the premises is used by Tenant, whichever occurs
sooner. Said unaffected portion shall be restored within a reasonable time but
not more than six (6) months after the taking; provided, however, if Landlord is
delayed by strike, lockout, the elements, or other causes beyond Landlord's
control, the time for completion shall be extended for a period equivalent to
the delay. Should Landlord fail to complete the restoration within the said six
(6) months or the time as extended, Tenant may elect to cancel this Lease and
the term hereby granted in the manner and with the same results as set forth in
the next two sentences of this Section 14.04. If such partial taking shall
occur in the last six (6) months of the term hereby granted, either party,
irrespective of the area of the space remaining, may elect to cancel this Lease
and the term hereby granted, provided such party shall, within thirty (30) days
after such taking, give notice to that effect, and upon the giving of such
notice, the rent shall be apportioned and paid to the date of expiration of the
term specified and this Lease and the term hereby granted shall cease, expire
and come to an end upon the expiration of said thirty days specified in said
notice. If either party shall so elect to end this Lease and the term hereby
granted, Landlord need not restore any part of the demised premises and the
entire award for partial condemnation shall be paid to Landlord, and Tenant
shall have no claim to any part thereof, except as to the items set forth in
Section 14.03 where same are applicable.
14.05 If the temporary use or occupancy of all or any part of the
demised premises shall be so taken, (a) the demised term shall not be reduced or
affected in any way except as provided in (d) below, (b) Tenant shall continue
to be responsible for all of its obligations hereunder and shall continue to pay
all rents when due, (c) Tenant shall be entitled to receive that portion of the
award which represents reimbursement for the cost of restoration of the demised
premises, compensation for the use and occupancy of the demised premises and for
any taking of Tenant's property, except that, if the temporary period of taking
shall extend beyond the expiration of the term of this Lease, the portion of the
award representing compensation for the use and occupancy of the demised
premises shall be apportioned between Landlord and Tenant as of said expiration
date of said term and Landlord shall receive that portion of the
<PAGE>
Page 32
award which represents reimbursements for the cost of restoration of the demised
premises, and (d) if the date of taking shall occur during the last six (6)
months of the term of this Lease, Tenant may elect to cancel this Lease by
notice of election given by Tenant to Landlord not later than thirty (30) days
after the date when title shall vest in the condemning authority. Upon the
giving of such notice, this Lease shall terminate on the thirtieth day following
the date of such notice and the rent and additional rent shall be apportioned as
of such termination date, with Landlord, and not Tenant, to receive the portion
of the award which represents reimbursement for the cost of restoration of the
demised premises and the portion of the award representing compensation for the
use and occupancy of the demised premises for the time subsequent to the
cancellation date.
ARTICLE 15
ASSIGNMENT AND SUBLETTING
15.01 Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this Lease, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used or occupied by others, without the prior written consent of Landlord in
each instance. The merger or consolidation of a corporate lessee or sublessee
where the net worth of the resulting or surviving corporation is less than the
net worth of the lessee or sublessee immediately prior to such merger or
consolidation shall be deemed an assignment of this Lease or of such sublease.
If this Lease be assigned, or if the demised premises or any part thereof be
underlet or occupied by anybody other than Tenant, Landlord may, after default
by Tenant, collect rent from the assignee, undertenant or occupant, and apply
the net amount collected to the rent herein reserved, but no assignment,
underletting, occupancy or collection shall be deemed a waiver of the provisions
hereof, the acceptance of the assignee, undertenant or occupant as tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The consent by Landlord to an assignment or
underletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of Landlord to any further assignment or
underletting. In no event shall any permitted sublessee assign or encumber its
sublease or further sublet all or any portion of its sublet space, or otherwise
suffer or permit the sublet space or any part thereof to be used or occupied by
others, without Landlord's prior written consent in each instance. A
modification, amendment or extension of a sublease shall be deemed a sublease.
If any lien is filed against the demised premises or the building of which the
same form a part for brokerage services claimed to have been performed for
Tenant, whether or not actually performed, the same shall be discharged by
Tenant within thirty (30) days thereafter, at Tenant's expense, by filing the
bond required by law, or otherwise, and paying any other necessary sums, and
Tenant agrees to indemnify Landlord and its agents and hold them harmless from
and against any and all claims, losses or liability resulting from such lien for
brokerage services rendered, unless such brokerage services were rendered on
<PAGE>
Page 33
behalf of Landlord, at Landlord's request.
15.02 If Tenant desires to assign this Lease or to sublet all or any
portion of the demised premises, it shall first submit in writing to Landlord
the documents described in Section 15.03 hereof, and shall offer in writing, (i)
with respect to a prospective assignment, to assign this Lease to Landlord
without any payment of monies or other consideration therefor, or, (ii) with
respect to a prospective subletting, to sublet to Landlord the portion of the
demised premises involved ("Leaseback Area") for the term specified by Tenant in
its proposed sublease or, at Landlord's option, for the balance of the term of
the Lease less one (1) day, and at the lower of (a) Tenant's proposed subrental
or (b) at the same rate of fixed rent and additional rent, and otherwise on the
same terms, covenants and conditions (including provisions relating to
escalation rents), as are contained herein and as are allocable and applicable
to the portion of the demised premises to be covered by such subletting. The
offer shall specify the date when the Leaseback Area will be made available to
Landlord, which date shall be in no event earlier than ninety (90) days nor
later than one hundred eighty (180) days following the acceptance of the offer.
If an offer of sublease is made, and if the proposed sublease will result in
all or substantially all of the demised premises being sublet, then Landlord
shall have the option to extend the term of its proposed sublease for the
balance of the term of this Lease less one (1) day.
Landlord shall have a period of thirty (30) days from the receipt of
such offer to either accept or reject the same. If Landlord shall accept such
offer, Tenant shall then execute and deliver to Landlord, or to anyone
designated or named by Landlord, an assignment or sublease, as the case may be,
in either case in a form reasonably satisfactory to Landlord's counsel.
If a sublease is so made it shall expressly:
(a) permit Landlord to make further subleases of all or any
part of the Leaseback Area and (at no cost or expense to Tenant) to
make and authorize any and all changes, alterations, installations and
improvements in such space as necessary;
(b) provide that Tenant will at all times permit reasonably
appropriate means of ingress to and egress from the Leaseback Area;
(c) negate any intention that the estate created under such
sublease be merged with any other estate held by either of the
parties;
(d) provide that Landlord shall accept the Leaseback Area "as
is" except that Landlord, at Landlord's expense, shall perform all
such work and make all such alterations as may be required physically
to separate the Leaseback Area from the remainder of the demised
premises and to permit lawful occupancy, it being intended that Tenant
shall have
<PAGE>
Page 34
no other cost or expense in connection with the subletting of the
Leaseback Area;
(e) provide that at the expiration of the term of such
sublease Tenant will accept the Leaseback Area in its then existing
condition, subject to the obligations of Landlord to make such repairs
thereto as may be necessary to preserve the Leaseback Area in good
order and condition, ordinary wear and tear excepted.
Landlord shall indemnify and save Tenant harmless from all obligations
under this Lease as to the Leaseback Area during the period of time it is so
sublet, except for fixed annual rent and additional rent, if any, due under the
within Lease, which are in excess of the rents and additional sums due under
such sublease.
Subject to the foregoing, performance by Landlord, or its designee,
under a sublease of the Leaseback Area shall be deemed performance by Tenant of
any similar obligation under this Lease and any default under any such sublease
shall not give rise to a default under a similar obligation contained in this
Lease, nor shall Tenant be liable for any default under this Lease or deemed to
be in default hereunder if such default is occasioned by or arises from any act
or omission of the tenant under such sublease or is occasioned by or arises from
any act or omission of any occupant holding under or pursuant to any such
sublease.
15.03 If Tenant requests Landlord's consent to a specific assignment
or subletting, it shall submit in writing to Landlord (i) the name and address
of the proposed assignee or sublessee, (ii) a duly executed counterpart of the
proposed agreement of assignment or sublease, (iii) reasonably satisfactory
information as to the nature and character of the business of the proposed
assignee or sublessee, and as to the nature of its proposed use of the space,
and (iv) banking, financial or other credit information relating to the proposed
assignee or sublessee reasonably sufficient to enable Landlord to determine the
financial responsibility and character of the proposed assignee or sublessee.
15.04 If Landlord shall not have accepted Tenant's offer, as provided
in Section 15.02, then Landlord will not unreasonably withhold or delay its
consent to Tenant's request for consent to such specific assignment or
subletting. Any such consent of Landlord shall be subject to the terms of this
Article and conditioned upon there being no default by Tenant, beyond any grace
period, under any of the terms, covenants and conditions of this Lease at the
time that Landlord's consent to any such subletting or assignment is requested
and on the date of the commencement of the term of any such proposed sublease or
the effective date of any such proposed assignment.
15.05 Upon receiving Landlord's written consent (and unless
theretofore delivered to Landlord) a duly executed copy of the sublease or
assignment shall be
<PAGE>
Page 35
delivered to Landlord within ten (10) days after execution thereof. Any such
sublease shall provide that the sublessee shall comply with all applicable terms
and conditions of this Lease to be performed by the Tenant hereunder. Any such
assignment of lease shall contain an assumption by the assignee of all of the
terms, covenants and conditions of this Lease to be performed by the Tenant.
15.06 Anything herein contained to the contrary notwithstanding:
(a) Tenant shall not advertise (but may list with brokers)
its space for assignment or subletting at a rental rate lower than the greater
of the then building rental rate for such space or the rental rate then being
paid by Tenant to Landlord.
(b) Provided the primary purpose of the transaction is to
transfer this Lease, the transfer of a majority of the issued and outstanding
capital stock of, or a controlling interest in, any corporate tenant or
subtenant of this Lease or a majority of the total interest in any partnership
tenant or subtenant, however accomplished, and whether in a single transaction
or in a series of related or unrelated transactions, shall be deemed an
assignment of this Lease or of such sublease. The transfer of outstanding
capital stock of any corporate tenant, for purposes of this Article, shall not
include sale of such stock by persons other than those deemed "insiders" within
the meaning of the Securities Exchange Act of 1934 as amended, and which sale is
effected through the "over-the-counter market" or through any recognized stock
exchange.
(c) Prior to any listing by or on behalf of Tenant of the
demised premises with brokers for assignment or subletting, Tenant shall notify
the Landlord in writing and shall offer in writing to list the demised premises
for subleasing or assignment, as the case may be, with a licensed real estate
broker designated by Landlord and shall list the demised premises with such
broker on (at Tenant's option) either an exclusive or nonexclusive basis.
(d) No assignment or subletting shall be made:
(i) To any person or entity which shall at that
time be a tenant, subtenant or other occupant of any part of
the building of which the demised premises form a part, or who
dealt with Landlord or Landlord's agent (directly or through a
broker) with respect to space in the building during the six
(6) months immediately preceding Tenant's request for
Landlord's consent, or to any person or entity which, directly
or indirectly, controls, is controlled by, or is under common
control with, such a proposed assignee or sublessee;
(ii) By the legal representatives of the Tenant or
by
<PAGE>
Page 36
any person to whom Tenant's interest under this Lease passes by
operation of law, except in compliance with the provisions of
this Article;
(iii) To any person or entity for the conduct of a
business which is not in keeping with the standards and the
general character of the building of which the demised premises
form a part;
(iv) Which results in there being more than two (2)
occupants of the entire Premises, including Tenant;
(v) To any party entitled, directly or indirectly,
to diplomatic or sovereign immunity.
15.07 Anything hereinabove contained to the contrary notwithstanding,
the offer-back to Landlord provisions of Section 15.02 hereof shall not apply
to, and Landlord will not unreasonably withhold or delay its consent to, an
assignment of this Lease, or sublease of all or part of the demised premises, to
the parent of Tenant or to a wholly-owned subsidiary of Tenant or of said
parent, provided the net worth of the transferor or sublessor, after such
transaction, is equal to or greater than its net worth immediately prior to such
transaction; and provided, also, that any such transaction complies with the
other provisions of this Article.
15.08 Anything hereinabove contained to the contrary notwithstanding,
the offer-back to Landlord provisions of Section 15.02 hereof shall not apply
to, and Landlord will not unreasonably withhold or delay its consent to, an
assignment of this Lease, or sublease of all or part of the demised premises,
to: any corporation (i) to which substantially all the assets of Tenant are
transferred or (ii) into which Tenant may be merged or consolidated, provided
that the net worth, experience and reputation of such transferee or of the
resulting or surviving corporation, as the case may be, is equal to or greater
than the net worth, experience and reputation of Tenant immediately prior to
such transfer; and provided, also, that any such transaction complies with the
other provisions of this Article.
15.09 No consent from Landlord shall be necessary under Sections
15.07 and 15.08 hereof where (i) reasonably satisfactory proof is delivered to
Landlord that the net worth and other provisions of 15.07 and 15.08, as the case
may be, and the other provisions of this Article, have been satisfied and (ii)
Tenant, in a writing reasonably satisfactory to Landlord's attorneys, agrees to
remain primarily liable, jointly and severally, with any transferee or assignee,
for the obligations of Tenant under this Lease.
15.10 If Tenant effects any assignment or subletting, then Tenant
thereafter shall pay to Landlord a sum equal to (a) fifty percent (50%) of any
rent or other consideration paid to Tenant by any subtenant which (after
deducting the
<PAGE>
Page 37
reasonable costs of Tenant, if any, in effecting the subletting, including
reasonable alteration costs, commissions and legal fees) is in excess of the
rent allocable to the subleased space which is then being paid by Tenant to
Landlord pursuant to the terms hereof; and (b) fifty percent (50%) of any other
profit or gain (after deducting any necessary reasonable expenses incurred)
realized by Tenant from any such subletting or assignment. All sums payable
hereunder by Tenant shall be payable to Landlord as additional rent upon receipt
thereof by Tenant.
15.11 In no event shall Tenant be entitled to make, nor shall Tenant
make, any claim, and Tenant hereby waives any claim, for money damages (nor
shall Tenant claim any money damages by way of set-off, counterclaim or defense)
based upon any claim or assertion by Tenant that Landlord has unreasonably
withheld or unreasonably delayed its consent or approval to a proposed
assignment or subletting as provided for in this Article. Tenant's sole remedy
shall be an action or proceeding to enforce any such provision, or for specific
performance, injunction or declaratory judgment. The provisions of this Section
15.11 shall not be applicable if Landlord withholds, conditions or delays its
consent or approval to a proposed assignment or subletting arbitrarily or in bad
faith.
ARTICLE 16
ACCESS TO DEMISED PREMISES; CHANGES
16.01 Tenant shall permit Landlord to erect, use and maintain pipes,
ducts and conduits in and through the demised premises, provided the same are
installed adjacent to or concealed behind walls and ceilings of the demised
premises and are installed by such methods and at such locations as will not
materially interfere with or impair Tenant's layout or use of the demised
premises. Landlord or its agents or designees shall have the right but only
upon request made to Tenant or any authorized employee of Tenant at the demised
premises to enter the demised premises, other than vaults or other enclosures
where money, securities or other valuables or confidential documents are kept,
at reasonable times during business hours, for the making of such repairs or
alterations as Landlord may deem necessary for the Building or which Landlord
shall be required to or shall have the right to make by the provisions of this
Lease or any other lease in the Building and, subject to the foregoing, shall
also have the right to enter the demised premises for the purpose of inspecting
them or exhibiting them to prospective purchasers or lessees of the entire
Building or to prospective mortgagees of the fee or of the Landlord's interest
in the property of which the demised premises are a part or to prospective
assignees of any such mortgages or to the holder of any mortgage on the
Landlord's interest in the property, its agents or designees. Landlord shall be
allowed to take all material into and upon the demised premises that may be
required for the repairs or alterations above mentioned as the same is required
for such purpose without the same constituting an eviction of Tenant in whole or
in part, and the rent reserved shall in no way abate, except as otherwise
provided in this Lease, while said repairs or alterations are being made, by
reason of loss or interruption of the
<PAGE>
Page 38
business of Tenant because of the prosecution of any such work, provided
Landlord diligently proceeds therewith. Landlord shall exercise reasonable
diligence so as to minimize the disturbance.
16.02 Landlord reserves the right, without the same constituting an
eviction and without incurring liability to tenant therefor, to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairways, toilets and other public parts of the Building;
provided, however, that access to the Building shall not be cut off and that
there shall be no unreasonable obstruction of access to the demised premises or
unreasonable interference with the use or enjoyment thereof.
16.03 Landlord reserves the right, at its sole cost and expense, to
light from time to time all or any portion of the demised premises at night for
display purposes without paying Tenant therefor.
16.04 Landlord may, during the ten (10) months prior to expiration of
the term of this Lease, at reasonable times and after reasonable prior notice
(which may be oral and given on the same day access is required), exhibit the
demised premises to prospective tenants.
16.05 If Tenant shall not be personally present to open and permit an
entry into the demised premises at any time when for any reason an entry therein
shall be urgently necessary by reason of fire or other emergency, Landlord or
Landlord's agents may forcibly enter the same without rendering Landlord or such
agents liable therefor (if during such entry Landlord or Landlord's agents shall
accord reasonable care to Tenant's property) and without in any matter affecting
the obligations and covenants of this Lease.
ARTICLE 17
CERTIFICATE OF OCCUPANCY
17.01 Tenant will not at any time use or occupy the demised premises
in violation of the Certificate of Occupancy issued for the Building. Landlord
will make no changes in the Building which would result in a change in the
Certificate of Occupancy which prevents Tenant from using the demised premises
for the purposes specified in this Lease. Landlord represents that Tenant's use
of the demised premises for the purposes specified in Section 2.01 of this Lease
will not constitute a violation of the current Certificate of Occupancy issued
for the Building.
<PAGE>
Page 39
ARTICLE 18
BANKRUPTCY
18.01 Subject to the provisions of Section 18.03, if at any time
prior to the date herein fixed as the commencement of the term of this Lease
there shall be filed by or against Tenant in any court pursuant to any statute
either of the United States or of any State a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or a
trustee of all or a portion of Tenant's property, or if Tenant makes an
assignment for the benefit of creditors, or petitions for or enters into an
arrangement with creditors, this Lease shall ipso facto be cancelled and
terminated, in which event neither Tenant nor any person claiming through or
under Tenant or by virtue of any statute or of an order of any court shall be
entitled to possession of the demised premises and Landlord, in addition to the
other rights and remedies given by Section 18.04 hereof and by virtue of any
other provision herein or elsewhere in this Lease contained or by virtue of any
statute or rule of law, may retain as liquidated damages any rent, security,
deposit or monies received by it from Tenant or others in behalf of Tenant.
18.02 Subject to the provisions of Section 18.03, if at the date
fixed as the commencement of the term of this Lease or if at any time during the
term hereby demised there shall be filed by or against Tenant in any court
pursuant to any statute either of the United States or of any State a petition
in bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of all or a portion of Tenant's property, or if Tenant makes
an assignment for the benefit of creditors, or petitions for or enters into an
arrangement with creditors, Landlord may at Landlord's option, serve upon Tenant
or any such trustee, receiver, or assignee, a notice in writing stating that
this Lease and the term hereby granted shall cease and expire on the date
specified in said notice, which date shall be not less than ten days after the
serving of said notice, and this Lease and the term hereof shall then expire on
the date so specified as if that date had originally been fixed in this Lease as
the expiration date of the term herein granted. Thereupon, neither Tenant nor
any person claiming through or under Tenant by virtue of any statute or of an
order of any court shall be entitled to possession or to remain in possession of
the demised premises but shall forthwith quit and surrender the premises, and
Landlord, in addition to the other rights and remedies given by Section 18.04
hereof and by virtue of any other provision herein or elsewhere in this Lease
contained or by virtue of any statute or rule of law, may retain as liquidated
damages any rent, security, deposit or monies received by it from Tenant or
others in behalf of Tenant.
18.03 In the event that at any times mentioned in either Sections
18.01 or 18.02 there shall be instituted against Tenant an involuntary
proceeding for bankruptcy, insolvency, reorganization or any other relief
described in Sections 18.01 or 18.02, Tenant shall have ninety (90) days in
which to vacate or stay the same before this Lease shall terminate or before
Landlord shall have any right to terminate this Lease, provided the rent and
additional rent then in arrears, if any, are paid within fifteen (15) days after
the institution of such proceeding, and further provided that the rent and
additional rent which shall thereafter become due and payable are paid when due,
and Tenant shall not otherwise be in default in the performance of the terms and
covenants
<PAGE>
Page 40
of this Lease.
18.04 In the event of the termination of this Lease pursuant to
Sections 18.01, 18.02 or 18.03 hereof, Landlord shall forthwith, notwithstanding
any other provisions of this Lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the then fair and reasonable rental value of the demised premises for the same
period, if lower than the rent reserved at the time of termination. If such
premises or any part thereof be re-let by Landlord to a third party in a
commercially reasonable transaction for the unexpired term of said Lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be prima facie the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of Landlord to prove for and
obtain as liquidated damages by reason of such termination, an amount equal to
the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which such damages are to be proved, whether or
not such amount be greater, equal to, or less than the amount of the difference
referred to above.
18.05 The provisions of this Article 18 are subject to applicable
law.
ARTICLE 19
DEFAULT
19.01 If Tenant defaults in fulfilling any of the covenants of this
Lease, including the payment of rent or additional rent, or if the demised
premises become vacant or abandoned, then, in any one or more of such events,
upon Landlord serving a written thirty (30) days' notice upon Tenant specifying
the nature of said default and upon the expiration of said thirty (30) days if
Tenant shall have failed to comply with or remedy such default, or if the said
default or omission complained of shall be of such a nature that the same cannot
be completely cured or remedied within said thirty (30) day period and if
Tenant shall not have diligently commenced to take action towards curing such
default within such thirty (30) day period and shall not thereafter with
reasonable diligence and in good faith proceed to remedy or cure such default
(it being understood and agreed, however, that the aforesaid thirty (30) days'
notice and time to cure shall be fifteen (15) days with respect to a default in
the payment of rent or additional rent and five (5) days with respect to default
by Tenant under Article 46 hereof (Certificate of Tenant)), or if any execution
or attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be occupied by someone other than Tenant
and such occupancy shall continue for a period of thirty (30) days after written
notice from Landlord, then Landlord may serve a written five (5) days' notice of
cancellation of this Lease upon Tenant, and, upon the expiration of said five
(5) days, this Lease and the term hereunder shall end and expire as fully and
<PAGE>
Page 41
completely as if the date of expiration of such five (5) day period were the day
herein definitely fixed for the end and expiration of this Lease and the term
hereof and Tenant shall then quit and surrender the demised premises to Landlord
but Tenant shall remain liable as hereinafter provided.
19.02 If (i) the notices provided for in Section 19.01 hereof shall
have been given, and the term shall expire as aforesaid, or (ii) if Tenant shall
make default in the payment of the rent reserved herein or any item of
additional rent herein provided or any other payment herein provided for beyond
any applicable grace period, then and in any of such events Landlord may,
without notice, re-enter the demised premises only if Tenant has abandoned or
deserted same, and/or, after statutory notice in all other instances, and
dispossess Tenant, the legal representatives of Tenant or other occupant of the
demised premises, by summary proceedings or otherwise, and remove their effects
and hold the premises as if this Lease had not been made, and Tenant hereby
waives the service of notice of intention so to re-enter.
19.03 Notwithstanding any expiration or termination prior to the
Lease expiration date as set forth in this Article 19, Tenant's obligation to
pay any and all rent and additional rent under this Lease shall continue to and
cover all periods up to the date provided in this Lease for the expiration of
the term hereof.
19.04 Notwithstanding the provisions of Section 19.01 hereof, Tenant,
at its own cost and expense, in its name and/or (wherever necessary) Landlord's
name, may contest, in any manner permitted by law (including appeals to a court,
or governmental department or authority having jurisdiction in the matter), the
validity or the enforcement of any governmental act, regulation or directive
with which Tenant is required to comply pursuant to this Lease, and may defer
compliance therewith provided that:
(a) such noncompliance shall not subject Landlord to criminal
prosecution or subject the land and/or Building or the building project to lien
or sale;
(b) such noncompliance shall not be in violation of any fee
mortgage, or of any ground or underlying lease or any mortgage thereon;
(c) Tenant shall first deliver to Landlord (i) a separate
indemnity agreement from Tenant, in a form reasonably satisfactory to Landlord's
attorneys, or (ii) a surety bond issued by a surety company of recognized
responsibility, or other security satisfactory to Landlord, indemnifying and
defending Landlord against any loss or injury by reason of such noncompliance;
and
(d) Tenant shall promptly and diligently prosecute such
contest.
Landlord, without expense or liability to it, shall cooperate with
Tenant and execute any documents or pleadings required for such purpose,
provided that Landlord
<PAGE>
Page 42
shall reasonably be satisfied that the facts set forth in any such documents or
pleadings are accurate.
ARTICLE 20
REMEDIES OF LANDLORD; WAIVER OF REDEMPTION; PREJUDGMENT
20.01 In case of any such re-entry, expiration and/or dispossess by
summary proceedings or otherwise as set forth in Article 19 hereof (a) the rent
shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration, together with such expenses as Landlord may incur
for legal expenses, reasonable attorneys' fees, brokerage, and/or putting the
demised premises in good order, or for preparing the same for re-rental; (b)
Landlord may re-let the premises or any part or parts thereof, either in the
name of Landlord or otherwise, for a term or terms, which may at Landlord's
option be less than or exceed the period which would otherwise have constituted
the balance of the term of this Lease and may grant concessions or free rent;
and (c) Tenant shall also pay Landlord as liquidated damages for the failure of
Tenant to observe and perform said Tenant's covenants herein contained, any
deficiency between the rent hereby reserved and/or covenanted to be paid and the
net amount, if any, of the rents collected on account of the lease or leases of
the demised premises for each month of the period which would otherwise have
constituted the balance of the term of this Lease. The failure or refusal of
Landlord to re-let the premises or any parts thereof shall not release or
affect Tenant's liability for damages. Any such damages shall be paid in
monthly installments by Tenant on the rent days specified in this Lease and any
suit or proceeding brought to collect the amount of the deficiency for any month
shall not prejudice in any way the rights of Landlord to collect the deficiency
for any subsequent month by a similar suit or proceeding.
In no event shall Tenant be entitled to receive the excess, if any, of
any rentals from re-letting over the sums payable by Tenant to Landlord
hereunder, nor shall Tenant be entitled in any suit for the collection of
damages pursuant to this Article to a credit in respect of any rentals from
re-letting except to the extent that such rentals are actually received by
Landlord. No such re-letting shall constitute or be deemed to constitute a
surrender or the acceptance of a surrender.
Landlord, at Landlord's option, may make such alterations, repairs,
replacements and/or decorations in the demised premises as Landlord, in
Landlord's sole judgment, considers advisable and necessary for the purpose of
re- letting the demised premises; and the making of such alterations and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Landlord shall in no event be liable in any way
whatsoever for failure or refusal to re-let the demised premises or any parts
thereof, or, in the event that the demised premises are re-let, for failure to
collect the rent thereof under such re-letting. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof,
<PAGE>
Page 43
Landlord shall have the right of injunction and the right to invoke any remedy
allowed at law or in equity as if re-entry, summary proceedings and other
remedies were not herein provided for. Mention in this Lease of any particular
remedy, shall not preclude Landlord from any other remedy, in law or in equity.
20.02 Tenant, for itself and for all persons claiming through or
under it, hereby acknowledges that this Lease constitutes a commercial
transaction as such term is used and defined in Public Act No. 431 of the
Connecticut General Statutes, Revisions of 1973, and, to the extent permitted by
law, hereby expressly waives any and all rights which are or may be conferred
upon Tenant by said Act to any notice or hearing prior to a prejudgment remedy.
Tenant, to the extent permitted by law, further expressly waives any and all
rights which are or may be conferred upon Tenant by any present or future law to
redeem the said premises, or to any new trial in any action of ejection under
any provision of law, after re-entry thereupon, or upon any part thereof, by
Landlord, or after any warrant to dispossess or judgment in ejection. If
Landlord shall acquire possession without judicial proceedings, it shall be
deemed a re-entry within the meaning of that word as used in this Lease.
ARTICLE 21
FEES AND EXPENSES; INTEREST
21.01 If Tenant shall default beyond any applicable notice and/or
grace period in the observance or performance of any term or covenant on
Tenant's part to be observed or performed under or by virtue of any of the terms
of provisions in any Article of this Lease, (a) Landlord may remedy such default
for the account of Tenant, immediately and without notice in case of emergency,
or in any other case only provided that Tenant shall fail to remedy such default
with all reasonable dispatch after Landlord shall have notified Tenant in
writing of such default and the applicable grace period for curing such default
shall have expired; and (b) if Landlord makes any expenditures or incurs any
obligations for the payment of money in connection with such default including,
but not limited to, reasonable attorneys' fees in instituting, prosecuting or
defending any action or proceeding, such sums paid or obligations incurred, with
interest, shall be deemed to be additional rent hereunder and shall be paid by
Tenant to Landlord upon rendition of a bill to Tenant therefor.
If Tenant is more than ten (10) days late in making any payment due to
Landlord from Tenant under this Lease, then interest shall become due and owing
to Landlord on such payment from the date when it was due, computed as provided
in Section 25.05 hereof.
<PAGE>
Page 44
ARTICLE 22
NO REPRESENTATIONS BY LANDLORD
22.01 Landlord or Landlord's agents have made no representations or
promises with respect to the Building, the building project or the demised
premises except as herein expressly set forth.
ARTICLE 23
END OF TERM
23.01 Upon the expiration or other termination of the term of this
Lease, Tenant shall quit and surrender to Landlord the demised premises, broom
clean, in good order and condition, ordinary wear and tear and damage by fire,
the elements or other casualty excepted, and Tenant shall remove all of its
property as herein provided. Tenant agrees it shall indemnify and save
Landlord harmless against all costs, claims, loss or liability resulting from
delay by Tenant in so surrendering the premises, including, without limitation,
any claims made by any succeeding tenant founded on such delay. Additionally,
the parties recognize and agree that other damage to Landlord resulting from any
failure by Tenant to timely surrender the premises will be substantial, will
exceed the amount of monthly rent theretofore payable hereunder, and will be
impossible of accurate measurement. Tenant therefore agrees that if possession
of the premises is not surrendered to Landlord within ten (10) days after the
date of the expiration or sooner termination of the term of this lease, then
Tenant will pay Landlord as liquidated damages for each month and for each
portion of any month during which Tenant holds over in the premises after
expiration or termination of the term of this lease, a sum equal to two times
the average rent and additional rent which was payable per month under this
lease during the last six months of the term thereof. The aforesaid obligations
shall survive the expiration or sooner termination of the term of this Lease.
ARTICLE 24
QUIET ENJOYMENT
24.01 Landlord covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the demised premises (to have and to hold the
demised premises for the term of this Lease), subject, nevertheless, to the
terms and conditions of this Lease, and to the ground leases, underlying leases
and mortgages hereinbefore mentioned.
ARTICLE 25
DEFINITIONS
25.01 The term "Landlord" as used in this Lease means only the owner,
or the mortgagee in possession, for the time being of the land and Building (or
the
<PAGE>
Page 45
owner of a lease of the Building or of the land and Building), so that in the
event of any transfer of title to said land and Building or said lease, or in
the event of a lease of the Building, or of the land and Building, upon
notification to Tenant of such transfer or lease the said transferor Landlord
shall be and hereby is entirely freed and relieved of all existing or future
covenants, obligations and liabilities of Landlord hereunder, and it shall be
deemed and construed as a covenant running with the land without further
agreement between the parties or their successors in interest, or between the
parties and the transferee of title to said land and Building or said lease, or
the said lessee of the Building, or of the land and Building, that the
transferee or the lessee has assumed and agreed to carry out any and all such
covenants, obligations and liabilities of Landlord hereunder.
25.02 The words "re-enter" and "re-entry" as used in this Lease are
not restricted to their technical legal meaning.
25.03 The term "business days" as used in this Lease shall exclude
Saturdays, Sundays and all days observed by the Federal, State or local
government as legal holidays as well as all other days recognized as holidays
under applicable union contracts.
25.04 The term "mortgage" shall include an indenture of mortgage and
deed of trust to a trustee to secure an issue of bonds and debentures, and the
term "mortgagee" shall include such a trustee.
25.05 Except as otherwise specifically provided in this Lease,
whenever payment of interest is required by the terms hereof, it shall be
computed as follows: for an individual or partnership tenant, computed at the
maximum legal rate of interest; for a corporate tenant, computed at one and one-
half (1 1/2%) percent per month unless there is an applicable maximum legal rate
of interest which then shall be used.
ARTICLE 26
ADJACENT EXCAVATION--SHORING
26.01 If an excavation or other substructure work shall be made upon
land adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work as
shall be necessary to preserve the wall of or the Building of which the demised
premises form a part from injury or damage and to support the same by proper
foundations without any claim for damages or indemnity against Landlord, or
diminution or abatement of rent. Landlord shall seek to cause such work to be
effected in a manner which minimizes any interference with Tenant's business
operations in the demised premises. Tenant understands and agrees, however,
that such work will be effected on business days during normal business hours.
<PAGE>
Page 46
ARTICLE 27
RULES AND REGULATIONS
27.01 Tenant and Tenant's servants, employees and agents shall
observe faithfully and comply strictly with the Rules and Regulations set forth
in Exhibit B attached hereto and made part hereof entitled "Rules and
Regulations" and such other and further reasonable nondiscriminatory Rules and
Regulations as Landlord or Landlord's agents may from time to time adopt,
provided, however, that in case of any conflict or inconsistency between the
provisions of this Lease and of any of the Rules and Regulations as originally
or as hereafter adopted, the provisions of this Lease shall control. Reasonable
written notice of any additional Rules and Regulations shall be given to Tenant.
Landlord shall not unreasonably withhold from Tenant any approval
provided for in the Rules and Regulations and shall exercise its judgment in
good faith.
ARTICLE 28
NO WAIVER, ETC.
28.01 No agreement to accept a surrender of this Lease shall be valid
unless in writing signed by Landlord. No employee of Landlord or of Landlord's
agents shall have any power to accept the keys of said premises prior to the
termination of this Lease. The delivery of keys to any employee of Landlord or
of Landlord's agent shall not operate as a termination of this Lease or a
surrender of the premises. In the event of Tenant at any time desiring to have
Landlord sublet the premises for Tenant's account, Landlord or Landlord's agents
are authorized to receive said keys for such purpose without releasing Tenant
from any of the obligations under this Lease. The failure of Landlord to seek
redress for violation of, or to insist upon the strict performance of, any
covenant or condition of this Lease or any of the Rules and Regulations set
forth herein, or hereafter adopted by Landlord, shall not prevent a subsequent
act, which would have originally constituted a violation, from having all the
force and effect of an original violation. The receipt by Landlord of rent with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations set forth herein, or hereafter adopted, against Tenant and/or any
other tenant in the building project shall not be deemed a waiver of any such
Rules and Regulations. No provision of this Lease shall be deemed to have been
waived by Landlord, unless such waiver be in writing signed by Landlord. No
payment by Tenant or receipt by Landlord of a lesser amount than the monthly
rent herein stipulated shall be deemed to be other than on account of the
earliest stipulated rent, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment of rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
<PAGE>
Page 47
Landlord's right to recover the balance of such rent or pursue any other remedy
in this Lease provided.
28.02 This Lease contains the entire agreement between the parties,
and any executory agreement hereafter made shall be ineffective to change,
modify, discharge or effect an abandonment of it in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
ARTICLE 29
WAIVER OF TRIAL BY JURY
29.01 To the extent permitted by law, Landlord and Tenant do hereby
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matters whatsoever arising out of
or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the demised premises, and/or any other
claims (except claims for personal injury or property damage), and any emergency
statutory or any other statutory remedy with respect thereto. Tenant also
waives the provisions of any law relating to notice and/or delay in levy of
execution in case of an eviction or dispossess, and of any other law of like
import now or hereafter in effect. If Landlord commences any summary
proceeding, or any other proceeding or action to recover possession of the
demised premises, Tenant agrees that Tenant will not interpose any counterclaim
of whatever nature or description in any such action or proceeding, provided
Tenant does not thereby waive any defense or the right to assert such claim in a
separate action or proceeding.
ARTICLE 30
INABILITY TO PERFORM
30.01 If, by reason of (1) strike, (2) labor troubles, (3)
governmental pre-emption in connection with a national emergency, (4) any rule,
order or regulation of any governmental agency, (5) conditions of supply or
demand which are affected by war or other national, state or municipal
emergency, or (6) any cause beyond Landlord's control, Landlord shall be unable
to fulfill its obligations under this Lease or shall be unable to supply any
service which Landlord is obligated to supply, this Lease and Tenant's
obligation to pay rent hereunder shall in no way be affected, impaired or
excused. As Landlord shall learn of the happening of any of the foregoing
conditions, Landlord shall promptly notify Tenant of such event and, if
ascertainable, its estimated duration, and will proceed promptly and diligently
with the fulfillment of its obligations as soon as reasonably possible.
If, for any reason whatsoever, unless the result of the causes set
forth in
<PAGE>
Page 48
numbers (1)-(6) of the first paragraph of this Section 30.01, or because of
failure of the public utility supplying electricity or heat to the Building to
supply such service: (a) all of the elevators in the banks of elevators which
service the floor or floors on which the demised premises are located shall be
inoperative for more than five (5) consecutive business days so that to obtain
access to any floor of the demised premises it would be necessary to walk up or
down more than four flights of stairs (a flight of stairs shall consist of all
stairs in a public stairway of the Building between one floor and the floor
above or below); or (b) if the heating or air conditioning system which services
the demised premises shall be inoperative for a period of more than five (5)
consecutive business days during the days when said system would normally be
operating to service the Building so that Tenant and its employees cannot and do
not use, except on an emergency basis, part or all of the demised premises for
the purposes for which the premises are leased; or (c) Tenant is otherwise
denied or deprived of access to all or any part of the demised premises for a
period of more than five (5) consecutive business days by reason of any act,
omission or negligence of Landlord, its agents or employees; then, in any such
event, Tenant shall be entitled to an abatement of rent for each day after said
five (5) day period for such portion of the demised premises which is
inaccessible or which cannot be used as above set forth.
ARTICLE 31
NOTICES
31.01 Any notice or demand, consent, approval or disapproval, or
Statement required to be given by the terms and provisions of this Lease, or by
any law or governmental regulation, either by Landlord to Tenant or by Tenant to
Landlord, shall be in writing. Unless otherwise required by such law or
regulation, such notice or demand shall be given, and shall be deemed to have
been served and given by Landlord and received by Tenant, when Landlord shall
have deposited such notice or demand by registered or certified mail enclosed in
a securely closed postage prepaid wrapper, in a United States Government general
or branch post office, or official depository with the exclusive care and
custody thereof, addressed to Tenant, at the address set forth after Tenant's
name on page 1 of this Lease. After Tenant shall occupy the demised premises,
the address of Tenant for notices, demands, consents, approvals or disapprovals
shall be the Building. Such notice, demand, consent, approval or disapproval
shall be given, and shall be deemed to have been served and given by Tenant and
received by Landlord, when Tenant shall have deposited such notice or demand by
registered or certified mail enclosed in a securely closed post-paid wrapper, in
a United States Government general or branch post office or, official depository
with the exclusive care and custody thereof, addressed to Landlord at the
address set forth after Landlord's name on page 1 of this Lease. Either party
may, by notice as aforesaid, designate a different address or addresses for
notices, demands, consents, approvals or disapprovals.
31.02 In addition to the foregoing, either Landlord or Tenant may,
from
<PAGE>
Page 49
time to time, request in writing that the other party serve a copy of any notice
or demand, consent, approval or disapproval, or statement, on one other person
or entity designated in such request, such service to be effected by either
certified or registered mail, return receipt requested.
ARTICLE 32
SERVICES
32.01 Landlord shall provide necessary elevator facilities including
reasonable freight elevator service, on business days from 8:00 A.M. to 6:00
P.M. and shall have at least one elevator available at all other times. At
Landlord's option, the elevators shall be operated by automatic control or by
manual control, or by a combination of both of such methods. Landlord will
provide Tenant with after-hours freight elevator service at Landlord's then
established rates in the Building for same and pursuant to Landlord's Rules and
Regulations.
32.02 (a) Landlord shall be obligated to furnish air conditioning,
ventilation and heating to the demised premises, on an all-year-round basis,
during such hours on business days as Landlord shall from time to time
determine, by notice to Tenant, to be the regular hours of operation of such
systems. Such regular hours of operation shall at least include the hours from
8:30 A.M. to 5:30 P.M. and shall exclude the hours between 5:30 P.M. and 8:30
A.M. Provided Tenant shall comply with applicable Building Regulations, the air
conditioning system will be designed to be capable of maintaining interior
conditions of 78 degrees dry bulb and 50% relative humidity when outside
conditions are 90 degrees dry bulb and 75 degrees wet bulb and winter conditions
of 68 degrees F. interior with outside conditions of 0 degrees F., and to
provide fresh air in a quantity not less than 0.1 cubic feet per minute per
square foot of rentable floor area.
(b) Landlord will maintain the air conditioning system in a
manner befitting a first class building and will use all reasonable care to keep
the same in proper and efficient operating condition; and Landlord will not be
responsible for the failure of the air conditioning system to meet the
requirements hereinbefore specified if such failure results from the occupancy
of the demised premises with more than an average of one person for each 150
square feet of rentable area and if Tenant installs and operates lighting,
machines and appliances the total connected electrical load of which exceeds 4
watts per rentable square foot.
(c) Tenant agrees to keep and cause to be kept closed all the
windows in and the doors to the demised premises at all times, and Tenant agrees
to cooperate fully with Landlord and to abide by all the regulations and
requirements which Landlord may reasonably prescribe for the proper functioning
and protection of said air conditioning system.
<PAGE>
Page 50
(d) The Tenant acknowledges it has been advised that the
Building has sealed windows and that therefore, when the ventilation,
air-conditioning, and heating system is not operating, air will not be
circulating throughout the demised premises. Tenant agrees that Landlord shall
not be obligated to operate such ventilating, air-conditioning, and heating
system after or before its regular hours of operation as provided in subdivision
(a), except after prior written notice from and payment by Tenant as hereinafter
specified. Tenant agrees that Landlord's failure to operate such system in the
absence of such notice and payment shall not be deemed a partial or other
eviction, or disturbance of Tenant's use, enjoyment, or possession of the
premises, and shall not render Landlord liable for damages, by abatement of rent
or otherwise, and Tenant shall not be relieved from any obligation under this
Lease.
(e) Landlord will provide Tenant with ventilation,
air-conditioning, or heating at times other than its regular hours of operation
of said systems as provided in subdivision (a), at Landlord's then established
rates in the building project for after-hours service, payable by Tenant as
additional rent when billed, provided that Tenant shall give notice prior to
1:00 P.M. in the case of after-hours service on business days and prior to 3:00
P.M. on Fridays in the case of after-hours service on Saturdays and Sundays (or
3:00 P.M. on the preceding business day, in the case of holidays).
32.03 Subject to its obligations under Section 30.01, Landlord
reserves the right to stop services on the air-conditioning, elevator, plumbing,
electric and other systems when necessary by reason of accident or emergency or
for repairs, alterations, replacements or improvements, provided that except in
case of emergency, Landlord will notify Tenant in advance, if possible, of any
such stoppage and, if ascertainable, its estimated duration, and will proceed
diligently with the work necessary to resume such service as promptly as
possible and in a manner so as to minimize interference with the Tenant's use
and enjoyment of the demised premises.
32.04 Landlord will supply Tenant at Landlord's expense with an
adequate quantity of water for ordinary lavatory purposes. Should Tenant require
or consume water for any additional purpose, Tenant shall pay Landlord a
reasonable charge therefor and for any required pumping or heating thereof, as
well as any taxes, sewer rents or other charges which may be imposed by any
governmental authority based on the quantity of water so used by Tenant.
Landlord may elect to install a water meter, at Tenant's expense and thereby
measure Tenant's water consumption for all such additional purposes, said meter
to be maintained at Tenant's expense.
32.05 All costs incurred in connection with the hook-up and operation
(including the cost of metering devices) for water and electricity consumption
in the demised premises (including, but not limited to, consumption for HVAC
units) shall be borne solely by Tenant and Tenant shall reimburse Landlord for
such costs as additional rent promptly upon demand therefor.
32.06 It is expressly agreed that only Landlord or any one or more
<PAGE>
Page 51
persons, firms or corporations authorized in writing by Landlord (which
authorization will not be unreasonably withheld or delayed by Landlord) will be
permitted to furnish: laundry, linen, towels, drinking water, ice and other
similar supplies and services to tenants and licensees in the Building.
Landlord may fix, in its own reasonable discretion, at any time and
from time to time, the hours during which and regulations under which such
supplies and services are to be furnished. Landlord expressly reserves the
right to act as or to designate, at any time and from time to time, an exclusive
supplier of all or any one or more of the said supplies and services, provided
that the quality thereof and the charges therefor are reasonably comparable to
that of other suppliers; and Landlord furthermore expressly reserves the right
to exclude from the Building any person, firm or corporation attempting to
furnish any of said supplies or services but not so designated by Landlord.
32.07 It is expressly agreed that only Landlord or any one or more
persons, firms or corporations authorized in writing by Landlord will be
permitted to sell, deliver or furnish any food or beverages whatsoever for
consumption within the demised premises or elsewhere in the Building. Landlord
expressly reserves the right to act as or to designate at any time, or from time
to time, an exclusive supplier or suppliers of such food and beverages, provided
that the quality thereof and the charges therefor are reasonably comparable to
that of other suppliers; and Landlord further expressly reserves the right to
exclude from the Building any person, firm or corporation attempting to deliver
or purvey any such food or beverages but not so designated by Landlord. It is
understood, however, that Tenant or regular office employees of Tenant who are
not employed by any supplier of such food or beverages or by any person, firm or
corporation engaged in the business of purveying such food or beverages, may
personally bring food or beverages into the Building for consumption within the
demised premises by the said Tenant or employees of Tenant, but not for resale
to or for consumption by any other tenant, or the employees or guests of any
other tenant. Landlord may fix in its absolute discretion, reasonably
exercised, at any time and from time to time, the hours during which, and the
regulations under which food and beverages may be brought into the Building by
Tenant or its regular employees, provided such regulations are reasonable and
are enforced against Tenant in a nondiscriminatory matters.
32.08 Tenant agrees to employ such contractor as Landlord may from
time to time designate for all waxing, polishing, lamp replacement and other
special cleaning or maintenance work of the demised premises and of Tenant's
furniture, fixtures and equipment. Landlord represents that the quality thereof
and the charges therefor shall be reasonably comparable to that of other
contractors doing comparable work in comparable buildings in the area of the
Building. Tenant shall not employ any other such contractor or individual
without Landlord's prior written consent, but nothing herein contained shall
prohibit Tenant from performing such work for itself by use of its own regular
employees.
<PAGE>
Page 52
32.09 Landlord will not be required to furnish any other services,
except as provided in this Article 32 or elsewhere in this Lease, and except
that Landlord agrees to provide on business days the cleaning set forth in
Exhibit C hereof. Landlord shall have no obligation to perform cleaning
services in those portions of the demised premises which are below grade, bank
space, or which are used for the preparation, dispensing or consumption of food
or beverages, for storage or shopping purposes, for the operation of computer,
data processing, reproduction or similar equipment or as private lavatories or
toilets, all of which portions Tenant shall cause to be kept clean at Tenant's
cost and expense. Tenant shall pay to Landlord, on demand, a reasonable charge
for the removal from the demised premises of any refuse and rubbish of Tenant as
shall not be contained in waste receptacles of customary office size and for the
removal of refuse and rubbish of Tenant's machines and of eating facilities
requiring special handling (known as wet garbage). Landlord, its cleaning
contractor and their employees shall have after-hours access to the demised
premises and the use of Tenant's light, power and water in the demised premises
as may be reasonably required for the purpose of cleaning the demised premises.
If Tenant is permitted hereunder to and does have a separate area for
the preparation or consumption of food in the demised premises, Tenant shall pay
to Landlord the cost of employing on a regular basis, an exterminator to keep
the demised premises free from vermin; and Tenant shall provide a means of
disposing of such so-called "wet" garbage reasonably satisfactory to Landlord.
32.10 Landlord shall manage and maintain the Building as a first
class office building. Tenant and its employees shall occupy and use the
demised premises in a manner befitting such building. Landlord shall have the
right to lease all or part of the ground floor and lower lobby level to a
restaurant and cafeteria and to other commercial and retail tenants.
ARTICLE 33
LANDLORD'S WORK - TENANT'S DRAWINGS, ETC.
33.01 The parties agree that they will be bound by and will comply
with the provisions of this Article 33 as supplemented by the preliminary sketch
and Work Letter attached hereto and made a part hereof. Landlord agrees that it
will alter the demised premises so that they will materially conform to the said
sketch and Work Letter. Any reference in this Lease to this Article 33 is
understood to refer to this Article 33 as supplemented by the sketch and Work
Letter.
<PAGE>
Page 53
ARTICLE 34
INSURANCE
34.01 Tenant, at its expense, agrees to provide, at all times during
the term of this Lease, and during any use, occupancy or possession of the
demised premises prior to the Commencement Date, public liability and property
damage insurance, with limitations of not less than $3,000,000 single limit for
injury or death or property damage, which policy or policies shall name the
Landlord and its designees, and W & M Properties of Connecticut, Inc., as
additional insureds. The aforesaid amount shall be subject to increase from
time to time as Landlord shall reasonably require; provided, however, that such
increases shall not exceed insurance limitations then customarily imposed on
office tenants occupying similar premises in comparable first class office
buildings in Fairfield County, Connecticut. Such insurance policy shall be in
the form commonly known as "Comprehensive General Liability" or additional
"Owner-Landlord and Tenant". Blanket policies and umbrella policies may be used
by Tenant. The Tenant further covenants and agrees, at its expense, to take out
and maintain at all times in the amount required by law worker's compensation
insurance covering all persons employed by Tenant in and about the demised
premises. (Landlord agrees that Tenant may act as a self-insurer with respect
to such worker's compensation coverage, if and to the extent permitted by
applicable law. If Tenant so acts as such a self-insurer, then Tenant shall
indemnify, defend and hold Landlord harmless from and against all claims or
demands whatsoever which would customarily be covered by worker's compensation
insurance.) All such insurance shall be obtained from a company with a Best's
key rating of A+-XI or better, and a certificate evidencing the issuance of such
policy or policies, together with evidence of the payment of premiums shall be
delivered to the Landlord before the commencement of the term of this Lease, or
before any use, occupancy, or possession of the demised premises prior to the
commencement of the term of this Lease, whichever is sooner. Not less than
fifteen (15) days prior to the expiration of any such policy or policies,
evidence of the renewal of such policy or policies, or a new certificate,
together with evidence of the payment of premiums for the renewal period or new
policy, as the case may be, shall be delivered to the Landlord. All such
insurance shall contain an agreement by the insurance company that the policy or
policies will not be cancelled or the coverage changed, without thirty (30)
days' prior written notice to the Landlord.
ARTICLE 35
SECURITY DEPOSIT
35.01 Tenant shall upon execution hereof deposit with Landlord the
sum of $214,781.25 as security for the faithful performance and observance by
Tenant of the terms, provisions and conditions of this lease; it is agreed that
in the event Tenant defaults in respect of any of the terms, provisions and
conditions of this lease, including, but not limited to, the payment of rent,
and additional rent, Landlord may use, apply or retain the whole or any part of
the security so deposited to the extent required for the payment of any rent and
additional rent or any other sum as to which Tenant is in default or for any sum
which Landlord may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of
<PAGE>
Page 54
this lease, including but not limited to, any damages or deficiency in the
re-letting of the premises, whether such damages or deficiency accrued before or
after summary proceedings or other re-entry by Landlord. Tenant shall, upon
demand, deposit with Landlord the full amount of security deposit so used or
applied by Landlord, in order that Landlord shall have the full security deposit
on hand at all times during the term of this Lease. In the event that Tenant
shall fully and faithfully comply with all of the terms, provisions, covenants
and conditions of this Lease, the security shall be returned to Tenant promptly
after the date fixed at the end of this Lease and after delivery of entire
possession of the demised premises to Landlord. In the event of a sale of the
land and building or leasing of the building, of which the demised premises form
a part, Landlord shall have the right to transfer the security to the vendee or
lessee and Landlord shall thereupon be released by Tenant from all liability for
the return of such security, and Tenant agrees to look to the new Landlord
solely for the return of said security; and it is agreed that the provisions
hereof shall apply to every transfer or assignment made of the security to a new
Landlord. Tenant further covenants that it will not assign or encumber or
attempt to assign or encumber the monies deposited herein as security and that
neither Landlord not its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance.
35.02 It is agreed that the security deposit shall be deposited in an
interest bearing account with a banking institution in Fairfield County,
Connecticut, selected by Landlord, and the interest thereon (less an
administrative fee equal to the greater of (i) one percent (1%) or (ii) the
maximum administrative fee allowed by law to which Landlord shall be entitled
under the law) shall be added to and become part of said security deposit (it
being understood and agreed that such administrative fee may only be deducted
from accrued interest).
ARTICLE 36
ARBITRATION
36.01 In each case specified in this Lease in which resort to
arbitration shall be required, such arbitration (unless otherwise specifically
provided in other Sections of this Lease) shall be in Stamford, Connecticut in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and the provisions of this Lease, and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
ARTICLE 37
CONSENTS AND APPROVALS
37.01 Wherever in this Lease Landlord's consent or approval is
required, if Landlord shall delay or refuse such consent or approval, Tenant in
no event shall be entitled to make, nor shall Tenant make, any claim, and Tenant
hereby waives any
<PAGE>
Page 55
claim, for money damages (nor shall Tenant claim any money damages by way of
set-off, counterclaim or defense) based upon any claim or assertion by Tenant
that Landlord unreasonably withheld or unreasonably delayed its consent or
approval. Tenant's sole remedy shall be an action or proceeding to enforce any
such provision, for specific performance, injunction or declaratory judgment.
ARTICLE 38
INDEMNITY
38.01 Tenant shall indemnify, defend and save Landlord harmless from
and against any liability or expense arising from the use or occupation of the
demised premises by Tenant or anyone on the premises with Tenant's permission,
or from any breach of this Lease, except if due to the negligence or willful
misconduct of Landlord, its agents or employees.
ARTICLE 39
SMOKING PROHIBITED
39.01 Tenant has been advised that Landlord wishes to maintain a
"smoke-free" environment in the public areas of the Building. Tenant agrees
that it shall cause its officers, directors, employees, agents and contractors
to refrain from smoking in all public areas of the Building.
39.02 Tenant acknowledges and agrees that Landlord does not, and
shall have no obligation to, provide a smoking area in the Building.
39.03 Tenant agrees that its failure to observe or comply with the
provisions of this Article 39 shall constitute a default under this Lease which
shall entitle Landlord to all of the remedies set forth in Articles 19 and 20 of
this Lease.
ARTICLE 40
VAULT AND BASEMENT SPACE
40.01 No vault or basement space not within the property line of the
Building is leased hereunder, anything to the contrary indicated elsewhere in
this Lease notwithstanding. Any vault or basement space not within the property
line of the Building, which Tenant may be permitted to use or occupy, shall be
used or occupied under revocable license and if the amount of such space be
diminished or required by any governmental authority having jurisdiction,
Landlord shall not be subject to any liability nor shall Tenant be entitled to
abatement of rent, nor shall such diminution or abatement be deemed a
constructive or actual eviction. Any fee or license charge or tax of municipal
authorities for such vault or basement space shall be paid by Tenant to
<PAGE>
Page 56
Landlord as additional rent within five (5) days after written demand therefor.
If such fee, tax or charge shall be for vault or basement space greater in area
than that occupied by Tenant, the charge to Tenant shall be prorated.
ARTICLE 41
NAME OF BUILDING
41.01 Landlord shall have the full right at any time to name and
change the name of the Building and to change the designated address of the
Building. The Building may be named after any person, firm, or otherwise,
whether or not such name is, or resembles, the name of a tenant of the building
project.
ARTICLE 42
MEMORANDUM OF LEASE
42.01 Landlord and Tenant shall, at the option and request of either
party, execute and deliver a statutory form of memorandum or notice of this
Lease, for the purpose of recording, but said memorandum or notice of this Lease
shall not in any circumstances be deemed to modify or to change any of the
provisions of this Lease. In no event shall Tenant record this Lease without
Landlord's consent.
ARTICLE 43
BROKERAGE
43.01 Tenant represents and warrants that it neither consulted nor
negotiated with any broker or finder with regard to the demised premises other
than F. Richard Wolff & Son. Tenant agrees to indemnify, defend and save
Landlord harmless from and against any claims for fees or commissions from
anyone other than F. Richard Wolff & Son with whom Tenant has dealt in
connection with the demised premises or this Lease.
It is acknowledged that said F. Richard Wolff & Son is not licensed as
a broker by the State of Connecticut. Accordingly, Landlord agrees to pay any
commission or fee owing to the aforesaid F. Richard Wolff & Son, provided such
payment is not prohibited by any applicable law, rule or regulation.
ARTICLE 44
INVALIDITY OF ANY PROVISION
44.01 If any term, covenant, condition or provision of this Lease or
the application thereof to any circumstance or to any person, firm or
corporation shall be
<PAGE>
Page 57
invalid or unenforceable to any extent, the remaining terms, covenants,
conditions and provisions of this Lease or the application thereof to any
circumstances or to any person, firm or corporation other than those as to which
any term, covenant, condition or provision is held invalid or unenforceable,
shall not be affected thereby and each remaining term, covenant, condition and
provision of this Lease shall be valid and shall be enforceable to the fullest
extent permitted by law.
44.02 If any term, covenant, condition or provision of this Lease is
found invalid or unenforceable to any extent, by a final judgment or award which
shall not be subject to change by any appeal, then either party to this Lease
may initiate an arbitration in accordance with the provisions of Article 35,
which arbitration shall be by three (3) arbitrators each of whom shall have at
least ten (10) years' experience in the supervision of the operation and
management of major office buildings in Stamford. Said arbitrators shall devise
a valid and enforceable substitute term, covenant, condition or provision for
this Lease which shall as nearly as possible carry out the intention of the
parties with respect to the term, covenant, condition or provision theretofore
found invalid or unenforceable. Such substitute term, covenant, condition or
provision, as determined by the arbitrators, shall thereupon be deemed a part of
this Lease.
ARTICLE 45
CAPTIONS
45.01 The captions are inserted only as a matter of convenience and
for reference, and in no way define, limit or describe the scope of this Lease
nor the intent of any provision thereof.
ARTICLE 46
CERTIFICATE OF TENANT
46.01 Tenant shall, without charge, at any time and from time to
time, within fifteen (15) days after request by Landlord, deliver a written
instrument to Landlord, duly executed and acknowledged, certifying:
(a) That this Lease is unmodified and in full force and
effect or, if there has been any modification, that the same is in full force
and effect as modified and stating any such modification;
(b) Whether the term of this Lease has commenced and rent
become payable thereunder; and whether Tenant has accepted possession of the
demised premises; and whether Landlord has failed to perform any work required
to be performed by Landlord pursuant to the provisions of this Lease;
(c) Whether or not there are then existing any defenses or
<PAGE>
Page 58
offsets which are not claims under subdivision (e) hereof against the
enforcement of any of the agreements, terms, covenants, or conditions of this
Lease and any modification thereof upon the part of Tenant to be performed or
complied with, and, if so, specifying the same;
(d) The dates to which the fixed rent, and additional rent,
and other charges hereunder, have been paid; and
(e) Whether or not Tenant has made any claim against Landlord
under this Lease and if so the nature thereof and the dollar amount, if any, of
such claim.
46.02 Tenant agrees that, except for the first month's rent
hereunder, it will pay no rent under this Lease more than thirty (30) days in
advance of its due date, if so restricted by any existing or future ground lease
or mortgage to which this Lease is subordinated or by an assignment of this
Lease to the ground lessor or the holder of such mortgage, and, in the event of
any act or omission by Landlord, Tenant will not exercise any right to terminate
this Lease or to remedy the default and deduct the cost thereof from rent due
hereunder until Tenant shall have given written notice of such act or omission
to such ground lessor and to the holder of such mortgage who shall have
furnished such lessor's and holder's last address to Tenant, and until a
reasonable time for remedying such act or omission shall have elapsed following
the giving of such notices, during which time such lessor or holder shall have
the right, but shall not be obligated, to remedy or cause to be remedied such
act or omission.
ARTICLE 47
SUCCESSORS AND ASSIGNS
47.01 The covenants, conditions and agreements contained in this
Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective heirs, distributees, executors, administrators, successors, and,
except as otherwise provided in this Lease, their assigns.
ARTICLE 48
GOVERNING LAW/CONSENT TO JURISDICTION
48.01 This Lease shall be governed by and interpreted in accordance
with the laws of the State of Connecticut, shall be deemed to have been made and
performed in Connecticut, and shall be enforceable in Connecticut.
48.02 Tenant irrevocably submits to the jurisdiction of the courts of
the State of Connecticut, Fairfield County in any action or proceeding arising
out of or relating to this Lease or any other dispute between Tenant and
Landlord, and Tenant
<PAGE>
Page 59
irrevocably agrees that all claims in respect of any such action or proceeding
must be brought and/or defended in such court, except with respect to matters
which are under the exclusive jurisdiction of the Federal Courts, which shall be
brought and/or defended in the Federal District Court sitting in Fairfield
County. Tenant irrevocably waives, to the fullest extent it may effectively do
so, the defense of an inconvenient forum to the maintenance of such action or
proceeding and agrees that service on the undersigned for purposes of any such
suit, action or proceeding need not be personally served or served within the
State of Connecticut but may be served with the same effect as such personal
service within the State, by regular mail, addressed to Tenant as follows:
Gantos Inc., 3260 Patterson S.E., P.O. Box 875, Grand Rapids, Michigan 49588,
Attn: Kenneth Green, Esq., Vice President and General Counsel (or such other
address as to which Tenant shall notify Landlord in writing, in accordance with
Article 31 of this Lease). Nothing contained herein shall affect the rights of
Landlord to bring a suit, action or proceeding in any other appropriate
jurisdiction.
ARTICLE 49
RENEWAL OPTION
49.01 Tenant shall have the right to extend and renew the term of
this Lease with respect to the then existing demised premises, in its then "as
is" condition, for one (1) additional period of five (5) years commencing on the
first day of the eighth lease year and expiring on the last day of the twelfth
lease year, upon the same terms and conditions as contained in this Lease
(unless changed or modified by mutual agreement in writing), except that: (i)
the fixed annual rental rate (without electricity and subject to escalation
additional rents pursuant to Articles 5 and 6 hereof) for the extended term
shall be a sum equal to the fair and reasonable annual market rental value of
the demised premises as of the first day of the eighth lease year, taking into
account the rentals at which leases are being concluded for comparable space in
the Building and in comparable buildings in the same rental area as the
Building, (ii) there shall be no Landlord's Work, rent credits or contributions
toward Tenant work, and the provisions of Article 33 and Exhibit D dealing
therewith shall not be applicable; (iii) for the extended term, the Term "Tax
Base Factor" for Article 5 Tax Escalation and the term "comparative year" under
such Article shall remain unchanged and the term "Expenses Base Factor" for
Article 6 Expense Escalation and the term "comparative year" under such Article
shall remain unchanged; and (iv) this Lease, as extended, shall not contain the
renewal option provided in this Article.
The exercise of such option shall only be effective upon, and in
strict compliance with, the following terms and conditions:
(a) Written notice of such election shall be given by Tenant to
Landlord not later than twelve (12) months prior to the expiration date of the
initial term of this Lease (the "Initial Term"). Time shall be of the essence
in connection with the exercise of any election of Tenant hereunder.
<PAGE>
Page 60
(b) The fair and reasonable annual market rental value of the
demised premises effective as of the commencement of the extended term shall
take into account, also, the five (5) year term of the extension, and it shall
be determined, as aforesaid, during the last twelve (12) months of the Initial
Term. Landlord and Tenant shall seek to agree as to the amount of such fair
and reasonable annual market rental value for the demised premises. If they
shall not agree as to such value by the start of the last eleven (11) months of
the Initial Term, then and in such event said fair and reasonable annual market
rental value shall be determined by appraisal as hereinafter in this Article
provided.
Notwithstanding the foregoing, and any appraisal as hereinafter
provided, the parties understand and agree that in no event shall the fixed
annual rental rate (without electricity) for the extended term be less than the
aggregate of the fixed annual rental rate (without electricity) payable as of
the last month of the Initial Term, plus the sum of the real estate tax
escalation and operating expense escalation additional rents payable under
Articles 5 and 6, respectively, for the last twelve (12) months of the Initial
Term.
If at the commencement date of the extended term, the amount of the
fixed annual rental rate payable during said term in accordance with the
foregoing paragraphs of this Article shall not have been determined, then,
pending such determination, Tenant shall pay fixed annual rent at a rate equal
to 105% of the fixed annual rental rate payable hereunder as of the last month
of the initial term of this Lease (the "Temporary Rate"). After the
determination by appraisal of the fair and reasonable annual market rental value
of the demised premises, if the fixed annual rental rate payable pursuant to
this Article is greater than "the Temporary Rate", Tenant shall promptly pay to
Landlord the difference between the rent theretofore paid at "the Temporary
Rate" and the greater rental rate determined after the appraisal; and the
greater fixed annual rental rate so determined after the appraisal shall be
payable during the extended term.
(c) Upon computation of the fixed annual rent for the extended
term, Landlord and Tenant shall execute, acknowledge and deliver to each other
an agreement specifying the amount of the fixed annual rent for such extended
term, but any failure to execute such an agreement shall not affect Tenant's
obligation to pay and Landlord's right to receive such fixed annual rent.
(d) Tenant shall not be in default under any of the terms,
covenants or conditions of this Lease beyond any grace period hereunder (i) at
the time Tenant gives written notice of its election or (ii) on the commencement
date of the extended term.
(e) If Landlord and Tenant shall be unable to agree as to the fair
and reasonable annual market rental rate by the date hereinabove set forth, then
and in such event said fair and reasonable annual market rental value for the
demised
<PAGE>
Page 61
premises shall be determined as follows:
Either party shall give a notice to the other, stating the name and
address of an impartial person to act as appraiser hereunder, and within thirty
(30) days after the receipt of such notice, the other party shall give notice to
the sender of the first-mentioned notice, likewise, stating the name and address
of an impartial person to act as appraiser hereunder.
The appraisers so specified in such notices shall be licensed real
estate brokers doing business in Fairfield County, Connecticut, each having not
less than fifteen (15) years active experience as real estate brokers in said
County.
In making their determinations, the appraisers shall consider and
follow the directions set forth in this Article.
Before proceeding to determine the fair and reasonable annual market
rental value of the demised premises ("the value"), as aforedescribed, the
appraisers so appointed shall subscribe and swear to an oath fairly and
impartially to determine such value. If, within thirty (30) days following the
appointment of the latter of said appraisers, said two appraisers shall be
unable to agree upon the said value, the said appraisers shall appoint, by an
instrument in writing, as third appraiser, an impartial person, similarly
qualified, who upon taking a similar oath, shall proceed with the two appraisers
first appointed to determine the said value. The written decision of any two of
the appraisers so appointed, fixing such value, shall be binding and conclusive
on the parties.
If, within forty-five (45) days following the appointment of the third
appraiser, any two of the appraisers have not by written decision fixed such
value then the third appraiser shall find as correct the value that was
determined by either the appraiser specified by Landlord or the appraiser
specified by Tenant and render a written decision fixing such value as the fair
and reasonable annual market rental value for the demised premises, which
written decision shall be binding and conclusive on the parties.
If, after notice of the appointment of an appraiser, the other party
shall fail, within the above specified period of thirty (30) days, to appoint an
appraiser, such appointment of a similarly qualified appraiser may be made, upon
application without notice by the person who shall have been appointed an
appraiser, by the then highest ranking employee in the Fairfield County,
Connecticut office of the American Arbitration Association, or such successor
body hereafter constituted exercising similar functions (or if there be no
American Arbitration Association or its successor, or if such employee will not
so act, then such appointment shall be made by a Justice of the highest ranking
trial court in Fairfield County, Connecticut). If the two appraisers aforesaid
shall be unable to agree, within thirty (30) days following the appointment of
the latter of said appraisers, upon such value and shall fail to appoint in
writing a third appraiser within
<PAGE>
Page 62
fifteen (15) days thereafter, the necessary appraiser shall be appointed by said
employee (or by said Justice). If any appraiser appointed as aforesaid by either
of the parties, by said employee, by said Justice, or by the two appraisers so
appointed, shall die, be disqualified or incapacitated or shall fail or refuse
to act, before such value shall have been determined, the necessary appraiser
shall be promptly appointed by the person or persons who appointed the appraiser
who shall have died, become disqualified or incapacitated, or who shall have
failed or refused to act, as aforesaid.
Landlord and Tenant shall each pay the fees of the person acting as
appraiser hereunder for Landlord and Tenant, respectively, and Landlord and
Tenant shall each pay one-half (1/2) of the fees of any third appraiser
appointed pursuant to the provisions of the preceding paragraph.
49.02 The renewal option set forth in this Article is personal to
Gantos, Inc. and may only be exercised by Gantos, Inc. if and so long as it is
the Tenant under this Lease and is in occupancy of the entire demised premises
(including any Expansion Space theretofore added to the demised premises under
Article 51 hereof).
ARTICLE 50
OPTION TO CANCEL
50.01 Tenant shall have the right to cancel this Lease, effective as
of the last day of the fifth lease year (the "Cancellation Date"), but such
cancellation right shall only be effective upon strict compliance with the
following terms and conditions:
(a) Tenant shall give Landlord at least nine (9) months'
prior written notice, by certified or registered mail, return receipt requested,
of such election to cancel. Time shall be deemed to be of the essence with
respect to exercise of any election to cancel.
(b) Tenant shall pay to Landlord, as consideration for the
privilege of cancellation, a sum equal to the Cancellation Amount (as
hereinafter defined), which sum shall be payable as follows: fifty percent
(50%) simultaneously with the aforesaid notice of cancellation; and fifty
percent (50%) on the date which is ninety (90) days after the date of delivery
of said notice of cancellation. The aforesaid sum shall be paid to Landlord by
certified or official bank check, and shall be in addition to Tenant's continued
obligation to pay all rents and additional rents due hereunder up to the
Cancellation Date. Tenant agrees that the cashing of any such check by Landlord
shall be without prejudice to, and shall not be deemed to constitute a waiver
of, Landlord's right to recompute the Cancellation amount.
For the purposes of this Article, the "Cancellation
Amount" shall mean the product determined by multiplying (i) the sum of (a) the
total brokerage commission paid or to be paid by Landlord in connection with
Tenant's leasing of the
<PAGE>
Page 63
demised premises (including any Expansion Space added to the demised premises as
of the Cancellation Date, pursuant to Article 51 hereof), (b) the total cost of
all work effected by Landlord pursuant to Article 33 and the attached Work
Letter, and (c) the total rent credits that Tenant will have enjoyed hereunder
through the Cancellation Date; times (ii) a fraction, the numerator of which
shall be the total number of full calendar months included in the term of this
Lease minus the total number of full calendar months that will have elapsed from
the commencement date of the term hereof through the Cancellation Date, and the
denominator of which shall be the total number of full calendar months included
in the term of this Lease.
(c) The aforesaid cancellation right is conditioned upon the
Tenant's not being in default beyond applicable grace periods under any of the
terms, covenants, and conditions of this Lease, beyond any grace period, at the
date of delivery by Tenant of its written election to cancel and on the
Cancellation Date. Notwithstanding any such cancellation by Tenant hereunder,
Tenant shall remain liable to satisfy any obligation of Tenant under any of the
terms, covenants, and conditions of this Lease which accrued up to the effective
date of cancellation. Such obligations of Tenant shall be satisfied within the
periods provided herein, and such obligations of Tenant shall survive any such
cancellation.
(d) Upon cancellation and payment as aforesaid, Landlord and
Tenant shall be relieved of any obligations under this Lease, except for those
accruing prior to the Cancellation Date.
(e) On or prior to a Cancellation Date, Tenant shall vacate
the demised premises and surrender possession thereof to Landlord in accordance
with the provisions of this Lease, as if said Cancellation Date were the
original expiration date hereof, and Tenant shall execute any documents
reasonably required by Landlord in connection with said cancellation.
50.02 The cancellation option set forth in this Article is personal
to Gantos, Inc. and may only be exercised by Gantos, Inc. if and so long as it
is the Tenant under this Lease and is in occupancy of the entire demised
premises (including any Expansion Space theretofore added to the demised
premises under Article 51 hereof).
ARTICLE 51
RIGHT OF FIRST OFFER
51.01 If, at any time during the term of this Lease, Tenant notifies
Landlord that Tenant needs and wants additional expansion space, and such space
of 2,000 rentable square feet or more which is directly contiguous to the
demised premises on the fifth (5th) floor of the Building (hereinafter called
"Expansion Space") is then vacant and available for leasing by Landlord (I.E.,
not currently under offer to a proposed tenant or subject to the option of
another tenant; and subject to the right of
<PAGE>
Page 64
any existing tenant to renew and extend its occupancy of such space), then,
provided Tenant is not then in default under this Lease beyond any grace period,
Landlord will negotiate with Tenant in good faith on rental terms and tenant
improvements for all but not part of such space, it being understood and agreed
that the term of the leasing of any such Expansion Space shall be for the then
remaining term of this Lease or, if the Tenant exercises its renewal option as
in Article 49 provided, the expiration or sooner termination date of the renewal
term; but in no event shall the commencement date of the term of the leasing of
any Expansion Space be later than the first day of the sixth lease year, so that
the term of the leasing of any Expansion Space shall in no event be less than
two (2) years. If Landlord and Tenant cannot agree on the rental terms with
fifteen (15) days of Landlord's notice to Tenant of the availability of such
Expansion Space, then Landlord thereafter shall be free to rent such space to
whomever Landlord wishes and on whatever terms Landlord deems appropriate.
51.02 If, for any reason beyond its control, Landlord is unable
timely to make available to Tenant possession of Expansion Space, in accordance
with the provisions of this Article, then Landlord shall not be subject to any
liability by reason of such delay, this Lease shall not be affected by such
delay, but Landlord shall diligently and in good faith seek to fulfill its
obligations with respect to the Expansion Space.
51.03 The foregoing provisions are intended to reflect the intention
of the parties that this Tenant shall have no right of prior consideration or
any other rights with respect to Landlord's renting of the aforedescribed space
in the Building, except to the extent hereinabove set forth.
51.04 The Expansion Space rights set forth in this Article are
personal to Gantos, Inc. and may only be exercised by Gantos, Inc. if and so
long as it is the Tenant under this Lease and is in occupancy of the entire
demised premises hereunder (including any Expansion Space theretofore added to
the demised premises).
ARTICLE 52
ANTENNA LICENSE
52.01 Upon the written request of Tenant, Landlord shall provide
Tenant with a location on the Building roof (the "Antenna Site") for Tenant to
install, maintain and operate not more than one (1) satellite dish antennae of
up to one (1) meter in diameter (the "Antenna") in such location as Landlord
shall in its sole discretion designate.
In the event Landlord so designates an Antenna Site and Tenant
elects to install and operate the Antenna thereon, then, subject to and in
accordance with the terms and provisions of this Lease, Landlord hereby gives
and grants to the Tenant and the Tenant hereby accepts from the Landlord, a
license (the "License"), during the term of this Lease, to install, operate and
maintain the Antenna on the
<PAGE>
Page 65
Antenna Site, together with wires and connections to and from the demised
premises.
The specific Antenna and related equipment, and the specific
location on the Antenna Site where the Antenna is to be located, are to be
designated by Landlord, and the method and manner of its installation are to be
approved by Landlord. Tenant, when it wishes to install the Antenna, shall give
written advice thereof to Landlord together with Tenant's proposed plans and
specifications therefor.
The foregoing License is nonexclusive and Landlord reserves the
right to grant other licenses to other licensees for the installation,
maintenance and operation of other equipment, similar or dissimilar to the
Antenna.
52.02 Tenant agrees that the installation, operation and maintenance
of the Antenna shall be in accordance with the following:
(a) The installation of the Antenna, as well as all matters
relating to its operation and maintenance, shall be at the sole cost and expense
of Tenant.
(b) The Antenna will be installed, operated and maintained by
or for Tenant in a good and workmanlike manner, in full compliance with the
laws, ordinances, rules and regulations of any government, governmental agency
or regulatory body exercising jurisdiction, and in accordance with all other
applicable requirements of this Lease regarding alterations and installations.
Tenant shall be responsible, at its sole cost and expense, to obtain all permits
and approvals for the installation, operation and maintenance of the Antenna.
(c) The Tenant will pay all charges for electric current
utilized in connection with the installation, operation and maintenance of the
Antenna, which charges shall be computed in accordance with the provisions of
Article 7 of this Lease. Landlord shall have no responsibility or liability by
reason of the interruption or suspension of electric service to the Antenna.
(d) Tenant agrees that the installation, operation and
maintenance of the Antenna will be conducted so as not to interfere with the
operation of the Building or the use and occupancy by tenants of their space in
the Building, and the utilization by Landlord or others of any equipment
(including numerous other antennas) in or on the building or on the Antenna
Site.
(e) Tenant agrees promptly to repair and replace all damage
to the Building, including the Antenna Site arising by reason of or in
connection with the installation, operation and maintenance of the Antenna. In
the event of the failure of the Tenant to make any necessary repair or
replacement, as aforesaid, Landlord may do so for its own account or in the name
of and for the account of Tenant but, in either event, Tenant shall be
responsible for all costs and expenses reasonably incurred in this connection by
Landlord.
<PAGE>
Page 66
52.03 Tenant shall provide whatever filters, isolation traps and
other devices, similar or dissimilar which are reasonable and feasible for the
elimination of any interference to other equipment (including other antennae) on
the Antenna Site or on the Building, if such interference is caused by or
attributable to the Antenna. Tenant shall also be responsible for the
protection of the Antenna (to the exclusion of Landlord, whose responsibility in
this regard is expressly negated) from any and all induced wave energies,
including, but not limited to, lightning and induced energies from other
radiated energies.
52.04 Landlord shall have the right to require that the location of
the Antenna be changed, provided that such change shall be effected by Landlord,
at its sole cost and expense. In the event that any government, government
agency or authority or regulatory body requires that the location of the Antenna
be changed, such change shall be effected promptly and with diligence by Tenant,
at its sole cost and expense. Landlord, in addition to the foregoing, reserves
the right to make any and all repairs and replacements in and to the Antenna
Site or the Building notwithstanding that any such repairs and replacements may
cause temporary interference with the Tenant's ability to operate and maintain
the Antenna. Tenant agrees to cooperate with Landlord to every reasonable and
feasible extent so as to enable Landlord to effect the repairs and replacements
reflected in the preceding sentence, including, if necessary, temporarily
relocating the Antenna at Tenant's expense. Landlord shall use all reasonable
diligence to minimize any interference with Tenant's use and operation of the
Antenna; provided, however, that Landlord may effect such repair or replacement
work during normal business hours, on business days.
Landlord shall not be liable or responsible for any malfunction
or non-functioning, actual or alleged, of the Antenna or for its repair or
maintenance or for any loss of or damage to the Antenna.
Tenant indemnifies and exonerates and will defend and save
Landlord harmless from any and all claims, liability, loss or damage, including,
without limitation, reasonable independent, third party counsel fees and
disbursements, arising out of or attributable to the installation, operation or
maintenance of the Antenna, including Tenant's utilization of the Antenna Site
or other parts of the building in respect thereof.
52.05 Tenant shall have access to the Antenna, as well as to any
related wiring or cable, during all usual business hours on business days. In
the case of an emergency situation involving the Antenna occurring during
nonbusiness hours or on nonbusiness days, upon oral consent of Landlord, Tenant
shall have access to the Antenna (and to such wiring and cable), subject,
nonetheless, to the terms and provisions herein contained.
52.06 Upon the expiration or sooner termination of the term of this
Lease
<PAGE>
Page 67
and License, Tenant, within thirty (30) days thereafter, at its sole cost and
expense, shall remove the Antenna and all wires and cables from the Antenna
Site, and restore and repair any damage resulting for such removal unless
Landlord shall, in writing, elect that the Antenna and/or wires and cables
remain and become the property of Landlord upon the expiration or sooner
termination of the Lease. All of the terms and provisions of this License
applicable to the installation, maintenance and operation of the Antenna during
the term hereof shall be fully applicable to the aforesaid period within which
Tenant is required to effect the removal of the Antenna, except that Tenant
shall have no right to utilize the Antenna for any purpose. If Tenant does not
effect removal of the Antenna, as aforesaid, Landlord may do so and charge
Tenant with the reasonable cost thereof, inclusive of the cost of repairing and
replacing any damaged cause thereby, and Tenant agrees promptly to pay the same
to Landlord as additional rent hereunder. Alternatively, at the expiration of
the aforesaid removal period, Landlord may elect to conclusively deem the
Antenna abandoned by Tenant for all purposes and to treat the same as Landlord's
property without any responsibility, obligation or liability to Tenant by reason
thereof. If Landlord elects to remove the Antenna, as aforesaid, at its option,
it may dispose of or discard it without liability to Tenant or, alternatively
and without liability to Tenant, dispose of same as it sees fit.
ARTICLE 53
ENVIRONMENTAL LAWS
53.01 (a) Landlord represents to Tenant that, to the best of
Landlord's knowledge, the demised premises are presently in compliance with all
applicable environmental laws, rules, requirements, orders, directives,
ordinances and regulations of the United States of America or any state, city or
municipal government or lawful authority having jurisdiction or affecting the
demised premises or the Building (collectively, "Environmental Laws"). Except
as set forth in Subdivision (c) below, and except as otherwise provided in this
Lease, Landlord shall, at its expense, take all action necessary to ensure that
the Building remains at all times in compliance with the Environmental Laws.
(b) Except as set forth in Subdivision (c) below, and except
as otherwise provided in this Lease, Landlord shall defend, indemnify and save
Tenant, its officers, directors, agents and employees harmless from and against
all claims, obligations, demands, actions, proceedings and judgments, loss,
damage, liability and expense (including reasonable attorneys' fees and
disbursements) which any one or more of them may sustain in connection with any
noncompliance of the Building with the Environmental Laws.
(c) Supplementing Article 10 hereof, except as otherwise
provided in this Lease, Tenant shall, at its own cost and expense, timely comply
with all applicable rules, requirements, orders, directives, ordinances and
regulations arising
<PAGE>
Page 68
from Tenant's use and occupancy of the demised premises, including, without
limitation, the Environmental Laws, and shall indemnify, defend, save and hold
harmless Landlord, its directors, officers, partners, agents and employees from
and against any and all claims, demands, losses and liabilities (including
reasonable attorneys' fees and disbursements) resulting from any violation of
the Environmental Laws when caused by Tenant's use and occupancy of the demised
premises.
(d) The parties specifically agree that the indemnities of
Landlord and Tenant contained in this Article shall not extend to loss of
business, lost rentals or other consequential damages.
(e) The provisions of this Article shall survive the
expiration or sooner termination of the term of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have set their respective
hands and seals as of the day and year first above written.
Signed, Sealed and Delivered SOUNDVIEW PLAZA ASSOCIATES,
in The Presence of: Landlord
W & M Properties of
Connecticut, Inc., as Agent
By:
- ---------------------------- ------------------------
(As to Landlord) Jeffrey H. Newman
Senior Vice President
GANTOS, INC.
By:
- --------------------------- ------------------------
(As to Tenant) Name:
Title:
<PAGE>
Page 69
STATE OF CONNECTICUT )
) ss:
COUNTY OF )
On this __________________ day of , 1997, before me, personally appeared
Jeffrey H. Newman, who acknowledged himself to be a Senior Vice President of W &
M Properties of Connecticut, Inc., Agent for SOUNDVIEW PLAZA ASSOCIATES, a
Connecticut Partnership, and that he being authorized so to do, executed the
foregoing instrument for the purposes therein contained by signing the name of
the Partnership by himself on behalf of said Partnership as Vice President of
such Agent.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------------------
Notary Public
<PAGE>
Page 70
STATE OF )
) ss:
COUNTY OF )
On this ____ day of ______________, 1997, before me,
personally appeared _________________, who acknowledged himself/herself to be
__________________ of Gantos, Inc., a corporation, and that he/she as such
_________________________, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself/herself as such _______________.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
---------------------------------------
Notary Public
Commissioner of the Superior Court
<PAGE>
Page 71
EXHIBIT A-1
ALL THOSE CERTAIN parcels of land shown and designated as Parcel 'X', Parcel
'Y', Parcel 'Z' and Parcel 'D' on a certain map entitled, "Map of properties
in Stamford, Connecticut showing Elimination of Interior Division Lines"
prepared for Weinstein Rothman et al dated October 30, 1979 and revised Feb.
20, 1981 and Feb. 24, 1981 by Rocco V. D'Andrea on file in the Stamford Town
Clerk's Office as Map #10656.
In accordance with said map, the parcels, when taken together, are bounded and
described as follows:
Beginning at a point in the Westerly street line of Hamilton Avenue formed by
the intersection of the division line between the premises herein described
and land of the State of Connecticut (Connecticut Turnpike) and running
thence along the Westerly side of Hamilton Avenue South 46 degrees 57 minutes
East 6.32 feet, South 56 degrees 31 minutes East 10.62 feet, South 67 degrees
50 minutes East 7.63 feet, South 64 degrees 57 minutes East 27.43 feet, South
69 degrees 6 minutes 40 seconds East l7.14 feet, South 71 degrees 56 minutes
30 seconds East 26.97 feet, South 76 degrees 29 minutes 50 seconds East 23.17
feet, South 78 degrees 58 minutes 24 seconds East 59.563 feet and South 79
degrees 54 minutes 40 seconds East 159.75 feet to a point; running thence
South 25 degrees 29 minutes East 20.41 feet to a point in the Northerly
street line of Main Street; running thence along the Northerly street line of
Main Street, South 62 degrees 27 minutes 30 seconds West 275.39 feet and
South 63 degrees 33 minutes 40 seconds West 221.74 feet to a point at Parcel
'C' as shown on Map #5544; running thence along Parcel 'C' North 26 degrees
48 minutes 20 seconds West 143.47 feet to a point at land of the State of
Connecticut (Connecticut Turnpike) running thence along land of the State of
Connecticut North 43 degrees 7 minutes East 297.92 feet to the point and
place of beginning.
<PAGE>
Page 72
EXHIBIT A-2
(FLOOR PLAN(s) OF THE DEMISED PREMISES
SHALL BE ANNEXED HERE, OR INITIALED AND
INCORPORATED BY REFERENCE.)
<PAGE>
Page 73
EXHIBIT B
RULES AND REGULATIONS
(a) The sidewalks, and public portions of the building project, such
as entrances, passages, courts, elevators, vestibules, stairways, corridors or
halls shall not be obstructed or encumbered by any tenant or used for any
purpose other than ingress and egress to and from the demised premises.
(b) No awnings or other projections shall be attached to the outside
walls of the Building. No curtains, blinds, shades, louvered openings or
screens shall be attached to or hung in, or used in connection with, any window
or door of the demised premises, without the prior written consent of Landlord,
unless installed by Landlord.
(c) No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any tenant on any part of the
outside of the demised premises or Building or on corridor walls. Signs on
entrance door shall conform to building standard signs, samples of which are on
display in Landlord's rental office. Signs on entrance doors shall, at the
Tenant's expense, be inscribed, painted or affixed for each tenant by sign
makers approved by Landlord. In the event of the violation of the foregoing by
any tenant, Landlord may remove same without any liability, and may charge the
expense incurred by such removal to the tenant or tenants violating this rule.
(d) The sashes, sash doors, skylights, windows, heating, ventilating
and air conditioning vents and doors that reflect or admit light and air into
the halls, passageways or other public places in the Building shall not be
covered or obstructed by any tenant, nor shall any bottles, parcels, or other
articles be placed outside of the demised premises.
(e) No show cases or other articles shall be put in front of or
affixed to any part of the exterior of the Building, nor placed in the public
halls, corridors or vestibules without the prior written consent of the
Landlord.
(f) Whenever Tenant shall submit to Landlord any plan, agreement or
other document for Landlord's consent or approval, Tenant agrees to pay
Landlord, on demand, a processing fee in a sum equal to the reasonable out of
pocket costs to Landlord for review of same, including the services of any
architect, engineer or attorney employed by Landlord to review said plan,
agreement or document. The provisions of this Rule (f) shall not apply to the
Landlord's work as described in Article 33 or the attached Work Letter.
(g) The water and wash closets and other plumbing fixtures shall not
be used for any purposes other than those for which they were constructed, and
no
<PAGE>
Page 74
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by the Tenant
who, or whose servants, employees, agents, visitors or licensees, shall have
caused the same.
(h) No tenant shall in any way deface any part of the demised
premises or the Building of which they form a part. No tenant shall lay
linoleum, or other similar floor covering, so that the same shall come in direct
contact with the floor of the demised premises, and, if linoleum or other
similar floor covering is desired to be used, an interlining of builder's
deadening felt shall be first affixed to the floor, by a paste or other
material, soluble in water, the use of cement or other similar adhesive material
being expressly prohibited.
(i) No bicycles, vehicles or animals of any kind (except seeing eye
dogs) shall be brought into or kept in or about the premises. No cooking shall
be done or permitted by any tenant on said premises except in conformity to law
and then only in the utility kitchen, if any, as set forth in Tenant's layout,
which is to be primarily used by Tenant's employees for heating beverages and
light snacks. No tenant shall cause or permit any unusual or objectionable
odors to be produced upon or permeate from the demised premises.
(j) No space in the Building shall be used for the distribution or
for the storage of merchandise (other than light storage of Tenant's sample
merchandise) or for the sale at auction or otherwise of merchandise, goods or
property of any kind.
(k) No tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of the Building or
neighboring buildings or premises or those having business with them, whether by
the use of any musical instrument, radio, talking machine, unmusical noise,
whistling, singing, or in any other way. No tenant shall throw anything out of
the doors, or windows or down the passageways.
(l) No tenant, nor any of the tenant's servants, employees, agents,
visitors or licensees, shall at any time bring or keep upon the demised premises
any inflammable, combustible or explosive fluid, or chemical substance, other
than reasonable amounts of cleaning fluids and solvents required in the normal
operation of tenant's business offices.
(m) No additional locks or bolts of any kind shall be placed upon any
of the doors or windows by any tenant, nor shall any changes be made in existing
locks or the mechanism thereof, without the prior written approval of the
Landlord and unless and until a duplicate key is delivered to Landlord. Each
tenant must, upon the termination of his tenancy, restore to the Landlord all
keys of stores, offices and toilet rooms, either furnished to, or otherwise
procured by, such tenant, and in the event of the loss of any keys, so
furnished, such tenant shall pay to Landlord the cost thereof.
<PAGE>
Page 75
(n) All removals, or the carrying in or out of any safes, freights,
furniture or bulky matter of any description must take place during the hours
which Landlord or its agent may determine from time to time. Landlord reserves
the right to inspect all freight to be brought into the Building and to exclude
from the Building all freight which violates any of these Rules and Regulations
or the Lease of which these Rules and Regulations are a part.
(o) No tenant shall occupy or permit any portion of the premises
demised to it to be occupied as, by or for a public stenographer or typist,
barber shop, bootblacking, beauty shop or manicuring, beauty parlor, telephone
or telegraph agency, telephone or secretarial service, messenger service, travel
or tourist agency, employment agency, public restaurant or bar, commercial
document reproduction or offset printing service, public vending machines,
retail, wholesale or discount shop for sale of merchandise, retail service shop,
labor union, school or classroom, governmental or quasi-governmental bureau,
department or agency, including an autonomous governmental corporation, a firm
the principal business of which is real estate brokerage, or a company engaged
in the business of renting office or desk space; or for a public finance
(personal loan) business, or for manufacturing. No tenant shall engage or pay
any employees on the demised premises, except those actually working for such
tenant on said premises, nor advertise for off-premises laborers giving an
address at said premises.
(p) Landlord shall have the right to prohibit any advertising by any
tenant mentioning the Building or the building project, which, in Landlord's
reasonable opinion, tends to impair the reputation of the Building or its
desirability as a building for offices, and upon written notice from Landlord,
tenants shall refrain from or discontinue such advertising.
(q) In order that the Building can and will maintain a uniform
appearance to those outside of same, each Tenant in building perimeter areas
shall (a) use only building standard lighting in areas where lighting is visible
from the outside of the Building and (b) use only Building standard venetian or
vertical blinds in window areas which are visible from the outside of the
Building.
(r) Landlord reserves the right to exclude from the Building between
the hours of 5:00 P.M. and 8:00 A.M. and at all hours on nonbusiness days all
persons who do not present a pass to the Building signed by a tenant. Each
tenant shall be responsible for all persons for whom such pass is issued and
shall be liable to Landlord for all acts of such persons.
(s) The premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
(t) The requirements of tenants will be attended to only upon
application at the office of the Building. Building employees shall not perform
any work
<PAGE>
Page 76
or do anything outside of their regular duties, unless under special
instructions from the office of Landlord.
(u) Landlord reserves the right to require Tenant to remove any
furniture, fixture, carpeting, wallcovering or other decor or item of personalty
from any part of the demised premises which is visible from the atrium or from
any other part of the Building not included in the demised premises which, in
Landlord's judgment, detracts from, impairs or tarnishes the image of the
Building or is not consistent with the ambience generated by other tenants in
the Building.
(v) Intentionally Omitted.
(w) Canvassing, soliciting and peddling in the Building are
prohibited and each tenant shall cooperate to prevent the same.
(x) There shall not be used in any space, or in the public halls of
any building, either by any tenant or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards. No hand trucks shall be used in passenger elevators.
(y) Tenants, in order to obtain maximum effectiveness of the cooling
system, shall lower and/or close venetian or vertical blinds or drapes when
sun's rays fall directly on windows of demised premises.
(z) Replacement of ceiling tiles after they are removed for Tenant by
telephone company installers, in both the demised premises and the public
corridors, will be charged to Tenant on a per tile basis.
(aa) All paneling, grounds or other wood products not considered
furniture shall be of fire retardant materials. Before installation of any such
materials, certification of the materials' fire retardant characteristics shall
be submitted to Landlord, or its agents, in a manner satisfactory to the
Landlord.
(bb) Intentionally Omitted.
(cc) Tenant agrees that it will cause all of Tenant's agents,
servants and employees ("employees") to be dressed in such business attire as
may be appropriate for a first class office building, at all times when such
employees are in the public portion of the Building, the building cafeteria
and/or restaurant(s) or any successor restaurant, or in any portion of the
demised premises visible from outside of the demised premises, it being
expressly understood and agreed that Tenant will not permit any such employee to
wear shorts, tee shirts, or any casual, beach or other apparel not appropriate
for, or which detracts from, the ambience, reputation or image of the Building.
<PAGE>
Page 77
Whenever and to the extent that the above rules conflict with any of
the rights or obligations of Tenant pursuant to the provisions of the Articles
of this Lease, the provisions of the Articles shall govern.
<PAGE>
Page 78
EXHIBIT C
CLEANING SCHEDULE
1. GENERAL
All carpeted areas and rugs carpet-swept nightly.
All private stairways swept nightly.
Wastepaper baskets, ashtrays, receptacles, etc., emptied and cleaned
nightly.
All furniture tops and window sills dusted nightly.
All baseboards and trim dusted weekly.
Slop sink rooms cleaned nightly.
2. LAVATORIES
All flooring swept and washed nightly.
All mirrors, powder shelves, bright work, etc., including
flushometers, piping and toilet seat hinges washed and polished
nightly.
All basins, bowls, urinals and toilet seats (both sides) washed
nightly.
All partitions, tile walls, dispensers and receptacles dusted nightly.
Paper towel and sanitary disposal receptacles emptied and cleaned
nightly.
3. HIGH DUSTING-OFFICE AREA
Do all high dusting approximately four times a year, including the
following:
Dust all pictures, frames, charts, graphs and panel wall hangings not
reached in nightly cleaning.
<PAGE>
Page 79
4. PERIODIC CLEANING - LAVATORIES
Machine scrub flooring when necessary.
Wash all partitions, tile walls and enamel surfaces monthly with
proper disinfectant when necessary. Dust exterior of lighting fixtures
monthly. High dust monthly.
5. WINDOWS
Clean a normal amount of partition glass approximately two times a
year.
Specialty rooms such as private bathrooms, computer rooms, cafeterias,
and full height glass partitions, etc., are not included. The
cleaning of these items and any other special cleaning requirements
should be contracted for by the tenant with the authorized Building
Cleaning Contractor.
<PAGE>
Page 80
EXHIBIT D
Date: January 23, 1997
GANTOS, INC.
WORK LETTER
I. PLANS
Tenant shall be responsible to supply the following information to Landlord
and Culpen & Woods, Architects, no later than fourteen (14) days from the
execution of the Lease:
A. Partition locations and the type.
B. Door locations, size, hardware schedule and swing.
C. Reflective ceiling plans, including location of all lighting fixtures.
D. Location of electrical outlets and telephone outlets.
E. Location of HVAC diffusers and registers.
F. Painting and finishing schedule.
G. Location and extent of floor loading in excess of Building standard.
H. Special air conditioning needs by location, and general description of
needs.
I. Location and description of special plumbing requirements.
J. Any architectural millwork, ornamental metal work, architectural
installation and details, including color and finishing schedule.
K. Estimated total electrical load, including lighting and power for
entire demised space in excess of Building standard, showing location
and type.
L. Air conditioning loads, people, equipment and special loads for entire
demised premises.
<PAGE>
Page 81
M. Specific plumbing requirements, including plans and section.
N. Non-Building standard ceiling heights and/or materials and any other
information as may be reasonably necessary to complete the
construction.
O. Locations and types of sprinkler heads.
P. Special fire protection systems, such as Halon.
Q. Locations and types of fire alarm system detection and alarm devices.
Landlord shall, at Landlord's expense, be responsible for providing the
following: (i) preliminary plans (the "Preliminary Plans"), based on and
consistent with that certain construction sketch (the "Construction
Sketch") dated December 16, 1996, prepared by Culpen & Woods Architects,
and (ii) detailed final architectural and engineering plans ("Plans"),
based on and consistent with said preliminary plans, which Plans shall also
be prepared by Culpen & Woods, Architects. The Plans shall show all work
to be done in the demised premises pursuant to this Work Letter, including
the work to be performed by Landlord at Landlord's expense pursuant to
Subdivision II of this Work Letter ("Landlord's Work"), which Landlord's
Work shall in no event exceed an aggregate of $25.00 per rentable square
foot, including hard and soft costs, architectural and engineering fees and
expenses and W&M Construction Corporation's general conditions, overhead of
10% and profit of 7%. All work, including Tenant's Extra Work, shall be
based on the base systems consistent with any design, construction and
equipment of the Building and in conformity with its standards including
but not limited to doors, hardware, frames, light fixtures, ceiling tiles,
air diffusers, all mechanical work, and common corridor finishes and shall
show the applicable items indicated above. Landlord requires that the
Plans conform with the Building's mechanical standards including VAV boxes,
supply and distribution duct, building standard diffusers, thermostatic
controls and the necessary connections to the Building DDC control building
management system, and shall show the applicable items indicated above.
All such plans and specifications are expressly subject to Landlord's
reasonable written approval. Landlord shall bear the cost of filing such
plans and specifications with the appropriate Governmental Agencies and
insurance inspection authorities.
II. TENANT'S EXTRA WORK
Landlord will advise Tenant of the approximate cost of the Tenant's Extra
Work based upon bids received from subcontractors selected by Landlord.
Tenant has three business days to elect to cancel Tenant's Extra Work.
Landlord shall
<PAGE>
Page 82
then proceed with Landlord's Work and Tenant's Extra Work, and award
contracts to the qualified low bidders. Time shall be of the essence with
respect to the delivery of the foregoing notice of cancellation.
Landlord agrees to perform Tenant's Extra Work and, except for Tenant's
Extra Work Credit (as hereinafter defined), Tenant agrees to reimburse
Landlord in full for the cost of Tenant's Extra Work (which amount shall
include the General Conditions, plus 10% overhead plus the 7% fee referred
to in the next sentence). All Tenant's Extra Work performed for Tenant by
Landlord (i.e., Tenant's Extra Work) shall be billed at Landlord's cost
including General Conditions plus 10% overhead plus 7% fee. Reimbursement
to Landlord for Tenant Extra Work, if any, shall be payable as follows:
1) 25% upon awarding contracts
2) 25% upon commencement of work
3) 40% upon substantial completion of work
4) 10% upon completion of punch list items
Payments by Tenant shall be made within ten (10) days of delivery to Tenant
of bills for such items appropriate for payment and appropriate backup
documentation. If Tenant shall fail to make such payment within such ten-
day period, Landlord shall have the same rights under the Lease as in the
event of a failure by Tenant to make timely payments of fixed annual rent.
Landlord and Tenant agree that the General Contractor shall be W&M
Construction Corporation. All work shall be competitively bid and Tenant
may review and approve all subcontractors.
Anything contained herein to the contrary notwithstanding, in the event
that the cost of Landlord's Work shall not exceed the $25 per rentable
square foot cap described above, then Tenant shall be entitled to a credit
(the "Extra Work Credit") in an amount equal to the difference between the
cost of Landlord's Work and $493,750. The Extra Work Credit shall be
applied, until fully depleted, against the first amounts due to Landlord
under this Work letter for Tenant's Extra Work and any other work not
included in Landlord's Work (which shall exclude the cost of any furniture,
furnishings, business equipment, moveable fixtures and other personal
property of Tenant).
III. LANDLORD'S WORK
A. Landlord will complete the following work, as shown on the
Construction Sketch, and as same will be shown on the Preliminary
Plans and the Plans (but only to the extent that the cost of same will
not exceed the above-described $25 per rentable square foot cap):
1. All demising walls and interior walls, all building standard
ceilings,
<PAGE>
Page 83
doors, ADA compliance in demise only. Building standard
partitions within the premises shall be 2 1/2" metal studs, 5/8"
gypsum board on each side. All such partitions will extend from
the floor and penetrate the acoustic tile ceiling. All partitions
which extend to the window line are to be lined up directly to
the window mullion, no partition will interfere with the glass
line.
2. Install new Building standard doors, frames and hardware as
indicated on preliminary plans.
3. Install new 2'x4' parabolic 2 lamp fixtures and 2'x2' parabolic
light fixtures.
4. Install new carpet throughout demised premises except for in
lunchroom and storage room which is to receive vinyl composite
tile. Carpet allowance of $3.00 per usable square foot includes
material, vinyl base, installation and taxes.
5. Provide two coats of latex paint on new partitions and two coats
of enamel paint on all hollow metal frames.
6. Provide and install all exit and emergency lights required by
local codes.
7. Install all utilities hookups and connections which are necessary
for Tenant to legally occupy the demised premises, including,
without limitation, HVAC, plumbing and electrical.
Landlord agrees to and will, at Landlord's sole cost and expense (but
not exceeding the $25 per rentable square foot cap described above)
and in a workmanlike manner, perform, furnish, install and provide
Landlord's Work in the demised premises, in substantial conformity
with the terms and provisions of the Lease and in accordance with the
applicable building codes and regulations. Landlord will be
responsible for Landlord's Work, and Tenant agrees to be responsible
for and to pay the cost of Tenant's Extra Work or any other work not
included in Landlord's Work (subject to the Extra Work Credit
described above), which cost shall be deemed to be additional rent
under this Lease and shall be payable upon demand.
Notwithstanding the foregoing or anything to the contrary herein or in
the Plans, Landlord shall not be required to perform, and Tenant shall
not request, work which would: (1) require changes to structural
components of the building or the exterior design of the building, (2)
require any material modification to the building's mechanical
installations or
<PAGE>
Page 84
installations outside the demised premises, (3) not comply with all
applicable laws, rules, regulations and requirements of any
governmental department having jurisdiction over the construction of
the building and or the demised premises, (4) be incompatible with the
building plans filed with the governmental authorities or with the
occupancy of the building as a first-class office building, or (5)
delay the completion of the demised premises or the building or any
part thereof Any changes required by any governmental department
affecting the construction of the building and/or the demised premises
shall not be deemed to be a violation of Tenant's drawings, plans and
specifications or any provision of this Work Letter, and shall be
acceptable to Tenant.
IV. DELAYS BY TENANT
A. If a delay shall occur in (a) the delivery of information in regard to
any plan, specification or information required elsewhere in this
Lease or the Work Letter to be furnished by Tenant at the time and in
the manner so required, or (b) the completion of Landlord's Work as
the result of (i) any direction by Tenant that Landlord hold up
proceeding with a segment of Landlord's Work preliminary to a possible
change therein by Tenant or for any other reason, (ii) any other act
or omission of Tenant, its agents, employees or contractors, (iii) any
displacement of the work involved from its place in Landlord's overall
construction schedule for finishing space in the Building for tenants
(resulting from any of the foregoing) and the fitting of such work
back in such schedule (due regard being given to the need to minimize
disturbance to the overall works schedule for finishing space in the
Building for other tenants as well as Tenant), or (iv) the fact that
non-Building standard Landlord's Work requires lead time to obtain, or
construction time to perform, in excess of that required for Building
standard Items, with reasonable diligence in obtaining and performing
the same on the part of Landlord, then any such delay shall be
"Tenant's Delay" and, at Landlord's option, be included in the
calculations of the commencement date of the term of this Lease under
Article 3 of the Lease, with said commencement date becoming one day
earlier than provided for in Article 3 of the Lease for each day of
such delay (that is, the day the demised premises would have been
ready for occupancy absent such delay).
B. If a delay in the completion of Landlord's Work, or any portion of
such delay, is the result of a cause beyond Landlord's reasonable
control, including but not limited to a strike, then any such delay,
which would not have occurred but for a delay described in subsection
A of Section IV, shall be deemed added to the delay described in such
subsection A.
In the determination of the extent of any such delay arising from
<PAGE>
Page 85
subsection (A) (b)(iv) hereinabove, the time required to reinsert the
work to Landlord's overall construction schedule (in accordance with
good construction scheduling practices) when an appropriate opening
occurs therein shall be added to the delay for any of the other
reasons above.
The extent of any delay referred to in this Section shall be determined in
the following manner: Landlord shall notify Tenant by Registered Mail or
Certified Mail of the estimated length of the delay involved within a
reasonable time after the information necessary to estimate such delays
available, and the extent of such delay shall be deemed to be as so
estimated unless, within three business days after the giving of such
Notice, Tenant shall notify the Landlord of any disagreement therewith
(including Tenant's reasons therefor); Landlord's estimate shall, despite
such disagreement, be binding and conclusive on both parties unless
Landlord or Tenant is able to sustain the burden of proof that some other
length of time is involved in the delay in question. If a dispute shall be
unresolved with respect to whether Tenant has in fact sustained such
burden, such dispute shall be resolved by arbitration in the City of
Stamford, State of Connecticut in accordance with Article 36 of the Lease.
Pending resolution of said dispute, the parties shall proceed in accordance
with Landlord's estimate and the provisions of this Lease.
Notwithstanding anything contained herein, Landlord shall pursue completion
of construction work in the demised premises with all due diligence in
order to avoid unnecessary delays towards Tenant's timely occupancy.
*NOTE: If there is a discrepancy between the Construction Sketch, the Work
Letter, the Preliminary Plans, or the Plans, the Work Letter will
govern.
<PAGE>
Page 86
------------------------------------------------------------
------------------------------------------------------------
AGREEMENT OF LEASE
BETWEEN
SOUNDVIEW PLAZA ASSOCIATES,
LANDLORD
AND
GANTOS, INC.,
TENANT
DATED: JANUARY 23, 1997
------------------------------------------------------------
------------------------------------------------------------
<PAGE>
Page 87
TABLE OF CONTENTS
ARTICLE PAGE
------- ----
Preface, and Demised Premises 1
1. Rent, Etc. 1
2. Occupancy, Etc. 3
3. Commencement of Term. 3
4. Common Areas 4
5. Tax Escalation; Taxes on Lease or Rents 6
6. Expense Escalation 10
7. Electricity 16
8. Alterations and Installations 20
9. Repairs 25
10. Requirements of Law; Fire Insurance 26
11. Subordination 27
12. Loss, Damage, Reimbursement, Liability, Etc. 29
13. Destruction--Fire or Other Casualty 31
14. Eminent Domain 33
15. Assignment and Subletting 35
16. Access to Demised Premises; Changes 41
17. Certificate of Occupancy 42
18. Bankruptcy 43
19. Default 44
20. Remedies of Landlord; Waiver of Redemption;
Prejudgment 46
21. Fees and Expenses; Interest 48
22. No Representations by Landlord 48
23. End of Term 48
24. Quiet Enjoyment 49
25. Definitions 49
26. Adjacent Excavation--Shoring 50
27. Rules and Regulations 50
28. No Waiver, Etc. 51
29. Waiver of Trial by Jury 52
30. Inability to Perform 52
31. Notices 53
32. Services 54
33. Landlord's Work - Tenant's Drawings, etc. 58
34. Insurance 58
35. Security Deposit 59
36. Arbitration 60
37. Consents and Approvals 60
38. Indemnity 60
39. Smoking Prohibited 61
40. Vault and Basement Space 61
41. Name of Building 61
42. Memorandum of Lease 62
43. Brokerage 62
44. Invalidity of any Provision 62
<PAGE>
Page 88
TABLE OF CONTENTS (cont'd)
ARTICLE PAGE
------- ----
45. Captions 63
46. Certificate of Tenant 63
47. Successors and Assigns 64
48. Governing Law/Consent to Jurisdiction 64
49. Renewal Option 65
50. Option to Cancel 68
51. Right of First Refusal 70
52. Antenna License 71
53. Environmental Laws 74
EXHIBIT A-I LEGAL DESCRIPTION
EXHIBIT A-2 DEMISED PREMISES
EXHIBIT B RULES AND REGULATIONS
EXHIBIT C CLEANING SCHEDULE
EXHIBIT D WORK LETTER
<PAGE>
LEASE MODIFICATION AGREEMENT
AGREEMENT, made as of the 10th day of February, 1997, between
SOUNDVIEW PLAZA ASSOCIATES, a Connecticut partnership with an office c/o W&M
Properties of Connecticut, Inc., One Station Place, Stamford, Connecticut 06902
(hereinafter called "Landlord"), and GANTOS, INC., a Michigan corporation with
an office at 3260 Patterson Southeast, P.O. Box 875, Grand Rapids, Michigan
49588 (hereinafter called "Tenant").
W I T N E S S E T H:
WHEREAS, Landlord and Tenant are the landlord and tenant,
respectively, under that certain agreement of lease, dated as of January 23,
1997, covering approximately 19,750 rentable square feet on the fifth floor of
the building known as Soundview Plaza, Stamford, Connecticut, which lease has
been modified by two letter agreements, each dated January 23, 1997 (which
lease, as modified through the date hereof is hereinafter called the "Lease");
and
WHEREAS, pursuant to one of the aforedescribed letter agreements, the
parties acknowledged and agreed that the rentable square foot area of the
premises demised under the Lease might change as a result of the development of
space plans for said premises and the initial alteration work therein, and that
the parties would execute and deliver a lease modification agreement
memorializing any such change; and
WHEREAS, as a result of such space planning by Tenant, the rentable
square foot area of the premises demised under the Lease has increased to 23,110
square feet; and
WHEREAS, the parties wish to modify the Lease so as to reflect such
increase in the square foot area of the premises demised thereunder, in
accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and for other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the Landlord and Tenant hereby agree
as follows:
1. Section 1.01 of the Lease shall be deemed to be, and hereby is,
modified so that the fixed annual rental rates (excluding electricity) shall be
as follows:
(a) $398,647.50 per annum for the first lease year;
(b) $415,980.00 per annum for the second lease year;
<PAGE>
(c) $433,312.50 per annum for the third lease year;
(d) $450,645.00 per annum for the fourth lease year;
(e) $467,997.50 per annum for the fifth lease year;
(f) $485,310.00 per annum for the sixth lease year; and
(g) $502,642.50 per annum for the seventh lease year.
2. Section 1.05 of the Lease shall be deemed to be, and hereby is,
modified so that the rentable square foot area of the originally demised
premises shall be deemed to be 23,110 square feet.
3. Section 4.03 of the Lease shall be deemed to be, and hereby is,
modified so that Landlord will provide Tenant with ten (10) assigned parking
spaces and with access to the parking area for the parking of up to sixty (60)
additional automobiles, at no charge.
4. Subdivision (a)(ii) of Section 5.01 of the Lease shall be deemed
to be, and hereby is, modified so that the term "The Percentage", for purposes
of computing tax escalation, shall be deemed to mean 12.97%.
5. Subdivision (a)(iii) of Section 6.01 of the Lease shall be deemed
to be, and hereby is, modified so that the term "The Percentage", for purposes
of computing expense escalation, shall be deemed to mean 12.97%.
6. Section 7.02 of the Lease shall be deemed to be, and hereby is,
modified so that the reference in the third grammatical sentence to the rentable
square foot area of the premises demised under the Lease shall be changed to
23,110 square feet.
7. Section 35.01 of the Lease shall be deemed to be, and hereby is,
modified so that the amount of the security deposit shall be increased by
$57,801.20 to a total of $272,582.45, which additional amount shall be delivered
by Tenant to Landlord simultaneously with the execution and delivery of this
Agreement by Tenant.
8. Subdivision II of the Work Letter (Exhibit D) attached to the
Lease shall be deemed to be, and hereby is, modified, so that sum of $493,750
referred to in the last paragraph thereof shall be increased to a total of
$577,750.
9. The attached Exhibit A-2 shall be deemed to be, and hereby is,
substituted in place and instead of the Exhibit A-2 originally attached to
the lease.
-2-
<PAGE>
10. Except as herein modified, all of the terms, covenants and
conditions of the Lease are and shall remain in full force and effect and are
hereby ratified and confirmed.
11. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective legal representatives, successors and
permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WITNESS: (As to Landlord) SOUNDVIEW PLAZA ASSOCIATES
By: W&M Properties of
Connecticut, Inc., Agent
/s/ JoAnn B. McGrath By: /s/ Jeffrey J. Newman
- ------------------------------ --------------------------------
Jeffrey J. Newman
Senior Vice President
WITNESS: (As to Tenant) GANTOS, INC.
/s/ Kenneth Green By: /s/ Arlene H. Stern
- ------------------------------ --------------------------------
Name: Arlene H. Stern
Title: President and C.E.O.
-3-
<PAGE>
W & M PROPERTIES OF CT, INC. SOUNDVIEW PLAZA
ONE STATION PLACE 1266 E. MAIN STREET
STAMFORD, CT 06902 STAMFORD, CT 06902
(203) 353-5200
I - 95
[MAP]
LONG ISLAND SOUND
<PAGE>
NO POSTAGE
NECESSARY
IF MAILED
IN THE
UNITED STATES
BUSINESS REPLY MAIL
FIRST CLASS MAIL PERMIT NO. 4087 GRAND RAPIDS, MICHIGAN
POSTAGE WILL BE PAID BY ADDRESSEE
ATTN: NEW ACCOUNTS
GANTOS
PO BOX 875
GRAND RAPIDS MI 49502-8802
<PAGE>
CREDIT APPLICATION
APPLY TODAY
AND RECEIVE
10% OFF
YOUR FIRST PURCHASE
GANTOS
004 063 246
WENDY ALLEN
Subject to Credit Approval
<PAGE>
CREDIT APPLICATION
ACCOUNT TYPE INDIVIDUAL JOINT
TELL US ABOUT YOURSELF
NAME
HOME ADDRESS
CITY STATE ZIP
HOW LONG AT ADDRESS YEARS MONTHS
HOME TELEPHONE
OWN HOME RENT OTHER
SOCIAL SECURITY NO.
DATE OF BIRTH
PREVIOUS ADDRESS
(IF LESS THAN A YEAR)
CITY STATE ZIP
YOUR JOB
EMPLOYER
BUSINESS TELEPHONE
ANNUAL INCOME
(YOU NEED NOT DISCLOSE UP TO $22,999 $34,000 TO $63,999
ALLIMONY, CHILD SUPPORT
OR SEPARATE MAINTENANCE
INCOME UNLESS YOU WISH $23,000 TO $33,999 $64,000 PLUS
US TO CONSIDER IT)
YOUR BANK
CHECKING SAVINGS
BANK NAME
AUTHORIZED BUYERS
CO-APPLICANT INFORMATION
NAME
HOME ADDRESS
CITY STATE ZIP
HOME TELEPHONE
SOCIAL SECURITY NO.
RELATIONSHIP
EMPLOYER
BUSINESS TELEPHONE
ANNUAL INCOME
(YOU NEED NOT DISCLOSE UP TO $22,999 $34,000 TO $63,999
ALLIMONY, CHILD SUPPORT
OR SEPARATE MAINTENANCE
INCOME UNLESS YOU WISH $23,000 TO $33,999 $64,000 PLUS
US TO CONSIDER IT)
To find out about changes to the information in this application, write
us at: Gantos Stores, Inc., 3260 Patterson S.E. P.O. Box 875, Grand Rapids, MI
49588.
STATE LAW REQUIRES US TO GIVE YOU THE FOLLOWING NOTICES.
CALIFORNIA RESIDENTS: The applicant, if married, may apply for a separate
account. After credit approval each applicant shall have the right to use
this Account to the extent of any creditor and each applicant may be liable
for all amounts of credit extended under this Account to any joint applicant.
OHIO RESIDENTS: THE OHIO LAWS AGAINST DISCRIMINATION REQUIRE THAT ALL
CREDITORS MAKE CREDIT EQUALLY AVAILABLE TO ALL CREDIT WORTHY CUSTOMERS, AND
THAT CREDIT REPORTING AGENCIES MAINTAIN SEPARATE CREDIT HISTORIES ON EACH
INDIVIDUAL UPON REQUEST: THE OHIO CIVIL RIGHTS COMMISSION ADMINISTERS
COMPLIANCE WITH LAW WISCONSIN RESIDENTS: Marital Notice - No provision of a
marital property agreement, unilateral statement under Sec. 766.59 Wis. Stats.
or court decree under Sec. 766.70 Wis. Stats. will adversly affect our rights
unless we are furnished a copy of the agreement, statement or decree, or have
actual knowledge of its terms before credit is granted or the account is
opened.
Pursuant to Wisconsin law, we are required to ask married applicants to
supply the following information:
- -------------------------------------------------------------------------------
Spouse's Name
- -------------------------------------------------------------------------------
Spouse's Address
STORE USE ONLY
STORE NO. RINGING NO. ACCOUNT NO. LIMIT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
ID CHECKED BY DRIVER'S LICENSE NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CO-APPLICANTS DRIVER'S LICENSE NO.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
I HAVE READ AND AGREE TO BE BOUND BY THE RETAIL INSTALLMENT CREDIT AGREEMENT
TO THE RIGHT OF THIS APPLICATION, I ACKNOWLEDGE THAT I HAVE RECEIVED A COPY
OF THE RETAIL INSTALLMENT CREDIT AGREEMENT.
- ------------------------------------- ----------------------------------------
APPLICANT'S SIGNATURE DATE CO-APPLICANT'S SIGNATURE DATE
<PAGE>
12. TELEPHONE MONITORING. In order to assure that you receive the best
possible customer service, and that our Associates are complying with our
policies and all applicable laws in their contacts with you, on occasion, a
second Associate may listen to customer calls.
13. USE OF ACCOUNT INFORMATION. From time to time we make information, such
as your name and address, available to others who may in turn solicit you for
quality products or services. You have the right to tell us that you do not
want us to make this type of information about you available to others. To do
so, you may call us toll-free at 1-800-522-1136, and we will honor your
request.
14. CHANGE OF ADDRESS AND APPLICABLE LAW. You agree to notify us promptly in
writing if you move. Until we receive written notice of your new address, we
will continue to send periodic statements and other notices to the address
you gave on the application for this Account. You understand and expressly
agree that the law of the State of Michigan will govern this Agreement,
except that the law of your state of residence will govern this Agreement if
you live in a state where a Gantos retail outlet is located.
NOTICE TO MARYLAND RESIDENTS: THIS ACCOUNT IS GOVERNED BY SUBTITLE 9, TITLE
12 OF THE MARYLAND COMMERCIAL LAW ARTICLE.
NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS
AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR
SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY
HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
NOTICE TO THE BUYER:
1. DO NOT SIGN THE CREDIT AGREEMENT BEFORE YOU READ IT OR IF IT CONTAINS ANY
BLANK SPACE.
2. YOU ARE ENTITLED TO A COMPLETELY FILLED-IN COPY OF THIS CREDIT AGREEMENT.
3. YOU MAY AT ANY TIME PAY THE TOTAL BALANCE OUTSTANDING UNDER THIS AGREEMENT.
4.FINANCE CHARGES WILL BE MADE IN AMOUNTS AND AT RATES NOT IN EXCESS OF THOSE
PERMITTED BY LAW.
5. ADDITIONAL NOTICE FOR MASS. RESIDENTS: YOU MAY CANCEL A PURCHASE UNDER
THIS AGREEMENT IF IT HAS BEEN SIGNED BY A PARTY THERETO AT A PLACE, OTHER THAN
THE ADDRESS OF THE SELLER WHICH MAY BE HIS MAIN OFFICE OR BRANCH THEREOF
PROVIDED, YOU NOTIFY THE SELLER IN WRITING AT HIS MAIN OFFICE OR BRANCH, BY
ORDINARY MAIL POSTED, BY TELEGRAM SENT OR BY DELIVERY NOT LATER THAN MIDNIGHT
OF THE THIRD BUSINESS DAY FOLLOWING A PURCHASE UNDER THIS AGREEMENT.
YOUR BILLING RIGHTS
KEEP THIS NOTICE FOR FUTURE USE.
THIS NOTICE CONTAINS IMPORTANT INFORMATION ABOUT YOUR RIGHTS AND OUR
RESPONSIBILITIES UNDER THE FAIR CREDIT BILLING ACT.
NOTIFY US IN CASE OF ERRORS OR QUESTIONS ABOUT YOUR BILL
If you think your bill is wrong, or if you need more information about a
transaction on your bill, write us at Gantos Stores, Inc. 3260 Patterson S.E.
P.O Box 875 Grand Rapids, MI 49588. Attn: Credit Manager.
Write to us as soon as possible. We must hear from you no later than 60 days
after we sent you the first bill on which the error or problem appeared. You
can telephone us, but doing so will not preserve your rights.
In your letter, give us the following information:
- Your name and account number.
- The dollar amount of the suspected error.
- Describe the error and explain, if you can, why you believe there is an
error.
If you need more information, describe the item you are not sure about.
YOUR RIGHTS AND OUR RESPONSIBILITIES AFTER WE RECEIVE YOUR WRITTEN NOTICE
We must acknowledge your letter within 50 days, unless we have corrected the
error by then. Within 90 days, we must either correct the error or explain
why we believe the bill was correct. After we receive your letter, we cannot
try to collect any amount you question, or report you as delinquent. We can
continue to bill you for the amount in question, including finance charges,
and we can apply any unpaid amount against your credit limit. You do not have
to pay any questioned amount while we are investigating, but you are still
obligated to pay the parts of your bill that are not in question.
If we find that we made a mistake on your bill, you will not have to pay any
finance charges related to any questioned amount. If we did not make a
mistake, you may have to pay finance charges and you will have to make up any
missed payments on the questioned amount. In either case, we will send you a
statement of the amount you owe and the date that it is due.
If you fail to pay the amount that we think you owe, we may report you as
delinquent. However, if our explanation does not satisfy you and you write
to us within ten days telling us that you still refuse to pay, we must tell
anyone we report you to that you have a question about your bill. And, we must
tell you the name of anyone we reported you to. We must tell anyone we report
you to that the matter has been settled between us when it finally is.
If we don't follow these rules, we can't collect the first $50 of the
questioned amount, even if your bill was correct.
SPECIAL RULE FOR CREDIT CARD PURCHASES
If you have a problem with the quality of property or services that you
purchased with a credit card and you have tried in good faith to correct the
problem with us, you may have the right not to pay the remaining amount due on
the property or services.
GANTOS
P.O. BOX 875,
GRAND RAPIDS, MI 49588
TEMPORARY CHARGE CARD VALID ONLY
WITH CUSTOMER IDENTIFICATION
<PAGE>
GANTOS RETAIL INSTALLMENT CREDIT AGREEMENT
The words "you" and "your" refer to any person who signs this Retail Installment
Credit Agreement or who is authorized to use this Gantos Charge Account; "we,"
"us," and "our" refer to Gantos Stores, Inc., 3260 Patterson S.E., P.O. Box 875,
Grand Rapids, MI 49588. You agree to the following regarding all purchases made
on your Gantos Charge Account by you or by anyone authorized by you to use the
Account:
1. COST OF CREDIT. There is no Finance Charge in any monthly billing period in
which there is no balance at the beginning of the billing period (the "Previous
Balance" shown on your bill) or in which payments and credits made within 28
days after the billing date equal or exceed the balance at the beginning of the
billing period. If we do not receive the full amount due within 28 days after
the billing date shown on your monthly statement, you agree to pay the cash
price of all purchases and a Finance Charge determined by application of the
monthly periodic rate of 1.75% (ANNUAL PERCENTAGE RATE 21%) to the Average Daily
Balance, except in the following states:
- ----------------------------------------------------------
ANNUAL
State Periodic Rate PERCENTAGE RATE
- ----------------------------------------------------------
MA, MN, NC 1.50% 18.00%
IA 1.85% 19.80%
KS 1.75% up to $1000 21%
1.2% over $1000 14.4%
- ----------------------------------------------------------
A minimum FINANCE CHARGE of $.50 will be imposed each month in which the Finance
Charge determined by application of the periodic rate would be less than $.50,
except there is no minimum FINANCE CHARGE in District of Columbia, Maryland and
North Carolina.
2. METHOD OF COMPUTING FINANCE CHARGES. We figure the Finance Charge on your
account by applying the above-stated periodic rate to the "average daily
balance" of your Account, which we get by taking the beginning balance of your
Account each day, adding any new purchases (except we do not add in current
purchases in Massachusetts and Minnesota), and subtracting any payments or
credits and unpaid Finance Charge. This gives us the daily balance. Then, we add
up all the daily balances for the billing cycle and divide the total by the
number of days in the billing cycle. This gives us the "average daily balance."
3. MINIMUM PAYMENT. If the New Balance is up to $200, you agree to make a
minimum payment each month of at least $20 (balances of $20 or less are payable
in full). When the New Balance exceeds $200, your minimum payment will be 10% of
the New Balance. THE BUYER MAY AT ANY TIME PAY HIS TOTAL INDEBTEDNESS.
4. LATE PAYMENT FEE. If you live in CA, CO, CT, DC, IL, IN, IA, KS, KY, MA, MD,
MI, MN, MO, NC, NH, NJ, NY, OH, OR, PA, RI, TN, VA or WI, and your minimum
monthly payment is not received by us within 10 days after it is due (15 days in
MA and RI; 30 days in IA and NC; 31 days in PA), we may impose a Late Payment
Fee. The Late Payment Fee will be $10.00 in all states mentioned above except as
follows: $5.00 if the minimum payment is under $25.00 in KS and MO; $5.00 if the
outstanding balance is under $100 in NC; the lesser of $10.00 or 10% of the
outstanding balance in MA; and the lesser of 5% of the amount past due or $5.00
in CT, NH and TN. We will add any Late Payment Fee to the balance due on your
Account. INDIANA RESIDENTS: THE AMOUNT OF THE $10.00 LATE PAYMENT FEE IS SUBJECT
TO CHANGE AS PROVIDED IN THE INDIANA CODE SECTION 24-4.5-1-106.
5. RETURNED CHECK CHARGE. If any check sent to us in payment on your Account is
returned to us unpaid by the bank, we may charge you a processing charge of $15
to cover our collection costs, or such lesser amount as may be authorized by
law, and you agree that we may add such charge to the balance due on your
Account. This charge is not imposed in MA, ME or PA.
6. OTHER FEES. There is no annual fee or other charges imposed for the
availability, issuance or renewal of the Gantos credit card.
7. DEFAULT/COLLECTION COSTS. If you fail to pay any minimum payment when due,
subject to any right you may have under applicable state law to receive notice
of and to cure your default, we may declare your entire balance due and payable
(except in WI you will not be in default unless you fail to make a minimum
payment on two occasions within a 12-month period). If the Account is referred
to an attorney who is not our salaried employee, you agree to pay, in addition
to the full amount owed and any court costs, attorney's fees of up to 20% of the
total amount due, but only to the extent permitted by applicable state law.
8. CANCELING OR LIMITING YOUR CREDIT. We have the right at any time to limit
or terminate your use of this Account without giving you notice in advance. Upon
our request, you will return to us any Gantos credit card.
9. CHANGING THIS AGREEMENT. We have the right to change this Agreement at any
time by giving you advance notice of the intended change, or as otherwise
allowed by law. To the extent permitted by law, any change may at our option be
applied to any balance then outstanding and to any future transactions. If you
do not agree to the change, you may end this Agreement, or you may end it for
any other reason, but if you do, you agree to return any Gantos credit card and
pay the total balance due under the terms of this Agreement.
10. CREDIT INVESTIGATION. We may request a consumer report from consumer
reporting agencies in considering your application and for the purpose of an
update, renewal or extension of credit. Upon your request we will inform you of
the name and address of each consumer reporting agency from which we obtained a
consumer report relating to you. You authorize us to verify your employment,
credit references and other information concerning your creditworthiness. We
may report your performance under this Agreement to credit bureaus and others
who may properly receive such information.
11. DISPUTED AMOUNTS. All written communications concerning disputed amounts,
including any check or other payment instrument in an amount less than the full
amount due that you send to us marked "paid in full," you tender with other
conditions or limitations, or you otherwise tender as full satisfaction of a
disputed amount, must be sent to us at the address for billing inquiries shown
on the billing statement.
NOTICE: SEE REVERSE SIDE FOR IMPORTANT INFORMATION.
[GANTOS CHARGE CARD]
<PAGE>
Page 1
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT NO. 2 TO CREDIT AGREEMENT, dated as of March 18, 1997 (this
"AMENDMENT"), among GANTOS, INC., a Michigan corporation (the "Borrower"), FLEET
BANK, N.A. (formerly known as Natwest Bank N.A.) and LASALLE NATIONAL BANK, as
lenders (each individually, a "Lender" and collectively, the "Lenders"), and
FLEET BANK, N.A. (formerly known as Natwest Bank N.A.) as agent for the Lenders
(in such capacity, the "Agent").
WHEREAS, the Borrower, the Lenders, and the Agent are party to the
Revolving Credit Agreement, dated as of March 10, 1995 (as amended by amendment
no. 1, dated April 25, 1996 and as further amended, supplemented or modified
from time to time in accordance with its terms, the "CREDIT AGREEMENT"); and
WHEREAS, subject to the terms and conditions hereof, the parties
hereto desire to amend certain provisions of the Credit Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and subject to the fulfillment of the conditions
set forth below, the parties hereto agree as follows:
(1) DEFINED TERMS. Unless otherwise specifically defined herein, all
capitalized terms used herein shall have the respective meanings ascribed to
such terms in the Credit Agreement.
(2) AMENDMENTS TO CREDIT AGREEMENT. Subject to the conditions as to
effectiveness set forth in Paragraph 4 of this Amendment, the Credit Agreement
is hereby amended as follows:
The following definitions are added in their proper alphabetically
determined place in Article I of the Credit Agreement:
(i) "ADJUSTED CAPITAL EXPENDITURES" shall mean (i) as of the
last day of the first fiscal quarter which ends on or after
a Trigger Date, the product obtained by multiplying (x)
actual Capital Expenditures during such fiscal quarter times
(y) 4; (ii) as of
<PAGE>
Page 2
the last day of the second fiscal quarter which ends on or
after a Trigger Date, the product obtained by multiplying
(x) actual Capital Expenditures during the period of two
consecutive fiscal quarters ending on such last day times
(y) 2; (iii) as of the last day of the third fiscal quarter
which ends on or after a Trigger Date, the product obtained
by multiplying (x) actual Capital Expenditures during the
period of three consecutive fiscal quarters ending on such
last day times (y) 1.333, and (iv) on the last day of each
fiscal quarter thereafter, actual Capital Expenditures for
the period of four consecutive fiscal quarters ending on
such last day.
(ii) "ADJUSTED INTEREST EXPENSE" shall mean, for any period, the
greater of (a) zero and (b) Interest Expense for such
period, less, the amount by which (i) Interest Expense for
such period attributable to the Senior Notes exceeds (ii) an
amount equal to Interest Expense, for such period,
attributable to a portion of the Revolving Loan equal to the
outstanding principal amount of Senior Notes outstanding
during such period (or if no such portion of the Revolving
Loan was outstanding during such period, what Interest
Expense, for such period, attributable to such portion of
the Revolving Loan, would have been, assuming such portion
of the Revolving Loan had been outstanding).
(iii) "ADJUSTMENT DATE" means, initially, the last day by which
annual financial statements and accompanying documents are
required to be delivered to the Agent by Section 6.05(a) and
Section 6.05(d) hereof in respect of the Fiscal Year ending
on the Saturday closest to January 31, 1998, and thereafter,
the last day by which annual or quarterly financial
statements and accompanying documents are required to be
delivered to the Agent by Sections 6.05(a) and Section
6.05(d) or Section 6.05(b)(ii) hereof, respectively.
(iv) "CALCULATION PERIOD" means each period which begins on an
Adjustment Date and ends on the day immediately preceding
the immediately succeeding Adjustment Date.
(v) "TRIGGER DATE" shall have the meaning assigned to such term
in Section 7.09.
<PAGE>
Page 3
(b) (i) The definition of "Applicable Margin" appearing in Article I
of the Credit Agreement is amended and restated in its entirety as follows:
"APPLICABLE MARGIN" means:
(a) until the day immediately preceding the first Adjustment Date (i)
with respect to Prime Rate Loans, one and one-quarter percent (1-1/4%)
and (ii) with respect to Eurodollar Loans, two and one-half
percent (2-1/2%), in each case, subject to adjustment pursuant to
Section 2.05(d) hereof; and
(b) for each Calculation Period, the margin set forth below for Prime
Rate Loans or Eurodollar Loans, respectively, opposite the level of
EBITDA set forth below (000's omitted) for the period of four
consecutive fiscal quarters ending with the fiscal quarter (or fiscal
quarter ending a Fiscal Year) reflected in the financial statements
required to be delivered as of the first day of such Calculation
Period (EBITDA being deemed to be not over $12,000,000 for any
Calculation Period as of the first date of which any financial
statements and accompanying documents have not been delivered within
the time period required by Section 6.05(a) and Section 6.05(d) or
Section 6.05(b)(ii) hereof, respectively):
EBITDA for four
consecutive fiscal Margin for Margin for
quarters (000'S omitted) Eurodollar Loans Prime Rate Loans
------------------------ --------------- ----------------
Over $14,000 1.75% 0.50%
Over $13,000 and
not over $14,000 2.00% 0.75%
Over $12,000 and
not over $13,000 2.25% 1.00%
Not over $12,000 2.50% 1.25%
(ii) The definition of "Final Maturity Date" appearing in Article I is
amended and restated in its entirety as follows: "'FINAL MATURITY DATE' shall
mean March 31, 2000."
(iii) The definition of "Fixed Charge Coverage Ratio" appearing in
Article I is amended and restated in its entirety as follows:
<PAGE>
Page 4
"'FIXED CHARGE COVERAGE RATIO' shall mean, as of the last day of any
fiscal quarter, the ratio of (a) EBITDA for the period of four
consecutive fiscal quarters ending on such day, less Adjusted Capital
Expenditures as of such day, to (b) the sum of, without duplication
(i) Interest Expense, for such period of four consecutive fiscal
quarters, (ii) any provision for income taxes actually paid in cash or
otherwise due and payable (or less any benefits from income taxes
actually received in cash) for such period of four consecutive fiscal
quarters, and (iii) the aggregate of regularly scheduled principal
payments with respect to all Indebtedness (including, without
limitation, scheduled payments of Capital Lease Obligations and
excluding all principal payments of the Senior Notes) for such period
of four consecutive fiscal quarters, (which shall be on a Consolidated
basis in the event the Borrower has any subsidiaries), determined in
accordance with generally accepted accounting principles consistently
applied."
(iv) The definition of "Interest Coverage Ratio" appearing in Article
I is amended as follows: the phrase "Interest Expense" appearing in clause (ii)
thereof is replaced with the phrase "Adjusted Interest Expense".
(c) Section 2.05(d) of the Credit Agreement is amended by adding to
the following to the end of such Section: "Notwithstanding the foregoing, the
provisions of Section 2.05(d) shall not be applicable from and after the first
Adjustment Date."
(d) Section 2.06(b) of the Credit Agreement is amended and restated
in its entirety as follows:
"(b) If, on or prior to September 18, 1998, the Total
Commitment shall be permanently terminated (whether by the Borrower,
as a result of an Event of Default or otherwise) or the Total
Commitment shall be permanently reduced, the Borrower shall pay each
Lender, through the Agent, on the date of, and as a condition to, such
termination or reduction a fee (the "REDUCTION FEE") in an amount
equal to one percent (1%) of the principal amount of such permanent
termination or reduction if such termination or reduction occurs on or
prior to March 18, 1998 or one-half of one percent (1/2%) of the
principal amount of such permanent termination or reduction if such
termination or reduction occurs after March 18, 1998 and on or
<PAGE>
Page 5
prior to September 18, 1998."
(e) The text of Section 7.08 of the Credit Agreement (following the
caption thereof) is deleted, and is replaced with "Intentionally omitted." and a
corresponding change is made to the table of contents.
(f) Section 7.09 of the Credit Agreement is amended and restated in
its entirety as follows:
"SECTION 7.09. FIXED CHARGE COVERAGE RATIO. From and after the
first date on which Availability shall be less than $7,500,000 (the
"TRIGGER DATE"), permit or suffer the Fixed Charge Coverage Ratio of
the Borrower and its subsidiaries to be less than 1.0:1.0 as of the
last day of any fiscal quarter which ends on or after the Trigger
Date."
(g) Section 7.10 of the Credit Agreement is amended and restated in
its entirety as follows:
"SECTION 7.10. EBITDA. Permit EBITDA of the Borrower and
its subsidiaries at the end of each fiscal quarter for the
four-quarter period then ending to be less than the respective amounts
set forth below for the periods indicated:
Four Fiscal Quarters Minimum
Ending on or about EBITDA
-------------------- ----------
January 31, 1997 $9,500,000
April 30, 1997 $7,900,000
July 31, 1997 $6,800,000
October 31, 1997 $5,800,000
January 31, 1998 $7,000,000
April 30, 1998 $6,800,000
July 31, 1998 $6,200,000
October 31, 1998 $6,400,000
January 31, 1999 $7,600,000
April 30, 1999 $8,600,000
July 31, 1999 $8,700,000
October 31, 1999 and
the last day of each
fiscal quarter thereafter $8,600,000
<PAGE>
Page 6
(h) Section 7.11 of the Credit Agreement is amended and restated in
its entirety as follows:
SECTION 7.11. INTEREST COVERAGE RATIO. Permit or suffer the Interest
Coverage Ratio of the Borrower and its subsidiaries at the end of each
fiscal quarter for the four quarter period then ending to be less than
the respective amounts set forth below for the periods indicated:
Four Fiscal Quarters Ending
On or about Minimum Ratio
--------------------------- -------------
January 31, 1997 2.0:1
April 30, 1997 3.4:1
July 31, 1997 3.2:1
October 31, 1997 2.9:1
January 31, 1998 3.8:1
April 30, 1998 3.9:1
July 31, 1998 3.5:1
October 31, 1998 3.4:1
January 31, 1999 4.1:1
April 30, 1999 4.4:1
July 31, 1999 4.4:1
October 31, 1999 and
the last day of each
fiscal quarter thereafter 4.1:1
(i) The text of Section 7.12 of the Credit Agreement is deleted, and
is replaced (following the caption thereof) with "Intentionally omitted." and a
corresponding change is made to the table of contents.
(j) Section 7.19(a) of the Credit Agreement is amended by adding the
following immediately before the period ending such subsection:
"PROVIDED, FURTHER, that notwithstanding the foregoing and notwithstanding
Section 7.06 hereof, the Borrower may purchase or redeem and concurrently
retire any or all of the Senior Notes, at par or less, so long as at the
time of any such purchase or redemption and concurrent retirement, no
Default or Event of Default is continuing or would arise as a result
thereof."
<PAGE>
Page 7
(k) Section 12.01 of the Credit Agreement is amended by replacing the
figure "$4,000,000" appearing therein, with the figure "$15,000,000".
(l) Section 12.06 of the Credit Agreement is amended by replacing
clause (a) thereof with the following: "(a) to the Agent for the ratable benefit
of the Lenders a letter of credit fee equal to (i) in the case of Letters of
Credit (other than standby Letters of Credit), one and one-half of one percent
(1-1/2%) per annum, and (ii) in the case of standby Letters of Credit, one and
three-quarters of one percent (1-3/4%) per annum, in each case, on the face
amount of each Letter of Credit outstanding and".
3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants as follows (which representations and warranties shall survive the
execution and delivery of this Amendment) as of the date hereof that:
(a) All representations and warranties contained in the Credit
Agreement and each of the other Loan Documents are true and correct in all
material respects as of the date hereof with the same force and effect as if
made on such date (except to the extent that any such representation or warranty
relates expressly to an earlier date).
(b) The Borrower has the corporate power and authority to execute,
deliver and carry out the terms and provisions of this Amendment and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Amendment.
(c) This Amendment has been duly executed and delivered and
constitutes the legal, valid and binding obligation of the Borrower, and is
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, reorganization, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally and by
general equity principles.
(d) No registration or filing with, consent or approval of, or other
action by, any Federal, State or other governmental agency, authority or
regulatory body is or will be required on behalf of the Borrower in connection
with the execution, delivery, performance, validity or enforcement of this
Amendment other than any such registration or filing which has been made or any
such consent, approval or other action which has been obtained and remains in
full
<PAGE>
Page 8
force and effect and other than the filing of a Form
10-Q or a Form 10-K with the Securities and Exchange Commission.
(e) The execution, delivery and performance of this Amendment by the
Borrower will not violate any provision of the certificate or articles of
incorporation or bylaws of the Borrower or any of its subsidiaries or any law,
statute, rule or regulation, or any order or decree of any court or governmental
instrumentality applicable to the Borrower or any of its subsidiaries, or
violate, result in the breach of or constitute a default under any indenture,
agreement or other instrument to which the Borrower or any of its subsidiaries
or any of their respective properties or assets are or may be bound.
(f) The Borrower is in compliance with all of the various covenants
and agreements applicable to it set forth in the Credit Agreement and each of
the other Loan Documents.
(g) No event has occurred and is continuing which constitutes or
would constitute, with the giving of notice or the lapse of time or both, an
Event of Default under the Credit Agreement or any of the other Loan Documents,
or an Event of Default (as defined in the Indenture) under the Indenture.
(h) The Borrower has no defense to or setoff, counterclaim or claim
against payment of the Obligations or enforcement of the Loan Documents based
upon a fact or circumstance existing or occurring on or prior to the date
hereof.
4. CONDITIONS PRECEDENT. Notwithstanding any term or provision of
this Amendment to the contrary, no amendment set forth in Paragraph 2 hereof
shall become effective until the Agent shall have determined that each of the
following conditions precedent shall have been satisfied:
(a) All required corporate actions in connection with the execution
and delivery of this Amendment shall have been taken, and each shall be
satisfactory in form and substance to the Agent, and the Agent shall have
received all information and copies of all documents, including, without
limitation, records of requisite corporate action that the Agent may reasonably
request, to be certified by the appropriate corporate person or government
authorities.
(b) All representations and warranties made by the Borrower contained
in Paragraph 3 hereof shall be true and correct with the same effect as though
such representations and warranties had been made on the date of
<PAGE>
Page 9
effectiveness of the amendments contained in this Amendment after giving effect
to such amendments (unless any such representation or warranty speaks expressly
to an earlier date).
(c) Counterparts of this Amendment shall have been duly executed and
delivered on behalf of the Borrower, the Lenders and the Agent.
5. CONTINUED EFFECTIVENESS. The term "Agreement", "hereof",
"herein" and similar terms as used in the Credit Agreement, and references in
the other Loan Documents to the Credit Agreement, shall mean and refer to, from
and after the effective date of the amendments contained herein as determined in
accordance with Paragraph 4 hereof, the Credit Agreement as amended by this
Amendment. Each of the parties hereto agrees that, as amended by this
Amendment, all of the covenants and agreements and other provisions contained in
the Credit Agreement and the other Loan Documents are hereby ratified and
confirmed in all respects and shall remain in full force and effect from and
after the date of this Amendment.
6. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute a single instrument. Delivery of an executed
counterpart of a signature page to this Amendment by telecopier shall be
effective as delivery of a manually executed counterpart of this Amendment.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
THE CONFLICTS OF LAWS PRINCIPLES THEREOF).
<PAGE>
Page 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
GANTOS, INC., as Borrower
By:
--------------------------------
Name:
Title:
FLEET BANK, N.A. (formerly known as Natwest Bank N.A.), as
Agent and as a Lender
By:
--------------------------------
Name:
Title:
LASALLE NATIONAL BANK, as a Lender
By:
--------------------------------------
Name:
Title:
<PAGE>
Page 1
April 23, 1997
Mr. Neal Gottfried
4 Carina
Irvine, CA 92612
Dear Neal:
We are very pleased to offer you the position of Senior Vice President of Store
Operations and Visual Merchandising for Gantos, Inc. (the "Company"). We are
very excited to invite you to join our senior management team. The terms of our
offer supersede any of our prior discussions and agreements, and are as follows:
1. Your initial annual salary will be $225,000.
2. Your date of employment will begin on April 14, 1997 ("Start Date").
3. You will be eligible to participate in the Gantos, Inc. Executive Bonus
Plan, beginning with the 1997 plan. A copy of the 1996 plan is enclosed. As
reflected in the enclosed 1996 plan, your 1997 bonus will be based on the
Company's profitability and prorated based on the 1997 Gantos base salary
actually paid to you.
4. On the Start Date, you will be granted an option to purchase 25,000 shares
of Gantos, Inc. common shares at an exercise price equal to the fair market
value of Gantos, Inc. common shares on the Start Date. The option will vest in
one-fifth (1/5) cumulative annual installments, beginning on the first
anniversary of the Start Date. Thereafter, you will be eligible for annual
stock option grants in amounts commensurate with your position with the Company
as may be granted at the discretion of the Board of Directors or its
Compensation Committee.
5. You will receive twelve (12) months separation pay as your exclusive
severance benefits in the event that your employment is terminated without cause
(and other than pursuant to your death or disability) within the first twenty-
four (24) months of your employment. As a condition of your receipt of
severance pursuant to this agreement, after any termination you must (a) use
your best efforts to seek and obtain new employment (b) advise the Company, on a
timely and regular basis, of the status of your efforts, of the terms of any
employment (including self-employment), and of any remuneration you receive from
such employment. If at any time the Company, in good faith, determines that you
are not so seeking such employment, your right to receive severance benefits
will be immediately terminated. The severance benefits to which you would
otherwise be entitled will be reduced by the remuneration that is paid or
payable to you (whether as salary, bonus, commissions, consulting fees,
compensation and dividends from any entity owned by you or a sole proprietorship
established by you or otherwise) from rendering any services to any person,
corporation or entity during the period that you are eligible to receive
severance benefits under this agreement. Payment on account of death or
disability or for termination without cause after the first twenty-four (24)
months of employment will be in accordance with the Company policies concerning
these areas. You will be entitled to no severance benefits if you terminate
your employment with the Company.
6. To assist you in relocating, the Company will pay or reimburse you for the
reasonable expenses of:
A. A third party relocation service engaged by the Company to purchase
your residence in Irvine, California. This service will appraise your
residence and give you a written offer to purchase it for a specified
price, net of closing costs. You would have 90 days to accept the
relocation services offer; if you do not timely accept the offer, you will
be responsible for the sale of your residence. In the event the amount
received from the sale of your residence is less than the original amount
you paid, the Company will pay you the difference, but not to exceed
$25,000.
<PAGE>
Page 2
Mr. Neal Gottfried
April 23, 1997
Page two
B. Loan origination fees and discount points of up to two percent of the
principal amount of your mortgage, other reasonable and customary closing
costs in conjunction with your new home purchase in the Stamford area, and
reasonable and customary closing costs for the sale of your current home.
C. Movement of all household goods and vehicles from Irvine to the
Stamford area and storage of household goods for a period of ninety days.
D. Interim living expenses for you for temporary living quarters (at a
mutually acceptable place) in the Stamford area and a rental car for a
period of ninety days after your Start Date while you secure housing in the
Stamford area.
E. To the extent not deductible by you, pay you an additional amount as
compensation to cover taxes owing on the amounts paid to you for all
relocation related expenses for tax purposes (i.e. gross up).
7. You will receive such benefits as the Company provides its other Senior
Vice Presidents. Currently the Company provides (i) a non-contributory group
life insurance policy in the amount of one times your annual base compensation,
(ii) an individual disability policy which provides benefits up to 60% of your
salary, (iii) a 30% discount on all merchandise purchases at our regular price
stores, (iv) medical prescription coverage under our plan on the first day of
the month following two months of employment, (v) on the first day of the month
after two months of employment, dental coverage under our plan, (vi) four weeks
vacation a year, (vii) after 870 hours of employment are met, eligibility to
participate in the Company's 401(k) Plan, and (viii) after six (6) months of
continuous employment, eligibility to participate in the Employee Stock Purchase
Plan. During the health benefits waiting periods, the Company will reimburse
you for the cost of continuing these coverages under COBRA with your former
employer. Enclosed is a complete breakdown of our benefit plans for your
information and review. You will also receive a car allowance of $600 per
month.
8. Your employment will be at will and may be terminated by either of us, with
or without cause, reason or notice. Upon such a termination, as your exclusive
severance benefits, you will be entitled to your salary through the termination
date and amounts, if any, payable to you or your estate as described in
paragraph 5 above.
9. You will comply with and be bound by all Company policies, procedures and
guidelines, as they may be amended and supplemented from time to time during
your employment with the Company.
Please date, sign and return the enclosed copy of this letter to indicate your
acceptance of employment on these terms.
If I can be of assistance in answering any questions that you may have, please
don't hesitate to contact my office.
Very truly yours,
GANTOS, INC.
Arlene H. Stern
President
Accepted and agreed on April _____, 1997.
- -----------------------------------
Neal Gottfried
<PAGE>
EXHIBIT A
GANTOS, INC.
3260 PATTERSON, S.E.
GRAND RAPIDS, MICHIGAN 49512
March 18, 1997
Kenneth Green
3260 Patterson, S.E.
Grand Rapids, Michigan 49512
Dear Ken:
As a valued member of our management team, we are pleased to offer you the
following severance benefits: You will receive twelve (12) months separation
pay as your exclusive severance benefits in the event that your employment is
terminated without cause (and other than pursuant to your death or disability)
between April 1, 1997 and March 31, 1999. As a condition of your receipt of
severance pursuant to this agreement, after any termination you must (a) use
your best efforts to seek and obtain new employment, (b) advise the Company, on
a timely and regular basis, of the status of your efforts, of the terms of any
employment (including self employment), and of any remuneration your receive
from such employment. If at any time the Company, in good faith, determines
that you are not so seeking such employment, your right to receive severance
benefits will be immediately terminated. The severance benefits to which you
would otherwise be entitled will be reduced by the remuneration that is paid or
payable to you (whether as salary, bonus, commissions, consulting fees,
compensation and dividends from any entity owned by you or a sole proprietorship
established by you or otherwise) from rendering any services to any person,
corporation or entity during the period that you are eligible to receive
severance benefits under this agreement. Payment on account of death or
disability or for termination without cause after March 31, 1999 will be in
accordance with the Company's policies concerning these areas. You will be
entitled to no severance benefits if you terminate your employment with the
Company.
Your employment will be at will and may be terminated by either of us, with
or without cause, reason or notice. Upon such a termination, as your exclusive
severance benefits, you will be entitled to your salary through the termination
date and amounts, if any, payable to you or your estate as described in this
letter, if such termination is on or before March 31, 1999, and under the
Company's policies concerning these areas if such termination is after March 31,
1999, and in either case no other payment.
Please date, sign and return the enclosed copy of this letter to indicate
your acceptance of the terms of this letter.
Very truly yours,
GANTOS, INC.
By:
Arlene H. Stern, President
The terms of this agreement
are accepted and agreed to
as of March 18, 1997:
- ------------------------------
Kenneth Green
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-55496, 33-92576 and 333-14921) of Gantos, Inc.
of our report dated February 28, 1997, except as to the last paragraph of Note 6
which is as of March 18, 1997, appearing on page 25 of this Form 10-K.
PRICE WATERHOUSE LLP
Battle Creek, Michigan
April 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GANTOS, INC. AS OF, AND FOR THE FISCAL YEAR PERIOD
ENDED, FEBRUARY 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 4,346
<SECURITIES> 0
<RECEIVABLES> 22,609
<ALLOWANCES> (636)
<INVENTORY> 22,373
<CURRENT-ASSETS> 51,863
<PP&E> 62,379
<DEPRECIATION> (48,384)
<TOTAL-ASSETS> 65,858
<CURRENT-LIABILITIES> 22,623
<BONDS> 11,940
0
0
<COMMON> 76
<OTHER-SE> 31,219
<TOTAL-LIABILITY-AND-EQUITY> 65,858
<SALES> 184,366
<TOTAL-REVENUES> 184,366
<CGS> 147,022
<TOTAL-COSTS> 147,022
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,332
<INCOME-PRETAX> 2,337
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,337
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,337
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
