UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9169
BERNARD CHAUS, INC.
(Exact name of registrant as specified in its charter)
New York 13-2807386
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
1410 Broadway, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(212) 354-1280
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) 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. [ X ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on September 26, 1996 was $30,294,488.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date
Date Class Shares Outstanding
---- ----- ------------------
September 26, 1996 Common Stock, $0.01 par value 26,277,274
LOCATION IN FORM 10-K IN
DOCUMENTS INCORPORATED BY REFERENCE WHICH INCORPORATED
----------------------------------- ------------------
Portions of registrant's Proxy Statement for the Annual Part III
Meeting of Stockholders to be held in November 1996.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Bernard Chaus, Inc. (the "Company" or "Chaus") designs, arranges for
the manufacture of and markets an extensive range of women's career and casual
sportswear which are marketed principally under the CHAUS(Registered Trademark),
CHAUS SPORT(Registered Trademark) and NAUTICA(Registered Trademark) trademarks.
In late fiscal 1994, the Company initiated a corporate restructuring program
characterized by a strengthened management team, reduced selling, general and
administrative expenses and, in an effort to capitalize on the Company's well-
recognized brand name, a return to its historic product positioning. As a
result, the Company has repositioned its enhanced product line at the high end
of the "upper moderate" through the opening price points of the "better"
categories. In September 1995 the Company entered into a license agreement (the
"Nautica License Agreement") with Nautica Apparel Inc. ("Nautica"), a leading
name in men's apparel, under which the Company has an exclusive license to
design, contract for the manufacture of and market a new women's apparel line
under the Nautica brand name. The Company commenced sales of products in its
licensed Nautica product line in August 1996, with such Nautica product line
being positioned in the "better" to "bridge" categories. In addition, in order
to better utilize its management and financial resources, in March 1996 the
Company discontinued its unprofitable dresses product line, which had accounted
for a gross margin loss of $2.2 million for the twelve months ended June 30,
1996.
PRODUCTS
The Company's products currently are divided into two principal
product categories: (i) career sportswear and (ii) weekend casual sportswear.
As part of its restructuring/repositioning strategy, the Company has shifted
its product focus from single, fashion-driven items to full collections with an
emphasis on traditional styling. With this repositioning, the Company also has
enhanced its design and quality with, in certain cases, an increase in price
points to the high end of the "upper moderate" through the opening price points
of the "better" categories. The Company's career and weekend casual sportswear
are marketed as coordinated groups of jackets, skirts, pants, blouses, sweaters
and related accessories which, while sold as separates, are coordinated by
styles, color schemes and fabrics and are designed to be merchandised and worn
together. The Company believes that the target consumers for its products are
women aged 25 to 55.
The Company produces collections of each of these product lines for
each of its five principal selling seasons: Spring, Summer, Fall I, Fall II and
Holiday. Spring and Fall traditionally have been the Company's major selling
seasons. Beginning in fiscal 1996, the Company combined the Spring I and Spring
II seasons into one Spring season, thus reducing the selling seasons from six
to five.
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The Company's major product categories and associated brand names are
summarized in the following table:
<TABLE>
<CAPTION>
WEEKEND CASUAL
CAREER SPORTSWEAR SPORTSWEAR
----------------- ----------
<S> <C> <C>
BRAND NAMES Chaus Chaus Sport
Chaus Woman Nautica
Chaus Petite
Nautica
PRODUCT OFFERINGS Jackets, Skirts, Pants, Casual Jackets
Shorts, Blouses, Shirts, Sweaters, Skirts, Pants,
Knit Tops, Sweaters Shirts, Knit Tops, Outerwear
INDUSTRY CATEGORIES Chaus -- Upper Moderate Chaus -- Upper Moderate
and Lower Better and Lower Better
Nautica -- Better and Bridge Nautica -- Better and Bridge
</TABLE>
During fiscal 1996, the suggested retail prices of the Company's Chaus
products ranged between $20.00 and $142.00. The Company's jackets ranged in
price between $50.00 and $142.00, its blouses and sweaters ranged in price
between $25.00 and $80.00, its skirts and pants ranged in price between $28.00
and $86.00, and its knit tops and bottoms ranged in price between $20.00 and
$78.00.
The following table sets forth a breakdown by percentage of the
Company's net sales by product category for fiscal 1994 through fiscal 1996:
Fiscal Year Ended June 30,
--------------------------
1994 1995 1996
---- ---- ----
Career Sportswear
Chaus 29% 31% 41%
Chaus Woman 12 13 11
Chaus Petite 6 4 5
----- ----- -----
Total 47 48 57
Weekend Casual
Sportswear 28 35 33
Dresses 13 12 8
Other (1) 12 5 2
----- ----- -----
Total 100% 100% 100%
- ---------------
(1) Includes sales by outlet stores, offset by intercompany
eliminations. Also includes, for fiscal 1994, (a) the Company's
JOSEPHINE and JEANSWEAR labels, which produced blouses and jeans,
respectively, until the beginning of fiscal 1995 when the Company
ceased producing garments using these labels and (b) a Canadian joint
venture that the Company terminated in June 1994.
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Career Sportswear. The Company markets an extensive line of career
sportswear under the CHAUS label for misses sizes, the CHAUS WOMAN label for
larger sizes and the CHAUS PETITE label for smaller sizes. In August 1996 the
Company commenced sales of career sportswear under the NAUTICA label. These
product lines offer a full collection of sportswear geared primarily for the
working woman. Each sportswear collection typically includes a broad selection
of jackets, skirts, pants, blouses and sweaters, as well as more casual apparel
such as shorts, shirts and knit tops.
Weekend Casual Sportswear. The CHAUS SPORT label offers casual
jackets, sweaters, skirts, pants, shirts and knit tops. This product line
offers soft career, weekend and leisure sportswear intended for an informal
working environment as well as for casual wear. In August 1996, the Company
commenced sales of weekend casual sportswear under the NAUTICA label.
LICENSE AGREEMENT WITH NAUTICA
In September 1995, the Company entered into the Nautica License
Agreement under which the Company has an exclusive license to manufacture,
market, distribute and sell licensed product for women under the
Nautica(Registered Trademark) brand name in the United States and Puerto Rico.
The Company currently distributes its licensed Nautica product line in major
department and specialty stores, at "better" to "bridge" price points. The
Company plans to have approximately 125 Nautica designed in-store shops built
during fiscal 1997. Nautica has developed significant brand-name recognition
with its men's apparel lines. The Company's relationship with Nautica provides
the Company with exposure to "better" to "bridge" departments, while creating an
alliance with a leading company in the apparel industry. The Company's first
sales of its licensed Nautica products occurred in August 1996. The Company's
license from Nautica is limited to women's sportswear collections including
coordinating knits, blouses, wovens, sweaters, pants, skirts, jackets, and
outerwear and sportswear dresses bearing the Nautica brand names and marks. The
Company's license from Nautica excludes business dresses, suits, coats and
raincoats that are not part of a sportswear collection. The license also
excludes shoes, scarves, socks, stockings or accessories for ladies bearing the
Nautica brand names and marks.
The initial term of the Nautica License Agreement runs through
December 31, 1999, and is thereafter renewable for up to two periods of three
years each, provided that certain conditions are met (including the successful
attainment of certain sales targets and the requirement that Andrew Grossman
continue in his position as Chief Executive Officer during the term of the
Nautica License Agreement). The Company's obligations include minimum royalty
and advertising payments. A separate showroom was constructed for the display
of the Company's licensed Nautica products and a full operational merchandising
and retail development group has been dedicated to its licensed Nautica product
line.
Pursuant to the terms of the Nautica License Agreement, the Company
has granted Nautica a ten-year option to purchase up to 150,000 shares of the
Company's Common Stock at a purchase price of $5.00 per share (the closing
price of the Common Stock on the NYSE on September 6, 1995, the date the
Company entered into the Nautica License Agreement).
CUSTOMERS
The Company's products are sold nationwide in an estimated 2,200
individual stores operated by approximately 100 department store chains,
specialty retailers and other retail outlets. The Company does not have any
long-term commitments or contracts with any of its customers.
During fiscal 1996, approximately 62% of the Company's net sales were
made to its nine largest customers, as compared to 49% in fiscal 1995 and 45%
in fiscal 1994. Except for Dillard's Department Stores, which accounted for 29%
of net sales in fiscal 1996, 23% of net sales in fiscal 1995 and 16% of net
sales in fiscal 1994, no single customer accounted for more than 10% of net
sales during such fiscal years; however, certain of the Company's
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customers are under common ownership. When considered together as a group under
common ownership, sales to two department store customers owned by TJX
Companies, Inc. accounted for approximately 16% of net sales in fiscal 1996, 7%
of net sales in fiscal 1995 and 13% of net sales in fiscal 1994. Sales to nine
department store companies owned by The May Department Stores Company accounted
for approximately 10% of the Company's net sales in fiscal 1996, 15% of net
sales in fiscal 1995 and 14% of net sales in fiscal 1994. Sales to nine
department store companies owned by Federated Department Stores accounted for
approximately 5% of net sales in fiscal 1996, 11% of net sales in fiscal 1995
and 12% in fiscal 1994. The aforementioned percentages of net sales were based
upon the stores owned by the various department store customers at the end of
fiscal 1996. As a result of the Company's dependence on these customers, they
may have the ability to influence the Company's business decisions. The loss of
or significant decrease in business from any of its major customers would have
a material adverse effect on the Company's financial position and results of
operations.
SALES AND MARKETING
The Company's selling operation is highly centralized. Sales to the
Company's department and specialty store customers are made primarily through
the Company's New York City showrooms. The Company has an in-house sales force
of 15, all of whom are located in the New York City showrooms. Senior
management, principally Josephine Chaus, Chairwoman of the Board and principal
stockholder of the Company, and Michael Winter, President of the Company's
Nautica division, actively participate in the planning of the Company's
marketing and selling efforts. The Company does not employ independent sales
representatives or operate regional sales offices, but it does participate in
various regional merchandise marts. This sales structure enables management to
control the Company's selling operation more effectively, to limit travel
expenses, as well as to deal directly with, and be readily accessible to, major
customers.
Products are marketed to department and specialty store customers
during "market weeks," generally four to five months in advance of each of the
Company's selling seasons. The Company assists its customers in allocating
their purchasing budgets among the items in the various product lines to enable
consumers to view the full range of the Company's offerings in each collection.
During the course of the retail selling seasons, the Company monitors its
product sell-through at retail in order to directly assess consumer response to
its products.
The Company emphasizes the development of long-term customer
relationships by consulting with its customers concerning the style and
coordination of clothing purchased by the store, optimal delivery schedules,
floor presentation, pricing and other merchandising considerations. Frequent
communications between the Company's senior management and other sales
personnel and their counterparts at various levels in the buying organizations
of the Company's customers is an essential element of the Company's marketing
and sales efforts. These contacts allow the Company to closely monitor retail
sales volume to maximize sales at acceptable profit margins for both the
Company and its customers. The Company's marketing efforts attempt to build
upon the success of prior selling seasons to encourage existing customers to
devote greater selling space to the Company's product lines and to penetrate
additional individual stores within the Company's existing customers. The
Company's largest customers discuss with the Company retail trends and their
plans regarding their anticipated levels of total purchases of Company products
for future seasons. These discussions are intended to assist the Company in
planning the production and timely delivery of its products.
The Company maintains a limited cooperative advertising program under
which it reimburses, in certain circumstances, a portion of a customer's
advertising expenditures promoting the Company's products up to a maximum
percentage of the customer's purchases. Except for this cooperative advertising
program, the Company has not engaged in any direct advertising to the public
with respect to its Chaus product line. Cooperative advertising expenditures
were approximately $1.6 million in fiscal 1994 and $0.8 million in each of
fiscal 1995 and fiscal 1996.
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DESIGN
The Company's products and certain of the fabrics from which they are
made are designed by an in-house staff of fashion designers. The 16 person
design staff, headed by Judith Leech, monitors current fashion trends and
changes in consumer preferences. Josephine Chaus and Andrew Grossman, the
Company's Chief Executive Officer, who are instrumental in the design function,
meet regularly with the design staff to create, develop and coordinate the
seasonal collections. The Company believes that its design staff is known for
its distinctive styling and its ability to contemporize fashion classics.
Emphasis is placed on the coordination of outfits and quality of fabrics to
encourage the purchase of more than one garment.
MANUFACTURING AND DISTRIBUTION
The Company does not own any manufacturing facilities; all of its
products are manufactured in accordance with its design specifications and
production schedules through arrangements with independent manufacturers. The
Company believes that outsourcing its manufacturing maximizes its flexibility
while avoiding significant capital expenditures, work-in-process buildup and
the costs of a large workforce. A substantial amount (approximately 80%) of its
product is manufactured by approximately 35 key independent suppliers located
primarily in South Korea, Hong Kong, Taiwan, China, Indonesia and elsewhere in
the Far East. Approximately 20% of the Company's products are manufactured in
the United States and the Caribbean Basin. No contractual obligations exist
between the Company and its manufacturers except on an order-by-order basis.
During fiscal 1996, the Company purchased approximately 67% of its finished
goods from its ten largest manufacturers, including approximately 14% of its
purchases from its largest manufacturer. Contracting with foreign manufacturers
enables the Company to take advantage of prevailing lower labor rates and to
use a skilled labor force to produce high quality products.
Generally, each manufacturer agrees to produce finished garments on
the basis of purchase orders from the Company, specifying the price and
quantity of items to be produced and supported by a letter of credit naming the
manufacturer as beneficiary to secure payment for the finished garments.
The Company's technical production support staff located in New York
City produces patterns, prepares production samples from the patterns for
modification and approval by the Company's design staff, and marks and grades
the patterns in anticipation of production. While the factories have the
capability to perform these services, the Company believes that its personnel
can best express its design concepts and efficiently supervise production to
better ensure that a quality product is produced. Once production fabric is
shipped to them, the manufacturers produce finished garments in accordance with
the production samples and obtain necessary quota allocations and other
requisite customs clearances. Branch offices of the Company's subsidiaries in
Korea and Hong Kong monitor production at each manufacturing facility to
control quality, compliance with the Company's specifications and timely
delivery of finished garments, and arrange for the shipment of finished
products to the Company's New Jersey distribution center. Almost all finished
goods are shipped to the Company's New Jersey distribution center for final
inspection, assembly into collections, allocation and shipment to customers.
The Company believes that the number and geographical diversity of its
manufacturing sources minimize the risk of adverse consequences that would
result from termination of its relationship with any of its larger
manufacturers. The Company also believes that it would have the ability to
develop, over a reasonable period of time, adequate alternate manufacturing
sources should any of its existing arrangements terminate. However, should any
substantial number of such manufacturers become unable or unwilling to continue
to produce apparel for the Company or to meet their delivery schedules, or if
the Company's present relationships with such manufacturers were otherwise
materially adversely affected, there can be no assurance that the Company would
find alternate manufacturers of finished goods on satisfactory terms to permit
the Company to meet its commitments to its customers on a timely basis. In such
event, the
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Company's operations could be materially disrupted, especially over the
short-term. The Company believes that relationships with its major
manufacturers are satisfactory.
The Company uses a broad range of fabrics in the production of its
clothing, consisting of synthetic fibers (including polyester and acrylic),
natural fibers (including cotton and wool), and blends of natural and synthetic
fibers. The Company does not have any formal, long-term arrangements with any
fabric or other raw material supplier. During fiscal 1996, virtually all of the
fabrics used in the Company's products manufactured in the Far East were
ordered from the Company's five largest suppliers in the Far East, which are
located in Japan, Taiwan and Korea, and virtually all of the fabric used in the
Company's products manufactured in the United States and the Caribbean Basin
were ordered by three major suppliers from these regions. The Company selects
the fabrics to be purchased, which are generally produced for it in accordance
with its own specifications. To date, the Company has not experienced any
significant difficulty in obtaining fabrics or other raw materials and
considers its sources of supply to be adequate.
The Company operates under substantial time constraints in producing
each of its collections. Orders from the Company's customers generally precede
the related shipping period by up to five months. However, proposed production
budgets are prepared substantially in advance of the Company's initial
commitments for each collection. In order to make timely delivery of
merchandise which reflects current style trends and tastes, the Company
attempts to schedule a substantial portion of its fabric and manufacturing
commitments relatively late in a production cycle. However, in order to secure
adequate amounts of quality raw materials, especially greige (i.e., "undyed")
goods, the Company must make substantial advance commitments to suppliers of
such goods, often as much as seven months prior to the receipt of firm orders
from customers for the related merchandise. Many of these early commitments are
made subject to changes in colors, assortments and/or delivery dates.
IMPORTS AND IMPORT RESTRICTIONS
The Company's arrangements with its manufacturers and suppliers are
subject to the risks attendant to doing business abroad, including the
availability of quota and other requisite customs clearances, the imposition of
export duties, political and social instability, currency revaluations and
restrictions on the transfer of funds. Bilateral agreements between exporting
countries, including those from which the Company imports substantially all of
its products, and the United States' imposition of quotas limits the amount of
certain categories of merchandise, including substantially all categories of
merchandise manufactured for the Company, that may be imported into the United
States. Furthermore, the majority of such agreements contain "consultation
clauses" which allow the United States to impose at any time restraints on the
importation of categories of merchandise which, under the terms of the
agreements, are not subject to specified limits. The bilateral agreements
through which quotas are imposed have been negotiated under the framework
established by the Arrangement Regarding International Trade in Textiles, known
as the Multifiber Arrangement ("MFA") which has been in effect since 1974. The
United States has concluded international negotiations known as the "Uruguay
Round" in which a variety of trade matters were reviewed and modified. Quotas
established under the MFA will be gradually phased out over a ten year
transition period, after which the textile and clothing trade will be fully
integrated into the General Agreement on Trade and Tariffs ("GATT") and will be
subject to the same disciplines as other sections. The GATT agreement provides
for expanded trade, improved market access, lower tariffs and improved
safeguard mechanisms.
The United States and the countries in which the Company's products
are manufactured may, from time to time, impose new quotas, duties, tariffs or
other restrictions, or adversely adjust presently prevailing quotas, duty or
tariff levels, with the result that the Company's operations and its ability to
continue to import products at current or increased levels could be adversely
affected. The Company cannot now predict the likelihood or frequency of any
such events occurring. The Company monitors duty, tariff and quota-related
developments, and seeks continually to minimize its potential exposure to
quota-related risks through, among other measures, geographical diversification
of its manufacturing sources, allocation of production of merchandise
categories where more quota is available and shifts of
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production among countries and manufacturers. The expansion in the past few
years of the Company's varied manufacturing sources and the variety of
countries in which it has potential manufacturing arrangements, although not
the result of specific import restrictions, have had the result of reducing the
potential adverse effect of any increase in such restrictions.
Substantially all of the Company's products are subject to United
States customs duties. In the ordinary course of business, the Company, from
time to time, is subject to claims by the United States Customs Service
("Customs") for duties and other charges, is entitled to refunds from Customs
due to overpayment of duties by the Company and may be required to pay
penalties with respect to underpayment of duties.
OUTLET STORES
At June 30, 1996, the Company had 25 outlet stores as compared to 31
stores at June 30, 1995. The outlet stores operate throughout the country in
traditional factory outlet centers in locations intended to minimize conflict
with the Company's major retail department store customers. As part of the
Company's continued restructuring, six outlet stores were closed during fiscal
1996. The Company plans to close three more outlet stores during fiscal 1997
and does not intend to open any new stores in the near future. The Company also
has realigned its outlet store business to reflect the changes it has made in
its pricing and product strategy. The Company will seek to utilize its outlet
stores as more of a sale point for current merchandise without negatively
impacting its department store sales.
BACKLOG
At September 20, 1996, the Company's order book reflected unfilled
customer orders for approximately $45.0 million of merchandise as compared to a
backlog of $48.0 million at September 14, 1995. Order book data at any date are
materially affected by the timing of the initial showing of collections to the
trade, as well as by the timing of recording of orders and of shipments.
Accordingly, the Company believes that order book data do not provide
meaningful period to period comparisons as of specific dates, and comparisons
of backlog information with such information as of specific dates for prior
periods are not necessarily indicative of future results. The Company does not
believe that cancellations, rejections or returns will materially reduce the
amount of sales realized from such backlog.
TRADEMARKS
CHAUS(Registered Trademark), CHAUS ESSENTIAL(Registered Trademark),
CHAUS SPORT(Registered Trademark), CHAUS WOMAN(Registered Trademark) and MS.
CHAUS(Registered Trademark) are registered trademarks of the Company in the
United States for use on ladies' garments. These trademarks are renewable in the
years 2004, 2008, 2002, 2004 and 2005, respectively. JOSEPHINE(Registered
Trademark) is also a registered trademark of the Company in the United States,
renewable in the year 2001, for use on ladies' blouses and sweaters. The Company
considers its trademarks to have significant value in the marketing of its
products. See " -- License Agreement with Nautica" for certain information
concerning the Company's Nautica License Agreement.
The Company has also registered its CHAUS, CHAUS SPORT, CHAUS WOMAN,
and JOSEPHINE marks for women's apparel in certain foreign countries and has
legal trademarks in certain foreign countries for selected women's accessories
including handbags, small leather goods and footwear.
COMPETITION
The women's apparel industry is highly competitive, both within the
United States and abroad. The Company competes with many apparel companies,
some of which are larger, and have better established brand names and greater
resources than the Company. In some cases the Company also competes with
private-label brands of its department store customers.
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The Company believes that an ability to effectively anticipate, gauge
and respond to changing consumer demand and taste relatively far in advance, as
well as an ability to operate within substantial production and delivery
constraints (including obtaining necessary quota allocations), is necessary to
compete successfully in the women's apparel industry. Consumer and customer
acceptance and support, which depend primarily upon styling, pricing, quality
(both in material and production), and product identity, are also important
aspects of competition in this industry. The Company believes that its success
will depend upon its ability to remain competitive in these areas.
Furthermore, the Company's traditional department store customers,
which account for a substantial portion of the Company's business, encounter
intense competition from so-called "off-price" and discount retailers, mass
merchandisers and specialty stores. The Company believes that its ability to
increase its present levels of sales will depend on such customers' ability to
maintain their competitive position and the Company's ability to increase its
market share of sales to department stores.
EMPLOYEES
At June 30, 1996, the Company employed 525 full-time employees as
compared with 595 full-time employees at June 30, 1995. This total includes 68
in managerial and administrative positions, approximately 108 in production,
production administration and design, 214 in marketing, merchandising and sales
(including 199 employees in the retail outlet store operation) and 59 in
distribution. Of the Company's total employees, 76 were located in the Far
East. The Company is a party to a collective bargaining agreement with the
Amalgamated Workers Union, Local 88, covering 94 full-time employees. This
agreement expires in August 1999.
The Company considers its relations with its employees to be
satisfactory and has not experienced any business interruptions as a result of
labor disagreements with its employees.
EXECUTIVE OFFICERS
The executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Josephine Chaus 45 Chairwoman of the Board and member, Office of the Chairman
Andrew Grossman 37 Chief Executive Officer and member, Office of the Chairman
Wayne S. Miller 39 Executive Vice President-- Finance and Administration, Chief Financial
Officer and Secretary
Michael Winter 40 President -- Nautica
Barton Heminover 42 Vice President-- Corporate Controller and Assistant Secretary
</TABLE>
Executive officers serve at the discretion of the Board of Directors.
Josephine Chaus has been an employee of the Company in various
capacities since its inception. She has been a director of the Company since
1977, President from 1980 through February 1993, Chief Executive Officer from
July 1991 through September 1994, Chairwoman of the Board since 1991 and member
of the Office of the Chairman since September 1994.
Andrew Grossman was appointed a director of the Company on September
13, 1994. He has been employed by the Company as its Chief Executive Officer
and member of the Office of the Chairman since September 28, 1994. Prior to
September 1994, Mr. Grossman was President from 1991 to 1994 and Executive Vice
President from 1990 to 1991 of Jones Apparel Group, a manufacturer of women's
apparel, and Vice President of Merchandising for Jones New York
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from 1987 to 1990. Prior to joining Jones, Mr. Grossman was employed by Willie
Wear Ltd., Herbert Grossman Enterprises, the Ralph Lauren Womenswear division
of Bidermann Industries, Corp., and the Evan Picone division of Palm Beach,
Inc.
Wayne S. Miller joined the Company as Executive Vice
President--Finance and Administration and Chief Financial Officer of the
Company in June 1994 and was appointed Secretary of the Company in November
1994. From April 1994 to June 1994 Mr. Miller served as Crisis Manager at USA
Classic, Inc., an apparel company. From February 1994 to March 1994 he was a
consultant to various apparel companies. From October 1990 to January 1994 he
was President and Chief Executive Officer of Publix Group, L.P., an apparel
company, which filed a petition for reorganization under chapter 11 of the
federal bankruptcy laws in June 1993. Prior to October 1990, Mr. Miller was
Chief Financial Officer at Basco All-American Sportswear Corp.
Michael Winter joined the Company in December 1995 as President of the
Company's Nautica division. From 1992 to 1995, Mr. Winter served as Executive
Vice President Sales/Marketing at Carol Little, Inc., an apparel company. From
1989 to 1992, Mr. Winter served as Vice President Sales/Merchandising and
Marketing at Ralph Lauren Woman's Division, an apparel company.
Barton Heminover joined the Company as Vice President - Corporate
Controller and Assistant Secretary in July 1996. From January 1983 to July 1996
he was employed by Petrie Retail, Inc. (formerly Petrie Stores Corporation), a
woman's retail apparel chain, in various capacities, serving as Vice
President/Treasurer from 1986 to 1994 and as Vice President/Financial
Controller from 1994 to 1996.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located at 1410 Broadway
in New York City, where the Company currently leases approximately 29,000
square feet, which represents a reduction of approximately 12,000 square feet
from the aggregate space occupied under several leases that terminated in July
1996. These facilities also house the Company's showrooms and its sales,
design, production and merchandising staffs. This space is occupied under a
lease expiring in July 1998. Net base rental expense aggregated approximately
$2.1 million, $2.2 million and $2.3 million in fiscal 1994, 1995 and 1996,
respectively, and is expected to aggregate approximately $0.7 million in fiscal
1997. Chaus also leases approximately 19,000 square feet of space at 520 Eighth
Avenue in New York City, which houses its technical production support
facilities (including its sample and pattern makers). Net base rental expense
for this space aggregated approximately $0.4 million in fiscal 1994, $0.3
million in fiscal 1995 and $0.2 million in fiscal 1996. The lease for this
facility expires in January 1997.
During fiscal 1995, the Company consolidated its warehouse and
distribution centers located in Secaucus, New Jersey into one building,
reducing the leased square footage from approximately 390,000 square feet to
approximately 275,000 square feet. This facility houses the Company
administrative and finance personnel, its computer operations, one retail
outlet store and its warehouse and distribution center. In September 1995 the
Company renegotiated its Secaucus leases in order to terminate the lease on the
vacant building, and the new lease expires in June 2000. Base rental expense
for the Secaucus facilities aggregated approximately $2.4 million in fiscal
1994, $1.5 million i ;n fiscal 1995 and $1.3 million in fiscal 1996. The base
rental expense is expected to aggregate approximately $1.1 million in fiscal
1997.
Office locations are also leased in Hong Kong and Korea, with annual
aggregate rental expense of approximately $0.3 million for fiscal 1996. In July
1995, the Company closed its Taiwan office and in prior years, terminated its
leases as to foreign office locations in the Philippines and Italy. The
aggregate rental payments, including the closed locations, approximated $0.7
million in fiscal 1994 and $0.5 million in fiscal 1995.
9
<PAGE>
The Company also leases space for its outlet stores operation, with
the average store utilizing approximately 3,000 square feet in fiscal 1996. The
annual aggregate base rental expense for such facilities was approximately $1.7
million in fiscal 1996 and is expected to be approximately $1.3 million for
fiscal 1997. For each of fiscal 1994 and fiscal 1995 the base rental expense
for the outlet stores' operations was $1.9 million.
ITEM 3. LEGAL PROCEEDINGS.
In 1992, Federal Judge Shirley Wohl Kram dismissed with prejudice as
time-barred the Amended Complaint against the Company and others in
consolidated class actions entitled Phifer v. Chaus et al., Goldschlack v.
Chaus et al., Susman v. Chaus et al., and I. Bibcoff Inc. Pension Trust Fund v.
Chaus et al., (which claims had alleged misstatements and omissions in the
Company's July 1986 prospectus delivered in connection with the Company's
initial public offering of Common Stock in 1986 (the "1986 Offering") and its
1986 and 1987 annual reports). On April 19, 1993, a Class Action Complaint was
filed in the Superior Court of New Jersey, Hudson County, against the Company
and others, including the Company's lead underwriter in the 1986 Offering.
Allegations in such complaint were common law fraud and negligent
misrepresentation in the sale of the Company's Common Stock in the 1986
Offering, which allegations were substantially similar to the claims that were
dismissed with prejudice in the federal court. One of the plaintiffs from the
federal action was originally a party in this action in state court. On June
18, 1993, the Company received by mail a copy of Jury Demand Class Action in
the Superior Court of New Jersey, Hudson County entitled Theodore M. Wietecha
and Lisa A. Phifer v. Bernard Chaus, Inc. et al. The Complaint was amended in
September 1993 to delete Lisa Phifer as a plaintiff. On May 27, 1994, the
Company moved to dismiss the Complaint and/or to deny or limit class status. In
a decision rendered in November 1994, the Superior Court denied the plaintiff's
motion for the class certification and dismissed all claims against the
director defendants (Josephine Chaus and the Estate of Bernard Chaus) and all
claims not based upon actual reliance. During fiscal 1996 the Company settled
these claims for approximately $0.3 million, which expense had been provided
for in a prior year.
A claim for indemnification was asserted by the Company's former
underwriters against the Company. The indemnification claim demanded repayment
of the legal fees and expenses incurred by such underwriters in connection with
the consolidated class actions entitled Phifer v. Chaus, et al. During fiscal
1996 the Company settled this matter for approximately $0.8 million, which
expense had been provided for in a prior year.
There are no other material pending legal proceedings to which the
Company is a party or to which any of its properties is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "CHS." The following table sets forth for each of the
Company's fiscal periods indicated the high and low sales prices for the Common
Stock as reported on the NYSE.
10
<PAGE>
HIGH LOW
---- ---
FISCAL 1995
First Quarter ................. $4.375 $1.750
Second Quarter ................ 6.125 3.625
Third Quarter ................. 5.000 3.625
Fourth Quarter ................ 5.750 2.875
FISCAL 1996
First Quarter ................. $6.125 $4.750
Second Quarter ................ 5.625 3.125
Third Quarter ................. 5.000 2.875
Fourth Quarter ................ 4.625 3.000
As of September 17, 1996, the Company had approximately 1,097 stockholders of
record.
The Company has not declared or paid cash dividends or made other
distributions on its Common Stock since prior to its initial public offering of
Common Stock in the 1986 Offering. The payment of dividends, if any, in the
future is within the discretion of the Board of Directors and will depend on
the Company's earnings, its capital requirements and financial condition. It is
the present intention of the Board of Directors to retain all earnings, if any,
for use in the Company's business operations and, accordingly, the Board of
Directors does not expect to declare or pay any dividends in the foreseeable
future. In addition, pursuant to the Company's amended financing agreement, the
Company currently is prohibited from declaring dividends or making other
distributions on its capital stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Financial Condition,
Liquidity and Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA.
The following financial information is qualified by reference to, and
should be read in conjunction with, the Financial Statements of the Company and
the notes thereto, as well as Management's Discussion and Analysis of Financial
Condition and Results of Operations contained elsewhere herein.
11
<PAGE>
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales ..................................... $254,190 $235,819 $206,332 $181,697 $170,575
Cost of goods sold ............................ 196,415 187,423 186,594 149,097 147,994
-------- -------- -------- -------- --------
Gross profit .................................. 57,775 48,396 19,738 32,600 22,581
Selling, general and administrative expenses .. 50,016 57,410 55,400 44,794 40,162
Restructuring expenses ........................ -- -- 5,300 (1) 1,200 (1) --
Unusual expenses .............................. -- -- 1,900 (2) 8,333 (2) --
Interest expense .............................. 2,474 2,322 3,439 5,976 6,560
Other income (expense), net ................... 479 449 (190) 91 56
-------- --------- ----------- ---------- --------
Income (loss) before income tax (benefit)
provision and extraordinary item ........... 5,757 (10,887) (46,491) (27,612) (24,085)
Income tax provision .......................... 2,245 102 264 301 301
-------- --------- --------- --------- --------
Income (loss) before extraordinary item ....... 3,512 (10,989) (46,755) (27,913) (24,386)
Extraordinary item ............................ 1,957 (3) -- -- -- --
-------- --------- --------- --------- --------
Net income (loss) ............................. $ 5,469 $(10,989) $(46,755) $(27,913) $(24,386)
========= ========= ========= ========= ========
Net income (loss) per share (4) ............... $ 0.30 $ (0.60) $ (2.55) $ (1.40) $ (1.02)
========== ========= ========= ========= ========
Weighted average number of common and
common equivalent shares outstanding ........ 18,363 18,272 18,352 19,910 23,987
========== ========= ========= ========== ========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working capital (deficiency) .................. $51,964 $40,923 $ 3,342 $(13,914) $(19,483)
Total assets .................................. 86,489 90,208 51,619 28,660 32,742
Short-term debt, including current portion
of long-term debt ........................... 9,910 17,504 21,365 18,698 26,077
Long-term debt ................................ 14,820 14,730 18,789 21,066 23,588
Stockholders' equity (deficiency) ............. 43,328 33,147 (13,614) (32,379) (40,610)
- -------------------
</TABLE>
(1) Includes, in fiscal 1994, $2.1 million for closing selected outlet
stores, $2.5 million for consolidation of office and warehouse space,
and $0.7 million for employee severance, and, in fiscal 1995, $1.2
million of employee severance.
(2) Includes, in fiscal 1994, expenses relating primarily to abandonment
of fixed assets, certain legal matters and the winding down of the
Company's Canadian joint venture, and in fiscal 1995, $7.8 million
primarily relating to the costs associated with the signing of the
Company's new Chief Executive Officer and $0.5 million related to
certain legal matters.
(3) Represents a benefit from the utilization of a net operating loss
carryforward.
(4) Computed by dividing net income (loss) by the weighted average number
of Common and Common Equivalent Shares outstanding during the years.
For the fiscal years ended 1993, 1994, 1995 and 1996, Common
Equivalent Shares were not included in the calculation as their
inclusion would have been antidilutive.
12
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
In 1992, the Company perceived a shift in demand in the women's retail
apparel industry toward lower price points. In order to sustain sales in a
difficult retail environment, the Company introduced new products at lower
prices to meet this perceived demand, thus altering its historic corporate
strategy of aiming toward the high end of "upper moderate" price points. As a
result of intense competition in this lower priced segment of the market, where
the Company had a limited operating history, sales of the Company's products
slowed, inventory levels increased and the Company was forced to sell a larger
portion of its products through off-price channels.
Toward the end of fiscal 1994, the Company initiated a major
restructuring of its operations in order to return to its historic product
positioning and regain profitability. The focus of the Company's restructuring
has been to strengthen its management team, reduce selling, general and
administrative expenses and reposition its product line. Andrew Grossman joined
the Company in September 1994 and implemented a product and pricing
repositioning strategy, most of the financial benefits of which the Company
expects to be realized in future periods. In anticipation of the repositioned
product lines and as a result of continued weak product demand, the Company has
limited the production of its product lines pending the return of adequate
demand. The impact of the restructuring on the Company's selling, general and
administrative expenses has been more immediate: selling, general and
administrative expenses decreased from $55.4 million in fiscal 1994 to $44.8 in
fiscal 1995 to $40.2 in fiscal 1996. Nearly half of this decrease resulted from
staff reductions throughout the Company from a high point of 1,009 in fiscal
1993 to 525 at the end of fiscal 1996. In addition, the Company decided to
close a number of its unprofitable outlet stores and does not intend to open
any new stores in the foreseeable future. In order to support the development
and growth of the Company's licensed Nautica product line, however, selling,
general and administrative expenses are expected to increase in subsequent
years as sales volume of the Company's licensed Nautica product line increases.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items
expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30
-------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales ...................................... 100.0% 100.0% 100.0%
Gross profit ................................... 9.6 17.9 13.2
Selling, general and administrative expenses ... 26.9 24.7 23.5
Restructuring expenses ......................... 2.6 0.7 --
Unusual expenses ............................... 0.9 4.6 --
Interest expense ............................... 1.7 3.3 3.8
Net loss ....................................... (22.7) (15.4) (14.3)
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
In fiscal 1996, net sales decreased by $11.2 million, or 6.1%,
compared to the prior year. Approximately $8.6 million is due to the decrease
in dress sales as a result of the discontinuation of dresses as a product
category. The sales decrease is also the result of lower sales at regular and
incentive prices combined with an increase in off-price sales at deeper
discounts than the prior year.
13
<PAGE>
Sales by the Company's outlet stores decreased by $5.7 million
compared to the prior year. This decrease is largely due to the closing of six
outlet stores in fiscal 1996 and a decline in same-store sales of approximately
$2.2 million.
Gross profit as a percentage of net sales was 13.2% as compared
to 17.9% for the previous year. The decrease in gross profit as a percentage of
net sales reflects the impact of increased off-price sales volume at deeper
discounts. The Company's dress division realized a negative gross margin of
$2.2 million for fiscal 1996 which adversely impacted gross profit as a
percentage of net sales.
Selling, general and administrative expenses decreased by $4.6
million, from 24.7% of net sales in fiscal 1995 to 23.5% of net sales in fiscal
1996. This decrease is due to a decrease in payroll and payroll related items
of approximately $2.7 million, a decrease in occupancy costs of $1.2 million
and a decrease in other expenses of $0.7 million. The decrease in payroll and
payroll related items was predominately due to a decrease of approximately $0.7
million as a result of the closing of six stores in fiscal 1996 and a decrease
of approximately $2.0 million due to employee reductions as the Company
continues to improve the efficiency of its operations. The decrease in
occupancy costs was primarily due to a $0.5 million decrease associated with
the consolidation of the distribution facility and a $0.5 million decrease due
to the reduction in outlet stores.
At the end of fiscal 1995 the balance of the restructuring
reserve was $2.8 million. During fiscal 1996 $2.6 million was charged against
the restructuring reserve, consisting of charges relating to consolidation of
warehouse and office space ($1.3 million), severance related costs ($0.8
million) and outlet store closing costs ($0.5 million). At June 30, 1996 the
balance in the restructuring reserve was $0.2 million.
Fiscal 1995 Compared to Fiscal 1994
In fiscal 1995, net sales decreased by $24.6 million, or 11.9%,
compared to the prior year. The decrease was primarily due to a general
reduction in production levels in most of the Company's product lines, in
addition to the elimination of its jeans line and curtailed international
operations. Net sales for fiscal 1995 included sales to off-price channels of
$40.4 million, compared to $91.3 million in fiscal 1994. Off-price sales as a
percentage of net sales declined from 44.3% in fiscal 1994 to 22.2% in fiscal
1995.
Sales by the Company's outlet stores increased by $1.1 million
compared to the prior year. The increase was primarily due to the impact of
full year sales by four outlet stores opened in fiscal 1994 and the incremental
impact of one store opened early in fiscal 1995, partially offset by the
closing of four outlet stores in fiscal 1995 and a 2.0% decline in same store
sales.
Gross profit as a percentage of net sales increased to 17.9% from 9.6%
as compared to the prior fiscal year. As discussed above, the increase, as a
percentage of net sales, resulted primarily from a lower percentage of
clearance and off-price sales in fiscal 1995 and also from the product
repositioning, which was partially offset by continued higher levels of
promotional allowances.
Selling, general and administrative expenses decreased by $10.6
million, from 26.9% of net sales in fiscal 1994 to 24.7% of net sales in fiscal
1995. This decrease was primarily attributable to the implementation of cost
reduction programs throughout the organization. Payroll and related costs
accounted for almost half of the decrease. Other areas with significant
decreases included freight, rent, cooperative advertising, professional fees,
and travel and entertainment.
In connection with the corporate restructuring program discussed
above, during the first quarter of fiscal 1995 the Company recorded
restructuring expenses of $1.2 million. These costs primarily related to
employee severance as the Company continued to reduce overhead costs. In
January 1995, the Company signed favorable early termination
14
<PAGE>
agreements with the landlords of certain retail outlet stores, for which the
Company had taken a reserve as part of its restructuring expenses at June 30,
1994. As a result, the Company was able to reduce the restructuring reserve,
accrued in 1994, by approximately $1.3 million. The benefit of this reduction
was offset by certain additional expenses provided for by the Company relating
to prospective continued restructuring of its retail and overseas operations.
During the first quarter of fiscal 1995, the Company recorded unusual
expenses of $7.8 million primarily related to the costs associated with the
signing of the Company's new Chief Executive Officer. During the fourth quarter
of fiscal 1995, the Company recorded $0.5 million in unusual expenses related
to certain legal matters.
Interest expense increased compared with the prior year, primarily due
to higher average bank borrowings at higher rates. In addition, in the third
and fourth quarters of fiscal 1995, the Company recorded non-cash charges of
$0.5 and $0.7 million, respectively, for the warrants issued for credit support
received from its principal stockholder. See "-- Financial Condition, Liquidity
and Capital Resources."
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
General
Net cash used in operating activities was $5.0 million in fiscal 1994,
$4.8 million in fiscal 1995, and $22.7 million in fiscal 1996. The net cash
used in operating activities in fiscal 1996 resulted primarily from the net
loss of $24.4 million, inclusive of $3.9 million of non-cash charges, increases
in inventory of $5.1 million and a decrease in accrued restructuring expenses
of $2.6 million, partially offset by an increase in accounts payable of $4.5
million. The increase in inventory and accounts payable is predominantly due to
an increase in merchandise in transit.
Historically, the Company has not required major capital expenditures.
In fiscal 1995 and 1996, purchases of fixed assets were $0.4 million and $0.5
million, respectively, consisting primarily of improvements in the Company's
New Jersey warehouse facilities, New York design and showroom facilities, and
additional computer and telecommunications equipment. In fiscal 1997, the
Company anticipates capital expenditures of approximately $0.5 million,
consisting primarily of expenditures for warehouse and New York City
facilities. The Company also anticipates expenditures of approximately $1.0
million for its Nautica designed in store shops.
Amended Financing Agreement
The Company and BNY Financial Corporation ("BNYF") entered into a
financing agreement in July 1991, which was amended and restated effective as
of February 21, 1995 and further amended, effective as of September 28, 1995
(the "September 1995 Amendment"), May 9, 1996 (the "May 1996 Amendment") and
September 17, 1996 (the "September 1996 Amendment") (collectively, the "Amended
Financing Agreement"). The Amended Financing Agreement provides the Company
with a $70 million credit facility for letters of credit and direct borrowings,
with a sublimit for loans and advances ranging between $40.0 and $56.0 million.
The amount of financing available is based upon a formula incorporating
eligible receivables and inventory, cash balances, other collateral and
permitted overadvances, all as defined in the Amended Financing Agreement. At
June 30, 1996, the Company had availability of approximately $0.2 million under
the Amended Financing Agreement. The Amended Financing Agreement is
collateralized by substantially all of the Company's assets, including accounts
receivable and inventory.
The Amended Financing Agreement contains certain financial covenants
including covenants limiting the Company's tangible net worth deficit and
working capital deficiency. In addition to a cap on personal property leases,
the Company is also prohibited from declaring or paying dividends or making
other distributions on its capital stock, with certain exceptions.
15
<PAGE>
Interest on direct borrowings is payable monthly at an annual rate
equal to the higher of (i) The Bank of New York's prime rate (8.25% at June 30,
1996) plus 0.5% (The Bank of New York prime rate plus 1.5% in the event the
Company's overadvance position exceeds the allowable overadvances) or (ii) the
Federal Funds Rate in effect plus 1% (Federal Funds Rate in effect plus 2% in
the event the Company's overadvance position exceeds the allowable
overadvances). There is a commitment fee of 0.375% of the unused portion of the
line, payable monthly, and letter of credit fees equal to 0.125% of the
outstanding letter of credit balance, payable monthly. The Amended Financing
Agreement requires the payment of minimum service charges of $0.6 million per
annum. In connection with the May 1996 Amendment, BNYF was paid a fee of
$25,000, and additional fees of $10,000 per month through December 1996 were
provided for, with BNYF agreeing to provide specified levels of overadvances up
to $10.0 million through the same period. In connection with the September 1996
Amendment, BNYF has agreed to provide overadvances of up to $15.0 million
through June 1997. The Company may terminate the Amended Financing Agreement
upon 90 days' prior written notice at any time, subject to termination fees.
BNYF may terminate after February 20, 1999, upon 60 days' written notice to the
Company.
Credit Support
Josephine Chaus has arranged for a letter of credit (the "Letter of
Credit") in various amounts since April 1994 in return for which BNYF has
increased the availability under the Amended Financing Agreement. In
consideration for credit support provided by Ms. Chaus to the Company prior to
February 1995, Ms. Chaus was granted 1,216,500 warrants (the "1994 Warrants"),
exercisable through November 22, 1999, at prices ranging between $2.25 to $4.62
per share. As part of the negotiations with BNYF in connection with the Amended
Financing Agreement, in February 1995 Josephine Chaus increased the Letter of
Credit to $10.0 million and extended its term to October 31, 1995 (the "February
1995 Increase/Extension"). In addition, in February 1995, Mrs. Chaus provided a
$5.0 million personal guarantee (the "$5.0 Million Guarantee"), to be in effect
during the Amended Financing Agreement's term. In September 1995, Ms. Chaus
further extended the term of the Letter of Credit to January 31, 1996 (the
"September 1995 Extension"). In consideration of the February 1995
Increase/Extension, the $5.0 Million Guarantee and the September 1995
Extension, a special committee consisting of disinterested members of the Board
of Directors of the Company (the "Special Committee") authorized the issuance
of warrants (the "1995 Warrants") to purchase an aggregate of 1,580,000 shares
of Common Stock at prices ranging between $4.05 and $6.75 per share. The
issuance of the 1995 Warrants was approved at the 1995 Annual Meeting of
Stockholders. The issuance of the 1994 Warrants, the warrants for the February
1995 Increase/Extension and the warrants for the $5.0 Million Guarantee were
recorded in fiscal 1995 at a value of $1.1 million, included as a charge to
interest expense with a corresponding increase to additional paid-in capital.
The issuance of the warrants for the September 1995 Extension was recorded in
the second quarter of fiscal 1996 at a value of $0.2 million, included as a
charge to interest expense with a corresponding increase to additional paid-in
capital. Ms. Chaus received warrant compensation for her provision of the $5.0
Million Guarantee only through October 31, 1995. Thereafter, for each three
month period of the $5.0 Million Guarantee, she has received cash compensation
of $50,000, as authorized by the Special Committee.
In connection with the September 1995 Amendment, Ms. Chaus provided
the Company with an option to further extend the Letter of Credit to July 31,
1996 (the "July 1996 Option"), subject to the consummation of the Company's
November 1995 public offering of Common Stock. In January 1996, the Company
exercised the July 1996 Option to extend the Letter of Credit to July 31, 1996
(the "July 1996 Extension"). In consideration of the July 1996 Extension, the
Special Committee authorized the issuance, subject to approval of the
stockholders of the Company at its November 14, 1996 Annual Meeting of
Stockholders, of warrants (the "1996 Warrants") to purchase an aggregate of
682,012 shares of Common Stock at a price of $4.20 per share. Because Ms. Chaus
possesses the power to vote more than 50% of the outstanding shares of Common
Stock, Ms. Chaus's affirmative vote in favor of the issuance of the 1996
Warrants to her is sufficient to approve such issuance without the vote of any
other stockholders. Ms. Chaus has advised the Company that she intends to vote
all of her shares in favor of such issuance. As a result, the Company reflected
the issuance of the 1996 Warrants at March 31, 1996. The value of the 1996
Warrants in the third quarter of fiscal 1996 at a value of $0.3 million and was
included as a charge to interest expense with a corresponding increase to
additional paid-in capital.
16
<PAGE>
In connection with the May 1996 Amendment, Ms. Chaus agreed to extend
the Letter of Credit to January 31, 1997 (the "January 1997 Extension") and
additionally provided a collateralized increase of $5.0 million in the $5.0
million Guarantee to $10.0 million (the "$10.0 Million Guarantee"). In
connection with the January 1997 Extension, the Special Committee approved the
payment of cash compensation to Ms. Chaus of $100,000 for each three month
period of the Letter of Credit as extended from July 31, 1996 to January 31,
1997. For her provision of the $10.0 Million Guarantee, the Special Committee
approved an increase in the amount of cash compensation payable to Ms. Chaus for
her guaranty, to $100,000 for each three month period of the $10.0 Million
Guarantee.
In connection with the September 1996 Amendment, Ms. Chaus agreed to
extend the Letter of Credit to July 31, 1997 (the "July 1997 Extension") and
increase the amount of the $10.0 Million Guarantee by $2.5 million to $12.5
million (the "$12.5 Million Guarantee") and fully collateralize the $12.5
Million Guarantee. In connection with the July 1997 Extension, the Special
Committee approved the payment of cash compensation to Ms. Chaus of $100,000
for each additional three month period of the Letter of Credit as extended from
January 31, 1997 to July 31, 1997. For her provision of the $12.5 Million
Guarantee, the Special Committee approved an increase in the amount of cash
compensation payable to Ms. Chaus for her guaranty, to $125,000 for each three
month period of the $12.5 Million Guarantee.
Issuance of Stock in Exchange for Debt
In September 1994, Josephine Chaus loaned $7.2 million to the Company
in exchange for subordinated promissory notes bearing interest at 12% per
annum. Proceeds of such cash infusion were used for costs and associated
expenses related to the signing of the Company's new Chief Executive Officer.
In November 1994, upon the request of the Special Committee, in order to
provide additional equity to the Company, to enhance the Company's balance
sheet and to accommodate BNYF, Josephine Chaus exchanged such subordinated
promissory notes, including accrued interest thereon of $0.2 million, for
1,914,500 shares of Common Stock (based upon a purchase price of $3.85 per
share). See Note 7 to Notes to the Company's Consolidated Financial Statements.
Subordinated Debt
The Company has outstanding at June 30, 1996, $23.6 million of
subordinated notes payable to Josephine Chaus (the "Subordinated Notes"). In
connection with the Company's November 1995 public offering (see "--Nautica
License Agreement and Future Financing Requirements"), Josephine Chaus extended
the maturity date of the Subordinated Notes (which were to mature on July 1,
1996) to July 1, 1998. The Company has been unable to pay principal or
interest, with certain exceptions, under the Subordinated Notes as a result of
covenants in the Amended Financing Agreement. See Note 7 to Notes to the
Company's Consolidated Financial Statements.
Letter of Credit Financing
In June 1995, the Company and a major trading company entered into a
sales and letter of credit financing agreement (the "S&F Agreement") providing
the Company with up to $2.0 million in short-term financing (subject to various
terms and conditions as defined in the S&F Agreement) for the production of its
products overseas and secured by such products and related intangible assets.
The S&F Agreement was terminated as of June 1996.
Nautica License Agreement
In September 1995, the Company entered into the Nautica License
Agreement, pursuant to which the Company will arrange for the manufacture of,
market, distribute and sell a new women's career and casual sportswear line
under the Nautica name. The Nautica License Agreement runs through December 31,
1999. The Company is required to devote at least $7.0 million to the
fulfillment of the Company's obligations under the Nautica License Agreement,
17
<PAGE>
including related capital expenditures. The Company's obligations also include
minimum royalty and advertising payments.
Under the Nautica License Agreement the Company was obligated to raise
$10.0 million in equity capital. On November 22, 1995, the Company consummated
an underwritten public offering of 5,750,000 shares of Common Stock at a price
of $3.00 per share. Net proceeds, after expenses and commissions of $1.8
million, were $15.4 million.
Future Financing Requirements
At June 30, 1996, the Company had a working capital deficiency of
$19.5 million. The Company requires the availability of sufficient cash flow
and borrowing capacity to finance its existing product lines and to develop and
market its licensed Nautica product lines. The Company expects to satisfy such
requirements through cash flow from operations, its line of credit under the
Amended Financing Agreement, and, in the near term, continued credit support
from Josephine Chaus. The Company anticipates that its future operations will
be financed in the same manner, but may also explore additional sources of
financing.
The Company will seek to satisfy its operating requirements without
utilizing additional credit support from Ms. Chaus, although there can be no
assurance that it will be successful in doing so. In September 1996, Ms. Chaus
increased her credit support by providing the July 1997 Extension and the $12.5
Million Guarantee. In consideration for her credit support, BNYF has provided
the Company with specified levels of overadvances up to a maximum of $15.0
million through June 30, 1997. The Company has no understanding with Ms. Chaus
pursuant to which Ms. Chaus would extend the Letter of Credit beyond July 31,
1997. In addition, although BNYF historically has waived compliance with
certain covenants and permitted certain overadvances and has, pursuant to the
September 1996 Amendment, agreed to relax such covenants and permit specified
levels of overadvances through June 30, 1997, there can be no assurance that it
will continue to do so in the future. Moreover, growth of the Company's
existing product lines and/or the development of the Company's licensed Nautica
product line could increase the amount of the potential shortfall in borrowing
availability after the current fiscal year.
INFLATION
The Company does not believe that the relatively moderate rates of
inflation which recently have been experienced in the United States, where it
competes, have had a significant effect on its net sales or profitability.
SEASONALITY
Historically, the Company's sales and operating results fluctuate by
quarter, with the greatest sales occurring in the Company's first and third
fiscal quarters. It is in these quarters that the Company's Fall and Spring
product lines, which traditionally have had the highest volume of net sales,
are shipped to customers, with revenues generally being recognized at the time
of shipment. As a result, the Company experiences significant variability in
its quarterly results and working capital requirements. Moreover, delays in
shipping can cause revenues to be recognized in a later quarter, resulting in
further variability in such quarterly results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements are included herein commencing on page F-1.
18
<PAGE>
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 with respect to the executive officers of the Company is
set forth in Part I of this Annual Report on Form 10-K.
Information with respect to the directors of the Company is
incorporated by reference to the information to be set forth under the heading
"Election of Directors" in the Company's definitive proxy statement relating to
its 1996 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A
(the "Company's 1996 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION.
Information called for by Item 11 is incorporated by reference to the
information to be set forth under the heading "Executive Compensation" in the
Company's 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information called for by Item 12 is incorporated by reference to the
information to be set forth under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Company's 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by Item 13 is incorporated by reference to the
information to be set forth under the headings "Executive Compensation" and
"Certain Transactions" in the Company's 1996 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Financial Statements and Financial Statement Schedule: See
List of Financial Statements and Financial Statement Schedule on page F-1.
(b) The Company did not file a Form 8-K during the last quarter of its
fiscal year ended June 30, 1996.
(c) Exhibits filed herewith are denoted by an (*):
19
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3.1 Restated Certificate of Incorporation (the "Restated Certificate") of
the Company (incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, Registration No. 33-5954 (the
"1986 Registration Statement").
3.11 Amendment dated November 18, 1987 to the Restated Certificate
(incorporated by reference to Exhibit 3.11 of the Company's
Registration Statement on Form S-2, Registration No. 33-63317 (the
"1995 Registration Statement").
3.12 Amendment dated November 15, 1995 to the Restated Certificate
(incorporated by reference to Exhibit 3.12 of Amendment No. 1 to the
1995 Registration Statement).
3.2 By-Laws of the Company, as amended (incorporated by reference to
Exhibit 3.1 of the Company's Form 10-Q for the quarter ended December
31, 1987).
3.3 Amendment dated September 13, 1994 to the By-Laws (incorporated by
reference to Exhibit 10.105 of the Company's Form 10-Q for the quarter
ended September 30, 1994).
10.1 Restricted Stock Purchase Plan (incorporated by reference to Exhibit
10.1 of the Company's Form 10-K for the year ended June 30, 1987).
10.2 1986 Stock Option Plan, as amended and restated as of January 1, 1987
(the "1986 Stock Option Plan") (incorporated by reference to Exhibit
10.2 of the Company's Form 10-K for the year ended July 1, 1989 (the
"1989 Form 10-K")).
10.3 Amendment No. 1 to the 1986 Stock Option Plan (incorporated by
reference to Exhibit 10.3 of the 1989 Form 10-K).
10.4 Amendment No. 2 to the 1986 Stock Option Plan (incorporated by
reference to the Company's Proxy Statement for its 1990 Annual Meeting
of Stockholders).
10.5 Amendment No. 3 to the 1986 Stock Option Plan (incorporated by
reference to the Company's Proxy Statement for its 1991 Annual Meeting
of Stockholders).
10.6 Amendment No. 4 to the 1986 Stock Option Plan (incorporated by
reference to the Company's Proxy Statement for its 1993 Annual Meeting
of Stockholders).
10.7 Amendment Number 5 to the 1986 Stock Option Plan as amended
(incorporated by reference to the Company's Proxy Statement for its
1995 Annual Meeting of Stockholders).
10.8 Incentive Award Plan (incorporated by reference to Exhibit 10.6 of the
1986 Registration Statement).
10.9 Agreement dated December 3, 1990 among the Company, Bernard Chaus,
Josephine Chaus and National Union Fire Insurance Company of
Pittsburgh, Pa., the Company's
</TABLE>
20
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directors and officers liability carrier (incorporated by reference to
Exhibit 10.31 of the Company's Form 10-Q for the quarter ended
December 31, 1990).
10.10 Employment Agreement, dated July 1, 1991, between the Company and
Josephine Chaus (incorporated by reference to Exhibit 10.39 of the
Company's Form 10-K for the year ended June 30, 1991).
10.11 Employment Agreement dated June 3, 1994 between the Company and Wayne
Miller (incorporated by reference to Exhibit 10.89 of the Company's
Form 10-K for the year ended June 30, 1994 (the "1994 Form 10-K")).
10.12 Employment Agreement dated September 1, 1994 between the Company and
Andrew Grossman with Stock Option Agreement dated as of September 1,
1994 by and between the Company and Andrew Grossman (incorporated by
reference to Exhibit 10.90 of the 1994 Form 10-K).
10.13 Employment Agreement dated December 14, 1996 between the Company and
Michael Winter (incorporated by reference to Exhibit 10.68 of the
Company's Form 10-Q for the quarter ended December 31, 1995 (the
"December 1995 Form 10-Q").
10.14 Waiver dated September 23, 1993 to the Restated and Amended Financing
Agreement between the Company and BNY Financial Corporation (the
"Financing Agreement") effective July 1, 1992 (incorporated by
reference to Exhibit 10.82 of the Company's Form 10-K for the year
ended June 30, 1993 (the "1993 form 10-K).
10.15 Waiver dated November 5, 1993 to the Financing Agreement (incorporated
by reference to Exhibit 10.83 of the Company's Form 10-Q for the
quarter ended September 30, 1993).
10.16 Amendment, effective October 1, 1993, to the Financing Agreement
(incorporated by reference to Exhibit 10-84 of the Company's Form 10-Q
for the quarter ended December 31, 1993 (the "December 1993 Form
10-Q")).
10.17 Waiver dated January 13, 1994 to the Financing Agreement (incorporated
by reference to Exhibit 10.85 of the December 1993 Form 10-Q).
10.18 Waiver dated February 10, 1994 to the Financing Agreement
(incorporated by reference to Exhibit 10.86 of the December 1993 Form
10-Q).
10.19 Waiver dated May 4, 1994 to the Financing Agreement (incorporated by
reference to Exhibit 10.87 of the Company's Form 10-Q for the quarter
ended March 31, 1994).
10.20 Waiver dated September 20, 1994 to the Financing Agreement
(incorporated by reference to Exhibit 10.93 of the 1994 Form 10-K).
</TABLE>
21
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10.21 Agreement, dated June 15, 1988, between the Company and Bernard Chaus
and Josephine Chaus, amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of
$7,365,000, the form of which was filed as Exhibit 10.13 of the 1986
Registration Statement (incorporated by reference to Exhibit 10.11 of
the Company's Form 10-K for the year ended July 2, 1988).
10.22 Agreement, dated May 17, 1990, between the Company and Bernard Chaus
and Josephine Chaus amending the terms of the Company's subordinated
promissory notes to each of them, each in the principal amount of
$7,365,000, the form of which was filed as Exhibit 10.13 of the 1986
Registration Statement.
10.23 Agreement, dated February 21, 1991, between the Company and Bernard
Chaus and Josephine Chaus amending the terms of the Company's
subordinated promissory notes to each of them, each in the principal
amount of $7,365,000 (incorporated by reference to Exhibit 10.74 of
the 1993 Form 10-K).
10.24 Subordinated promissory notes, dated March 12, 1991, between the
Company and Bernard Chaus and Josephine Chaus, separately, each in the
amount of $5,000,000 (incorporated by reference to Exhibit 10.75 of
the 1993 Form 10-K).
10.25 Agreement, dated July 31, 1991, between the Company and the Estate of
Bernard Chaus and Josephine Chaus amending the terms of the Company's
subordinated promissory notes to each of them, each in the principal
amount of $7,365,000 (incorporated by reference to Exhibit 10.76 of
the 1993 Form 10-K).
10.26 Agreement, dated July 31, 1991, between the Company and the Estate of
Bernard Chaus and Josephine Chaus amending the terms of the Company's
subordinated promissory notes to each of them, each in the principal
amount of $5,000,000 (incorporated by reference to Exhibit 10.77 of
the 1993 Form 10-K).
10.27 Agreement, dated July 15, 1992, between the Company and the Estate of
Bernard Chaus and Josephine Chaus amending the terms of the Company's
subordinated promissory notes to each of them, each in the principal
amount of $5,000,000 (incorporated by reference to Exhibit 10.78 of
the 1993 Form 10-K).
10.28 Agreement, dated October 30, 1992, between the Company and the Estate
of Bernard Chaus and Josephine Chaus amending the terms of the
Company's subordinated promissory notes to each of them, each in the
principal amount of $7,365,000 (incorporated by reference to Exhibit
10.79 of the 1993 Form 10-K).
10.29 Demand Notes, dated June 30, 1993, between the Company and the Estate
of Bernard Chaus and Josephine Chaus, each in the principal amount of
$1,520,216 (incorporated by reference to Exhibit 10.80 of the 1993
Form 10-K).
10.30 Agreement, dated September 21, 1993, between the Company and the
Estate of Bernard Chaus and Josephine Chaus amending the terms of the
Company's
</TABLE>
22
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subordinated promissory notes to each of them, each in the principal
amount of $7,365,000 (incorporated by reference to Exhibit 10.81 of
the 1993 Form 10-K).
10.31 Subordinated promissory notes, dated August 1, 1993, between the
Company and Josephine Chaus and the Estate of Bernard Chaus,
separately, each in the amount of $208,716 (incorporated by reference
to Exhibit 10.94 of the 1994 Form 10-K).
10.32 Subordinated promissory note, dated August 1, 1993, between the
Company and Josephine Chaus in the amount of $1,311,500 (incorporated
by reference to Exhibit 10.95 of the 1994 Form 10-K.)
10.33 Subordinated Promissory Note, dated August 1, 1993, between the
Company and the Estate of Bernard Chaus in the amount of $1,000,000
(incorporated by reference to Exhibit 10.96 of the 1994 Form 10-K).
10.34 Subordinated promissory note, dated August 1, 1993, between the
Company and the Estate of Bernard Chaus, in the amount of $311,500
(incorporated by reference to Exhibit 10.97 of the 1994 Form 10-K).
10.35 Subordinated promissory notes, dated December 31, 1993, between the
Company and Josephine Chaus and the Estate of Bernard Chaus,
separately, each in the amount of $181,056 (incorporated by reference
to Exhibit 10.98 of the 1994 Form 10-K).
10.36 Subordinated promissory notes, dated December 31, 1993, between the
Company and Josephine Chaus and the Estate of Bernard Chaus,
separately, each in the amount of $412,950 (incorporated by reference
to Exhibit 10.99 of the 1994 Form 10-K).
10.37 Agreements, dated September 9, 1993, between the Company and Josephine
Chaus and the Estate of Bernard Chaus, separately, reflecting
amendments to subordinated promissory notes, each in the principal
amount of $5,000,000 (incorporated by reference to Exhibit 10.100 of
the 1994 Form 10-K).
10.38 Agreements, dated October 18, 1993, between the Company and Josephine
Chaus and the Estate of Bernard Chaus, separately, reflecting
amendments to subordinated promissory notes, each in the principal
amount of $1,520,216 (incorporated by reference to Exhibit 10.101 of
the 1994 Form 10-K).
10.39 Agreements, dated October 18, 1993, between the Company and Josephine
Chaus and the Estate of Bernard Chaus, separately, reflecting
amendments to subordinated promissory notes, each in the principal
amount of $7,365,000 (incorporated by reference to Exhibit 10.102 of
the 1994 Form 10-K).
10.40 Agreement, dated December 31, 1993, between the Company and Josephine
Chaus reflecting amendments to a subordinated promissory note in the
principal amount of $1,311,500 (incorporated by reference to Exhibit
10.103 of the 1994 Form 10-K).
</TABLE>
23
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10.41 Agreement, dated December 31, 1993, between the Company and the Estate
of Bernard Chaus, reflecting amendments to subordinated promissory
notes, in the principal amounts of $1,000,000 and $311,500
(incorporated by reference to Exhibit 10.104 of the 1994 Form 10-K).
10.42 Agreement, dated November 9, 1994, between the Company and Josephine
Chaus extending the due dates on subordinated promissory notes
(incorporated by reference to Exhibit 10.107 of the Company's Form
10-Q for the quarter ended September 30, 1994 (the "September 1994
Form 10-Q")).
10.43 Agreement, dated November 9, 1994, between the Company and the Estate
of Bernard Chaus extending the due dates on subordinated promissory
notes (incorporated by reference to Exhibit 10.108 of the September
1994 Form 10-Q).
10.44 Agreement, dated December 19, 1994, assigning the subordinated notes
from the Estate of Bernard Chaus to Josephine Chaus (incorporated by
reference to Exhibit 10.110 of the Company's Form 10-Q for the quarter
ended December 30, 1994 (the "December 1994 Form 10-Q").
10.45 Agreement, dated January 11, 1995, between the Company and Josephine
Chaus extending the due dates on subordinated promissory notes
(incorporated by reference to Exhibit 10.111 of the December 1994 Form
10-Q).
10.46 Agreement, dated November 22, 1994, between the Company and Josephine
Chaus issuing 32,500 warrants to purchase Common Stock of the Company
(incorporated by reference to Exhibit 10.112 of the Company's Form
10-Q for the quarter ended March 31, 1995 (the "March 1995 Form
10-Q")).
10.47 Agreement, dated November 22, 1994, between the Company and Josephine
Chaus issuing 206,000 warrants to purchase Common Stock of the Company
(incorporated by reference to Exhibit 10.113 of the March 1995 Form
10-Q).
10.48 Agreement, dated November 22, 1994, between the Company and Josephine
Chaus issuing 338,000 warrants to purchase Common Stock of the Company
(incorporated by reference to Exhibit 10.114 of the March 1995 Form
10-Q).
10.49 Agreement, dated November 22, 1994, between the Company and Josephine
Chaus issuing 640,000 warrants to purchase Common Stock of the Company
(incorporated by reference to Exhibit 10.115 of the March 1995 Form
10-Q).
10.50 Waiver dated November 7, 1994, to the Financing Agreement
(incorporated by reference to Exhibit 10.106 of the September 1994
Form 10-Q).
10.51 Waiver dated February 10, 1995 to the Financing Agreement
(incorporated by reference to Exhibit 10.109 of the December 1994 Form
10-Q).
</TABLE>
24
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10.52 Agreement effective February 21, 1995 (the "Amended Financing
Agreement") between the Company and BNY Financial Corporation
restating and amending the Financing Agreement (incorporated by
reference to Exhibit 10.116 of the March 1995 Form 10-Q).
10.53 Waiver dated September 14, 1995 to the Amended Financing Agreement
(incorporated by reference to Exhibit 10.5 of the 1995 Registration
Statement).
10.54 Agreement effective as of September 28, 1995 relating to the Amended
Financing Agreement (incorporated by reference to Exhibit 10.58 of the
1995 Registration Statement).
10.55 Agreement dated April 28, 1995 between the Company and Josephine Chaus
extending the due dates on subordinated promissory notes (incorporated
by reference to Exhibit 10.117 of the March 1995 Form 10-Q).
10.56 Agreement dated September 8, 1995 between the Company and Josephine
Chaus extending the due dates on subordinated promissory notes
(incorporated by reference to Exhibit 10.60 of the 1995 Registration
Statement).
10.57 License Agreement dated as of September 6, 1995 between the Company
and Nautica Apparel Inc. (incorporated by reference to Exhibit 10.61
of the 1995 Registration Statement, confidential portions of which
have been omitted and filed separately with the Commission subject to
an order granting confidential treatment).
10.58 Agreement dated October 9, 1995, between the Company and Josephine
Chaus, extending the due dates on subordinated promissory notes and
clarifying the subordination provision (incorporated by reference to
Exhibit 10.65 of the 1995 Registration Statement).
10.59 Agreement dated October 9, 1995, between the Company and Josephine
Chaus, providing the Company with an option to extend the Letter of
Credit to July 31, 1996 (incorporated by reference to Exhibit 10.66 of
the 1995 Registration Statement).
10.60 Agreement dated October 27, 1995 between the Company and Josephine
Chaus extending the due dates on subordinated promissory notes
(incorporated by reference to Exhibit 10.67 of the Company's Form 10-Q
for the quarter ended September 30, 1995).
10.61 Agreement dated November 15, 1995 between the Company and Josephine
Chaus issuing 815,000 warrants to purchase Common Stock of the Company
(incorporated by reference to Exhibit 10.69 of the December 1995 Form
10-Q).
10.62 Agreement dated November 15, 1995 between the Company and Josephine
Chaus issuing 535,000 warrants to purchase Common Stock of the Company
(incorporated by reference to Exhibit 10.70 of the December 1995 Form
10-Q).
</TABLE>
25
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10.63 Agreement dated November 15, 1995 between the Company and Josephine
Chaus issuing 230,000 warrants to purchase Common Stock of the Company
(incorporated by reference to Exhibit 10.71 of the December 1995 Form
10-Q).
10.64 Amendment and waiver dated May 9, 1996 to the Financing Agreement
(incorporated by reference to Exhibit 10.73 of the Company's Form 10-Q
for the quarter ended March 31, 1996).
*10.65 Amendment No. 4 dated September 17, 1996 to the Financing Agreement.
*10.66 Lease dated June 12, 1996 between the Company and L. H. Charney
Associates, relating to the Company's facility at 1410 Broadway, New
York, New York.
21 List of Subsidiaries of the Company (incorporated by reference to
Exhibit 21 of the Company's Form 10-K for the year ended June 30,
1995).
*27 Financial Data Schedule.
</TABLE>
- -----------------------
* Filed herewith.
26
<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 Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, on
September 27, 1996.
BERNARD CHAUS, INC.
By: /s/ Josephine Chaus
---------------------------
Josephine Chaus
Chairwoman of the Board and
Office of the Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities indicated, on September 27,
1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/S/ Josephine Chaus Chairwoman of the Board and Office of the Chairman
- --------------------------
Josephine Chaus
/S/ Andrew Grossman Chief Executive Officer and Office of the Chairman
- --------------------------
Andrew Grossman
/S/ Wayne S. Miller Executive Vice President -- Finance and Administration,
- --------------------------
Wayne S. Miller Chief Financial Officer & Secretary
/S/ Barton Heminover Vice President -- Corporate Controller and Assistant
- --------------------------
Barton Heminover Secretary
/S/ Philip G. Barach Director
- --------------------------
Philip G. Barach
/S/ S. Lee Kling Director
- --------------------------
S. Lee Kling
/S/ Harvey M. Krueger Director
- --------------------------
Harvey M. Krueger
</TABLE>
27
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of Bernard Chaus, Inc. and
subsidiaries are included in Item 8:
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors ................................................................... F-2
Consolidated Balance Sheets--June 30, 1995 and 1996 .............................................. F-3
Consolidated Statements of Operations--Years Ended June 30, 1994, 1995 and 1996 .................. F-4
Consolidated Statements of Stockholders' Equity (Deficiency)---
Years Ended June 30, 1994, 1995 and 1996 ...................................................... F-5
Consolidated Statements of Cash Flows--Years Ended June 30, 1994, 1995 and 1996 .................. F-6
Notes to Consolidated Financial Statements ....................................................... F-7
The following consolidated financial statement schedule of Bernard Chaus, Inc. and subsidiaries is included
in Item 14(a)(2):
Schedule II -- Valuation and Qualifying Accounts ............................................... S-1
</TABLE>
The other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Bernard Chaus, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Bernard Chaus,
Inc. and subsidiaries as of June 30, 1995 and June 30, 1996 and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for each of the three years in the period ended June 30, 1996. Our audits also
included the financial statement schedule listed in the Index at item 14(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Bernard Chaus, Inc. and
subsidiaries at June 30, 1995 and June 30, 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
New York, New York
September 6, 1996
(September 17, 1996 as to Note 6)
F-2
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares)
<TABLE>
<CAPTION>
June 30, June 30,
1995 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .................................................. $ 418 $ 247
Accounts receivable, less allowances of $4,226 and $5,070 .................. 7,646 7,995
Inventories ................................................................ 16,203 21,256
Prepaid expenses ........................................................... 1,523 783
--------- ---------
Total current assets .................................................... 25,790 30,281
Fixed assets -- net .......................................................... 2,392 1,898
Other assets ................................................................. 478 563
--------- ---------
$ 28,660 $ 32,742
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Notes payable -- bank ...................................................... $ 18,698 $ 26,077
Accounts payable ........................................................... 12,922 17,435
Accrued expenses ........................................................... 5,549 6,056
Accrued restructuring expenses ............................................. 2,535 196
--------- ---------
Total current liabilities ............................................... 39,704 49,764
Subordinated promissory notes ................................................ 21,066 23,588
Accrued restructuring expenses ............................................... 269 --
--------- ---------
61,039 73,352
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.01 par value, authorized shares -- 1,000,000; outstanding
shares -- none
Common stock, $.01 par value; authorized shares -- 50,000,000; issued shares
-- 21,073,081 at June 30, 1995 and 26,893,724 at June 30, 1996 .......... 211 269
Additional paid-in capital ................................................. 49,353 65,450
Deficit .................................................................... (80,463) (104,849)
Less: Treasury stock, at cost -- 622,700 shares ........................... (1,480) (1,480)
--------- ---------
Total stockholders' deficiency .......................................... (32,379) (40,610)
--------- ---------
$ 28,660 $ 32,742
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales .................................. $ 206,332 $ 181,697 $ 170,575
Cost of goods sold ......................... 186,594 149,097 147,994
------------ ------------ ------------
Gross profit ............................... 19,738 32,600 22,581
Selling, general and administrative expenses 55,400 44,794 40,162
Restructuring expenses ..................... 5,300 1,200 --
Unusual expenses ........................... 1,900 8,333 --
------------ ------------ ------------
(42,862) (21,727) (17,581)
Interest expense ........................... (3,439) (5,976) (6,560)
Other income (expense), net ................ (190) 91 56
------------ ------------ ------------
Loss before provision for income taxes ..... (46,491) (27,612) (24,085)
Provision for income taxes ................. 264 301 301
------------ ------------ ------------
Net loss ................................... $ (46,755) $ (27,913) $ (24,386)
============ ============ ============
Net loss per share ......................... $ (2.55) $ (1.40) $ (1.02)
============ ============ ============
Weighted average number of common shares
outstanding .............................. 18,352,000 19,910,000 23,987,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(In thousands, except number of shares)
Common Stock Treasury Stock
----------------------- Additional Retained -------------------------
Number of Paid-in Earnings Number of
Shares Amount Capital (Deficit) Shares Amount Total
------- ------ --------- ----------- ------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1,1993 18,975,031 $190 $40,232 $ (5,795) 622,700 $(1,480) $ 33,147
Net loss ................ -- -- -- (46,755) -- -- (46,755)
Restricted stock purchase
and retirement-- net... -- -- (6) -- -- -- (6)
------------ ---- ------- -------- -------- ------ ---------
Balance at June 30, 1994 18,975,031 190 40,226 (52,550) 622,700 (1,480) (13,614)
Net loss ................ (27,913) (27,913)
Exchange of notes for
common stock .......... 1,914,500 19 7,352 -- -- -- 7,371
Issuance of warrants .... -- -- 1,136 -- -- -- 1,136
Exercise of stock options 183,550 2 639 -- -- -- 641
---------- ------ ------- ------- ------- ------ --------
Balance at June 30, 1995.. 21,073,081 211 49,353 (80,463) 622,700 (1,480) (32,379)
Net loss .................. (24,386) (24,386)
Net proceeds from issuance
of common stock.......... 5,750,000 57 15,366 -- -- -- 15,423
Issuance of warrants ...... -- -- 520 -- -- -- 520
Exercise of stock options . 70,643 1 211 212
------------ ----- --------- ---------- ---------- --------- --------
Balance at June 30, 1996 26,893,724 $269 $65,450 $(104,849) 622,700 $(1,480) $(40,610)
========== ==== ======= ========= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
BERNARD CHAUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended June 30,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Operating Activities
Net loss ............................................................................. $(46,755) $(27,913) $(24,386)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ...................................................... 2,485 1,305 974
Loss on disposal of fixed assets ................................................... 1,192 358 --
Provision for (recovery of) losses on accounts
receivable ....................................................................... 117 225 (69)
Deferred interest on subordinated promissory
notes ............................................................................ 2,436 2,277 2,522
Non-cash interest expense .......................................................... -- 1,307 520
Changes in operating assets and liabilities:
Accounts receivable .............................................................. 12,688 9,886 (280)
Inventories ...................................................................... 20,471 9,300 (5,053)
Prepaid expenses and other assets ................................................ 2,094 2,278 655
Accounts payable ................................................................. (5,199) (1,368) 4,513
Accrued expenses ................................................................. 1,372 (1,161) 507
Accrued restructuring expenses ................................................... 4,079 (1,275) (2,608)
-------- -------- --------
Net Cash Used In Operating Activities .................................................. (5,020) (4,781) (22,705)
-------- -------- --------
Investing Activities
Purchases of fixed assets ............................................................ (1,357) (443) (480)
-------- -------- --------
Net Cash Used In Investing Activities .................................................. (1,357) (443) (480)
Financing Activities
Net proceeds from (repayments of) short-term bank
borrowings ......................................................................... 6,234 (2,417) 7,379
Net proceeds from issuance of stock .................................................. -- -- 15,423
Principal payments on subordinated promissory
notes .............................................................................. (750) (250) --
Proceeds from issuance of subordinated promissory
notes .............................................................................. -- 7,200 --
Purchase and retirement of restricted stock .......................................... (6) -- --
Net proceeds from exercise of options ................................................ -- 641 212
-------- -------- --------
Net Cash Provided by Financing Activities .............................................. 5,478 5,174 23,014
-------- -------- --------
Decrease In Cash And Cash Equivalents .................................................. (899) (50) (171)
Cash and Cash Equivalents, Beginning of Year ........................................... 1,367 468 418
-------- -------- --------
Cash and Cash Equivalents, End of Year ................................................. $ 468 $ 418 $ 247
======== ======== ========
Cash paid for:
Taxes ................................................................................ 61 7 14
Interest ............................................................................. 1,413 2,283 3,809
Supplemental schedule of non-cash financing activities:
Exchange of subordinated promissory notes for
common stock ..................................................................... -- 7,200 --
Issuance of warrants for credit support by
principal stockholder ............................................................ -- 1,136 520
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
Bernard Chaus, Inc. (the Company) designs, arranges for the
manufacture of and markets an extensive range of women's career and casual
sportswear and dresses which are marketed principally under the CHAUS(Registered
Trademark), CHAUS SPORT(Registered Trademark), and NAUTICA(Registered Trademark)
trademarks. The Company's products are sold nationwide through department store
chains, specialty retailers and other retail outlets.
In the latter part of fiscal 1994, the Company initiated a
restructuring plan which entailed several initiatives to improve its financial
position. These initiatives included, among other things, a $7.2 million cash
infusion from Josephine Chaus to fund the costs associated with hiring Andrew
Grossman as its new Chief Executive Officer, negotiation of a new bank
financing agreement (the Amended Financing Agreement--see Note 6) with BNY
Financial Corporation, a wholly owned subsidiary of The Bank of New York
(BNYF), expiring in February 1999, overhead reductions, centralization of
certain functions, closing of selected outlet stores.
In conjunction with the Amended Financing Agreement, Josephine Chaus
has provided BNYF with collateral in the form of a $10 million letter of credit
(the Letter of Credit) which expires on July 31, 1997, and a $12.5 million
personal guarantee for the duration of the Amended Financing Agreement.
On November 22, 1995, the Company issued 5,750,000 shares of Common
Stock at a price of $3.00 per share in an underwritten public offering.
Proceeds from the offering, net of commissions and other expenses were $15.4
million.
During fiscal 1996, operating expenses were reduced by $4.6 million.
The Company closed six outlet stores during fiscal 1996 and plans to close
three additional outlet stores during fiscal 1997.
The Company's business plan requires the availability of sufficient
cash flow and borrowing capacity to finance its existing product lines and the
development and marketing of its new licensed Nautica lines. The Company
expects to satisfy such requirements through cash flow from operations, its
line of credit under the Amended Financing Agreement, and, in the near term,
continued credit support from Josephine Chaus. The Company will seek to satisfy
its operating requirements without utilizing additional credit support from Ms.
Chaus, although there can be no assurance that it will be successful in doing
so. The Company has no understanding with Ms. Chaus pursuant to which she would
extend the Letter of Credit beyond July 31, 1997.
Although there can be no assurance that the plans set forth above will
provide the Company with adequate resources, the Company believes that these
initiatives will have a positive impact on future operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Material intercompany accounts and transactions
have been eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure
F-7
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Net Loss Per Share:
Net loss per share has been computed by dividing the applicable net
loss by the weighted average number of common shares outstanding during the
year. Common equivalent shares were not included as their inclusion would have
been antidilutive.
Revenue Recognition:
Revenues are recorded at the time merchandise is shipped, and with
regard to the outlet stores, at the time when goods are sold to the customer.
Credit Terms:
The Company extends credit to its customers based upon an evaluation
of the customer's financial condition and credit history and generally does not
require collateral. The Company has historically incurred minimal credit
losses. At June 30, 1995 and 1996, approximately 44.7% and 59.4%, respectively,
of the Company's accounts receivable balances were due from department store
customers owned by three single corporate entities. Sales to these three
entities comprised approximately 16%, 14%, and 9%, respectively, of the
Company's net sales for fiscal 1994, approximately 23%, 13% and 7%,
respectively, of the Company's net sales for fiscal 1995, and approximately
29%, 16% and 10%, respectively, of the Company's net sales for fiscal 1996.
Cash Equivalents:
Cash equivalents are short-term, highly liquid investments purchased
with an original maturity of three months or less.
Inventories:
Inventories are stated at the lower of cost, using the first-in,
first-out method, or market.
Fixed Assets:
Furniture and equipment are depreciated principally using the
straight-line method over eight years. Leasehold improvements are amortized
using the straight-line method over either the term of the lease or the
estimated useful life of the improvement, whichever period is shorter. Computer
software is depreciated using the straight-line method over three years.
Foreign Currency Transactions:
The Company negotiates substantially all of its purchase orders with
foreign manufacturers in United States dollars. The Company considers the
United States dollar to be the functional currency of its overseas
subsidiaries. All foreign currency gains and losses are recorded in the
Consolidated Statement of Operations.
F-8
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income Taxes:
The Company records income taxes in accordance with Financial
Accounting Standards Board Statement SFAS No. 109, "Accounting for Income
Taxes". Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to enter into the determination of
taxable income (loss).
Fair Value of Financial Instruments
For financial instruments, including cash and cash equivalents,
accounts receivable and payable, accruals and notes payable -- bank, it was
assumed that the carrying amounts approximated fair value due to their short
maturity.
It is not practicable to determine the fair value of the subordinated
debt with the principal shareholder as alternative sources of financing have
not been evaluated by the Company.
Effect of Accounting Pronouncements Not Yet Adopted:
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of". Adoption of this statement, which is effective for
years beginning after December 15, 1995, is not expected to have a material
impact on the Company's consolidated financial condition or results of
operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation". The statement, which is
effective for years beginning after December 15, 1995, requires expanded
disclosures of stock-based compensation arrangements and encourages, but does
not require, compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply the provisions of APB Opinion No 25, which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The Company has
not yet determined if it will adopt the accounting provisions of SFAS No. 123
or only the disclosure provision. Additionally, the Company has not yet
determined what the impact of adopting the accounting provisions of SFAS No.
123 would be on the consolidated results of operations of the Company.
3. INVENTORIES
Inventories consist of: JUNE 30, JUNE 30,
1995 1996
------- -------
(IN THOUSANDS)
Finished goods ............ $13,248 $18,151
Work-in-process ........... 2,034 1,471
Raw materials ............. 921 1,634
------- -------
$16,203 $21,256
======= =======
Inventories include merchandise in transit (principally finished goods) of
approximately $4.8 million at June 30, 1995 and $9.0 million at June 30, 1996.
F-9
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FIXED ASSETS
Fixed assets at cost, net of accumulated depreciation and amortization, consist
of:
JUNE 30, JUNE 30,
1995 1996
-------- -------
(IN THOUSANDS)
Furniture and equipment ......................... $11,878 $10,234
Leasehold improvements .......................... 8,251 8,118
------- -------
$20,129 $18,352
Less accumulated depreciation and amortization .. 17,737 16,454
------- -------
$ 2,392 $ 1,898
======= =======
5. INCOME TAXES
Significant components of the Company's net deferred tax assets are as follows:
JUNE 30, JUNE 30,
1995 1996
---------- --------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards ................ $ 25,700 $ 38,200
Costs capitalized to inventory for tax purposes . 1,200 900
Accrued interest, subordinated debt/warrants .... 2,400 3,000
Book over tax depreciation ...................... 2,100 1,900
Sales allowances not currently deductible ....... 2,200 1,600
Reserves and other items not currently deductible 600 1,200
-------- --------
34,200 46,800
Valuation allowance for deferred tax assets ....... (34,200) (46,800)
-------- --------
Net deferred tax asset ............................ $ 0 $ 0
======== ========
There was a change in the valuation allowance for the year ended June 30, 1996
of $12.6 million.
FISCAL YEAR ENDED JUNE 30,
--------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS)
Benefit for federal
income taxes at the statutory rate of
35.0% in each of 1994, 1995 and 1996 ($16,272) ($ 9,665) ($ 8,430)
State and local income taxes
net of federal tax benefit .......... 264 301 301
Executive compensation in excess of
amount deductible for tax purposes .. -- 2,100 --
Other ................................. -- 35 35
Effect of unrecognized tax loss
carryforwards ....................... 16,272 7,530 8,395
-------- -------- --------
Provision for income taxes ............ $ 264 $ 301 $ 301
======== ======== ========
At June 30, 1996, the Company has a federal net operating loss
carryforward for income tax purposes of approximately $ 91 million, which will
expire between 2006 and 2011.
F-10
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL AGREEMENT
The Company and BNY Financial Corporation (BNYF), a wholly owned
subsidiary of The Bank of New York, entered into a financing agreement in July
1991, which was amended and restated effective as of February 21, 1995 and
further amended, effective as of September 28, 1995 (the September 1995
Amendment), May 9, 1996 (the May 1996 Amendment) and September 17, 1996 (the
September 1996 Amendment), (collectively, the Amended Financing Agreement). The
Amended Financing Agreement provides the Company with a $70.0 million ($60.0
million through June 30, 1996) credit facility for letters of credit and direct
borrowings, with a sublimit for loans and advances ranging between of $40.0 and
$56.0 million. The amount of financing available is based upon a formula
incorporating eligible receivables and inventory, cash balances, other
collateral and permitted overadvances, all as defined in the Amended Financing
Agreement. At June 30, 1996, the Company had availability of approximately $0.2
million under the Amended Financing Agreement. The Amended Financing Agreement
is collateralized by substantially all of the Company's assets, including
accounts receivable and inventory.
The Amended Financing Agreement contains certain financial covenants
including covenants limiting the Company's tangible net worth deficit and
working capital deficiency. In addition to a cap on personal property leases,
the Company is also prohibited from declaring or paying dividends or making
other distributions on its capital stock, with certain exceptions. During the
third quarter of fiscal year 1996, the Company was not in compliance with
certain financial covenants. BNYF has waived such noncompliance.
Interest on direct borrowings is payable monthly at an annual rate
equal to the higher of (i) The Bank of New York's prime rate (8.25% at June 30,
1996) plus 0.5% (The Bank of New York prime rate plus 1.5% in the event the
Company's overadvance position exceeds the allowable overadvances) or (ii) the
Federal Funds Rate in effect plus 1% (Federal Funds Rate in effect plus 2% in
the event the Company's overadvance position exceeds the allowable
overadvances). There is a commitment fee of 0.375% of the unused portion of the
line, payable monthly, and letter of credit fees equal to 0.125% of the
outstanding letter of credit balance, payable monthly. The Amended Financing
Agreement requires the payment of minimum service charges of $0.6 million per
annum. In connection with the May 1996 Amendment, BNYF was paid a fee of
$25,000, and additional fees of $10,000 per month through December 1996 were
provided for, with BNYF agreeing to provide specified levels of overadvances up
to $10.0 million through the same period. In connection with the September 1996
Amendment, BNYF has agreed to provide overadvances of up to $15.0 million
through June 1997. The Company may terminate the Amended Financing Agreement
upon 90 days' prior written notice at any time, subject to termination fees.
BNYF may terminate after February 20, 1999, upon 60 days' written notice to the
Company. The weighted average interest rate was 6.7%, 8.9% and 9.0% for the
years ended June 30, 1994, 1995, and 1996, respectively.
Josephine Chaus has arranged for the Letter of Credit in various
amounts since April 1994 in return for which BNYF has increased the
availability under the Amended Financing Agreement. In consideration for credit
support provided by Ms. Chaus to the Company prior to February 1995, Ms. Chaus
was granted 1,216,500 warrants (the 1994 Warrants), exercisable through November
22, 1999, at prices ranging between $2.25 to $4.62 per share. In February 1995
Josephine Chaus increased the Letter of Credit to $10.0 million and extended its
term to October 31, 1995 (the February 1995 Increase/Extension). In addition, in
February 1995, Mrs. Chaus provided a $5.0 million personal guarantee (the $5.0
Million Guarantee), to be in effect during the Amended Financing Agreement's
term. In September 1995, Ms. Chaus further extended the term of the Letter of
Credit to January 31, 1996 (the September 1995 Extension). In consideration of
the February 1995 Increase /Extension, the $5.0 Million Guarantee and the
September 1995 Extension, a special committee consisting of disinterested
members of the Board of Directors of the Company (the Special Committee)
authorized the issuance of warrants (the 1995 Warrants) to purchase an
aggregate of 1,580,000 shares of Common Stock at prices ranging between $4.05
and $6.75 per share. The issuance of the 1995 Warrants was approved at the 1995
Annual Meeting of Stockholders. Ms. Chaus received warrant compensation for her
provision of the $5.0 Million Guarantee only through October 31, 1995.
Thereafter, for each three month period of the $5.0 Million Guarantee, she has
received cash compensation of $50,000, as authorized by the Special Committee.
The issuance of the 1994 Warrants, the warrants for the February 1995
Increase/Extension and the warrants for the $5.0 Million Guarantee were recorded
in fiscal 1995 at a value of $1.1
F-11
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
million, included as a charge to interest expense with a corresponding increase
to additional paid-in capital. The issuance of the warrants for the September
1995 Extension was recorded in the second quarter of fiscal 1996 at a value of
$0.2 million, included as a charge to interest expense with a corresponding
increase to additional paid-in capital.
In connection with the September 1995 Amendment, Ms. Chaus provided
the Company with an option to further extend the Letter of Credit to July 31,
1996 (the July 1996 Option), subject to the consummation of the Company's
November 1995 public offering of Common Stock. In January 1996, the Company
exercised the July 1996 Option to extend the Letter of Credit to July 31, 1996
(the July 1996 Extension). In consideration of the July 1996 Extension, the
Special Committee authorized the issuance, subject to approval of the
stockholders of the Company at its November 14, 1996 Annual Meeting of
Stockholders, of warrants (the 1996 Warrants) to purchase an aggregate of
682,012 shares of Common Stock at a price of $4.20 per share. Because Ms. Chaus
possesses the power to vote more than 50% of the outstanding shares of Common
Stock, Ms. Chaus's affirmative vote in favor of the issuance of the 1996
Warrants to her is sufficient to approve such issuance without the vote of any
other stockholders. Ms. Chaus has advised the Company that she intends to vote
all of her shares in favor of such issuance. As a result, the Company reflected
the issuance of the 1996 Warrants in the third quarter of fiscal 1996 at a
value of $0.3 million and was included as a charge to interest expense with a
corresponding increase to additional paid-in capital.
In connection with the May 1996 Amendment, Ms. Chaus agreed to extend
the Letter of Credit to January 31, 1997 (the January 1997 Extension) and
additionally provided a collateralized increase of $5.0 million in the $5.0
Million Guarantee to $10.0 million (the $10.0 Million Guarantee). In connection
with the January 1997 Extension, the Special Committee approved the payment of
cash compensation to Ms. Chaus of $100,000 for each three month period of the
Letter of Credit as extended from July 31, 1996 to January 31, 1997. For her
provision of the $10.0 Million Guarantee, the Special Committee approved an
increase in the amount of cash compensation payable to Ms. Chaus for her
guaranty, to $100,000 for each three month period of the $10.0 Million
Guarantee.
In connection with the September 1996 Amendment, Ms. Chaus agreed to
extend the Letter of Credit to July 31, 1997 (the July 1997 Extension) and
increase the amount of the $10.0 Million Guarantee by $2.5 million to $12.5
million (the $12.5 Million Guarantee) and fully collateralize the $12.5 Million
Guarantee. In connection with the July Extension, the Special Committee
approved the payment of cash compensation to Ms. Chaus of $100,000 for each
additional three month period of the Letter of Credit as extended from January
31, 1997 to July 31, 1997. For her provision of the $12.5 Million Guarantee,
the Special Committee approved an increase in the amount of cash compensation
payable to Ms. Chaus for her guaranty, to $125,000 for each three month period
of the $12.5 Million Guarantee.
7. SUBORDINATED PROMISSORY NOTES
The Company has outstanding at June 30, 1996, $23.6 million, including
accrued interest at 12% per annum, of subordinated promissory notes payable to
Josephine Chaus, certain of which were originally issued on June 30, 1986 and
the remainder of which were issued in February and March 1991 (the Subordinated
Notes). The Company has been prohibited from making payments of principal or
interest on the Subordinated Notes since 1993 (with the exception of principal
payments of approximately $0.5 million, $0.3 million and $0.3 million in
November 1993, February 1994 and August 1994, respectively) as a result of
restrictive covenants under the Amended Financing Agreement. In connection with
the public offering, Ms. Chaus extended the maturity date of the Subordinated
Notes (which were to mature on July 1, 1996) to July 1, 1998.
In September 1994, Josephine Chaus loaned $7.2 million to the Company
in exchange for subordinated promissory notes bearing interest at 12% per
annum. Proceeds of such cash infusion were used for costs and associated
expenses related to the signing of the Company's new chief executive officer.
In November 1994, in order to provide additional equity to the Company, to
enhance the Company's balance sheet and to accommodate the bank, Josephine
Chaus subsequently agreed, at the request of the Special Committee, to exchange
such notes for shares of Common Stock
F-12
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of the Company on terms determined by a Special Committee of the Board of
Directors. In November 1994, following stockholder approval, Josephine Chaus
exchanged such notes, including accrued interest thereon ($.2 million), for
1,914,500 shares of Common Stock (based upon a purchase price of $3.85 per
share). The purchase price was determined by the Special Committee and the
purchase was approved by the Company's stockholders at the November 22, 1994
Annual Meeting of Stockholders.
8. EMPLOYEE BENEFIT PLANS
Pension Plan:
Pursuant to a collective bargaining agreement, all of the Company's
union employees are covered by a defined benefit pension plan. Pension expense
amounted to approximately $61,000, $53,000 and $105,000 in fiscal 1994, 1995
and 1996, respectively. As of December 31, 1995, the actuarial present value of
the accumulated vested and non-vested plan benefits amounted to $0.5 million
and net assets available for benefits amounted to $0.4 million. Actuarial
assumptions related to weighted average interest rate and weighted average rate
of return were 8.0% and 8.5%, respectively, for each of fiscal 1994, 1995 and
1996.
Savings Plan:
The Company has a savings plan (the Savings Plan) under which eligible
employees may contribute a percentage of their compensation and the Company
(subject to certain limitations) will match 50% of the employee's contribution.
Company contributions will be invested half in the Common Stock of the Company
and half in investment funds selected by the participant and are subject to
vesting provisions of the Savings Plan. Expense under the Savings Plan was
approximately $0.3 million in fiscal 1994, and $0.2 in each of fiscal 1995 and
1996. An aggregate of 100,000 shares of Common Stock has been reserved for
issuance under the Savings Plan.
Restricted Stock Plan:
In November 1987, the Company's stockholders approved the adoption of
a restricted stock plan (the Restricted Plan). Pursuant to the Restricted Plan,
250,000 restricted shares of the Company's Common Stock were reserved for
allocation to key employees of the Company. The restrictions on the shares
terminate as to 25 percent of such shares on each anniversary of their date of
allocation. As of June 30, 1996, no restricted shares have been granted under
this plan.
Stock Option Plan:
Pursuant to the Stock Option Plan (the Option Plan), the Company may
grant to eligible individuals incentive stock options, as defined in the
Internal Revenue Code, and non-incentive stock options. At the annual meeting
of stockholders in November 1993, the stockholders approved the increase in the
number of shares of Common Stock with respect to which options may be granted
from 1,500,000 shares to 2,500,000 shares. No stock options may be granted
subsequent to 2006 and the exercise price may not be less than 100% of the fair
market value on the date of grant for incentive stock options and 85% of the
fair market value on the date of grant for non-incentive stock options.
Grossman Option Plan:
At the annual meeting of stockholders in November 1994, the
stockholders approved the issuance of options for the Company's new Chief
Executive Officer (the Grossman Option Plan) to purchase 3,000,000 shares of
Common Stock. Of this amount, 1,500,000 options were granted in September 1994
(and included in the following table), and the balance were granted in
September 1995 in connection with the extension of the term of his employment
agreement.
F-13
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NON-INCENTIVE
STOCK OPTIONS
--------------------------------------
NUMBER EXERCISE
OF SHARES PRICE RANGE
--------- --------------
Outstanding at July 1, 1993 1,112,464 $2.375--$9.375
Options granted in fiscal 1994 630,000 $1.875--$4.750
Options canceled (323,316) $2.875--$6.500
-----------
Outstanding at June 30, 1994 1,419,148 $1.875--$9.375
Options granted in fiscal 1995 2,186,688 $2.250--$4.750
Options canceled (555,428) $2.000--$9.375
Options exercised (183,550) $2.000--$4.750
----------
Outstanding at June 30, 1995 2,866,858 $1.875--$4.875
Options granted in fiscal 1996 2,064,000 $3.625--$5.875
Options cancelled (687,201) $1.875--$5.875
Options exercised ( 70,643) $1.875--$4.880
-----------
Outstanding at June 30, 1996 4,173,014 $1.875--$5.625
========= ==============
The stock options become exercisable in annual 25% increments
commencing one year after issuance. As of June 30, 1996 options to purchase
approximately 610,000 shares were exercisable.
At June 30, 1996, a total of approximately 5,042,000 shares of Common
Stock were reserved for issuance under the Stock Option, Savings and Grossman
Option Plans.
9. RESTRUCTURING AND UNUSUAL EXPENSES
Relative to the restructuring program discussed in Note 1, during the
first fiscal quarter of 1995 the Company recorded restructuring expenses of
$1.2 million. These costs primarily related to employee severance as the
Company continued to reduce overhead costs.
In January 1995, the Company signed favorable early termination
agreements with the landlords of certain outlet stores, for which the Company
had previously provided a reserve as part of its restructuring expenses at June
30, 1994. As a result, the Company was able to reduce its restructuring
expenses by approximately $1.3 million. The benefit of this reduction was
offset, however, by certain additional expenses provided by the Company related
to its retail and overseas operations.
In fiscal 1994, the Company recorded restructuring expenses of $5.3
million. These expenses included $2.1 million for closing selected outlet
stores, $2.5 million for the consolidation and closing of office and warehouse
space and $0.7 million for employee severance.
During the first fiscal quarter of 1995, the Company recorded unusual
expenses of $7.8 million primarily related to costs associated with the signing
of the Company's new Chief Executive Officer. In the fourth quarter of fiscal
1995, the Company recorded an additional $0.5 million related to certain legal
matters. During the fourth quarter of fiscal 1994, the Company recorded $1.9
million of unusual expense consisting primarily of expenses arising from the
abandonment of fixed assets, certain legal matters and the winding down of the
Company's Canadian joint venture.
F-14
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Lease Obligations:
The Company leases showroom, distribution and office facilities,
retail outlet facilities and equipment under various noncancellable operating
lease agreements which expire through 2006. Rental expense for the years ended
June 30, 1994, 1995 and 1996 was approximately $11.2 million (approximately
$3.7 million of which is included in restructuring expenses), $7.0 million, and
$5.8 million, respectively.
The minimum aggregate rental commitments at June 30, 1996 are as
follows (in thousands):
Fiscal year ending:
1997 .............................. $3,711
1998 .............................. 3,260
1999 .............................. 2,309
2000 .............................. 2,000
2001 .............................. 610
Subsequent to 2001 ..................... 1,012
--------
$12,902
========
Letters of Credit:
The Company is contingently liable under letters of credit issued by
banks to cover contractual commitments for merchandise purchases of
approximately $13.6 million at June 30, 1996.
Litigation:
By order dated September 1, 1992, Federal Judge Shirley Wohl Kram
dismissed with prejudice as time-barred the Amended Complaint against the
Company and others, in the previously reported consolidated class actions
entitled Phifer v. Chaus et al., Goldschlack v. Chaus et al., Susman v. Chaus
et al. and I. Bibcoff Inc. Pension Trust Fund v. Chaus et al. In such actions,
claims were asserted against the Company and others, including the Company's
lead underwriters, for alleged misstatements and omissions contained in the
Company's July 1986 Prospectus delivered in connection with the Company's
initial public offering and its 1986 and 1987 Annual Reports. Plaintiffs's
attorneys filed a notice of appeal, which they subsequently withdrew subject to
the right to restore the appeal by January 8, 1993. No such appeal was made and
the action was automatically deemed dismissed with prejudice. On April 19,
1993, a Class Action Complaint was filed in the Superior Court of New Jersey,
Hudson County, against the Company and others, including the lead underwriter
of the Company's 1986 initial public offering, alleging common law fraud and
negligent misrepresentation in the sale of the Company's stock in its initial
public offering, allegations that are substantially similar to the claims that
were dismissed with prejudice in the federal court. One of the plaintiffs from
the federal action was originally a party in this action in state court. On
June 18, 1993, the Company received by mail, a copy of Jury Demand Class Action
in the Superior Court of New Jersey, Hudson County, entitled Theodore M.
Wietecha and Lisa A. Phifer v. Bernard Chaus, Inc. et al. The complaint was
amended in September 1993 to delete Lisa Phifer as a plaintiff. On May 27,
1994, the Company moved to dismiss the complaint and/or to deny or limit class
status. On May 27, 1994, the Company moved to dismiss the complaint and/or to
deny or limit class status. In a decision rendered in November, 1994, the
Superior Court denied the plaintiff's motion for the class certification and
dismissed all claims against the director defendants (Josephine Chaus and the
Estate of Bernard Chaus) and all claims not based upon actual reliance. During
fiscal 1996 the Company reached settlement regarding these claims for
approximately $0.3 million, which expense had been provided for in a prior
year.
F-15
<PAGE>
BERNARD CHAUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A claim for indemnification has been asserted by the Company's former
Underwriters against the Company. The indemnification claim demands repayment
of the legal fees and expenses incurred by the Underwriters in connection with
the consolidated class actions entitled Phifer v. Chaus, et al. During fiscal
1996 the Company reached settlement regarding this matter for approximately
$0.8 million, which expense had been provided for in a prior year.
The Company is also involved in various other legal proceedings
arising out of the conduct of its business. The Company believes that the
eventual outcome of the proceedings referred to above will not have a material
adverse effect on the Company's financial condition or results of operations.
Employment Agreement:
The Company has entered into a number of employment agreements with
various senior executives. In addition to his $1 million salary, Mr. Grossman
is entitled to a bonus equal to 5% of the Company's annual net profits, as
defined, for the duration of his agreement, which expires in 2004.
Nautica License Agreement
In September 1995, the Company entered into a license agreement (the
"Nautica License Agreement") with Nautica Apparel Inc. ("Nautica"), pursuant to
which the Company will arrange for the manufacture of, market, distribute and
sell a new women's career and casual sportswear line under the Nautica name.
The initial term of the Nautica License Agreement runs through December 31,
1999, and is thereafter renewable for up to two periods of three years each,
provided that certain conditions are met (including the successful attainment
of certain sales targets and the requirement that Andrew Grossman continue in
his position as Chief Executive Officer during the term of the Nautica License
Agreement). The Company's obligations include minimum royalty and advertising
payments.
Pursuant to the terms of the Nautica License Agreement, the Company
has granted Nautica a ten-year option to purchase up to 150,000 shares of the
Company's Common Stock at a purchase price of $5.00 per share (the closing
price of the Common Stock on the NYSE on September 6, 1995, the date the
Company entered into the Nautica License Agreement).
11. COMMON STOCK OFFERING
On November 22, 1995, pursuant to a Registration Statement on Form S-2
filed on October 10, 1995, the Company issued 5,750,000 shares of Common Stock
at a price of $3.00 per share in an underwritten public offering. Proceeds from
the offering, net of commissions and other expenses totaling $1.8 million, were
$15.4 million.
F-16
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
BERNARD CHAUS, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- ----------- ------- -------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended June 30, 1996
Allowance for doubtful accounts .......................... $ 619 $ (70) $ 171 1 $ 378
====== ======== ======== ======
Reserve for sales discounts and
customer allowances and deductions ..................... $3,607 $ 17,519 $ 16,434 2 $4,692
------ -------- -------- ------
Accrued restructuring expenses ........................... $2,804 $ 0 $ 2,608 4 $ 196
------ -------- -------- ------
Year ended June 30, 1995
Allowance for doubtful accounts .......................... $ 355 $ 225 $ (39) 1 $ 619
------ -------- -------- ------
Reserve for sales discounts and
customer allowances and deductions ..................... $5,985 $ 33,695 $ 36,073 2 $3,607
------ -------- -------- ------
Accrued restructuring expenses ........................... $4,079 $ 1,200 $ 2,475 3 $2,804
------ -------- -------- ------
Year ended June 30, 1994
Allowance for doubtful accounts .......................... $ 412 $ 117 $ 174 1 $ 355
------ -------- -------- ------
Reserve for sales discounts and
customer allowances and deductions ..................... $3,929 $ 33,955 $ 31,899 2 $5,985
------ -------- -------- ------
Accrued restructuring expenses ........................... $ 0 $ 5,300 $ 1,221 4 $4,079
====== ======== ======== ======
</TABLE>
- --------------
1 Uncollectible accounts written off.
2 Allowances charged to reserve and granted to customers.
3 Reversal of provision no longer required and expenses charged to reserve.
4 Expenses charged to reserve.
S1
AMENDMENT NO. 4
TO
RESTATED AND AMENDED FINANCING AGREEMENT
THIS AMENDMENT NO. 4 ("Amendment") is entered into as of September 17,
1996, by and between BERNARD CHAUS, INC., a New York corporation ("Borrower")
and BNY FINANCIAL CORPORATION ("Lender").
BACKGROUND
Borrower and Lender are parties to a Restated and Amended Financing
Agreement dated as of February 2l, 1995 (as amended, supplemented or otherwise
modified from time to time, the '"Financing Agreement") pursuant to which
Lender provided Borrower with certain financial accommodations.
Borrower has requested that Lender amend certain provisions of the
Financing Agreement and Lender is willing to do so on the terms and conditions
hereafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of
credit heretofore or hereafter made to or for the account of Borrower by
Lender, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Definitions. All capitalized terms not otherwise defined herein
shall have the meanings given to them in the Financing Agreement.
2. Amendment to Financing Agreement. Subject to satisfaction of the
conditions precedent set forth in Section 3 below, the Financing Agreement is
hereby amended as follows:
2.1. Section 2(a) is hereby amended by:
(i) deleting the dollar amount of "$60,000,000" on the seventh line
thereof and replacing it with a dollar amount of "$70,000,000" in its place and
stead.
(ii) by deleting the fifth sentence thereof in its entirety and
replacing it with the following:
"Furthermore, at no time will the outstanding amount of Loans in the
aggregate exceed: (i) $50,000,000 from September 17, 1996 through
October 31, 1996; (ii) $56,000,000 from November 1, 1996 through
December 31, 1996; (iii) $48,000,000 from January 1, 1997 through
March 31, l997; (iv) $45,000,000 from
<PAGE>
April 1, 1997 through June 30, 1997 and (v) $40,000,000, at any time
thereafter (the "Peak Permitted Loan"),"; and
(iii) by deleting the dollar amount of "$40,000,000" on the twelfth
line thereof and replacing it with "the Peak Permitted Loan as then in effect"
in its place and stead.
2.2. Section 2(b)(iii) is hereby amended by deleting the dollar
amount of "$60,000,000" on the second line thereof and replacing it with a
dollar amount of "$70,000,000" in its place and stead.
2.3. Section 7(a)(i) is hereby amended by deleting the "February 21,
1998" on the third line thereof and replacing it with "February 20, 1999" in
its place and stead.
2.4. Section 7(a)(ii) is hereby amended by adding the following
language immediately before the word "then" appearing on the fourth to the last
line thereof:
"or if you fail to deliver your business plan to us, as required
pursuant to Section 9(a)(vii) hereof, at least 30 days prior to June
30th of each year or if, after receipt of same, you and we cannot
agree on amended financial covenants;"
2.5. Section 7(c) is hereby amended by (i) deleting the period at the
end of subsection "(iii)"' thereof and replacing it with a semicolon in its
place and stead and (ii) by inserting the following immediately thereafter:
"(iv) If termination occurs during the fourth year in which this
Agreement is in effect, you shall pay us $l,000,000."
2.6. Section 8 is hereby amended by amending the definition of
Applicable Permitted Overadvance in its entirety to provide as follows:
"Applicable Permitted Overadvances" shall mean solely which respect to
the period commencing on the date hereof and ending on June 30, 1997, provided
that no Event of Default has occurred or is continuing (in which event the
Overadvance shall be immediately repaid in its entirety), the amounts set forth
below:
September 17, 1996 through October 31, l996 $14,000,000
November 1, 1996 through November 8, 1996 $ 9,500,000
November 9, 1996 through December 5, 1996 $13,000,000
December 6, l996 through January 3l, 1997 $15,000,000
February 1, 1997 through February 10, 1997 $12,000,000
2
<PAGE>
February 11, 1997 through February 28, 1997 $14,000,000
March 1, 1997 through March 10, 1997 $10,000,000
March 11, 1997 through March 30, 1997 $12,000,000
March 31, 1997 through April 9, 1997 $ 9,500,000
April 10, 1996 through April 28, 1997 $12,000,000
April 29, 1996 through May 8, 1997 $10,750,000
May 9, 1996 through May 25, 1997 $13,000,000
May 26, 1997 through June 5, 1997 $13,500,000
June 6, 1997 through June 25, 1997 $15,000,000
June 26, 1997 through June 30, 1997 $13,750,000
July 1, 1997 and thereafter $ -0-
On July 1, 1997 and thereafter there shall be no further Applicable
Permitted Overadvances."
2.7. Section 9(a)(vi) is hereby amended by deleting the chart therein
and replacing it with the following chart:
As of June 30, 1996 ($17,100,000)
As of September 30, 1996 ($16,100,000)
As of December 31, 1996 ($19,100,000)
As of March 3l, 1997 ($17,250,000)
As of June 30, 1997 ($19,000,000)
2.8. Section 9(a)(vii) is hereby amended by deleting the chart therein
and replacing it with the following chart :
As of June 30, 1996 ($20,000,000)
As of September 30, 1996 ($19,500,000)
As of December 31, 1996 ($22,000,000)
As of March 31, 1997 ($20,500,000)
As of June 30, 1997 ($21,500,000)
3
<PAGE>
2.9. Section 9(a)(vii) is further amended by deleting the two
unnumbered paragraphs at the end thereof and replacing them with the following
in their place and stead:
"The amounts set forth in the above subsections (vi) and (vii) shall
be amended for each subsequent fiscal year in the term of this
Agreement once we have received your business plan for the next
succeeding four Contract Quarters, consisting of September 30th,
December 31st, March 31st and June 30th of each such fiscal year; such
plan to be received by us no later than June 1st for the fiscal year
beginning July lst immediately thereafter.
In addition, to the extent that an Infusion Event has occurred, the
amounts set forth in the above subsections (vi) and (vii) shall be
increased by an amount equal to 100% of the net proceeds received by
you."
2.10. Section 9(a) is further amended by adding the following at the
end thereof:
"(xvii) (A) will not incur a Loss before taxes (as defined under GAAP)
during the following Contract Quarters in excess of the amount set
forth opposite thereto:
Contract Ouarter Ending Maximum Permitted Loss
----------------------- ----------------------
September 30, 1996* $2,000,000
December 31, 1996 $4,000,000
June 30, l997 $2,750,000
* for the period beginning September 1, 1996 and ending on September
30, 1996 only
(B) will incur a Profit before taxes (as defined under GAAP) of at
least $500,000 for the Contract Quarter ending March 31, 1997.
2.11. Section 11(t)(iii) is hereby amended by (i) deleting the dollar
amount of "$40,000,000" on the last line thereof and replacing it with "the
Peak Permitted Loan" in its place and stead, (ii) deleting the period at the
end of the sentence and (iii) by adding the following at the end thereof:
"; provided, however, the aggregate amount of the Obligations shall
not exceed $60,000,000, unless Borrower shall have provided Lender
with cash collateral or a standby letter of credit satisfactory to
Lender in an amount equal to the amount by which the
4
<PAGE>
Obligations exceed $60,000,000; it being understood that the
$10,000,000 letter of credit currently held as collateral by Lender
satisfies the requirements of this paragraph for Obligations in excess
of $60,000,000."
3. Conditions of Effectiveness. This Amendment shall become
effective as of September 17, 1996, when and only when Lender shall have
received (i) four (4) copies of this Amendment executed by Borrower and
consented and agreed to by Josephine Chaus as guarantor; (ii) a Loss Payable
Endorsement in form and substance satisfactory to Lender evidencing Lender as
loss payee, in the amount of at least $15,000,000, on the two paintings by
artist Giovanni Antonio Canale, one entitled "A View from the Molo from the
Bacino di San Marco with the Piazetta and Palazzo Ducale" (the "Additional
Collateral") and the other entitled "Il Canaletto - A View of the Grand Canal
Facing East From the Campo Di San Vio"; (iii) a side letter addressed to
Josephine Chaus whereby she and the Company acknowledge that Josephine Chaus
has agreed to (A) increase the amount of her personal guaranty from $10,000,000
to $12,500,000 (the "Guaranty") and (B) grant to Lender a security interest in
the Additional Collateral to secure the Guaranty.
4. Representations and Warranties. Borrower hereby represents and
warrants as follows:
(a) This Amendment and the Financing Agreement, as amended
hereby, constitute legal, valid and binding obligations of Borrower
and are enforceable against Borrower in accordance with their
respective terms.
(b) Upon the effectiveness of this Amendment, Borrower hereby
reaffirms all covenants, representations and warranties made in the
Financing Agreement to the extent the same are not amended hereby and
agree that all such covenants, representations and warranties shall be
deemed to have been remade as of the effective date of this Amendment.
(c) No Event of Default or Default has occurred and is continuing
or would exist after giving effect to this Amendment .
(d) Borrower has no defense, counterclaim or offset with respect
to the Financing Agreement.
5. Effect on the Financing Agreement.
(a) Upon the effectiveness of Section 2 hereof, each reference in
the Financing Agreement to "this Agreement," "hereunder," "hereof," "herein"'
or words of like import shall mean and be a reference to the Financing
Agreement as amended hereby.
5
<PAGE>
(b) Except as specifically amended herein, the Financing
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and
are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of Lender, nor
constitute a waiver of any provision of the Financing Agreement, or any other
documents, instruments or agreements executed and/or delivered under or in
connection therewith.
6. Governing Law. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
and shall be governed by and construed in accordance with the laws of the State
of New York.
7. Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
8. Counterparts. This Amendment may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed an original
and all of which taken together shall be deemed to constitute one and the same
agreement.
IN WITNESS WHEREOF, this Amendment have been duly executed as of the
day and year first written above.
BERNARD CHAUS, INC.
By: /s/Wayne Miller
--------------------------
Name: Wayne S. Miller
------------------------
Title: CFO
-----------------------
BNY FINANCIAL CORPORATION
By: /s/Andrew Rogow
--------------------------
Name: Andrew Rogow
------------------------
Title: SVP
-----------------------
CONSENTED AND AGREED TO:
/s/Josephine Chaus
- -----------------------------
JOSEPHINE CHAUS
6
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 17th day of September, 1996, before me personally came Andrew
Rogow to me known, who being by me duly sworn, did depose and say that he is
the SVP of BNY Financial Corporation, the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the board of directors of said corporation.
/s/Lisa M. Vaccaro
-----------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 17th day of September, 1996, before me personally came
Josephine Chaus to me known to be the individual described in and who executed
the foregoing instrument, and acknowledged that she executed the same.
/s/Terri S. Scotto
-----------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 17th day of September, 1996, before me personally came Wayne
Miller to me known, who being by me duly sworn, did depose and say that he is
the CFO of Bernard Chaus, Inc., the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
board of directors of said corporation.
/s/Lisa M. Vaccaro
-----------------------
Notary Public
7
AGREEMENT OF LEASE, made as of this 12th day of June 1996, between
L.H. CHARNEY ASSOCIATES, a New York partnership, c/o Winoker Realty Co., Inc.,
1410 Broadway, New York, New York 10018, party of the first part, hereinafter
referred to as OWNER or LANDLORD, and BERNARD CHAUS, INC., a New York
corporation, with its principal office and showroom address at, and to be at,
1410 Broadway, New York, New York, party of the second part, hereinafter
referred to as TENANT,
WITNESSETH:
Owner hereby leases to Tenant and Tenant hereby hires from Owner the
entire twenty-sixth (26th) floor, designated as Unit 2600; the entire
twenty-seventh (27th) floor, designated as Unit 2700; the entire twenty-eighth
(28th) floor, designated as Unit 2800; the entire twenty-ninth (29th) floor,
designated as Unit 2900, in the building known as 1410 Broadway in the Borough
of Manhattan, City of New York, for the term of two (2) years (or until such
term shall sooner cease and expire as hereinafter provided) to commence on the
first day of August, nineteen hundred and ninety-six, and to end on the 31st
day of July, nineteen hundred and ninety-eight, both dates inclusive, at an
annual rate of $541,365.50, 8/01/96 to 7/31/97; $746,206.50, 8/01/97 to
7/31/98, which Tenant agrees to pay in lawful money of the United States which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment, in equal monthly installments in advance on the first day
of each month during said term, at the office of Owner or such other place as
Owner may designate, without any set off or deduction whatsoever, except that
Tenant shall pay the first monthly installment(s) on the execution hereof
(unless this Lease be a renewal).
In the event that, at the commencement of the term of this Lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another Lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors, and assigns,
hereby covenant as follows:
RENT
1. Tenant shall pay the rent as above and as hereinafter provided.
OCCUPANCY
2. Tenant shall use and occupy demised premises for showroom(s) and
general offices in connection with Tenant's apparel-related business only and
for no other purpose.
1
<PAGE>
TENANT ALTERATIONS
3. Tenant shall make [1] no changes in or to the demised premises of
any nature without Owner's prior written consent. Subject to the prior written
consent of Owner [2], and to the provisions of this article, Tenant at Tenant's
expense, may make alterations, installations, additions, or improvements that
are nonstructural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved by Owner [2]. Tenant shall, before
making any alterations, additions, installations, or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals, and certificates to Owner and [2a]Tenant agrees to carry
and will cause Tenant's contractors and subcontractors to carry such workman's
compensation, general liability, and personal and property damage insurance as
Owner may require. If any mechanic's lien is filed against the demised
premises, or the building of which the same forms a part, for work claimed to
have been done for, or materials furnished to, Tenant, whether or not done
pursuant to this article, the same shall be discharged by Tenant within thirty
days thereafter, at Tenant's expense, by filing the bond required by law [4].
All fixtures and all paneling, partitions, railings, and like installations,
installed in the premises at any time, either by Tenant or by Owner in Tenant's
behalf, shall, upon installation, become the property of Owner and shall remain
upon and be surrendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the termination of
this Lease, elects to relinquish Owner's right thereto and to have them removed
by Tenant, in which event the same shall be removed from the premises by Tenant
prior to the expiration of the Lease, at Tenant's expense. Nothing in this
article shall be construed to give Owner title to or to prevent Tenant's
removal of trade fixtures, moveable office furniture, and equipment, but upon
removal of any such from the premises or upon removal of other installations as
may be required by Owner, Tenant shall immediately and at its expense, repair
and restore the premises to the condition existing prior to installation and
repair any damage to the demised premises or the building due to such removal.
All property permitted or required to be removed by Tenant at the end of the
term remaining in the premises after Tenant's removal shall be deemed abandoned
and may, at the election of Owner, either be retained as Owner's property or
may be removed from the premises by Owner, at Tenant's expense.
MAINTENANCE AND REPAIRS
4. Tenant shall, throughout the term of this Lease, take good care
of the demised premises and the fixtures and appurtenances therein. Tenant
shall be responsible for all damage or injury to the demised premises or any
other part of the building and the systems and equipment thereof, whether
requiring structural or nonstructural repairs caused by or resulting from
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
subtenants, agents, employees, invitees, or licensees, or which arise out of
any work, labor, service, or equipment done for or supplied to Tenant or any
subtenant or arising out of the installation, use, or operation of the property
or equipment of Tenant or any subtenant. Tenant shall also repair all damage to
the building and the
2
<PAGE>
demised premises caused by the moving of Tenant's fixtures, furniture, and
equipment. Tenant shall promptly make, at Tenant's expense, all repairs in and
to the demised premises for which Tenant is responsible, using only the
contractor for the trade or trades in question, selected from a list of at
least two contractors per trade submitted by Owner. Any other repairs in or to
the building or the facilities and systems thereof for which Tenant is
responsible shall be performed by Owner at the Tenant's expense. Owner shall
maintain in good working order and repair the exterior and the structural
portions of the building, including the structural portions of its demised
premises, and the public portions of the building interior and the building
plumbing, electrical, heating, and ventilating systems (to the extent such
systems presently exist) serving the demised premises. Tenant agrees to give
prompt notice of any defective condition in the premises for which Owner may be
responsible hereunder. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance, or injury to business arising from Owner or others making repairs,
alterations, additions, or improvements in or to any portion of the building or
the demised premises or in and to the fixtures, appurtenances, or equipment
thereof. It is specifically agreed that Tenant shall not be entitled to any
setoff or reduction of rent by reason of any failure of Owner to comply with
the covenants of this or any other article of this Lease. Tenant agrees that
Tenant's sole remedy at law in such instance will be by way of an action for
damages for breach of contract. The provisions of this Article 4 shall not
apply in the case of fire or other casualty which are dealt with in Article 9
hereof.
WINDOW CLEANING
5. Tenant will not clean nor require, permit, suffer, or allow any
window in the demised premises to be cleaned from the outside in violation of
Section 202 of the Labor Law or any other applicable law or of the Rules of the
Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS
6. Prior to the commencement of the Lease term, if Tenant is then
in possession, and at all times thereafter, Tenant, at Tenant's sole cost and
expense, shall promptly comply with all present and future laws, orders, and
regulations of all state, federal, municipal, and local governments,
departments, commissions, and boards and any direction of any public officer
pursuant to law, and all orders, rules, and regulations of the New York Board
of Fire Underwriters, Insurance Services Office, or any similar body that shall
impose any violation, order, or duty upon Owner or Tenant with respect to the
demised premises, whether or not arising out of Tenant's use or manner of use
thereof (including Tenant's permitted use), or, with respect to the building if
arising out of Tenant's use or manner of use of the premises or the building
(including the use permitted under the Lease). Nothing herein shall require
Tenant to make structural repairs or alterations unless Tenant has, by its
manner of use of the demised premises or method of operation therein, violated
any such laws, ordinances, orders, rules, regulations, or requirements with
respect thereto. Tenant may, after securing Owner
3
<PAGE>
to Owner's satisfaction against all damages, interest, penalties, and expenses,
including, but not limited to, reasonable attorney's fees, by cash deposit or
by surety bond in an amount and in a company satisfactory to Owner, contest and
appeal any such laws, ordinances, orders, rules, regulations, or requirements
provided same is done with all reasonable promptness and provided such appeal
shall not subject Owner to prosecution for a criminal offense or constitute a
default under any lease or mortgage under which Owner may be obligated, or
cause the demised premises or any part thereof to be condemned or vacated.
Tenant shall not do or permit any act or thing to be done in or to the demised
premises that is contrary to law, or that will invalidate or be in conflict
with public liability, fire, or other policies of insurance at any time carried
by or for the benefit of Owner with respect to the demised premises or the
building of which the demised premises form a part, or that shall or might
subject Owner to any liability or responsibility to any person or for property
damage. Tenant shall not keep anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization, or other authority having jurisdiction, and then
only in such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building nor use the premises in a manner that will
increase the insurance rate for the building or any property located therein
over that in effect prior to the commencement of Tenant's occupancy. Tenant
shall pay all costs, expenses, fines, penalties, or damages, that may be
imposed upon Owner by reason of Tenant's failure to comply with the provisions
of this article and if by reason of such failure the fire insurance rate shall,
at the beginning of this Lease or at any time thereafter, be higher than it
otherwise would be, then Tenant shall reimburse Owner, as additional rent
hereunder, for that portion of all fire insurance premiums thereafter paid by
Owner that shall have been charged because of such failure by Tenant. In any
action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable
to said premises shall be conclusive evidence of the facts therein stated and
of the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area that it was designed to
carry and that is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines, and mechanical equipment.
Such installations shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient, in Owner's judgment [8], to absorb and prevent
vibration, noise, and annoyance. [9]
SUBORDINATION
7. This Lease is subject and subordinate to all ground or
underlying leases and to all mortgages that may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements, and extensions of any
such underlying leases and mortgages. This clause shall be self-operative and
no further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real
property of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Owner may
[3] request.
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PROPERTY/LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY
8. Owner or its agents shall not be liable for any damage to
property of Tenant or of others entrusted to employees of the building, nor
for loss of or damage to any property of Tenant by theft or otherwise, nor for
any injury or damage to persons or property resulting from any cause of
whatsoever nature, unless caused by or due to the negligence of Owner, its
agents, servants, or employees. Owner or its agents will not be liable for any
such damage caused by other tenants or persons in, upon, or about said
building or caused by operations in construction of any private, public, or
quasi-public work.
If at any time any windows of the demised premises are temporarily
closed, darkened, or bricked up (or permanently closed, darkened, or bricked
up, if required by law) for any reason whatsoever including, but not limited
to Owner's own acts, Owner shall not be liable for any damage Tenant may
sustain thereby and Tenant shall not be entitled to any compensation therefor
nor abatement or diminution of rent nor shall the same release Tenant from its
obligations hereunder nor constitute an eviction. Tenant shall indemnify and
save harmless Owner against and from all liabilities, obligations, damages,
penalties, claims, costs, and expenses for which Owner shall not be reimbursed
by insurance, including reasonable attorney's fees, paid, suffered, or
incurred as a result of any breach by Tenant, Tenant's agents, contractors,
employees, invitees, or licensees, of any covenant or condition of this Lease,
or the carelessness, negligence, or improper conduct of the Tenant, Tenant's
agents, contractors, employees, invitees, or licensees. Tenant's liability
under this Lease extends to the acts and omissions of any subtenant, and any
agent, contractor, employee, invitee, or licensee of any subtenant. In case
any action or proceeding is brought against Owner by reason of any such claim,
Tenant, upon written notice from Owner, will, at Tenant's expense, resist or
defend such action or proceeding by counsel approved by Owner in writing, such
approval not to be unreasonably withheld. [12] See, Article 56.
DESTRUCTION, FIRE, AND OTHER CASUALTY
9.(a) If the demised premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give immediate notice thereof to Owner
and this Lease shall continue in full force and effect except as hereinafter
set forth.
(b) If the demised premises are partially damaged or rendered
partially unusable by fire or other casualty, the damages thereto shall be
repaired by and at the expense of Owner and the rent, until such repair shall
be substantially completed, shall be apportioned from the day following the
casualty according to the part of the premises that is usable.
(c) If the demised premises are totally damaged or rendered wholly
unusable by fire or other casualty, then the rent shall be proportionately
paid up to the time of the casualty and thenceforth shall cease until the date
when the premises shall have been repaired and restored by Owner, subject to
Owner's right to elect not to restore the same as hereinafter provided.
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(d) If the demised premises are rendered wholly unusable or (whether
or not the demised premises are damaged in whole or in part) if the building
shall be so damaged that Owner shall decide to demolish it or to rebuild it,
then, in any of such events, Owner may elect to terminate this Lease by
written notice to Tenant, given within ninety (90) days after such fire or
casualty, specifying a date for the expiration of the Lease, which date shall
not be more than sixty (60) days after the giving of such notice, and upon the
date specified in such notice the term of this Lease shall expire as fully and
completely as if such date were the above mentioned date for the termination
of this Lease and Tenant shall forthwith quit, surrender, and vacate the
premises without prejudice however, to Landlord's rights and remedies against
Tenant under the Lease provisions in effect prior to such termination, and any
rent owing shall be paid up to such date and any payments of rent made by
Tenant that were on account of any period subsequent to such date shall be
returned to Tenant. Unless Owner shall serve a termination notice as provided
for herein, Owner shall make the repairs and restorations under the conditions
of (b) and (c) hereof, with all reasonable expedition, subject to delays due
to adjustment of insurance claims, labor troubles, and causes beyond Owner's
control. After any such casualty, Tenant shall cooperate with Owner's
restoration by removing from the premises as promptly as reasonably possible,
all of Tenant's salvageable inventory and movable equipment, furniture, and
other property. Tenant's liability for rent shall resume five (5) days after
written notice from Owner that the premises are substantially ready for
Tenant's occupancy.
(e) Nothing contained hereinabove shall relieve Tenant from
liability that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for
loss or damage resulting from fire or other casualty, and to the extent that
such insurance is in force and collectible and to the extent permitted by law,
Owner and Tenant each hereby releases and waives all right of recovery against
the other or any one claiming through or under each of them by way of
subrogation or otherwise. The foregoing release and waiver shall be in force
only if both releasors' insurance policies contain a clause providing that
such a release or waiver shall not invalidate the insurance. If, and to the
extent, that such waiver can be obtained only by the payment of additional
premiums, then the party benefitting from the waiver shall pay such premium
within ten (10) days after written demand or shall be deemed to have agreed
that the party obtaining insurance coverage shall be free of any further
obligation under the provisions hereof with respect to waiver of subrogation.
Tenant acknowledges that Owner will not carry insurance on Tenant's furniture
and/or furnishings or any fixtures or equipment, improvements, or
appurtenances removable by Tenant and agrees that Owner will not be obligated
to repair any damage thereto or replace the same.
(f) Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof.
EMINENT DOMAIN
10. If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi-public use or
purpose, then and in that event, the term of this
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Lease shall cease and terminate from the date of title vesting in such
proceeding and Tenant shall have no claim for the value of any unexpired term
of said Lease and assigns to Owner Tenant's entire interest in any such award.
ASSIGNMENT, MORTGAGE, ETC.
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors, and assigns, expressly
covenants that it shall not assign, mortgage, or encumber this agreement, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used by others, without the prior written consent of Owner in each instance.
Transfer of the majority of the stock of a corporate Tenant shall be deemed an
assignment. If this Lease be assigned, or if the demised premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, under-tenant or occupant,
and apply the net amount collected to the rent herein reserved, but no such
assignment, underletting, occupancy, or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, under-tenant, or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve
Tenant from obtaining the express consent in writing of Owner to any further
assignment or underletting. See, Article 44.
ELECTRIC CURRENT
12. Rates and conditions in respect to submetering or rent
inclusion, as the case may be, to be added in Rider attached hereto [omitted].
Tenant covenants and agrees that at all times its use of electric current
shall not exceed the capacity of existing feeders to the building or the
risers or wiring installation and Tenant may not use any electrical equipment
that, in Owner's opinion, reasonably exercised, will overload such
installations or interfere with the use thereof by other tenants of the
building. The change at any time of the character of electric service shall in
no wise make Owner liable or responsible to Tenant, for any loss, damages, or
expenses that Tenant may sustain. See, Article 43.
ACCESS TO PREMISES
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and, at
other reasonable times, to examine the same and to make such repairs,
replacements, and improvements as Owner may deem necessary and reasonably
desirable to the demised premises or to any other portion of the building or
that Owner may elect to perform. Tenant shall permit Owner to use and maintain
and replace pipes and conduits in and through the demised premises and to
erect new pipes and conduits therein provided they are concealed within the
walls, floor, or ceiling. Owner may, during the progress of any work in the
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demised premises, take all necessary materials and equipment into said
premises without the same constituting an eviction nor shall Tenant be
entitled to any abatement of rent while such work is in progress nor to any
damages by reason of loss or interruption of business or otherwise. Throughout
the term hereof Owner shall have the right to enter the demised premises at
reasonable hours for the purpose of showing the same to prospective purchasers
or mortgagees of the building, and during the last six months of the term for
the purpose of showing the same to prospective tenants. If Tenant is not
present to open and permit an entry into the premises, Owner or Owner's agent
may enter the same whenever such entry may be necessary or permissible by
master key or forcibly and provided reasonable care is exercised to safeguard
Tenant's property, such entry shall not render Owner or its agents liable
therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all
or substantially all of Tenant's property therefrom, Owner may immediately
enter, alter, renovate, or redecorate the demised premises without limitation
or abatement of rent, or incurring liability to Tenant for any compensation
and such act shall have no effect on this Lease or Tenant's obligations
hereunder. [14]
VAULT, VAULT SPACE, AREA
14. No vaults, vault space, or area, whether or not enclosed or
covered, not within the property line of the building is leased hereunder,
anything contained in or indicated on any sketch, blueprint, or plan, or
anything contained elsewhere in this Lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the
property line of the building, which Tenant may be permitted to use and/or
occupy, is to be used and/or occupied under a revocable license, and if any
such license be revoked, or if the amount of such space or area be diminished
or required by any federal, state, or municipal authority or public utility,
Owner shall not be subject to any liability nor shall Tenant be entitled to
any compensation or diminution or abatement of rent, nor shall such
revocation, diminution or requisition be deemed constructive or actual
eviction. Any tax, fee, or charge of municipal authorities for such vault or
area shall be paid by Tenant.
OCCUPANCY
15. Tenant will not at any time use or occupy the demised premises
in violation of the certificate of occupancy issued for the building of which
the demised premises are a part. Tenant has inspected the premises and accepts
them as is, subject to the riders annexed hereto [omitted] with respect to
Owner's work, if any. In any event, Owner makes no representation as to the
condition of the premises and Tenant agrees to accept the same subject to
violations, whether or not of record. [15]
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BANKRUPTCY
16.(a) Anything elsewhere in this Lease to the contrary
notwithstanding, this Lease may be canceled by Owner by the sending of a
written notice to Tenant within a reasonable time after the happening of any
one or more of the following events: (1) the commencement of a case in
bankruptcy or under the laws of any state naming Tenant as the debtor or (2)
the making by Tenant of an assignment or any other arrangement for the benefit
of creditors under any state statute. Neither Tenant nor any person claiming
through or under Tenant, or by reason of any statute or order of court, shall
thereafter be entitled to possession of the premises demised but shall
forthwith quit and surrender the premises. If this Lease shall be assigned in
accordance with its terms, the provisions of this Article 16 shall be
applicable only to the party then Owning Tenant's interest in this Lease.
(b) It is stipulated and agreed that in the event of the
termination of this Lease pursuant to (a) hereof, Owner 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 fair and reasonable rental value of the
demised premises for the same period. In the computation of such damages the
difference between any installment of rent becoming due hereunder after the
date of termination and the fair and reasonable rental value of the demised
premises for the period for which such installment was payable shall be
discounted to the date of termination at the rate of four percent (4%) per
annum. If such premises or any part thereof be relet by the Owner 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 deemed to be the fair
and reasonable rental value for the part or the whole of the premises so
re-let during the term of the re-letting. Nothing herein contained shall limit
or prejudice the right of the Owner 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 aforementioned
difference.
DEFAULT
17. (1) If Tenant defaults in fulfilling any of the covenants of this
Lease other than the covenants for the payment of rent or additional rent; or
if the demised premises becomes vacant or deserted; or if any execution or
attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or occupied by someone other
than Tenant; or if this Lease be rejected under Sec. 235 of Title 11 of the
U.S. Code (bankruptcy code), or if Tenant shall fail to move into or take
possession of the premises within ten (10) [20] days after the commencement of
the term of this Lease, then, in any one or more of such events, upon Owner
serving a written ten (10) days' notice upon Tenant specifying the nature of
said default and upon the expiration of said ten (10) 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 a nature that the same cannot be completely
cured or remedied
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within said ten-day period, and if Tenant shall not have diligently commenced
during such default within such ten-day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such
default, then Owner 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 thereunder shall end and expire as fully and completely as
if the expiration of such five (5)-day period were the day herein definitely
fixed for the end and expiration of this Lease and the term thereof and Tenant
shall then quit and surrender the demised premises to Owner but Tenant shall
remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given,
and the term shall expire as aforesaid: or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein
required: then and in any of such events Owner may without notice, reenter the
demised premises either by force or otherwise, and dispossess Tenant by
summary proceedings or otherwise, and the legal representative of Tenant or
other occupant of demised premises and remove their effects and hold the
premises as if this Lease had not been made, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal proceedings
to that end. If Tenant shall make default hereunder prior to the date fixed as
the commencement of any renewal or extension of this Lease, Owner may cancel
and terminate such renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION
18. In case of any such default, re-entry, expiration, and/or
dispossess by summary proceedings or otherwise [24a],
(a) the rent shall become due thereupon and be paid up to the time of
such re-entry, dispossess and/or expiration,
(b) Owner may re-let the premises or any part or parts thereof,
either in the name of Owner or otherwise, for a term or terms that may, at
Owner's option, be less than or exceed the period that would otherwise have
constituted the balance of the term of this Lease and may grant concessions or
free rent or charge a higher rental than that in this Lease, and/or
(c) Tenant or the legal representatives of Tenant shall also pay
Owner 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 that would otherwise have constituted the balance
of the term of this Lease. The failure of Owner to re-let the premises or any
part or parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added to the said
deficiency such [25] expenses as Owner may incur in connection with
re-letting, such as legal expenses, attorney's fees, brokerage, advertising,
and for keeping the demised premises in good order or for preparing the
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same for re-letting. Any such liquidated damages shall be paid in monthly
installments by Tenant on the rent day specified in this Lease and any suit
brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Owner to collect the deficiency for any
month and shall not prejudice in any way the rights of Owner to collect the
deficiency of any subsequent month by a similar proceeding. Owner, in putting
the demised premises in good order or preparing the same for re-rental may, at
Owner's option, make such alterations, repairs, replacements, and/or
decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way
whatsoever for failure to re-let the demised premises, or in the event that
the demised premises are re-let, for failure to collect the rent thereof under
such re-letting, and in no event shall Tenant be entitled to receive any
excess, if any, of such net rents collected over the sums payable by Tenant to
Owner hereunder. In the event of a breach or threatened breach by Tenant of
any of the covenants or provisions hereof, Owner 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 Owner
from any other remedy, in law or in equity. Tenant hereby expressly waives any
and all rights of redemption granted by or under any present or future laws in
the event of Tenant being evicted or dispossessed for any cause, or in the
event of Owner obtaining possession of demised premises, by reason of the
violation by Tenant of any of the covenants and conditions of this Lease, or
otherwise.
FEES AND EXPENSES
19. If Tenant shall default in the observance or performance of any
term or covenant on Tenant's part to be observed or performed under or by
virtue of any of the terms or provisions in any article of this Lease, then,
unless otherwise provided elsewhere in this Lease, Owner may immediately or at
any time thereafter and without notice perform the obligation of Tenant
thereunder. If Owner, in connection with the foregoing or in connection with
any default by Tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including but
not limited to [26] attorney's fees, in instituting, prosecuting, or defending
any action or proceeding, then Tenant will reimburse Owner for such sums so
paid or obligations incurred with interest and costs. The foregoing expenses
incurred by reason of Tenant's default shall be deemed to be additional rent
hereunder and shall be paid by Tenant to Owner within ten (10) days of
rendition of any bill or statement to Tenant therefor. If Tenant's Lease term
shall have expired at the time of making of such expenditures or incurring of
such obligations, such sums shall be recoverable by Owner as damages.
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BUILDING ALTERATIONS AND MANAGEMENT
20. Owner shall have the right at any time 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, stairs, toilets, or other public parts
of the building and to change the name, number, or designation by which the
building may be known. There shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Owner by reason of inconvenience,
annoyance, or injury to business arising from Owner or other Tenants making
any repairs in the building or any such alterations, additions, and
improvements. Furthermore, Tenant shall not have any claim against Owner by
reason of Owner's imposition of such controls of the manner of access to the
building by Tenant's social or business visitors as the Owner may deem
necessary for the security of the building and its occupants. [28]
NO REPRESENTATIONS BY OWNER
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, Leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements, or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth
in the provisions of this Lease. Tenant has inspected the building and the
demised premises and is thoroughly acquainted with their condition and agrees
to take the same "as is" and acknowledges that the taking of possession of the
demised premises by Tenant shall be conclusive evidence that the said premises
and the building of which the same form a part were in good and satisfactory
condition at the time such possession was so taken, except as to latent
defects. All understandings and agreements heretofore made between the parties
hereto are merged in this contract, which alone fully and completely expresses
the agreement between Owner and Tenant 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.
END OF TERM
22. Upon the expiration or other termination of the term of this
Lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages that Tenant is
not required to repair as provided elsewhere in this Lease excepted, and
Tenant shall remove all its property. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of
this Lease. If the last day of the term of this Lease or any renewal thereof,
falls on Sunday, this Lease shall expire at noon on the preceding Saturday
unless it be a legal holiday, in which case it shall expire at noon on the
preceding business day. See, Article 51.
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QUIET ENJOYMENT
23. Owner 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 premises hereby demised, subject,
nevertheless, to the terms and conditions of this Lease including, but not
limited to, Article 31 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION
24. If Owner is unable to give possession of the demised premises on
the date of the commencement of the term hereof, because of the holding-over
or retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or for any other reason, Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the Lease
shall not be impaired under such circumstances, nor shall the same be
construed in any wise to extend the term of this Lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for Owner's
inability to obtain possession) until after Owner shall have given Tenant
written notice that the premises are substantially ready for Tenant's
occupancy. If permission is given to Tenant to enter into the possession of
the demised premises or to occupy premises other than the demised premises
prior to the date specified as the commencement of the term of this Lease,
Tenant covenants and agrees that such occupancy shall be deemed to be under
all the terms, covenants, conditions, and provisions of this Lease, except as
to the covenant to pay rent. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of
Section 223-a of the New York Real Property Law.
NO WAIVER
25. The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this Lease
or of any of the Rules or Regulations, set forth or hereafter adopted by
Owner, shall not prevent a subsequent act that would have originally
constituted a violation from having all the force and effect of an original
violation. The receipt by Owner of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach and no
provision of this Lease shall be deemed to have been waived by Owner unless
such waiver be in writing signed by Owner. No payment by Tenant or receipt by
Owner 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 of any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Owner may accept
such check or payment without prejudice to Owner's right to recover the
balance of such rent or pursue any other remedy in this Lease provided. No act
or thing done by Owner or Owner's
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agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises, and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the Lease and the delivery of keys to any such agent or
employee shall not operate as a termination of the Lease or a surrender of the
premises.
WAIVER OF TRIAL BY JURY
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding, or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any
matters whatsoever arising out of or in any way connected with this Lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said
premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary
proceeding for possession of the premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding
including a counterclaim under Article 4.
INABILITY TO PERFORM
27. This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant
to be performed shall in no wise be affected, impaired, or excused because
Owner is unable to fulfill any of its obligations under this Lease or to
supply or is delayed in supplying any service expressly or impliedly to be
supplied or is unable to make, or is delayed in making any repair, additions,
alterations, or decorations or is unable to supply or is delayed in supplying
any equipment or fixtures [29] if Owner is prevented or delayed from so doing
by reason of strike or labor troubles or any cause whatsoever including, but
not limited to, government preemption in connection with a National Emergency
or by reason of any rule, order, or regulation of any department or
subdivision thereof of any government agency or by reason of the conditions of
supply and demand that have been or are affected by war or other emergency.
BILLS AND NOTICES
28. Except as otherwise in this Lease provided, a bill, statement,
notice, or communication that Owner may desire or be required to give to
Tenant, shall be deemed sufficiently given or rendered if, in writing,
delivered to Tenant personally or sent by registered or certified mail
addressed to Tenant at the building of which the demised premises form a part
or at the last known residence address or business address of Tenant or left
at any of the aforesaid premises addressed to Tenant, and the time of the
rendition of such bill or statement and of the giving of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant, mailed, or left at the premises as herein provided. Any notice by
Tenant to Owner must be served by registered or
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certified mail addressed to Owner at the address first hereinabove given or at
such other address as Owner shall designate by written notice. See, Article
47.
SERVICES PROVIDED BY OWNERS
29. As long as Tenant is not in default under any of the covenants of
this Lease, Owners shall provide:
(a) Necessary elevator facilities on business days from 8:00 A.M. to
6:00 P.M. and on Saturdays from 8:00 A.M. to 1:00 P.M. and have one elevator
subject to call at all other times;
(b) Heat to the demised premises when and as required by law, on
business days from 8:00 A.M. to 6:00 P.M. and on Saturdays from 8:00 A.M. to
1:00 P.M.;
(c) Water for ordinary lavatory purposes, but if Tenant uses or
consumes water for any other purposes or in unusual quantities (of which fact
Owner shall be the sole judge), Owner may install a water meter at Tenant's
expense that Tenant shall thereafter maintain at Tenant's expense in good
working order and repair to register such water consumption and Tenant shall
pay for water consumed as shown on said meter as additional rent as and when
bills are rendered;
(d) Said premises are to be kept clean by Tenant, it shall be done at
Tenant's sole expense, in a manner satisfactory to Owner and no one other than
persons approved by Owner shall be permitted to enter said premises or the
building of which they are a part for such purpose. Tenant shall pay Owner the
[32] cost of removal of any of Tenant's refuse and rubbish from the building;
(f) Owner reserves the right to stop services of the heating,
elevators, plumbing, air conditioning, power systems, or cleaning or other
services, if any, when necessary by reason of accident or for repairs,
alterations, replacements, or improvements necessary or desirable in the
judgment of Owner [33] for as long as may be reasonably required by reason
thereof. If the building of which the demised premises are a part supplies
manually operated elevator service, Owner at any time may substitute automatic
control elevator service and upon ten (10) days' written notice to Tenant,
proceed with alterations necessary therefor without in any wise affecting this
Lease or the obligation of Tenant hereunder. The same shall be done with a
minimum of inconvenience to Tenant and Owner shall pursue the alteration with
due diligence.
CAPTIONS
30. 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 provisions thereof.
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DEFINITIONS
31. The term "office," or "offices," wherever used in this Lease,
shall not be construed to mean premises used as a store or stores, for the
sale or display, at any time, of goods, wares, or merchandise of any kind, or
as a restaurant, shop, booth, bootblack, or other stand, barber shop, or for
other similar purposes or for manufacturing. The term "Owner" means a landlord
or lessor, and as used in this Lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a
lease of the building or of the land and building) of which the demised
premises form a part, so that in the event of any sale or sales of said land
and building or of said Lease, or in the event of a lease of said building, or
of the land and building, the said Owner shall be and hereby is entirely freed
and relieved of all covenants and obligations of owner hereunder, and it shall
be deemed and construed without further agreement between the parties or their
successors in interest, or between the parties and the purchaser, at any such
sale, or the said lessee of the building, or of the land and building, that
the purchaser or the lessee of the building has assumed and agreed to carry
out any and all covenants and obligations of Owner, hereunder. The words
"re-enter" and "re-entry" as used in this Lease are not restricted to their
technical legal meaning. The term "business days" as used in this Lease shall
exclude Saturdays (except such portion thereof as is covered by specific hours
in Article 29 hereof), Sundays, and all days observed by the City, State or
Federal Government as legal holidays and those designated as holidays by the
applicable building service union employees service contract or by the
applicable Operating Engineers contract with respect to HVAC service.
ADJACENT EXCAVATION/SHORING
32. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form
a part from injury or damage and to support the same by proper foundations
without any claim for damages or indemnity against Owner, or diminution or
abatement of rent. [33a]
RULES AND REGULATIONS
33. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faithfully, and comply strictly with, the Rules and
Regulations and such other and further reasonable Rules and Regulations as
Owner or Owner's agents may from time to time adopt. Notice of any additional
Rules or Regulations shall be given in such manner as Owner may elect. In case
Tenant disputes the reasonableness of any additional Rule or Regulation
hereafter made or adopted by Owner or Owner's agents, the parties hereto agree
to submit the question of the reasonableness of such Rule or Regulation for
decision to the New York office of the American Arbitration Association, whose
determination shall be final and conclusive upon the parties hereto. The right
to dispute the
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reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within ten (10) days after the giving of notice thereof.
Nothing in this Lease contained shall be construed to impose upon Owner any
duty or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors, or licensees.
SECURITY
34. Tenant has deposited with Owner the sum of $NONE 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, Owner
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 that Owner 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 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 Owner. 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 after the date fixed
as the end of the Lease and after delivery of entire possession of the demised
premises to Owner. In the event of a sale of the land and building or leasing
of the building, of which the demised premises form a part, Owner shall have
the right to transfer the security to the vendee or lessee and Owner shall
thereupon be released by Tenant from all liability for the return of such
security; and Tenant agrees to look to the new Owner 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 Owner. 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 Owner nor
its successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment, or attempted encumbrance.
ESTOPPEL CERTIFICATE
35. Tenant, at any time, and from time to time, upon at least ten
(10) days' prior notice by Owner, shall execute, acknowledge, and deliver to
Owner, and/or to any other person, firm, or corporation specified by Owner, a
statement 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), stating the dates to
which the rent and additional rent have been paid, and stating whether or not
there exists any default by Owner under this Lease, and, if so, specifying
each such default.
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SUCCESSORS AND ASSIGNS
36. The covenants, conditions, and agreements contained in this Lease
shall bind and inure to the benefit of Owner and Tenant and their respective
heirs, distributees, executors, administrators, successors, and except as
otherwise provided in this Lease, their assigns.
SEE ANNEXED RIDER MADE A PART HEREOF.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and
sealed this Lease as of the day and year first above written.
Witness for Owner: [CORP. SEAL]
L.H. CHARNEY ASSOCIATES
/s/ [L.S.]
- ----------------------------- -------------------------
By: A Partner
Witness for Tenant: [CORP. SEAL]
BERNARD CHAUS, INC.
/s/ Andrew S. Grossman [L.S.]
- ----------------------------- -------------------------
By: President
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ACKNOWLEDGMENTS
CORPORATE OWNER STATE OF NEW YORK, ss.: .......... County of
............... On this .......... day of .........., 19...., before me
personally came ..............., to me known, who being by me duly sworn, did
depose and say that he resides in ...............; that he is the ..........
of .......... the corporation described in and which executed the foregoing
instrument, as OWNER; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the Board of Directors of said corporation, and that he signed his
name thereto by like order.
----------------------------
INDIVIDUAL OWNER STATE OF NEW YORK, ss.: ..............., County of
.................
On this .......... day of .........., 19...., before me personally
came ..............., to me known and known to me to be the individual
.......... described in and who, as OWNER, executed the foregoing instrument
and acknowledged to me that .......... he executed the same.
----------------------------
CORPORATE TENANT STATE OF NEW YORK, ss.: .........., County of
.............
On this .......... day of .........., 19...., before me personally
came ..............., to me known, who being by me duly sworn, did depose and
say that he resides in ..........; that he is the .......... of .......... the
corporation described in and which executed the foregoing instrument, as
TENANT; that he knows the seal of said corporation; that the seal affixed to
said instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation, and that he signed his name thereto by
like order.
----------------------------
INDIVIDUAL TENANT STATE OF NEW YORK, ss.: .......... County of
..........
On this .......... day of .........., 19...., before me personally
came ..............., to me known and known to me to be the individual
.......... described in and who, as TENANT, executed the foregoing instrument
and acknowledged to me that .......... he executed the same.
----------------------------
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GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to
Owner making the within Lease with Tenant, the undersigned guarantees to
Owner, Owner's successors and assigns, the full performance and observance of
all the covenants, conditions, and agreements, therein provided to be
performed and observed by Tenant, including the "Rules and Regulations" as
therein provided, without requiring any notice of non-payment,
non-performance, or non-observance, or proof, or notice, or demand, whereby to
charge the undersigned therefor, all of which the undersigned hereby expressly
waives and expressly agrees that the validity of this agreement and the
obligations of the guarantor hereunder shall in no wise be terminated,
affected, or impaired by reason of the assertion by Owner against Tenant of
any of the rights or remedies reserved to Owner pursuant to the provisions of
the within Lease. The undersigned further covenants and agrees that this
guaranty shall remain and continue in full force and effect as to any renewal,
modification, or extension of this Lease and during any period when Tenant is
occupying the premises as a "statutory tenant." As a further inducement to
Owner to make this Lease and in consideration thereof, Owner and the
undersigned covenant and agree that in any action or proceeding brought by
either Owner or the undersigned against the other on any matters whatsoever
arising out of, under, or by virtue of the terms of this Lease or of this
guaranty that Owner and the undersigned shall and do hereby waive trial by
jury.
Dated New York City .........., 19....
WITNESS:
- ---------------------------
STATE OF NEW YORK, }
County of }ss.:..........
On this .......... day of .........., 19...., before me personally
came ..............., to me known and known to me to be the individual
described in, and who executed the foregoing Guaranty and acknowledged to me
that he executed the same.
---------------------------
Notary
[L.S.]
------------------------------------------------------
Residence ...................................
Business Address ............................
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Firm Name ...................................
IMPORTANT -- PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF
THIS LEASE IN ACCORDANCE WITH ARTICLE 33
1. The sidewalks, entrances, driveways, passages, courts,
elevators, vestibules, stairways, corridors, or halls shall not be obstructed
or encumbered by any Tenant or used for any purpose other than for ingress or
egress from the demised premises and for delivery of merchandise and equipment
in a prompt and efficient manner using elevators and passageways designated
for such delivery by Owner. There shall not be used in any space, or in the
public hall of the 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 sideguards. If said premises are situated on the ground
floor of the building, Tenant thereof shall further, at Tenant's expense, keep
the sidewalk and curb in front of such premises clean and free from ice, snow,
dirt, and rubbish.
2. The water and wash closets and plumbing fixtures shall not be
used for any purposes other than those for which they were designed or
constructed and no sweepings, rubbish, rags, acids, or other substances shall
be deposited therein, and the expense of any breakage, stoppage, or damage
resulting from the violation of this rule shall be borne by the Tenant who, or
whose clerks, agents, employees, or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of
any window of the building; and no Tenant shall sweep or throw, or permit to
be swept or thrown from the demised premises any dirt or other substances into
any of the corridors or halls, elevators, or out of the doors or windows or
stairways of the building and Tenant shall not use, keep, or permit to be used
or kept any foul or noxious gas or substance in the demised premises, or
permit or suffer the demised premises to be occupied or used in a manner
offensive or objectionable to Owner or other occupants of the buildings by
reason of noise, odors, and/or vibrations, or interfere in any way with other
Tenants or those having business therein, nor shall any animals or birds be
kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside
walls of the building without the prior written consent of Owner.
5. 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 the building or on the inside of the
demised premises if the same is visible from the outside of the premises
without the prior written consent of Owner, except that the name of Tenant may
appear on the entrance door of the premises. In the event of the violation of
the foregoing by any Tenant, Owner may remove same without any liability and
may charge the expense incurred by such removal to Tenant or Tenants
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violating this rule. Interior signs on doors and directory tablet shall be
inscribed, painted, or affixed for each Tenant by Owner at the expense of such
Tenant, and shall be of a size, color, and style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface
any part of the demised premises or the building of which they form a part. No
boring, cutting, or stringing of wires shall be permitted, except with the
prior written consent of Owner, and as Owner may direct. 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.
7. 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 mechanism thereof. Each Tenant must, upon the termination of
his Tenancy, restore to Owner 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 Owner the cost
thereof.
8. Freight, furniture, business equipment, merchandise, and bulky
matter of any description shall be delivered to and removed from the premises
only on the freight elevators and through the service entrances and corridors,
and only during hours and in a manner approved by Owner. Owner reserves the
right to inspect all freight to be brought into the building and to exclude
from the building all freight that violates any of these Rules and Regulations
of the Lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting, and peddling in the building is
prohibited and each Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building between
the hours of 6:00 P.M. and 8:00 A.M. and at all hours on Sundays, and legal
holidays all persons who do not present a pass to the building signed by
Owner. Owner will furnish passes to persons for whom any Tenant requests same
in writing. Each Tenant shall be responsible for all persons for whom he
requests such pass and shall be liable to Owner for all acts of such persons.
11. Owner shall have the right to prohibit any advertising by any
Tenant that in Owner's opinion tends to impair the reputation of the building
or its desirability as a building for offices, and upon written notice from
Owner, Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on
the demised premises, any inflammable, combustible, or explosive fluid,
material, chemical, or substance, or cause or permit any odors of cooking or
other processes, or any unusual or other objectionable odors to permeate in or
emanate from the demised premises.
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13. If the building contains central air conditioning and
ventilation, Tenant agrees to keep all windows closed at all times and to
abide by all rules and regulations issued by Owner with respect to such
services. If Tenant requires air conditioning or ventilation after the usual
hours, Tenant shall give notice in writing to the building superintendent
prior to 3:00 P.M. in the case of services required on weekdays, and prior to
3:00 P.M. on the day prior in the case of after-hours service required on
weekends or on holidays.
14. Tenant shall not move any safe, heavy machinery, heavy equipment,
bulky matter, or fixtures into or out of the building without Landlord's prior
written consent. If such safe, machinery, equipment, bulky matter, or fixtures
requires special handling, all work in connection therewith shall comply with
the Administrative Code of the City of New York and all other laws and
regulations applicable thereto and shall be done during such hours as Owner
may designate.
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Notes Annexed to and Forming a Part
of Printed Form of Lease Dated as of June 12, 1996
----------------------------------------------------
1. structural or requiring a permit
2. not to be unreasonably withheld or delayed
2a. In connection with such alterations,
3. reasonably
4. or by settlement, or by payment
5. Intentionally omitted.
6. Omitted.
7. Omitted.
8. reasonably exercised
9. Any mechanical equipment in the demised premises as of the date hereof
is approved hereby as being in settings sufficient to absorb and prevent
vibration, noise and annoyance. Owner's reasonable rules and regulations
concerning vibration, noise and annoyance shall be disclosed to Tenant
in writing and shall be the same rules and regulations applied to all
tenants in the building.
10. or willful misconduct or wrongful omission
11. Omitted.
12. or delayed.
13. Intentionally omitted.
14. Tenant shall have access to the building and the demised premises 365
days per year, 24 hours per day.
15. Notwithstanding the foregoing, Owner represents and warrants that the
building and the use provided for in paragraph 2 are in compliance with
all applicable fire codes and is not in violation of its certificate of
occupancy.
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16. Intentionally omitted.
17. twenty (20). Omitted [already set forth]
18. ten (10). Omitted [already set forth]
19. ten (10). Omitted [already set forth]
20. ten (10). Omitted [already set forth]
21. ten (10). Omitted [already set forth]
22. five (5). Omitted [already set forth]
23. five (5). Omitted [already set forth]
24. five (5). Omitted [already set forth]
24a. as decided by court judgment
24b. Omitted.
25. reasonable
25a. Omitted.
26. reasonable
27. ten (10). Omitted [already set forth]
28. However, in no event shall Owner remove from the demised premises the
bathrooms therein contained. Owner shall also schedule the aforesaid
alterations so as not to unreasonably disrupt the conduct of Tenant's
business (see Article 75a).
29. only
30. Intentionally omitted.
31. Intentionally omitted.
32. reasonably competitive
33. reasonably exercised
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33a. Such shoring shall be scheduled at a reasonably convenient time for
Tenant.
34. Omitted.
26
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RIDER ATTACHED TO AND FORMING PART OF LEASE DATED AS OF JUNE 12, 1996, BY AND
BETWEEN L.H. CHARNEY ASSOCIATES, AS LANDLORD, AND BERNARD CHAUS INC., AS
TENANT, FOR UNITS 2600, 2700, 2800 AND 2900
==============================================================================
37. RIDER PREVAILING
----------------
This Rider is hereby made part of the Lease above described to
which it is attached and in each instance in which the provisions, or any part
thereof, of this Rider shall contradict or be inconsistent with the
provisions, or any part thereof, of said Lease as constituted without this
Rider, the provisions of this Rider shall prevail and govern and the
contradicted or inconsistent provisions of said Lease shall be deemed amended
accordingly.
38. TENANT LIENS
------------
Supplementing the provisions of Article "3" hereof, the parties
agree that if any action, suit or proceeding be brought upon any lien caused
or created by Tenant, its employees, agents, representatives or contractors
for the enforcement or foreclosure of the same, Tenant covenants and agrees,
at its own cost and expense, to defend Landlord herein and to pay any damages
and satisfy and discharge any judgment entered therein.
39. PAYMENTS
--------
Whenever in this Lease any sum, amount, item or charge shall be
designated or considered as additional rent, Landlord shall have the same
rights and remedies for the nonpayment thereof as Landlord would have for the
nonpayment of the fixed or minimum rent herein stipulated and provided for to
be paid by Tenant. In the event that any payment to be made by Tenant
hereunder shall become overdue for a period in excess of ten (10) days, a
"late charge" equal to 2% (two percent) of the overdue payment may be charged
by Landlord and shall be payable by Tenant as additional rent on the first day
of the month following Landlord's demand therefor. The phrase "rent" as used
in this Lease shall mean the fixed or minimum rent reserved hereunder together
with the other charges hereunder which are identified as, or deemed to be,
additional rent.
CONDITIONED AIR
---------------
40. a) Tenant may provide cooled air to the Demised Premises,
through the air conditioning unit(s) or system(s) presently installed or which
Tenant may hereafter install (which shall be air-cooled only). Any air
conditioning unit(s) or system installed in the Demised Premises, is and shall
be, deemed property of Landlord.
b) Tenant shall change the filters of all of its air
conditioning unit(s) no less than once every three (3) months, and shall have
the unit(s) chemically cleaned at least once a year (records of same shall be
maintained by Tenant; which records Landlord may inspect upon reasonable
notice).
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<PAGE>
c) Tenant shall be responsible for the maintenance of the
air conditioning unit(s) or system affecting the Demised Premises. Tenant
shall, during the term of this Lease, keep in full force and effect a repair
maintenance agreement (including replacement of all parts) with a company
approved by Landlord (which approval shall not be unreasonably withheld or
delayed), covering said air conditioning unit(s) or system(s); a current copy
of which (including renewals thereof) shall be delivered to Landlord.
d) Landlord shall have free and unrestricted access to
all air conditioning equipment. Landlord reserves the right to interrupt,
curtail, stop or suspend air conditioning when necessary because of accident,
repairs, alterations or improvements, which in the reasonable judgment of
Landlord are or necessary, or to comply with governmental restrictions in the
use of materials or in the use of the air conditioning system or because of
difficulty or inability to secure supplies or labor because of strikes or
other cause or causes beyond the reasonable control of Landlord, whether such
cause or causes are similar or dissimilar to those hereinbefore mentioned and
no diminution or abatement of rent or other compensation shall or will be
claimed by Tenant nor affected or reduced by reason of the interruptions,
curtailment, stoppage or suspension of air conditioning, provided that if
resumption is, or becomes, within Landlord's reasonable control, Landlord
shall use all diligent and reasonable efforts to cause such resumption.
TAX ESCALATION
41. a) For the purpose of this Article "41" the parties have
agreed that:
i) The term "Real Property" shall mean collectively
the land described in Exhibit "A" and the Building erected thereon.
ii) The term "Taxes" shall mean the total amount of
real estate taxes and assessments, special or otherwise, levied, assessed or
imposed against the Real Property by the taxing authorities of the State or
City of New York or Federal government (or if due to a future change in the
method of taxation, any franchise, income, profit or other tax, however
designated, substituted in full or in part for or in lieu of such real estate
taxes), on an annual basis. Income, franchise, transfer, inheritance,
corporate, mortgage recording, capital stock taxes of Landlord, or penalties
or interest thereon, shall be deemed excluded from the term "real estate
taxes" for the purposes hereof.
iii) The term "Tax Year" shall mean such period of
twelve (12) consecutive months commencing on July 1st of each such period in
which occurs any part of the term of this Lease, or such other period as may
hereafter be duly adopted as the fiscal year for real estate tax purposes by
the City of New York. As used herein and in Article 41(a) and 41(b), the
phrase "term of this Lease" shall mean the original term provided for in this
Lease and any renewal or extension thereof, irrespective of the sooner
termination thereof by reason of Tenant's default.
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iv) The term "Base Tax Year" shall mean the Tax Year
commencing July 1, 1996 and ending June 30, 1997.
v) The term "Base Taxes" shall mean the Taxes on the
Real Property during the Base Tax Year, exclusive of assessments.
b) If taxes for any Tax Year shall be increased above the
Base Taxes then Tenant shall pay to Landlord as additional rent 8.75%
("Proportionate Share"; which is calculated by dividing 29,263 rentable square
feet by 334,463 gross rentable square feet) of such increase. The amount due
hereunder shall be paid by Tenant in installments equivalent to when the taxes
are due to the State or City of New York, within ten (10) days after Landlord
shall submit a statement to Tenant, showing in reasonable detail, the
computation of the amount, if any, due hereunder to Landlord. Any such tax
increase for the Tax Year in which the Lease shall end shall be apportioned.
c) A tax bill for any relevant Tax Year (including the Base
Tax Year) shall be conclusive evidence of the amount of taxes imposed for such
year unless the assessment for such year be protested and, in such latter
event, all computations and payments hereunder, pending final determination of
the proceedings, shall be based upon such original tax bill, with retroactive
adjustment to be made following such final determination.
d) If Landlord shall receive any tax refund in respect of
any Tax Year with respect to which Tenant shall have paid any monies pursuant
to this numbered Article, Landlord may retain, out of such tax refund, any
reasonable, legal expense incurred by it in obtaining such tax refund, and out
of any then remaining balance of such tax refund, Landlord shall promptly pay
to Tenant, provided Tenant is not then in default beyond any applicable grace
or cure period, under any material covenants or provisions of this Lease with
respect to which Landlord shall have given notice, 8.75% of such remaining
balance of such tax refund; otherwise, such sum shall be paid to Tenant if and
when the default is cured. If Landlord shall obtain a reduction in assessed
valuation in respect to any Tax Year pursuant to this numbered Article, the
amount of Taxes for such Tax Year, plus the amounts of any reasonable, legal
expenses incurred by Landlord in obtaining such reduction, shall be deemed to
be the taxes finally determined to be payable by Landlord for such Tax Year.
e) Should any tax(es) be assessed or imposed against the
real Property which is not designated as a real estate tax per se, such as
safe neighborhood or business improvement district taxes, then Tenant shall
pay its Proportionate Share of such tax within ten (10) days of an invoice
from Landlord, accompanied by the tax bill, as additional rent hereunder.
COST-OF-LIVING ESCALATION
-------------------------
42. The fixed annual rent payable by Tenant shall be augmented
in accordance with this Article.
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a) Definition. For the purpose of this Article, the
following definition shall apply:
The term "Base Year" shall mean the fiscal year commencing
August 1, 1996 and terminating July 31, 1997.
b) Cost of Living Adjustments. The adjustment described in
this subdivision (b) shall be based upon the "Consumer Price Index" published
by the Bureau of Labor Statistics of the U.S. Department of Labor for All
Urban Consumers, N.Y.-Northern N.J.-Long Island, NY-NJ-CT, all items, for the
base year, i.e., the average of the monthly All Items Price Indices for the
twelve (12) months of the base year (the "Base Price Index"), and upon the
average of the monthly All Items Price Indices for each and every twelve (12)
month period ("Annual Adjustment Period"), and portions thereof as set forth
below, succeeding the base year. In the event the Consumer Price Index for any
Annual Adjustment Period shall reflect an increase in the cost of living over
and above the cost of living as reflected by the Base Price Index, then the
current fixed annual rent reserved in this Lease shall be augmented by an
additional rent adjustment, based on the percentage difference between the
Base Price Index and the Consumer Price Index for such Annual Adjustment
Period, which shall be computed and payable as follows:
i) The cost of living adjustment for each and every Annual
Adjustment Period during the term of this Lease shall be payable in four (4)
quarterly installments, which shall be due and payable as of the first day of
the month immediately following the third (3rd) month (the "First
Installment"), sixth (6th) month (the "Second Installment"), ninth (9th) month
(the "Third Installment"), and twelfth (12th) month (the "Fourth Installment")
of such Annual Adjustment Period. If these are not calendar quarters, then
Landlord may, at its option, issue a pro rata escalation and then bill Tenant
on a calendar quarterly basis, returning to a pro rata billing if necessary at
the end of the Lease term.
(ii) On or after the due date of each such installment,
Landlord shall furnish to Tenant a bill for the current installment of cost of
living rent adjustment, and amounts billed thereby shall be immediately due
and payable as additional rent. Said bill shall contain a statement of the
Base Price Index, a statement of the monthly average of the All Items Price
Indexes for all months of such Annual Adjustment Period preceding such
installment date (the "Installment Index"), and a statement of the total
amount of base rent, if any, (the "Base Rent"), theretofore paid or payable to
Landlord pursuant to this Lease attributable to said Annual Adjustment Period.
(iii) For each such installment, there shall be computed a
"Percentage Adjustment Fraction", which shall be a fraction whose denominator
is the Base Price Index and whose numerator is the Installment Index less the
Base Price Index. The fraction thus determined shall be multiplied by the Base
Rent theretofore paid or payable by Tenant attributable to such Annual
Adjustment Period, and from this sum shall be subtracted any amounts
theretofore paid or payable by Tenant, pursuant to this sub-section,
attributable to said Annual Adjustment Period. The resultant
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<PAGE>
sum shall constitute the quarterly installment of cost of living adjustment
which shall be immediately due and payable additional rent.
The following illustrates the intention of the parties hereto as
to the computation of each quarterly installment of the aforementioned cost of
living additional rent adjustment:
Assume the Tenant paid an annual Base Rent of $4,000 in equal
monthly installments during the given Annual Adjustment Period, that the Base
Price Index was 103, the First Installment Index was 104.3, the Second
Installment Index was 104.85, the Third Installment Index was 105.42, and the
Final Installment Index was 105.96. In such event, the amount of the First
Installment would be (104.3 - 103) /103, or . 0126, multiplied by $1,000 for a
total amount payable of $12.60. The amount of the Second Installment would be
(104.85 - 103)/103, or .0180, multiplied by $2,000, equaling $36.00, less
$12.60, for a total amount payable of $23.40. The amount of the Third
Installment would be (105.42-103) /103, or .0235, multiplied by $3,000,
equaling $70.50. less $36.00, for a total amount payable of $34.50. The amount
of the Final Installment would be (105.96 - 103)/103, or . 0287, multiplied by
$4,000, equaling $114.80, less $70.50, for a total amount payable of $44.30.
It is understood and agreed that the above figures are employed
solely for the purposes of illustration, and Landlord, makes no
representations or projections by the use thereof.
In the event that the Consumer Price Index ceases to use the
1982-84 average of 100 as the basis of calculation, or if a substantial change
is made in the terms or number of items contained in the Consumer Price Index,
then the Price Index shall be adjusted to the figure that would have been
arrived at had the manner of computing the Consumer Price Index in effect at
the date of this Lease not been altered. In the event such Price Index (or
successor of substitute index) is not available, a reliable governmental or
other nonpartisan publication evaluating the information theretofore used in
determining the Consumer Price Index shall be used.
Landlord, at its option, may place this escalation on a calendar
quarter or calendar year basis. It may make a prorata adjustment to accomplish
same, and Tenant shall be shown such adjustment.
c) The statements of the cost of living adjustments to be
furnished by Landlord as provided in subdivision (b), above, shall consist of
or reference the data used by Landlord. The statements thus furnished to
Tenant shall constitute a final determination to Tenant of the cost of living
adjustment for the period represented thereby, absent gross mathematical
error.
d) In no event shall the Base Rent under this Lease
(exclusive of the additional rents under this Article) be reduced.
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<PAGE>
e) Upon the date of any expiration or termination of this
Lease, whether the same be the date hereinabove set forth as the expiration of
the term (hereinafter called "lease expiration date") or any prior or
subsequent date, a proportionate share of the additional rent not theretofore
billed under this Article for the calendar year during which such expiration
or termination occurs shall immediately become due and payable by Tenant to
Landlord. Promptly after said expiration or termination, Landlord shall
compute the additional rent due from Tenant, as aforesaid, which computations
shall be based upon the most recent statements theretofore prepared by
Landlord and furnished to Tenant under subdivision (b), above, and the most
recent available All Items Price Indices.
f) Notwithstanding any expiration or termination of this
Lease prior to the Lease expiration date (except in the case of a cancellation
by mutual agreement) Tenant's obligations to pay any and all additional rent
under this Lease shall continue and shall cover all periods up to the Lease
expiration date. Tenant's obligations to pay any and all additional rent under
this Lease and Landlord's and Tenant's obligation to make the adjustment
referred to in subdivision (e), above, shall survive any expiration or
termination of this Lease.
g) Tenant shall not be liable under this Article for more
than a three (3%) percent cumulative increase in any calendar year.
ELECTRICITY
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43. a) The Demised Premises are metered. Tenant shall pay
electric charges in accordance with subparagraph g), below. Failure of Tenant
to pay such charges when due, subject to applicable grace periods, may be
declared an event of default under this Agreement.
b) In order to insure that the existing capacity of any of
the electrical conductors and equipment in or otherwise serving the Demised
Premises is not exceeded and to avert possible adverse effect upon the
Building's electric service, Tenant shall not, without Landlord's prior
written consent in each instance not to be unreasonably withheld or delayed,
connect any additional fixtures, appliances or equipment (other than lamps,
typewriters and similar small office machines as referred to in Article 49,
below) to the Building electric distribution system or make any alterations or
addition to the electric system of-the Demised Premises existing as of and at
the commencement of the term of this Lease or as otherwise set forth in
Tenant's installation plans approved in writing by Landlord.
c) Landlord shall not be liable in any way to Tenant for
any failure or defect in the supply or character of electric current furnished
to the Demised Premises other than such as may result from Landlord's
negligent or otherwise wrongful act or omission.
d) 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, during the term of this Lease, either the quantity or
character of electrical energy is changed or is no longer available or
suitable for
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<PAGE>
Tenant's requirements other than such as may result from Landlord's negligence
or otherwise wrongful act or wrongful omission.
e) Should Landlord's consent provided for in sub-paragraph
(b) hereof be given, any riser or risers required to supply Tenant's
electrical requirements (in addition to those presently installed in the
Building) will, upon request of Tenant, be furnished and installed by
Landlord, at the sole cost and expense of Tenant, if, in Landlord's sole
reasonable judgment, the same are necessary and will not cause permanent
damage or injury to the Building or the Demised Premises or cause or create a
dangerous or hazardous condition or entail excessive or unreasonable
alterations, repairs or expense or interfere with or disturb other tenants or
occupants. In addition to the installation of such riser or risers, Landlord
will also, at the sole cost and expense of Tenant, furnish and install all
other equipment proper and necessary in connection therewith, subject to the
terms and conditions contained in this Article "43". Tenant covenants and
agrees that, at all times, its uses of electrical energy shall never exceed
the capacity of existing feeders to the Building or the risers or wiring
installations. It is further covenanted and agreed by Tenant that all costs
and expenses that may be incurred by Landlord, which are chargeable to Tenant
pursuant to the provisions of this Article "43", are collectible as additional
rent and shall be paid by Tenant to Landlord within five (5) days after
rendition of any bill or statement to Tenant therefor.
f) Tenant, at Tenant's expense, shall purchase and install
all lamps, bulbs, tubes, ballasts and starters used in the Demised Premises.
g) Landlord elects to supply electric current to the
Demised Premises. Tenant agrees that electric current will be supplied by
Landlord and Tenant will pay Landlord or Landlord's designated agent, as
additional rent for the supplying of electric current, an amount or amounts
set by the Landlord computed at time-of-day (peak period) rates in the Service
Classification No. 4 of the Consolidated Edison Company of New York, Inc., in
effect during the term of this Lease plus ten (10%) percent for administrative
and operating costs. Landlord at its option may, however, increase the
additional rent charged for supplying electricity for the Demised Premises
based upon changes, occurring subsequent to the aforementioned date, in the
method, rates or manner by which Landlord thereafter purchases electricity for
the Building of which the Demised Premises are part. Such increases in the
additional rent charged for electricity shall be determined by a comparison to
the nearest full percentage of the average cost per kilowatt hour to Landlord
at the rate in effect at which Landlord purchased electricity prior to such
change and the rate under which Landlord will purchase electricity after such
change. The periods to be used for the aforesaid computation shall be the bill
periods ended in February and August immediately preceding such change.
Average cost per kilowatt hour is defined as including energy charges, demand
charges, fuel adjustment charges, rate adjustment charges, sales taxes where
applicable, and/or any other factors used by the public utility in computing
its charges to Landlord, applied to the kilowatt hours purchased by Landlord
during a given bill period. Where more than one meter measures the service of
Tenant, the service rendered through each meter may be computed and billed
separately in accordance with the rates herein. In no event shall Tenant be
liable for more than an aggregate $87,789.00 per 12-month period for Tenant's
electric usage (submeter) charges under this Article. Bills therefor shall be
rendered at such times as
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Landlord may elect and the amount shall be deemed to be, and be paid as,
additional rent. In the event that such bills are not paid within ten (10) days
after the same are rendered, Landlord may, upon ten (10) days notice,
discontinue the service of electric current to the Demised Premises without
releasing Tenant from any liability under this Lease and without Landlord or
Landlord's agent incurring any liability for any damage or loss sustained by
Tenant by such discontinuance of service. 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, except
if same may result from Landlord's negligence or otherwise wrongful act or
wrongful omission. In the event that in Landlord's sole reasonable judgment
Tenant's electrical requirements necessitate the installation of an additional
riser, risers or other proper and necessary equipment in connection with
Tenant's electrical requirements, the same shall be installed by Landlord at
the Tenant's sole expense. Rigid conduit only will be allowed. Tenant agrees
that at all times its use of electric current shall never exceed the capacity
of existing feeders to the Building of the risers or wiring installations. It
is further agreed by Tenant that all of the aforesaid costs and expenses are
chargeable and collectible as additional rent and shall be paid by Tenant to
Landlord within ten (10) days after rendition of any bill or statement to
Tenant thereof. Landlord may discontinue any of the aforesaid services upon
thirty (30) days notice to Tenant without being liable to Tenant therefor or
without in any way affecting this Lease or the liability of Tenant hereunder or
causing a diminution of rent and the same shall not be deemed to be a lessening
or diminution of services within the meaning of any law, rule or regulation now
or hereafter enacted, promulgated or issued. In the event Landlord gives such
notice of discontinuance, Landlord shall permit Tenant to receive such service
direct from the public utility corporation upon condition that Landlord shall
at its sole expense entirely segregate Tenant's electrical system so that the
same is in no way dependent upon or connected to the circuits or distribution
facilities of Landlord or any other tenant. Tenant shall make no electrical
installations, alterations, additions or changes to electrical equipment or
appliances without the prior written consent of Landlord in each instance,
which consent will not be unreasonably withheld or delayed. Tenant will comply
with the General Rules, Regulations, Terms and Conditions applicable to
Service, Equipment, Wiring and Changes in Requirements in accordance with the
requirements of the public utility supplying electricity to the Building in the
same manner as if Tenant was serviced directly by such utility. If any tax is
imposed upon Landlord's receipt from the sale or resale of electrical energy or
gas or telephone service to Tenant by any Federal, State or Municipal
Authority, Tenant agrees that, where permitted by law, Tenant's pro rata share
of such taxes shall be passed on to, and included in the bill of, and paid by
Tenant to Landlord, and deemed to be additional rent hereunder.
ASSIGNMENT; SUBLETTING
----------------------
44. a) Except as herein otherwise provided, Tenant will not,
by operation of law or otherwise, assign, mortgage or encumber this Lease, nor
sublet or permit the Demised Premises or any part thereof to be used by
others, without Landlord's prior written consent in each instance, which
consent shall not be unreasonably withheld subject to the terms of this
Article. The consent by Landlord to any assignment or subletting shall not in
any manner be construed to relieve
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<PAGE>
Tenant from obtaining Landlord's express written consent to any other or
further assignment or subletting.
b) Tenant may, without Landlord's prior written consent,
assign this Lease to a corporation or other business entity (herein sometimes
called a "successor corporation") into or with which Tenant shall be merged,
or consolidated, or to which substantially all of Tenant's assets and stock
may be transferred, provided that the successor corporation shall use the
Demised Premises only for the purposes specified in Article 2 of this Lease,
provided the successor corporation has and maintains a net worth no less than
Tenant's net worth during the year preceding any such transaction and provided
further that there is delivered to Landlord within five (5) business days
after the effective date of such assignment, an instrument, duly executed and
acknowledged by the assignee whereby assignee assumes performance of Tenant's
obligations under this Lease, as well as a true copy of the instrument of
merger or consolidation if the transaction wherein the assignment is made be
one of merger or consolidation. A "successor corporation" as used in this
Article 44 shall mean (i) a corporation into which or with which Tenant, its
corporate or other successors or permitted assigns, is merged or consolidated,
in accordance with applicable statutory provisions for the merger or
consolidation of corporations or any other business entities, provided that by
operation of law or by effective provisions, contained in the instruments of
merger or consolidation, the liabilities of the corporation are assumed by the
corporation surviving such merger or consolidation, or (ii) a corporation
acquiring this lease and the term hereby demised, including the goodwill and
all or substantially all of the other property and assets and capital stock of
Tenant, its corporate successors or permitted assigns; or (iii) any corporate
successor to a successor corporation becoming such by either of the permitted
methods described above in clauses (i) and (ii). The acquisition by Tenant,
its corporate successors or permitted assigns, of all of substantially all of
the assets and capital stock, together with the assumption of all or
substantially all of the obligations and liabilities of any corporation, shall
be deemed to be a merger of such corporation into Tenant for the purpose of
this Article 44. A successor corporation shall, pursuant to this subparagraph
(b), have all of the rights and obligations of Tenant hereunder. If Tenant
requests Landlord's consent to any other assignment of this Lease or
subletting of all or any portion of the Demised Premises, it shall submit in
writing to Landlord, at the time it requests such consent:
i) the name and address of the proposed assignee or
subtenant;
ii) the terms and conditions of the proposed
assignment or subletting, and a true, complete and accurate copy of any
proposed agreement between Tenant and a prospective subtenant or assignee;
iii) the nature and character of the business of the
proposed assignee or subtenant; and
iv) banking, financial and other credit information
relating to the proposed assignee or subtenant, reasonably sufficient to
enable Landlord to determine the proposed assignee's or subtenant's financial
responsibility.
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<PAGE>
c) Landlord shall have the following options to be
exercised by written notice to Tenant within thirty (30) business days after
Tenant's aforesaid request for Landlord's consent, which request shall be
deemed sufficient upon which Landlord must act only if the four (4) conditions
in subparagraphs (b) above, have been complied with to Landlord's reasonable
satisfaction:
i) if the request be for Landlord's consent to an
assignment, Landlord may require Tenant to execute an assignment to Landlord,
or to anyone designated by Landlord without payment or any premium therefor,
provided that concurrently with the delivery of such assignment Landlord, for
itself, and for any successor in interest as Landlord, will execute and
deliver an instrument releasing and discharging the Tenant from all
obligations under this Lease accruing after the effective date of such
assignment, but if said assignment be a pro tanto assignment, then such
release and discharge shall relate to only so much of the Demised Premises as
is covered by such assignment;
ii) if the request for Landlord's consent be to a
sublease, Landlord may require Tenant to execute a sublease or assignment to
Landlord or its designee for the same term as the proposed sublease and upon
the same terms and conditions as are contained in the proposed sublease except
that Landlord or its designee shall not be required to pay any monies under
said sublease or assignment other than reserved rent and additional rent at
the same annual rate payable by Tenant under this Lease, but prorated and
apportioned according to the number of square feet of rentable area contained
in the sublet premises, and except further, that Landlord or its designee
shall not be required to pay any premium therefor or perform any work
thereunder as subtenant (for the purpose of readying the premises for use),
and except further, that the sublease shall provide for the unqualified right
on the part of the subtenant to further sublease to others and to alter the
sublet premises in any manner Landlord or its designee shall desire.
Concurrently, with the delivery of the sublease to Landlord, Landlord, for
itself and for any successor in interest as Landlord, will execute and deliver
an instrument indemnifying and holding Tenant harmless from any loss of rent
or from damages which Tenant might sustain by reason of the default of the
sublessee under the sublease.
d) If Landlord shall not exercise any of its aforesaid
options within the time limited therefor, and if the nature and character of
the business and the financial responsibility of the proposed assignee or
subtenant be reasonably acceptable to Landlord, its consent to the proposed
assignment or subletting shall not be withheld, provided however, that each of
the following conditions are first complied with:
i) Tenant shall be current with all rent and
additional rent due and owing under its Lease agreement and Tenant shall not
then be in default under this Lease beyond any applicable grace or cure
periods;
ii) if the proposed assignment or subletting be of the
entire Demised Premises, the assignee or sublessee assumes performance of
Tenant's obligations under this Lease and shall become jointly and severally
liable with the Tenant for the performance thereof.
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<PAGE>
iii) that a duplicate, executed original of the
instrument of assignment or sublease, as the case may be, and of the
assumption agreement duly executed by the appropriate party, shall be
delivered to Landlord before the assignee or sublessee shall be let into
possession of the Demised Premises or the sublet portion thereof;
iv) Tenant shall pay any reasonable actual expense,
including, but not limited to, reasonable attorney's fees incurred in
connection with the review and/or preparation and/or execution of any
documents submitted to Landlord relating to the proposed assignment or
subletting, not to exceed $1,000.00 (increasing $200.00 every two lease years)
in each instance.
e) If Landlord's written consent to a subletting or assignment
shall have been obtained, Tenant shall pay to Landlord, as additional rent
hereunder, due on the 1st day of each month of the term of the sublease, or
assignment, an amount equal to 50% the annual sublet or assignment rent in
excess of the annual rent payable hereunder, except that if the sublet or
assignment be for less than all of the Demised Premises, appropriate pro rata
adjustment shall be made in determining the excess of sublet or assignment
rental over the prorated rental payable under this Lease. "Rent" or "Rental"
as used herein shall mean the aggregate of reserved or fixed rent and any
additional rent payable under the within Lease.
f) Each of the foregoing provisions and conditions shall apply
to each and every further assignment or subletting. An assignment of lease or
a subletting as above provided, shall not discharge or release from liability
hereunder Tenant or any other person, firm or corporation which shall have
previously assumed Tenant's obligations hereunder, such liability to remain
and continue for the balance of the term with the same force and effect as
though no assignment had been affected (except as stated in subparagraph
(c)(i) above).
g) Anything hereinbefore contained to the contrary
notwithstanding, Landlord shall not be required to consent to underletting to
any person or entity, who or which at the time of such proposed underletting
is a Tenant or undertenant or occupant of any part of the Building of which
the Demised Premises are a part.
h) Anything hereinbefore contained to the contrary
notwithstanding, Landlord shall not be required to consent to any underletting
of part or all of the Demised Premises until Tenant shall have been in
occupancy thereof and in compliance with the terms and conditions of this
Lease on Tenant's part to be performed for no less than six (6) months from
the date of the commencement of the term hereof.
i) Anything hereinbefore contained to the contrary
notwithstanding, Landlord shall not be required to consent to underletting or
occupancy of the Demised Premises by any person or entity to whom or which
Tenant's interest under this Lease passes by operation of law; nor shall
Landlord be required to consent to underletting to any person or entity who or
which proposes to use the Demised Premises for purposes other than such as are
hereinbefore provided or
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<PAGE>
which are not in keeping with the general nature of occupancies for business
purposes generally provided in the Building of which the Demised Premises are a
part.
j) Tenant covenants, undertakes and agrees that it will not
advertise the Demised Premises or any part thereof for underletting at a lower
rental rate than that herein provided to be paid by Tenant to Landlord. Tenant
shall not enter into any takeover agreement effecting the Demised Premises.
k) OMITTED.
l) The transfer in the aggregate of more than fifty (50%)
percent of the voting stock of any corporate Tenant or more than a fifty (50%)
percent interest in any partnership Tenant or other entity holding Tenant's
interest in this Lease, shall be deemed an assignment within the meaning of
Article 11 of this Lease and of this numbered Article, and shall require
Landlord's prior written consent, which consent shall not be unreasonably
withheld upon compliance with all of the conditions set forth in subdivisions
(a), (b), (c) and (d) hereof. The provisions hereof shall not apply to (i) the
transactions described in the first sentence of (b) hereof; (ii) transfers of
Tenant's stock on any reputable public securities exchange.
m) The provisions of this Article shall apply only to an
assignment of this Lease by Tenant and to a subletting of all or any portion
of the Demised Premises by Tenant and shall not apply to any other transaction
whereby a third party, other than Tenant or Tenant's assignee or Tenant's
lessee (if the transaction be one of sublease), is permitted to occupy all or
any portion of the Demised Premises.
n) Provided Tenant is not in default beyond any applicable
space or cure period, and provided Tenant continues to use and occupy no less
than twenty-five (25%) percent of the Demised Premises for its customary
apparel, showroom business, Tenant, upon at least ten (10) days prior written
notice to Landlord, shall have the right, without requiring the prior consent
of Landlord to sublet for the use permitted in this Lease, up to seventy-five
(75%) percent of the Demised Premises on one or more occasions to an
affiliate(s) of Tenant. For the purposes of this Article 44, an "affiliate" of
Tenant named herein shall mean any corporation, partnership or other business
entity which controls or is controlled by or is under common control with
Tenant and the term "control" as used with respect to any corporation,
partnership, or other business entity shall mean the possession of the power
to direct or cause the direction of the management operation and policies of
such corporation, partnership, or other business entity whether through the
ownership of voting securities or by binding, written contract. No such
sublease shall be valid or effective unless within ten (10) days after the
execution thereof, Tenant shall deliver to Landlord all of the following: (I)
a duplicate original instrument of sublease in form and substance reasonably
satisfactory to Landlord, duly executed by Tenant and the sublessee, in which
Tenant shall (A) waive all notices of default given to the sublessee and all
other notices of every kind and description now or hereafter provided in this
Lease, by statute or rule of law; and (B) in writing acknowledge that Tenant's
obligations with respect to this Lease shall not be discharged, released or
impaired by (i) such
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sublease; (ii) any amendment or modification of this Lease, whether or not the
obligations of Tenant are increased thereby; (iii) any further sublease,
assignment or transfer of Tenant's interest in this Lease; (iv) any exercise,
non-exercise or waiver by Landlord of any right, remedy, power or privilege
under or with respect to this Lease; (v) any waiver, consent, extension,
indulgence or other act or omission with respect to any other obligations of
Tenant under this Lease; (vi) any act or thing which, but for the provisions of
such sublease, might be deemed a legal or equitable discharge of a surety of
Tenant, and (C) expressly waive and surrender any then existing defense to its
liability hereunder, it being the purpose and intent of Landlord and Tenant
that the obligations of Tenant hereunder as sublessor shall be absolute and
unconditional under any and all circumstances and (II) liability insurance
coverage binder(s) as required by Article 62, below, including any sublessee of
Tenant as permitted by this subparagraph.
LANDLORD'S LIABILITY
--------------------
45. Tenant agrees that, notwithstanding any contrary provision
of this Lease, Tenant will look solely to the interest of Landlord or its
successor in the land and the Building for the satisfaction of any judgment or
other judicial process requiring the payment of money as a result of any
negligence or breach of this Lease by Landlord or such successor, and no other
property or other assets of Landlord or any partner, member, officer, or
director thereof, disclosed or undisclosed, or such successor will be subject
to levy, execution 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.
If Landlord is an individual (which as used herein includes
aggregates of individuals such as joint ventures, general or limited
partnerships or associations), such individual shall be under no personal
liability with respect to any of the provisions of this Lease, and if such
Landlord is in breach or in default with respect to its obligations or
otherwise under this Lease, Tenant shall look solely to the interest of such
Landlord in the property, of which the Demised Premises form a part, for the
satisfaction of Tenant's remedies.
BROKER(S)
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46. Tenant and Landlord each warrant and represent that it
negotiated the within Lease through L.H. Charney Associates, Inc., as broker,
only and without the aid, intervention or employment of any other broker.
Tenant and Landlord agree to indemnify the other party against any claim by
any other broker dealt with by Tenant or Landlord with regard to this Lease
and defend at its own cost and expense, any claim brought by any other broker
for commission resulting from this Lease.
NOTICES
-------
47. Any notice or demand which, under the terms of this Lease or
under any statute must or may be given or made by the parties hereto, shall be
in writing, and shall be given or
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made by personal delivery or by mailing the same by registered mail or
certified mail, return receipt requested, addressed to Landlord at the address
hereinabove mentioned, with a copy to Law Office of Leon H. Charney, 1441
Broadway, New York, NY 10018, Attn. Robert A. Rubenfeld, Counsel, or to Tenant
at the Building, or by hand delivery. Either party, however, may designate in
writing such new or other address to which such notice or demand shall
thereafter be so given, made or mailed. Any mailed notice given hereunder shall
be deemed delivered two (2) days after deposit in a United States general
branch post office, maintained by the United States Government in the City of
New York, enclosed in a registered or certified, prepaid wrapper addressed as
hereinbefore provided.
ESTOPPEL CERTIFICATES
---------------------
48. Tenant shall, from time to time, upon request by Landlord,
promptly, within ten (10) days of receipt of such request, execute and
acknowledge a written instrument in form satisfactory to Landlord certifying
to any mortgagee or purchaser, or proposed mortgagee or proposed purchaser, or
any other person specified by Landlord, as to the validity and force and
effect of this Lease as then constituted, as to the existence of any default
on the part of any party hereunder, as to the dates to which and the amounts
in which the annual rent, additional rent and other charges herein have been
paid in advance, as to the existence of any counterclaims, offsets or defenses
hereunder on Tenant's part and as to any other matters requested by Landlord,
including the commencement and expiration dates of this Lease, as well as
current rent and additional rent being remitted to Landlord. Tenant agrees to
execute the form of estoppel certificate annexed hereto as Exhibit "B" upon
request of Landlord pursuant to this Article.
EQUIPMENT
---------
49. Subject always to the provisions of this Lease, Tenant may,
at its own cost and expense, install, operate and maintain customary small
office machines, including typewriters, tabulation, statistical and office
copy devices and other than mainframe computers, provided, however, that the
use and maintenance of such machines will not in any way interfere with or
affect the use of the Building by other tenants, and provided further that
Landlord may, if it so reasonably determines, install, at the cost and expense
of Tenant, flooring or ceiling reinforcements and sound absorbent material as
may be necessary in the area where such machines may from time to time be
located, and Tenant agrees to pay the cost thereof within ten (10) days after
presentation of bills covering the same, the amount of which costs shall be
deemed to be owing by Tenant as additional rent.
CONTRACTORS
-----------
50. Tenant shall not at any time prior to or during the term of
this Lease, either directly or indirectly, use any contractors and/or labor
and/or materials whose use would create or creates any difficulty with other
contractors and/or labor engaged by Tenant or Landlord or others in the
maintenance and/or operation of the Demised Premises or the Building.
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<PAGE>
Tenant shall use only Landlord's contractor or such other
contractor approved in writing in advance by Landlord, such approval not to be
unreasonably withheld or delayed, for (i) any Local Law work; (ii) any air
conditioning hook-ups or connections; (iii) any work impacting on any
Building-wide systems.
TENANT'S OBLIGATIONS UPON
EXPIRATION OR EARLIER TERMINATION
---------------------------------
51. a) All alterations, additions and improvements made by
Tenant at its own cost and expense, other than those which cannot be removed
without causing substantial damage to the Demised Premises or the Building
containing the same, and all furniture, removable partitions and trade
fixtures installed by Tenant at its own cost and expense, shall remain the
property of Tenant and on or before the expiration of the term shall be
removed from the Demised Premises by Tenant and Tenant, at its own cost and
expense, shall repair all damage to the Demised Premises caused by such
installation or removal and shall restore the Premises to good order and
condition on or before the expiration of the term of this Lease. The provision
regarding repairs by Tenant shall survive the termination of this Lease.
Unless Landlord shall request otherwise, Tenant, prior to
the expiration or earlier termination of this Lease, at Tenant's expense,
shall remove any staircases (other than public staircases) connecting any of
the Units demised to Tenant hereunder, restoring the floors and ceiling of
each Unit, in conformity with applicable law and code, as well as the
Building's structural integrity. Tenant obligations hereunder shall survive
any expiration or earlier termination of this Agreement.
b) On the expiration date or upon the sooner termination
of this Lease or upon any re-entry by Landlord, Tenant shall, at its expense,
quit, surrender, vacate and deliver the Premises to Landlord "broom clean" and
in good order, condition and repair, ordinary wear, tear and damage by fire or
other insured casualty excepted, together with all Improvements therein.
Tenant shall, at its expense, remove from the Demised Premises all of Tenant's
unaffixed property and any personal property of persons claiming through or
under Tenant, and shall repair or pay the cost of repairing all damage to the
Demised Premises and the Building occasioned by such removal. Any of Tenant's
property or other personal property which shall remain in the Demised Premises
after the termination of this Lease shall be deemed to have been abandoned,
and either may be retained by Landlord as its property or may be disposed of
as Landlord may see fit. If such property not so removed shall be sold,
Landlord may receive and retain the proceeds of such sale, moving and storage,
arrears of rent and any damages to which Landlord may be entitled. Any expense
incurred by Landlord in removing or disposing of such property shall be
reimbursed to Landlord by Tenant on demand.
c) If the expiration date or the date of sooner
termination of this Lease shall fall on a day which is not a business day,
then Tenant's obligations under sub-paragraph (b) shall be performed on or
prior to the immediately preceding business day.
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<PAGE>
d) Tenant expressly waives, for itself, and for any person
claiming through or under Tenant, any rights which Tenant or such person may
have under the provisions of Section 201 of the New York Civil Practice Law
and Rules and any similar successor law of same import then in force, in
connection with any holdover proceedings which Landlord may institute to
enforce the provisions of this Article.
e) If Tenant shall remain in possession of the Demised
Premises after the termination of this Lease without the execution of a new
lease by Tenant and Landlord, Tenant, at the sole option of Landlord, subject
to all of the other terms of this Lease, insofar as the same are applicable to
a month-to-month tenancy, shall be deemed to be occupying the Premises as a
tenant from month to month, at a monthly rental equal to one and one-half (1
1/2) times the last fixed rental plus all additional rental (including
escalations) as in this Lease provided. Nothing contained in this Article
shall (i) imply any right of Tenant to remain in the Demised Premises after
the termination of this Lease without the execution by Landlord of a new
lease, (ii) imply any obligation of Landlord to grant a new lease, or (iii) be
construed to limit any remedy that Landlord may have against Tenant as a
holdover tenant.
f) Tenant's obligations under this Article shall survive
the termination of this Lease.
USE RESTRICTIONS
----------------
52. a) Tenant covenants and agrees that it will not use or
occupy the Demised Premises or any part thereof as a bank, trust company,
savings bank and loan association, safe deposit company or personal loan
company, or for the issuance and sale of travelers' checks, foreign or
domestic money orders or for the receipt of money for transmission, or for any
purpose not set forth in Article "2" above;
b) It is understood and agreed that the Demised Premises
are to be occupied only as hereinbefore provided, and Tenant expressly
covenants and agrees not to manufacture or permit any manufacturing of any
kind, character or nature to be carried on in the Demised Premises or any part
thereof; nor shall it permit retail sales from the Demised Premises; nor shall
it permit any food concession to operate our of or in or about the Demised
Premises; nor shall it use or store or permit the usage or storage of any
toxic or flammable substances at any time; and these covenants on the part of
Tenant are an express inducement to Landlord to enter into this Lease.
ACCEPTANCE OF DEMISED PREMISES
------------------------------
53. Tenant has thoroughly examined the herein Demised Premises
and is fully familiar with the condition thereof. Tenant agrees to accept the
said Premises "as is" and in such condition as the same may be at the date of
commencement of the term of this Lease, and Landlord shall not be obligated or
required to do any work or to make any alterations or install any fixtures,
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<PAGE>
equipment or improvements, or make any repairs or replacements to or on the
Demised Premises in order to fit the same for Tenant's use.
CLEANING
--------
54. a) Tenant shall be solely liable and responsible for
cleaning the Demised Premises. In order to further effectuate a tight security
program, Tenant covenants and agrees to use only the contractors approved in
advance, in writing, by Landlord to provide cleaning services in the Building
of which the Demised Premises form a part or contractor or contractors
approved in advance for any waxing, polishing and other maintenance work of
the Demised Premises and of Tenant's personal property therein, which approval
shall not be unreasonably withheld or delayed. Tenant covenants and agrees
that it shall not employ any individual, firm or organization for such
purposes without Landlord's prior written consent, such consent not to be
unreasonably withheld or delayed. The foregoing shall not preclude Tenant or
its employees from performing any of the foregoing.
b) Tenant shall, at its expense, remove or cause to be
removed from the Demised Premises and the Building, all of its refuse and
rubbish on a daily basis. Should Tenant fail to pay the cost of such removal,
Landlord may pay such cost and charge the same to Tenant, the amount thereof
to be paid as additional rent on the first day of the month following
Landlord's billing thereof to Tenant. Such removal of the refuse and rubbish
shall be subject to such rules and regulations, as in the reasonable judgment
of Landlord, are necessary for the proper operation of the Building.
c) Tenant shall not hire, rent, do or permit to be done
any window cleaning in, on or about the Premises, except from such recognized
agency or source as shall be approved in writing, in advance, by Landlord,
which approval shall not be unreasonably withheld or delayed. If Landlord
shall have granted an exclusive permit to any particular person, firm or
corporation supplying such window cleaning service, then and in that event
Tenant agrees to obtain such service from such designated source, provided the
cost of same is reasonably competitive.
d) Tenant shall be liable for any tax imposed by any
governmental authority with respect to cleaning services in the Demised
Premises. Landlord shall bill such taxes to Tenant, and same shall be deemed
to be additional rent, due ten (10) days after such billing.
ATTORNMENT & SUBORDINATION
--------------------------
55. Tenant agrees that in the event of any action or proceeding
for the foreclosure of any mortgage to which this Lease is or may be
subordinate Tenant shall attorn to the purchaser at the sale of the Building
on such foreclosure and Tenant further agrees to pay to the mortgagee on its
entry into possession pursuant to the provisions of its mortgage, or to a
receiver appointed to collect the rents, issues and profits of the property,
the rents payable by Tenant hereunder upon being
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<PAGE>
notified by the mortgagee of any default under the mortgage and of the
mortgagee's entry into possession of the property or of the appointment of any
such receiver.
Landlord agrees to use its best, reasonable efforts to
obtain a nondisturbance agreement from any mortgagee secured by the Building.
Tenant agrees to negotiate from any mortgagee's form in good faith and shall
promptly reimburse any such mortgagee for its reasonable attorneys fees
incurred negotiating said agreement with Tenant. It is understood that a
nondisturbance agreement is not a condition, precedent or subsequent, to this
Lease.
INDEMNIFICATION
---------------
56. Tenant shall indemnify and save harmless Landlord and its
agents against and from: a) any and all claims i) arising from (x) the conduct
of business in or management (other than by Landlord or Landlord's agent or
employee) of the Demised Premises or (y) any work or thing whatsoever done, or
any condition created (other than by Landlord or Landlord's agent or employee)
in or about the Demised Premises during the term of this Lease or during the
period of time, if any, prior to the Commencement Date that Tenant may have
been given access to the Demised Premises pursuant to this Lease, or (ii)
arising from any negligence or otherwise wrongful act or omission of Tenant or
any of its subtenants or licensees or invitees or its or their employees,
agents, or contractors; and, b) all costs, expenses and liabilities incurred
in or in connection with each such claim or action or proceeding brought
against Landlord by reason of any such claim, Tenant, upon notice from
Landlord, shall resist and defend such action or proceeding by counsel chosen
by Tenant who shall be reasonably satisfactory to Landlord. Tenant or its
counsel shall keep Landlord fully apprised at all times of the status of such
defense. Counsel for Tenant's insurer shall be deemed satisfactory to
Landlord.
57. OMITTED.
TENANT'S CHECKS TO LANDLORD
---------------------------
58. If and so long as Tenant shall not be in default in the
timely payment of fixed rent or additional rent or the timely performance of
any of Tenant' s other obligations under this Lease beyond the time provided
in this Lease to cure such default, Landlord will accept payments due by
Tenant hereunder by unendorsed check payable to Landlord or its designated
agent, subject to collection and drawn on a bank or trust company that is a
member of the New York Clearing House Association. From and after any default
by Tenant, and whether or not the same shall be cured, Landlord may at any
time thereafter require Tenant to pay the fixed rent and additional rent by
unendorsed certified or official bank check payable to Landlord drawn on a
bank or trust company that is a member of the New York Clearing House
Association.
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<PAGE>
FEES
----
59. Whenever Tenant shall submit to Landlord any plan, agreement
or other document for Landlord's consent or approval, and Landlord shall
require the expert opinion of Landlord's counsel, architect, engineer or other
representative or agent of Landlord as to the form or substance thereof,
Tenant shall pay the reasonable, actual fee of such expert for his opinion.
Landlord's demand upon Tenant for reimbursement, or direct payment of such
fees and disbursements, shall be deemed "additional rent" under this
agreement.
CONSTRUCTION POLICY
-------------------
60. Notwithstanding anything contained herein or any
"CONSTRUCTION POLICY" or other rules, regulations or policy promulgated or to
be promulgated by Landlord or Building management to the contrary, there shall
be no charge to Tenant for use of freight elevators on weekdays from 9:00 a.m.
to 6:00 p.m. for the purpose of demolition or construction in the Demised
Premises or any other purposes, so long as the same is in conformity with
Building rules and regulations exclusive of charges. Tenant agrees to pay for
its use of freight elevators on weekends, and holidays, and before 9:00 a.m.
and after 6:00 p.m. on weekdays, for the purpose of construction or demolition
in the Demised Premises, at the rate of $85.00 (Eighty-Five Dollars) per hour
of elevator use in conformity with union practice. There shall be no minimum
charge for such use.
ALTERATIONS
-----------
61. a) Article "3" is hereby amended by adding the following
at the end thereof:
"During the term of this lease, Tenant may, at its own expense,
make such non-structural alterations and installations as Tenant may deem
necessary or desirable in order to fit the Demised Premises for Tenant's use.
Whether or not plans for any of the proposed alterations and installations are
required by law, Tenant agrees to submit all plans and specifications relating
to the same to Landlord for Landlord's written approval prior to the
submission thereof, if required, for approval by the authorities having
jurisdiction thereover. Landlord agrees that it will not unreasonably withhold
or delay such approval. No work shall be commenced until: a) Landlord shall
have given its written approval of the plans and specifications; b) Tenant
shall have obtained and exhibited to Landlord all the required permits,
consents and authorizations from the authorities having jurisdiction over the
work to be done, and c) Tenant shall have delivered to Landlord certificates
of property damage and public liability insurance in limits reasonably
acceptable to Landlord, together with Workmen's Compensation insurance
certificates, all with evidence of payment of premium thereon and providing
for at least ten (10) days' prior written notice of cancellation to Landlord.
The said proposed alterations and installations shall be subject
to and shall conform with all existing structural and mechanical conditions of
the Demised Premises and the Building containing the same and shall not
contemplate any changes or revisions thereof. The performance of the said work
by Tenant shall not unreasonably interfere with the quiet and useful enjoyment
of other portions of the Building containing the Demised Premises and shall in
all respects be expeditiously
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<PAGE>
completed in conformity with approved plans and comply with all laws, orders
and regulations of governmental authorities and the Board of Fire Underwriters
having jurisdiction thereof and shall be made and completed free and clear of
liens and in compliance with the provisions of Article "3" and "6" hereof."
b) All Tenant's alterations shall comply with the
Americans With Disabilities Act.
c) Except for cosmetic, non-structural alterations not
requiring any permit, before proceeding with any alteration, Tenant shall
submit to Landlord, for Landlord's approval, plans, and specifications for the
work to be done, and Tenant shall not proceed with such work until it obtains
Landlord's written approval of such plans and specifications, which approval
shall not be unreasonably withheld or delayed. Landlord agrees to approve or
disapprove any such alteration within fifteen (15) business days following
Tenant's submission of the same for review in accordance with this Article 61
(the "First Review Period"). If Landlord shall disapprove of any of Tenant's
plans during Landlord's First Review Period, Tenant shall be advised in
writing by Landlord of the reasons for such disapproval. After Tenant
resubmits its revised plans and specifications to Landlord, Landlord shall
have a Second Review Period (as defined below) for review of the same subject
to the other terms of this Article 61. Landlord hereby agrees to give its
approval or disapproval to said plans and specifications submitted by Landlord
for Landlord's review within ten (10) business days of receipt of the same by
Landlord (the "Second Review Period"). With respect to either the First and/or
Second Review Periods described herein, if Landlord shall fail to approve or
disapprove of any such proposed plans and specifications within the
aforementioned periods and the cause or such failure on the part of Landlord
shall not be a cause beyond the reasonable control of Landlord, then provided
Tenant shall, following the expiration of the aforementioned period, send
Landlord a notice (the "Warning Notice") setting forth Landlord's failure to
so approve or disapprove the submitted plans and specifications and provided
such Warning Period shall expressly reference this provision of the Lease and
the consequences of Landlord's failure to respond within a further five (5)
business day period, then if Landlord shall fail to approve or disapprove of
the submitted plans and specifications within said further five (5) business
day period following the date which Landlord shall have received such Warning
Notice, the proposed submitted plans and specifications shall be deemed
approved.
INSURANCE
---------
62. a) Tenant shall provide and keep in full force and effect,
throughout the term of this Lease, for the benefit of Landlord and Tenant,
general liability insurance in a good and solvent insurance company authorized
to do business in the State of New York selected by Tenant and satisfactory to
Landlord, of no less than THREE MILLION ($3,000,000.00) DOLLARS, in respect of
injuries or death to any one person, THREE MILLION ($3,000,000.00) DOLLARS in
respect to any one accident and ONE MILLION ($1,000,000.00) DOLLARS in respect
to property damage.
b) Tenant shall deliver certificates of such general
liability insurance to Landlord on or prior to commencement date of the term
and thereafter shall deliver certificates of insurance
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renewing or replacing such insurance not less than fifteen (15) days prior to
the expiration of each such policy of insurance. If Tenant shall fail to
provide, after ten (10) days' written notice, any insurance required pursuant
to this Article, Landlord may effect the same and pay the premium therefor for
a period not exceeding one (1) year, and the premium so paid by Landlord shall
be payable by Tenant as "additional rent" upon demand therefor.
c) All of such policies shall contain clause as follows:
"This insurance shall not be invalidated should the insured
waive in writing prior to a loss, any and all rights of recovery, against any
party for loss to the insured property hereof."
WATER
-----
63. If Tenant requires, uses or consumes water for any purpose
in addition to ordinary lavatory purposes (of which fact Tenant constitutes
Landlord to be the sole judge), Landlord may install a water meter and thereby
measure Tenant's water consumption for all purposes. Tenant shall pay Landlord
for the actual cost of the meter and the cost of the installation thereof and
throughout the duration of Tenant's occupancy Tenant shall keep said meter
installation equipment in good working order and repair at Tenant's own cost
and expense, in default of which Landlord may cause such meter and equipment
to be replaced or repaired and collect the cost thereof from Tenant. Tenant
agrees to pay for water consumed, as shown on said meter as and when bills are
rendered, and on default in making such payment Landlord may pay such charges
and collect the same from Tenant. Tenant covenants and agrees to pay its
Proportionate Share of the sewer rent, charge or any other tax, rent, levy or
charge which now or hereafter is assessed, imposed or a lien upon the Demised
Premises or the realty of which they are a part pursuant to law, order or
regulation made or issued in connection with the use, consumption, maintenance
or supply of water, water system or sewage or sewage connection or system. The
bills rendered hereunder by the Landlord shall be payable by Tenant as
additional rent. If the Building or the Demised Premises or any part thereof
be supplied with water through a meter through which water is also supplied to
other premises, Tenant shall pay to Landlord as additional rent, on the first
day of each month $420.00 of the total meter charges, as Tenant's portion.
Independently of and in addition to any of the remedies reserved to Landlord
hereinabove or elsewhere in this Lease, Landlord may sue for and collect any
monies to be paid by Tenant or paid by Landlord for any of the reasons or
purposes hereinabove set forth.
SPRINKLER
---------
64. Anything elsewhere in this Lease to the contrary
notwithstanding, if the New York Board of Underwriters or the New York Fire
Insurance Exchange or any bureau, department or official of the federal, state
or city governments require or recommend the installation of a sprinkler
system or that any changes, modifications, alterations, or additional
sprinkler heads or other equipment be made or-supplied in an existing
sprinkler system by reason of Tenant's business, or the location of
partitions, trade fixtures, or other contents of the Demised Premises, or for
any other reason, or if any such sprinkler system installations, changes,
modifications, alterations, additional
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<PAGE>
sprinkler heads or other such equipment, become necessary to prevent the
imposition of a penalty or charge against the full allowance for a sprinkler
system in the fire insurance rate set by any said Exchange or by any fire
insurance company, Tenant shall, at Tenant's expense, promptly make such
sprinkler system installations, changes, modifications, alterations, and supply
additional sprinkler heads or other equipment as required whether the work
involved shall be structural or nonstructural in nature. Tenant shall pay to
Landlord as additional rent the sum of $420.00 on the first day of each month
during the term of this Lease, as Tenant's portion of the contract price for
sprinkler supervisory service.
GLASS
-----
65. Tenant shall promptly replace, at the expense of Tenant, any
and all plate and other glass damaged or broken from any cause whatsoever in
and about the Demised Premises.
VIOLATIONS
----------
66. In the event that Landlord is compelled or directed to
perform any work to public portions of the Building pertaining to or to
conform to local or governmental rules, statutes or regulations (for example,
Local Law 5 or Local Law 10), after the date of the Lease, then and in such
event Tenant shall pay 8.75% of the costs of such work, which Tenant agrees to
remit within ten (10) days after presentation of bills to Tenant therefore.
Said remittance due from Tenant under and pursuant to this Article are deemed
to be "additional rent".
CONTINUOUS OCCUPANCY
--------------------
67. a) Tenant acknowledges that its continued occupancy of the
Demised Premises, and the regular conduct of its business therein, are of
utmost importance to Landlord in the renewal of other leases in the Building,
in the renting of vacant space in the Building, in the providing of
electricity and/or steam and other services to the tenants in the Building,
and in ten maintenance of the character and quality of the tenants in the
Building. Tenant therefore covenants and agrees that it will occupy the entire
Demised Premises and will conduct its business therein in the regular and
usual manner, throughout the term of this lease. Tenant acknowledges that
Landlord is executing this lease in reliance upon these covenants and that
these covenants are a material element of consideration inducing Landlord to
execute this Lease. Tenant further agrees that if it vacates the Demised
Premises or fails to so conduct its business therein, at any time during the
term of this Lease, without the prior written consent of Landlord, then
Landlord may declare same to be an event of default under this Lease.
b) The words "become vacant or deserted" as used elsewhere
in this lease shall include Tenant's failure to occupy or use as by this
Article required.
c) If any provision of this Article of this lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this
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<PAGE>
Article, or the application of such provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each provision of this Article and of this lease shall be
valid and be enforced to the fullest extent permitted by law.
SIGNAGE; WINDOW TREATMENTS: DIRECTORY LISTINGS
----------------------------------------------
68. a) Tenant shall place no signs, lettering or
advertisements in or about any window of the Demised Premises.
b) Tenant shall have such window treatments in the Demised
Premises only as are approved in advance by Landlord, which approval shall not
be unreasonably withheld or delayed.
c) Tenant shall be entitled to no more than fifteen (15)
lobby directory listings at no charge.
TENANT WAIVERS
--------------
69. Landlord's statements or invoices for any rent or additional
rent ("Statements") shall be conclusive and binding upon Tenant unless:
(i) within sixty (60) days after receipt of any such Statement,
Tenant shall notify Landlord, in writing, that it disputes the correctness of
the said Statement, specifying the respects in which it is claimed to be
incorrect, in detail; and,
(ii) If such dispute shall not have been settled by agreement,
Tenant shall submit the dispute to the American Arbitration Association in New
York City for determination by commencement of an appropriate proceeding
within sixty (60) days after receipt of such Statement. Pending the
determination 'of such dispute by agreement or such arbitration proceeding as
aforesaid, Tenant shall pay the rent or additional rent in accordance with the
Statement in issue and such payment shall be without prejudice to Tenant's
position. If the dispute shall be determined in Tenant's favor, Landlord shall
forthwith pay Tenant, or Tenant shall be entitled to credit against rents then
or thereafter due hereunder, the amount of Tenant's overpayment of rent or
additional rent(s) resulting from compliance with the Statement in issue.
Failure to abide by (i) and/or (ii), above, shall bar Tenant
from thereafter disputing a Statement theretofore issued by Landlord.
SETBACKS: ROOF AREAS
--------------------
70. If the Demised Premises are adjacent to any setback or roof
area of the Building, Tenant covenants not to use or permit the use of same
for any purpose whatsoever.
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DEFAULTS
--------
71. Notwithstanding anything to the contrary contained in this
Lease Agreement, Tenant shall not be deemed to be in default in the
performance of any nonmonetary obligation, covenant, term or condition
required to be performed by it hereunder unless and until Tenant has failed to
perform same within thirty (30) days after written notice by Landlord to
Tenant specifying wherein Tenant has failed to perform same, provided,
however, that if the nature of Tenant's obligation, covenant, etc., is such
that more than thirty (30) days are required for its performance, then Tenant
shall not be deemed to be in default if it shall commence such performance
within such thirty (30) day period and thereafter shall diligently prosecute
the same to completion. Landlord agrees to give Tenant written notice of a
monetary default which Tenant must cure within ten (10) days of said notice;
however, Landlord shall not be required to give such notice more than one time
per 12-month period.
CASUALTY (continued)
--------------------
72. The following is added to Article 9, above:
"If the Demised Premises shall have been damaged by fire or
other casualty so as to render no less than seventy (70%) percent of the
Demised Premises completely or substantially untenantable, then Landlord shall
notify tenant within thirty (30) days from the occurrence of such event of the
time within which Landlord estimates the damages can be restored and, if such
estimated time shall be more than five (5) months from the date of the
occurrence of such damage, Tenant may elect, by written notice to Landlord
given within ten (10) days after the giving of such notice by Landlord to
Tenant, to terminate this Lease effective as of the date when the damage shall
have occurred. In such event, the fixed rent and additional rent shall be
prorated to the effective date of such termination. If Tenant shall not elect
to terminate the Lease as aforesaid, and if Landlord shall not exercise its
termination options under (d) of Article 9, then Landlord shall proceed with
reasonable dispatch and diligence with the repair of the damage and the fixed
rent and additional rent shall completely abate from the date of the
occurrence of such damage or destruction until the date when such damage shall
have been substantially repaired; provided, however, that should Tenant
re-occupy a portion of the Demised Premises for the purpose of conducting its
business during the period of such repair, then the fixed rent and additional
rent shall be apportioned and payable by Tenant in proportion to the part of
the Demised Premises so occupied by it.
Tenant understands that Landlord will not carry insurance of any
kind on Tenant's installations, furniture or furnishings or on any fixtures,
equipment, improvements or appurtenances removable by Tenant under the
provisions of this Lease, and that Landlord shall not be obligated to repair
any damage thereto resulting from fire or other casualty or replace the same
if destroyed by fire or other casualty."
-24-
<PAGE>
CONDEMNATION
------------
73. The following is added to Article 10, above;
"Tenant may make an independent claim to the governmental
authority having jurisdiction for moving expenses and improvements it paid
for."
TENANT'S RENEWAL OPTION
-----------------------
74. a) Tenant may renew this Lease Agreement for one five-year
period by delivering written notice to Landlord of its election to renew by no
later than October 31, 1997, which time is of the essence.
The renewal term shall commence on August 1, 1998, and terminate
at 5:00 p.m. on July 31, 2003; the base rent for each renewal lease year
shall-l be the fair market rental value for the Demised Premises; the monthly
amount set forth in Articles 63 and 64 shall be increased to $450.00; Landlord
shall not be responsible for any work on the Demised Premises; all other terms
and conditions of this Lease shall remain in full force and effect.
If the parties hereto cannot agree on the annual base reserved
rent for each lease year of the renewal period by no later than December 1,
1997, then each party shall select and notify the other of the name of an MAI
appraiser. Each appraiser shall promptly proceed (within 15 days after his
selection by each party) to make a separate appraisal determining the then
fair market rental value of the Demised Premises in accordance with this
provision (the "Market Rent"), and each selected appraiser shall deliver to
both Landlord and Tenant, as well as the other appraiser, a copy of his
appraisal, each of which shall include therein all factors considered in
reaching the fair market rental value of the Demised Premises. Within five (5)
days of delivery of the two appraisal reports, but not later than December 20,
1997, such two appraisers shall consult with each other and shall, not later
than December 28, 1997, each make their determination of the Market Rent in
writing, and give notice thereof to each other's and to Landlord and Tenant.
Such two appraisers shall have ten days after the receipt of notice of each
other determination but by not later than January 5, 1998, to confer with each
other and to attempt to reach agreement as to the determination of the Market
Rent. If such two appraisers shall concur as to the determination of the
Market Rent, such concurrence shall be set forth in writing and signed by each
appraiser, and such signed concurrence shall be final and binding upon
Landlord and Tenant. If such two appraisers shall fail to concur, then such
two appraisers within the next five days shall designate an unrelated third
appraiser. If the two appraisers shall be unable to select a third appraiser
within such 5 day period, then either party may apply to the American
Arbitration Association or any successor thereto having jurisdiction for the
designation of such appraiser by no later than five (5) days thereafter. The
third appraiser shall conduct such hearings and investigations on an expedited
basis as he may been appropriate and shall, within 20 days after his
designation, choose one of the determinations (and no other) of the two
appraisers originally selected by the parties and that choice by the third
appraiser shall be binding upon Landlord and Tenant. Each party shall pay its
own counsel fees and expense, if any, in connection with any determination
under this section, including the expenses and fees of any appraiser selected
by either party in accordance with the provisions of this section, and the
parties shall share equally reasonable
-25-
<PAGE>
fees of such third appraiser. The determination rendered in accordance with
the provisions of this section shall be final, conclusive and binding in
fixing the Market Rent. Such determination shall not be appealable. The
appraisers shall not have the power to add to, modify or change any of the
provisions of this Lease. For the purposes of this lease, an MAI appraiser
shall be an independent and impartial real estate appraiser with at least ten
years experience in leasing matters in Midtown Manhattan and the valuation of
properties of the character and in the same general area as the Demised
Premises. It is understood and agreed that in no event shall the base rent per
annum for each renewal lease year be less than the gross rent and additional
rent (including escalations) for the lease year August 1, 1997, to July 31,
1998.
b) Tenant shall have no further renewal option rights
beyond July 31, 2003.
c) It is clearly understood and agreed that Tenant's option
renewal rights, pursuant to this Article, are conditioned upon Tenant's not
having defaulted under this Lease Agreement, at any time, beyond any
applicable grace or cure period.
MISCELLANEOUS
-------------
75. a) Landlord shall effectuate any alteration or repairs so
as to reasonably minimize interference with the conduct of Tenant's business
(this shall not, however, be construed to require Landlord to incur overtime
costs or for Tenant to deny Landlord's contractors access to the Demised
Premises during normal business or work hours).
b) Landlord shall not discriminate in the enforcement of
rules and regulations of the Building.
c) Tenant represents that it has not placed any hazardous
substance, including but not limited to asbestos in or about the Demised
Premises, or any other space in the Building heretofore occupied by Tenant;
nor shall it. Tenant at its expense, upon notice from Landlord, shall promptly
and diligently abate any exposed hazardous substance place in the Demised
Premises (or other space previously occupied by Tenant in the Building), by
Tenant, its employees, representatives, agents, sublessees, assignees or
contractors, in accordance with applicable law. Tenant's obligations hereunder
shall survive any expiration or earlier termination of this Lease.
d) Any modification or termination of this Lease prior to
the expressed expiration date shall require the written consent of any
mortgage lender secured by the Building. Landlord represents that the present
mortgagee is General Electric Capital Corporation, as agent of the holder of
the first mortgagee, and as the holder of the second and third mortgages
secured by the Building.
-26-
<PAGE>
EXHIBIT "A"
ALL that certain plot, piece or parcel of land, situate, lying and being in
the Borough of Manhattan, City, County and State of New York, bounded and
described as follows:
BEGINNING at the corner formed by the intersection of the easterly side of
Broadway and the southerly side of West 39th Street;
Running thence easterly along said southerly side of West 39th Street, 144
feet 11 3/4 inches to a point distant 250 feet west of Avenue of the Americas
as measured along the southerly side of West 39th Street;
Running thence southerly and parallel with the westerly side of Avenue of the
Americas 98 feet 9 inches to the center line of the block;
Running thence westerly along said center line of the block and parallel with
the southerly side of West 39th Street 50 feet to a point which is distant 300
feet westerly from Avenue of the Americas measured along the center line of
the block;
Running thence northerly and parallel with the westerly side of Avenue of the
Americas 10 feet;
Running thence westerly along a line parallel with the southerly side of West
39th Street 14 feet 9 1/4 inches to a point of intersection of said line with
a line drawn at right angles to the easterly side of Broadway from a point
therein distant 98 feet northerly from the northerly side of West 39th street
measured along the easterly side of Broadway;
Running thence westerly along said aforementioned line drawn at right angles
to the easterly side of Broadway; and
Running thence northerly along said easterly side of Broadway 107 feet 1/8
inch to the point-of place of BEGINNING.
SAID PREMISES known as 1410 Broadway.
-27-
<PAGE>
EXHIBIT "B"
Tenant Estoppel Certificate
TENANT'S NAME:
PREMISES: 1410 Broadway, New York, New York
Unit:
LANDLORD: L.H. Charney Associates
LEASE DATED: (the "Lease")
-----------
TENANT'S NOTICE ADDRESS: 1410 Broadway, New York, NY 10018
DATE:
The undersigned, Tenant, hereby certifies to General Electric Capital
Corporation, for itself and as agent for the holders of the first mortgage
loan on 1410 Broadway, New York, New York, and their respective successors and
assigns (hereinafter collectively referred to as "Lenders"), that:
1. Tenant has accepted possession of the Premises pursuant to the terms
of the lease described above (the "Lease"). The Lease term commenced on
__________________, The termination date of the Lease, excluding renewals
and extensions, is ______________________________.
2. The minimum monthly rent presently payable under the Lease is
___________________________.
3. Any improvements required by the terms of the Lease to be made by
Landlord have been completed to the satisfaction of Tenant in all
respects, and Landlord has fulfilled all of its duties under the Lease.
4. The Lease has not been assigned, modified, supplemented or amended in
any way. The Lease constitutes the entire agreement between the parties
and there are no other agreements between Landlord and Tenant concerning
the Premises.
5. The Lease is valid and in full force and effect, and, to the best of
Tenant's knowledge, neither Landlord nor Tenant is in default thereunder.
Tenant has no defense, setoff or counterclaim against Landlord arising out
of the Lease or in any way relating thereto, or arising out of any other
transaction between Tenant and Landlord, and no event has occurred and no
condition exists, which with the giving of notice or the passage of time,
or both, will constitute a default under the Lease.
-1-
<PAGE>
6. No rent or other sum payable under the Lease has been paid more than
one month in advance.
7. Tenant acknowledges that Tenant has received notice that the Lease
will be assigned to Lenders. Tenant understands that under the provisions
of the assignment, the Lease cannot be terminated (either directly or by
the exercise of any option which could lead to termination) or modified in
any of its terms, or consent be given to the release of any party having
liability thereon, without the prior written consent of Lenders, that
without such consent, no rent may be collected or accepted more than one
month in advance and that the interest of the Landlord in the Lease has
been assigned to Lenders solely as security for the purposes specified in
the assignment and Lenders assume no duty, liability or obligations
whatever under the Lease or any extension or renewal thereof.
8. Tenant hereby acknowledges and agrees that if Lenders shall succeed
to the interest of Landlord under the Lease, Lenders shall assume (only
while owner of and in possession or control of the building of which the
Premises are a part) and perform all of Landlord's obligations under the
Lease, but shall not be liable for any act or omission of any prior
landlord (including the present landlord), liable for the return of any
security deposit, subject to any offset or defense which Tenant may have
against any such prior landlord or bound by any rent or additional rent
Tenant may have paid for more than the current month to any such prior
landlord or bound by any assignment, surrender, termination, cancellation,
waiver, release, amendment or modification of the Lease made without
Lenders' express written consent.
9. Tenant shall give Lenders prompt written notice of any default of
Landlord under the Lease if such default entitles Tenant, under law or
otherwise, to terminate the Lease, reduce rent or credit or offset any
amount against future rents and shall give Lenders reasonable time (but in
no event less than 90 days after receipt of such notice) to cure or
commence curing such default prior to exercising (and as a condition
precedent to its right to exercise) any right Tenant may have to terminate
the Lease or to reduce rent or credit or offset any amounts against the
rent. Tenant shall also give such written notice and cure period to any
successor in interest of Lenders, any purchaser at a foreclosure sale
under the mortgage, any transferee who acquired the property by deed in
lieu of foreclosure or any successor or assignee thereof.
10. Tenant shall not look to Lenders, as mortgagee, mortgagee in
possession, or successor in title to the Premises, in connection with the
return of or accountability with respect to, any security deposit, unless
said sums have actually been received by Lenders as security for Tenant's
performance under the Lease.
11. Tenant shall neither suffer nor itself manufacture, store, handle,
transport, dispose of, spill, leak, dump any toxic or hazardous waste,
waste product or substance (as they may be defined in any federal, state
or local statute, rule or regulation pertaining to or governing such
wastes, waste products or substances) on the Premises, the building of
which the Premises are a part of the land under such building at any time.
-2-
<PAGE>
12. All notices and other communications from Tenant to Lenders shall be
in writing and shall be delivered or mailed by registered mail, postage
paid, return receipt requested, addressed to Lenders at:
GENERAL ELECTRIC CAPITAL CORPORATION
125 Park Avenue
New York, New York 10017
Attn: Project Manager - 1410 Broadway
with a copy to:
WEIL GOTSHAL & MANGES LLP
767 Fifth Avenue
New York, New York 10153
Attn: Neil R. Shapiro, Esq.
13. Tenant agrees to pay all rents and other amounts due and owing under
the Lease to Lenders at the address provided to Tenant in a written notice
from Landlord or Lenders to Tenant, and to continue to make such payments
to Lenders until Lenders have directed Tenant, in writing, to make
payments to some other party or address.
14. This Estoppel Certificate is being executed and delivered by Tenant
in connection with Lenders loans to Landlord, which loans are secured in
part by an assignment to Lenders of Landlord's interest in the Lease, and
with the intent and understanding that the above statements and agreements
will be relied upon by Lenders. Nothing contained in this Estoppel
Certificate shall limit Lenders' rights under the mortgages and the
assignments executed by Landlord in favor of Lenders and recorded in the
public records.
TENANT:
By:
Name:
Title:
-3-
<PAGE>
STATE OF )
s.s:
COUNTY OF )
On the _________________ day of _________________, 199_, before me
personally came _______________________________________, to me known, who,
being by me duly sworn, did depose and say that (s)he resides at
_______________________________; that (s)he is _________________________ of
the corporation described in and which executed the foregoing instrument; and
that (s)he signed his/her name thereto by order of the board of directors of
said corporation.
Notary Public
STATE OF )
s.s:
COUNTY OF )
On the ___________ day of ___________________, 199_, before me
personally appeared __________________________, to me known and known to be
the individual described in, and who executed the foregoing instrument; and
(s)he thereupon duly acknowledged to me that (s)he executed the same.
Notary Public
-4-
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